Additions under Section 69 quashed; mechanical Section 153D approval invalidates Section 153A r.w.s. 143(3) assessment

ITAT Delhi-AT allowed the assessees' appeals and deleted the addition made u/s 69. It held that the AO's reference to the DVO was founded on an incorrect premise that the assessees had sold, rather than jointly purchased, the property, rendering the reference bad in law. Even otherwise, the difference between the declared value and DVO valuation was only 1.71%, a negligible variation not warranting addition. Further, the approval u/s 153D was granted by the JCIT mechanically, without application of mind to the record or the assessees' evidence, making the approval invalid. Consequently, the assessment u/s 153A r.w.s. 143(3) was held null and void.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the reference to the Departmental Valuation Officer under section 142A, and consequent addition under section 69 as "unexplained investment", was valid where the assessee had in fact purchased (and not sold) the property for a consideration higher than the circle rate/stamp duty value.

1.2 Whether a negligible variation (about 1.71%) between the declared consideration and the value estimated by the Departmental Valuation Officer can justify an addition under section 69.

1.3 Whether the approval granted under section 153D was mechanical and without application of mind, rendering the assessment under section 153A read with section 143(3) invalid.

1.4 Whether, in view of the above findings, the addition made in the hands of the co-owner is also unsustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of reference to DVO and addition under section 69 where property was purchased above circle rate

Legal framework (as discussed)

2.1 The assessment was framed under section 153A read with section 143(3), and the addition was made under section 69 based solely on the fair market value determined by the Departmental Valuation Officer pursuant to a reference under section 142A.

Interpretation and reasoning

2.2 The Court noted that during the relevant year the assessees had jointly purchased property BP-22, West Patel Nagar, New Delhi, for Rs. 9,90,00,000, whereas the circle rate/stamp duty value was Rs. 9,70,06,834. Thus, the declared purchase price exceeded the circle rate.

2.3 Despite repeated written replies and documentary evidence (agreement to sell, sale deed, affidavit of seller's director, bank statements evidencing payment and source, and home loan sanction letter) showing that the assessees had purchased and not sold the property, the Assessing Officer proceeded on the premise that the assessees had sold the property at a value lower than market value.

2.4 The reference to the Departmental Valuation Officer dated 17.03.2022 was founded on this incorrect assumption recorded in the assessment order that the assessees had sold the property and that the sale consideration was lower than "market value". The Assessing Officer explicitly referred the property "to determine the fair market value as on date of sale".

2.5 The Court held that, as a matter of fact, there was no sale by the assessees in the relevant year; instead there was a purchase at a price higher than stamp duty value. Thus, the very factual premise for making a reference to the Departmental Valuation Officer - that the property had been sold below market value - did not exist.

2.6 Consequently, the reference to the Departmental Valuation Officer was held to be based on a wrong factual assumption and "has no factual basis and [is] bad in law". Since the addition under section 69 was founded exclusively on the Departmental Valuation Officer's valuation arising from this invalid reference, the basis for the addition itself was vitiated.

Conclusions

2.7 The reference to the Departmental Valuation Officer under section 142A, having been made on the erroneous assumption that the assessees had sold the property at a value below market rate, was invalid in law.

2.8 The consequent addition under section 69, based solely on such invalid valuation, could not be sustained.

Issue 2 - Effect of negligible variation (1.71%) between declared consideration and DVO valuation

Legal framework (as discussed)

2.9 The Court referred to and applied the principles laid down by the jurisdictional High Court in decisions including Commissioner of Income-tax v. Ambience Developers & Infrastructure (P.) Ltd. and PCIT v. Vishnu Apartments (P.) Ltd., where additions based on minor differences between declared cost and Departmental Valuation Officer's estimate were disapproved.

Interpretation and reasoning

2.10 It was undisputed that the Departmental Valuation Officer valued the property at Rs. 10,06,99,100 while the declared consideration was Rs. 9,90,00,000. The absolute difference was Rs. 16,99,100, amounting to only about 1.71% of the declared consideration.

2.11 Relying on Ambience Developers, where a difference of 3.86% was held to be "very minor" and insufficient to justify an addition, and on Vishnu Apartments, where a 2.54% variation was also held insignificant, the Court held that the variation of 1.71% in the present case was even smaller and clearly negligible.

2.12 The Court held that, in view of these precedents and having regard to the large value involved, such minor variation between the Departmental Valuation Officer's estimate and the declared figure could not form a valid basis for sustaining an addition under section 69.

Conclusions

2.13 Independently of the invalidity in the reference itself, the addition could not be sustained because the variation between the declared price and Departmental Valuation Officer's valuation, being only 1.71%, was insignificant and fell within the range treated as negligible by the jurisdictional High Court.

2.14 On this ground also, the addition under section 69 was liable to be deleted.

Issue 3 - Validity of approval under section 153D and consequent validity of assessment under section 153A read with section 143(3)

Legal framework (as discussed)

2.15 The assessment was made under section 153A read with section 143(3) after obtaining approval of the Joint Commissioner under section 153D. The Court considered whether that approval was mechanical and without application of mind, thereby vitiating the assessment.

Interpretation and reasoning

2.16 The record showed that the assessee had, on multiple occasions before completion of assessment, clearly informed the Assessing Officer that he had purchased, and not sold, the property in question, and furnished extensive supporting evidences. Despite this, the assessment order was framed on the premise that the assessee had sold the property.

2.17 A corrigendum was issued by the Assessing Officer after the assessment, describing the earlier use of the word "sold" as a typographical error and substituting "purchased" while stating that the "rest of the contents" of the order would remain unchanged. The Court considered that both the initial assumption (sale instead of purchase) and the casual correction reinforced that there had been no proper appreciation of the facts at the assessment stage.

2.18 The Court observed that the draft assessment order, premised on the incorrect assumption of sale, was placed before the Joint Commissioner, who granted approval under section 153D without noticing or rectifying the fundamental factual error, despite the material and replies on record showing purchase. This indicated that the Joint Commissioner did not meaningfully examine the record, the draft order, or the assessee's evidences.

2.19 In these circumstances, the Court held that both the Assessing Officer and the Joint Commissioner failed to apply their minds to the true facts. The Joint Commissioner's approval under section 153D was characterised as having been granted "without application of mind", "in an incorrect and inconsistent draft assessment order without perusing the records".

2.20 The Court consequently held that the approval under section 153D was bad in law and that the assessment framed under section 153A read with section 143(3), being founded on such invalid approval, was "null and void".

Conclusions

2.21 The approval accorded under section 153D was mechanical and without proper application of mind, rendering it invalid.

2.22 The assessment under section 153A read with section 143(3), being dependent on such invalid approval, was held to be null and void; on this ground also the impugned addition could not survive.

Issue 4 - Applicability of findings to co-owner's appeal

Interpretation and reasoning

2.23 The co-owner held the remaining 50% share in the same property, and the addition in his case was made in an identical manner, for the same amount of Rs. 8,49,500, based on the same Departmental Valuation Officer's report and the same reasoning.

2.24 The Court held that the facts in the co-owner's case were "identical" to those in the lead case and that the decision in the lead appeal applied mutatis mutandis to the co-owner.

Conclusions

2.25 For the co-owner, the addition under section 69, made on the same invalid reference and insignificant variation, and pursuant to an assessment vitiated by the same defective approval under section 153D, was likewise unsustainable.

2.26 The additions in both appeals were directed to be deleted, and both appeals were allowed.

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