Assessee's reopening challenge dismissed, section 56(2)(x) addition reduced using average of DVO and Government Registered Valuer rates

ITAT Mumbai dismissed assessee's challenge to reopening of assessment under section 147 based on insight portal information, finding AO had definite information about property transaction despite assessee's non-response to notices. Natural justice violation claim was rejected due to lack of specific arguments. For addition under section 56(2)(x), ITAT noted discrepancy between DVO valuation and Government Registered Valuer rates for comparable properties in same locality. ITAT directed AO to take average of both valuation reports to recompute addition under section 56(2)(x). Appeal was partly allowed on valuation issue while other grounds were dismissed.

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1. The primary issues considered in this appeal include:

(a) The validity and jurisdictional competence of the reassessment proceedings initiated under section 147 of the Income Tax Act, including whether the notices under sections 148A(b), 148A(d), and 148 were properly issued by the faceless assessing officer or the jurisdictional assessing officer, and whether the reopening was legally sustainable.

(b) Alleged violation of principles of natural justice by the Assessing Officer and the National Faceless Appeal Centre / Commissioner of Income Tax (Appeals) in not granting adequate opportunity to the assessee to present its case.

(c) The correctness of the addition of Rs. 5,59,022/- under section 56(2)(x) of the Act, arising from the difference between the fair market value of the property as determined by the District Valuation Officer (DVO) and the purchase consideration declared by the assessee.

(d) The applicability and justification of interest levied under sections 234A, 234B, and 234C of the Act.

2. Issue-wise detailed analysis:

(a) Validity of Reassessment Proceedings

The legal framework governing reassessment proceedings under section 147 and related provisions requires that reopening is permissible only if the Assessing Officer has "reason to believe" that income chargeable to tax has escaped assessment. Notices under sections 148A(b) and 148A(d) must be issued by the proper authority, and procedural safeguards including sharing of information and opportunity to the assessee are mandated.

The assessee contended that the notices were issued by the jurisdictional Assessing Officer rather than the faceless assessing officer, rendering the proceedings void ab initio. Additionally, it was argued that the notice under section 148A(b) was issued without sharing the underlying information, violating procedural fairness. The assessee also asserted that the reopening was based on incorrect information-specifically, that the assessee had sold a property, whereas in fact it had purchased the property.

The Court noted that the reopening was triggered by information received through the department's insight portal indicating a property transaction involving the assessee. Although the initial information incorrectly stated a sale, later facts revealed a purchase. The Assessing Officer issued the requisite notices under sections 148A(b), 148A(d), and 148 after recording reasons and obtaining necessary approvals. The assessee failed to respond to the notices within the stipulated time and did not file a return in response to the reopening notice.

The Court observed that the Assessing Officer had definite information about the transaction and that the reopening was in accordance with law. The failure of the assessee to object to the reopening at the earliest opportunity and to file returns or clarifications was noted. The Court held that the reassessment proceedings were valid and dismissed the ground challenging their jurisdiction and validity.

(b) Alleged Violation of Natural Justice

The assessee claimed that sufficient opportunity to present its case was not granted, amounting to violation of natural justice. However, no specific instances or evidence of denial of hearing were presented before the Court. The record indicated that the assessee was given multiple opportunities to furnish clarifications and objections, including the referral of the matter to the DVO at the assessee's request.

The Court found no merit in the claim of violation of natural justice and dismissed this ground.

(c) Addition under Section 56(2)(x) - Valuation of Property

The crux of the dispute related to the addition of Rs. 5,59,022/- under section 56(2)(x), which applies when the stamp duty value of an asset exceeds the consideration paid, treating the difference as income from other sources.

The assessee purchased an office premises on 16.05.2017 for Rs. 19,50,000/-. The stamp valuation authority assessed the property value at Rs. 44,61,622/-. On the assessee's request, the matter was referred to the DVO, who valued the property at Rs. 25,09,022/- as of 01.06.2019. The Assessing Officer made the addition based on the DVO's report.

The assessee challenged the valuation on two key grounds: (i) the DVO's valuation date was not contemporaneous with the date of purchase, leading to an inflated value; (ii) the DVO failed to consider comparable sales submitted by the assessee, including a report by a Government Registered Valuer who valued the property at Rs. 20,07,729/- as of the purchase date, supported by six comparable sales from 2017, 2019, and 2020.

The Court examined both valuation reports. It noted that both reports considered comparable sales in the same locality but arrived at different values. Recognizing the merit in the assessee's contention regarding the valuation date and comparable sales, the Court directed the Assessing Officer to take an average of the values determined by the DVO and the Government Registered Valuer and recompute the addition under section 56(2)(x) accordingly.

This approach balanced the competing valuations and ensured a fair assessment aligned with market realities.

(d) Interest under Sections 234A, 234B, and 234C

The assessee denied liability for interest under these sections, which pertain to defaults in advance tax payments and delayed payment of tax. However, the Court noted that this ground was not elaborated upon in detail and was consequential to the primary findings. No specific adjudication was made on this ground, implying that the interest levy stands subject to the outcome of the reassessment and additions.

3. Significant holdings and core principles:

"The reopening of assessment was based on definite information received through the insight portal and was carried out in accordance with the procedural requirements under the Income Tax Act, including issuance of notices and recording of reasons. The assessee's failure to respond or object at the appropriate stage does not vitiate the reassessment."

"No violation of principles of natural justice is established where the assessee was afforded adequate opportunity to present its case, including referral to the District Valuation Officer at the assessee's request."

"In cases of valuation disputes under section 56(2)(x), where the valuation reports differ but are based on comparable sales in the same locality, the Assessing Officer is directed to consider an average of the valuations to arrive at a fair market value."

"The difference between the fair market value and the purchase consideration, as determined after considering all relevant factors and comparable sales, is to be added to the income of the assessee under section 56(2)(x)."

Final determinations:

(i) The reassessment proceedings under section 147 and related notices were valid and not liable to be quashed.

(ii) No violation of natural justice was established.

(iii) The addition under section 56(2)(x) is to be recomputed by averaging the valuation figures of the DVO and the Government Registered Valuer.

(iv) Other grounds, including interest, are consequential and were not separately adjudicated.

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