2025 (5) TMI 784 - AT - Income Tax

AO incorrectly applied section 69B instead of sections 50C and 56(2)(vii) for property valuation differences

ITAT Mumbai ruled in favor of the assessee regarding addition under section 69B versus sections 50C and 56(2)(vii). The court held that AO incorrectly ... Addition u/s 69B v/s 50C and 56(2)(vii) - difference between the consideration shown in the allotment letter and the stamp duty value as determined by the stamp duty valuation authority as well as by the DVO - as per revenue market value of the said property arrived at by the stamp duty authorities should not be considered as the actual price of the property - HELD THAT:- Admittedly, the provisions of the Act i.e. sections 50C and 56(2)(vii) of the Act, have carved out certain exception/provision such as “where the date of agreement fixing the amount of consideration and the date of registration for the transfer of capital asset are not same, the value adopted or assessed or assessable by the stamp duty authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer. Herein, in the instant case, the AO instead of invoking the relevant exception, invoked the provisions of section 69B. AO, instead of applying the relevant exception carved out in sections 50C and 56(2)(vii) of the Act, in fact, relied on section 45 of MRTP Act, which empowers the builders to commence construction of immovable property after obtaining commencement certificate for construction/development and in case of default launching of prosecution and levy of penalty on the builders, under MRTP Act, is prescribed. Even, if we consider the date of commencement certificate as on 28.05.2008, as the date of allotment and/or empowering the builder to start the construction of the property under consideration, then also from payment schedule, it is clear that the Assessee thereafter as well, has paid the substantive part of the consideration amount. In our considered view, the explanation given by the Assessee goes to show that the Assessee has been able to discharge its onus cast u/s 69(B) of the Act, if at all is liable to be discharged and/or if at all provisions are applicable. Even otherwise, it is not the case of the Revenue Department that the Assessee had ever paid any amount over and above the consideration fixed vide agreement dated 10.01.2008 but the authorities below simply relied on the DVO report and the provisions of section 142A and 69B of the Act by sidelining the relevant provisions of the Act, as applicable. Admittedly, the DVO has adopted the value of the property as determined by the Stamp Duty Valuation Authority, as on the date of executing formal purchase agreement dated 28.03.2013. Both the authorities below have accepted the said valuation report by sidelining the exceptions carved out under the provisions of section 50C and 56(2)(vii) of the Act, as well as the explanation given by the Assessee and/or discharging the onus cast u/s 69B of the Act. Addition u/s 35AC - disallowance of claim of deduction - HELD THAT:- Assessee before us has claimed that it has duly submitted the relevant documents in support of its claim and therefore orders passed by the authorities below are not in consonance with the documents submitted by the Assessee. The Assessee before us also placed notification dated 30.12.2010 along with details/receipts of the donation paid to the tune of Rs. 4,00,000/-. Thus we deem it would appropriate to remand the instant issue to the file of the AO for verification purposes. Consequently, the AO is directed to verify the notification dated 30.12.2010 and the receipts dated 25.07.2012, 13.08.2012, 03.09.2012 & 04.10.2012 and on verification, allow the deduction claimed by the Assessee, for such amount. The core legal questions considered in this appeal pertain primarily to two issues: first, whether the addition under section 69B of the Income Tax Act, 1961, on account of alleged undervaluation of the property purchase consideration is justified; and second, whether the claim of deduction under section 35AC of the Act for donation made by the Assessee should be disallowed due to lack of verification.Regarding the first issue, the legal framework involves the interpretation and application of sections 50C, 56(2)(vii), and 69B of the Income Tax Act, 1961, alongside provisions of the MRTP Act, 1961. The Assessing Officer (AO) invoked section 69B to make an addition of Rs. 45,66,250/-, representing the difference between the consideration shown in the allotment letter dated 10.01.2008 and the stamp duty value determined by the stamp duty authority and the valuation officer (DVO) as on the date of registration (28.03.2013). The AO relied on the fact that the allotment letter preceded the builder's commencement certificate dated 20.05.2008 under the MRTP Act, which empowers builders to commence construction only after obtaining such certificate. The AO contended that since the Assessee received the allotment letter before the builder had the right to commence construction, the allotment letter value could not be considered the actual purchase price, and therefore the higher stamp duty value should be adopted under section 69B.The Assessee challenged this addition, arguing that the entire consideration of Rs. 44,46,750/- was duly paid in installments as per the allotment letter, culminating in the formal purchase agreement executed on 28.03.2013 after completion of the building. The Assessee relied on the exceptions carved out under sections 50C and 56(2)(vii) which provide that where the date of agreement and date of registration differ, the value assessed by the stamp duty authority on the date of agreement may be taken for computing full value of consideration. The Assessee submitted the payment schedule and allotment letter as evidence of the actual consideration paid.The Court noted that the AO erred in invoking section 69B, which applies when the amount expended on investments or acquisition of valuable articles exceeds the amount recorded in books and the explanation is unsatisfactory. Here, the Assessee had satisfactorily explained the transaction with documentary evidence. The Court observed that the AO and the Commissioner failed to apply the relevant exceptions under sections 50C and 56(2)(vii) and instead relied on the MRTP Act's commencement certificate and the DVO's valuation, which adopted the stamp duty value as on the date of registration, not the date of agreement. The Court emphasized that even if the builder's commencement certificate date is considered the relevant date, the payment schedule shows substantial payments were made thereafter, supporting the Assessee's stance.The Court concluded that the Assessee discharged the onus under section 69B and that the addition was unsustainable. It held that the valuation report of the DVO and reliance on section 142A and section 69B without considering the exceptions under sections 50C and 56(2)(vii) was incorrect. Consequently, the addition of Rs. 45,66,250/- was deleted.On the second issue concerning the disallowance of Rs. 4,00,000/- claimed as deduction under section 35AC for donations, the AO disallowed the claim due to the Assessee's failure to produce proof of donation and bank statements. The Assessee contended that relevant documents, including the notification dated 30.12.2010 and donation receipts, were submitted. The Court found that the authorities below did not adequately verify the documents submitted by the Assessee. Given the circumstances, the Court remanded the issue to the AO for verification of the notification and donation receipts dated 25.07.2012, 13.08.2012, 03.09.2012, and 04.10.2012. The AO was directed to allow the deduction if the documents are found to be in order.The significant holdings include the Court's explicit rejection of the AO's invocation of section 69B in this context and the affirmation of the applicability of sections 50C and 56(2)(vii) exceptions. The Court stated: 'The explanation given by the Assessee goes to show that the Assessee has been able to discharge its onus cast u/s 69(B) of the Act... Even otherwise, it is not the case of the Revenue Department that the Assessee had ever paid any amount over and above the consideration fixed vide agreement dated 10.01.2008 but the authorities below simply relied on the DVO report and the provisions of section 142A and 69B of the Act by sidelining the relevant provisions of the Act, as applicable.'Core principles established include the proper application of valuation provisions under the Income Tax Act in property transactions, emphasizing the primacy of the date of agreement and payment schedule over the date of registration for valuation purposes, and the necessity of considering statutory exceptions before invoking deeming provisions like section 69B. The judgment also underscores the procedural requirement for the Revenue to verify documentary evidence before disallowing deductions under section 35AC.In conclusion, the Court allowed the appeal by deleting the addition under section 69B and remanding the donation deduction issue for verification, thereby providing clarity on the interplay between valuation provisions and deeming provisions in the Act and reinforcing procedural fairness in claims of deduction.