2020 (12) TMI 105 - AT - Income Tax

Addition u/s. 56(2)(vii) - consideration as shown in the conveyance deed is less than market value determined by the Stamp Valuation Authorities for the purpose of charging the stamp duty - AO failed to refer the issue of valuation to District Valuation Officer - addition in respect of share of wife in the property - Whether Section 56(2)(viib) applies only to immovable properties i.e. property which are fully constructed and not on properties which are under construction? - Assessment Order is liable to be canceled on the ground that the Assessing Officer failed to refer the issue of valuation to the District Valuation Officer though he was legally required to do so - HELD THAT - AO completely ignored the valuation report of the Government Registered valuer submitted by the assessee and the submissions thereon - He mechanically applied provisions of section 56(2) to bring he difference between the stamp duty value and the actual sale consideration paid by the assessee without making any efforts to find out the actual cost of the property when in fact the assessee stated that the property when purchased was under semi construction stage and there were disputes between builders and the purchasers and ultimately the builder was abandoned the project and left. The assessee also stated that what was purchased as per the agreement is different than what was given to him as the property was sold to two persons. So there is dispute in the area acquired by the assessee also. In such circumstances, it was all the more necessary for the AO to refer it to the Valuation Officer which he miserably failed. Even at the stage of appellate proceedings when the assessee produced Valuation Officer s report who valued Flat No. 601 in the very same Building at ₹.1,00,76,000/- the Ld.CIT(A) should have called for remand report and in turn the Valuation Officer s report which the Ld.CIT(A) failed to do so. In such circumstances the addition made by the Assessing Officer is totally unjustified and cannot be sustained. Revenue cannot be allowed a second inning by sending the matter back to the Assessing Officer to prove before the Assessing Officer that the sale consideration was the fair market value of the property purchased by the assessee when the assessee was all along disputing valuation of the property and the revenue miserably failed to find out the correct value of the property both at assessment stage as well as at first appellate stage. - Decided in favour of assessee.

Issues Involved:
1. Confirmation of addition under Section 56(2)(vii) of the Income Tax Act.
2. Failure to refer the issue of valuation to the District Valuation Officer.
3. Addition in respect of the share of the wife in the property.
4. Incorrect area of the flat considered by the lower authorities.
5. Applicability of Section 56(2)(vii)(b) to properties under construction.

Issue-wise Detailed Analysis:

1. Confirmation of Addition under Section 56(2)(vii) of the Income Tax Act:
The assessee contested the addition of ?1,80,49,999 made under Section 56(2)(vii) of the Income Tax Act, which was confirmed by the Ld. CIT(A). The Assessing Officer had observed that the stamp duty valuation of the flat was ?2,20,49,999, while the assessee purchased it for ?40,00,000. The difference was treated as income under Section 56(2)(vii). The assessee argued that the property was under construction and provided a valuation report valuing the property at ?82.60 lakhs, disputing the stamp duty valuation. However, the Assessing Officer ignored this and made the addition.

2. Failure to Refer the Issue of Valuation to the District Valuation Officer:
The assessee argued that the Assessing Officer failed to refer the valuation dispute to the District Valuation Officer (DVO), as mandated by the proviso to Section 56(2)(vii)(b) and Section 50C(2) of the Act. The assessee had submitted a valuation report from a government-registered valuer, disputing the stamp duty valuation. The Tribunal noted that the Assessing Officer should have referred the matter to the DVO when the valuation was disputed, as per the legal provisions and judicial precedents cited, including decisions from various High Courts and the ITAT.

3. Addition in Respect of the Share of the Wife in the Property:
The assessee contended that the addition was made entirely in his hands, although the property was jointly purchased with his wife. The Tribunal, having allowed the primary ground regarding the valuation dispute, did not delve into this issue as it became academic.

4. Incorrect Area of the Flat Considered by the Lower Authorities:
The assessee claimed that the actual area of the flat was less than what was considered by the Assessing Officer and Ld. CIT(A). The agreement mentioned an area of 1360 sq. feet, but the actual area was 784 sq. feet. The Tribunal, having resolved the primary issue in favor of the assessee, did not further adjudicate on this point, leaving it open for future consideration if needed.

5. Applicability of Section 56(2)(vii)(b) to Properties Under Construction:
The assessee raised an additional ground arguing that Section 56(2)(vii)(b) applies only to fully constructed properties, not those under construction. The Tribunal admitted this ground for adjudication, following the Supreme Court decision in National Thermal Power Co. Ltd. v. CIT. However, since the primary ground was resolved in favor of the assessee, this issue was not adjudicated and was left open for future consideration.

Conclusion:
The Tribunal allowed the appeal in favor of the assessee, directing the deletion of the addition made under Section 56(2) of the Act. The Tribunal emphasized that the Assessing Officer failed to refer the valuation dispute to the DVO, which was a mandatory requirement. The other issues raised by the assessee were left open for future consideration as the primary ground was resolved in the assessee's favor.

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