2025 (8) TMI 836 - AT - Income Tax

Assessment framed under Section 143(3) without DVO report upheld; appeals allowed and matter remitted for fresh hearing

The ITAT Mumbai held that the AO correctly framed the assessment under section 143(3) without considering the DVO's report, which was unavailable at that ... Demand u/s 143(3) - assessment was completed u/s143(3) of the Act without considering the report of the DVO - AO, while framing the assessment u/s 143(3), had considered the assessee’s submissions and referred the matter to the DVO - CIT(A) proceeded to adopt new facts and made the addition u/s 69 thereby invoking a provision different from that applied by the AO - AO subsequently rectified the order under section 143(3) by passing an order under section 154. HELD THAT:- Applying the ratio of Sadhna Gupta [2013 (3) TMI 418 - DELHI HIGH COURT] and Rohtas Projects Ltd [2005 (7) TMI 327 - ITAT LUCKNOW-B] to the facts of the present case, we hold that the Ld. AO had correctly applied the provisions of law while framing the assessment, whereas the Ld. CIT(A) erred in invoking section 69 to confirm the addition. We find no justification to sustain the impugned appellate order, which is accordingly quashed. Consequently, as the order passed under section 154 is entirely dependent upon the order u/s 143(3), and the latter has been quashed, the rectification order under section 154 also fails and is hereby set aside. The Ld. DR has not cited any contrary judicial precedent to rebut the submissions of the Ld. AR. So, both the appeals of the assessee are succeeded. Denial of principles of natural justice in the course of assessment proceedings, as the order was passed without considering the DVO’s report - On perusal, we find that the Ld. CIT(A) made erroneous observations in the appellate order. The DVO’s report was a crucial piece of evidence that ought to have been considered while passing the assessment order. However, the said report was not available before the Ld. AO at the time of framing the assessment. Subsequently, the DVO’s report was received and made available to both parties. In the interest of justice, we deem it appropriate to remit the matter back to the file of the Ld. AO with a direction to consider the DVO’s report and thereafter pass a speaking order giving effect to such report. The assessee shall be afforded reasonable opportunity of being heard, and any documentary evidence or material that the assessee seeks to file in the set-aside proceedings shall be admitted in accordance with law. 1. ISSUES PRESENTED and CONSIDERED 1. Whether the difference between the stamp duty valuation and the declared purchase price of immovable property can be added to the assessee's income under section 69 of the Income-tax Act, 1961 as unexplained investment. 2. Whether the provisions of sections 43CA and 50C of the Income-tax Act mandate adoption of stamp duty valuation as full value of consideration for transfer of property transactions where declared consideration is lower. 3. Whether the Assessing Officer (AO) was justified in completing assessment under section 143(3) without considering the District Valuation Officer (DVO) report received subsequently. 4. Whether the Commissioner of Income-tax (Appeals) (CIT(A)) erred in invoking section 69 to confirm additions based on DVO valuation when AO had not made such addition under that section. 5. Whether the AO's rectification order under section 154 dependent on the original assessment order under section 143(3) is sustainable when the original assessment order is quashed. 6. Whether the principles of natural justice were violated by passing assessment orders without considering the DVO report and without affording reasonable opportunity to the assessee. 7. Whether the matter should be remitted back to the AO for fresh consideration of the DVO report and passing a speaking order with opportunity to the assessee. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Applicability of Sections 43CA, 50C and Addition under Section 69 on Difference between Stamp Duty Valuation and Declared Purchase Price Relevant Legal Framework and Precedents: - Section 43CA provides that where consideration received or accruing from transfer of land or building (other than capital asset) is less than the value adopted or assessed by the stamp duty authority, the stamp duty value shall be deemed to be full value of consideration for computing profits and gains. - Section 50C similarly applies to capital assets. - Section 69 deals with unexplained investments, allowing addition to income where investments are not recorded in books and no satisfactory explanation is offered. - The CIT(A) relied on these provisions to uphold the addition of the difference between stamp duty valuation and declared purchase price as unexplained investment under section 69. Court's Interpretation and Reasoning: - The CIT(A) observed that the stamp duty valuation was Rs. 9,98,65,550 whereas the declared purchase price was Rs. 3,06,00,000, leading to a difference of Rs. 6,92,65,550. - It was held that the difference represents unexplained investment under section 69 and must be added to the income. - The CIT(A) treated the difference as income under the head 'unexplained investment' rather than as deemed consideration under section 43CA or 50C. Key Evidence and Findings: - The assessee purchased multiple land parcels with purchase prices significantly lower than stamp duty valuation. - The properties had deficiencies such as no development zone status, illegal buildings, no road access, which were argued to justify lower market price. - The assessee requested reference to DVO for valuation, but the assessment was completed before DVO report was received. Application of Law to Facts: - The AO made addition based on difference between stamp duty value and declared price under section 143(3), initially without DVO report. - Upon receipt of DVO report, AO rectified order under section 154 reducing addition. - CIT(A) rejected rectification and upheld original addition under section 69. Treatment of Competing Arguments: - Assessee contended that DVO report should be considered and that the lower price was justified by property deficiencies. - Revenue relied on statutory provisions mandating adoption of stamp duty value and on unexplained investment theory. Conclusions: - The CIT(A) erred in invoking section 69 to confirm addition without proper basis, as the AO had not made addition under that section. - The difference between stamp duty valuation and declared price cannot automatically be treated as unexplained investment without discharge of burden of proof by revenue. Issue 3 & 4: Validity of Assessment under Section 143(3) without Considering DVO Report and CIT(A)'s Jurisdiction to Invoke Section 69 Relevant Legal Framework and Precedents: - The AO must consider all relevant material before passing assessment order. - The CIT(A) cannot assume jurisdiction to apply provisions not invoked by AO. - Judgments relied upon include: Decision holding that valuation by DVO is not binding unless revenue proves receipt of additional consideration beyond declared value. Decision holding that AO cannot rely solely on DVO report without independent reasons to reject declared value. Decision holding that CIT(A) cannot invoke new provisions to sustain additions unsupported by AO's findings. Court's Interpretation and Reasoning: - The AO completed assessment under section 143(3) without DVO report, but considered assessee's submissions and referred matter to DVO. - DVO report was received after assessment order. - CIT(A) invoked section 69 to uphold addition, which was not applied by AO. - The Court held CIT(A)'s approach as perverse, arbitrary, and an assumption of jurisdiction contrary to law. Key Evidence and Findings: - AO's assessment order shows consideration of assessee's submissions and intention to incorporate DVO report. - CIT(A)'s order shows reliance on section 69 without AO's findings on unexplained investment. Application of Law to Facts: - CIT(A) cannot substitute AO's findings and invoke section 69 without evidence and proper procedure. Treatment of Competing Arguments: - Revenue argued for mandatory adoption of stamp duty value and unexplained investment addition. - Assessee argued for consideration of DVO report and procedural fairness. Conclusions: - CIT(A) erred in invoking section 69 to confirm addition not made by AO. - AO's assessment order without DVO report cannot be sustained if material is incomplete. Issue 5: Validity of Rectification Order under Section 154 Dependent on Quashed Assessment Order Relevant Legal Framework and Precedents: - Rectification under section 154 is dependent on the validity of original order. - If original order is quashed, dependent rectification order also fails. Court's Interpretation and Reasoning: - Since the assessment order under section 143(3) was quashed, the rectification order passed under section 154 based on it also fails. Conclusions: - Rectification order under section 154 is set aside along with assessment order. Issue 6 & 7: Violation of Principles of Natural Justice and Remand for Fresh Consideration of DVO Report Relevant Legal Framework and Precedents: - Principles of natural justice require that all relevant material, including DVO report, be considered before passing assessment order. - Assessee must be given reasonable opportunity of hearing and to file evidence. - Where crucial material is received after assessment order, matter should be remitted to AO for fresh consideration. Court's Interpretation and Reasoning: - In one appeal, the DVO report was received after assessment order and was not considered by AO. - CIT(A) upheld addition without considering DVO report and without affording adequate opportunity to assessee. - The Court found this to be a violation of natural justice. - The matter was remitted to AO with directions to consider DVO report and pass speaking order after hearing assessee. Key Evidence and Findings: - DVO report was a crucial piece of evidence regarding fair market value. - Assessee requested reference to DVO and submitted own valuation report. Application of Law to Facts: - AO to consider DVO report and assessee's submissions afresh in accordance with law. Treatment of Competing Arguments: - Revenue urged confirmation of additions based on stamp duty valuation and DVO report. - Assessee emphasized procedural lapses and need for fresh adjudication. Conclusions: - Appeal allowed for statistical purposes by remanding matter for fresh consideration. 3. ADDITIONAL OBSERVATIONS - The Court emphasized that burden of proof lies on revenue to establish receipt of additional consideration beyond declared sale price before relying on DVO valuation. - The Court noted that AO cannot rely solely on DVO report without independent reasons to reject assessee's declared value or registered valuer's report. - The Court declined to direct AO to conduct further investigation suo motu, affirming that appellate authority's role is to decide on material before it. - The Court found that the CIT(A)'s confirmation of additions under section 69 without AO's findings was beyond jurisdiction. 4. FINAL CONCLUSIONS 1. The additions made by AO based on difference between stamp duty valuation and declared purchase price under section 143(3) without considering DVO report were not sustainable. 2. The CIT(A) erred in invoking section 69 to confirm additions without proper basis and jurisdiction. 3. The assessment order under section 143(3) and rectification order under section 154 dependent thereon were quashed. 4. In cases where DVO report was received after assessment order, the matter was remitted to AO for fresh consideration with opportunity to assessee. 5. Burden of proof to establish receipt of additional consideration beyond declared value lies on revenue before relying on DVO valuation. 6. The appeals filed by assessee against orders confirming additions were allowed or allowed for statistical purposes accordingly.