2022 (7) TMI 1577 - AT - Income Tax

Disallowance u/s. 56(2)(vii)(b)(ii) - rejecting the request of the assessee to refer the matter to the District Valuation Officer (DVO) because he has to complete the assessment to avoid delay in completing the assessment - CIT(A) also affirmed the view taken by the AO as the assessee could not produce the evidence by way of sale deeds last executed before getting the plots transferred from the other member of joint venture - AR now submitted that the assessee is having all the required documents and therefore the issue may be restored back to the file of AO for limited purpose to decide the same after referring the matter to the DVO for valuation of the alleged land. HELD THAT - In view of AO request we are of the considered opinion that the AO is required to refer the matter to the DVO for determining the full market value of the alleged land Accordingly respectfully following the case laws relied on by assessee in his written submission in the case of Prem Chand Jain 2020 (7) TMI 188 - ITAT JAIPUR and Gautam Bhakat 2018 (12) TMI 1551 - ITAT KOLKATA we remit the issue to the file of AO for limited purpose to decide the issue afresh after getting valuation report from the DVO for determination of Full Market Value of the alleged land. Thus we allow the sole ground of assessee for statistical purposes.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

1. Whether the Assessing Officer (AO) erred in not referring the valuation of the immovable property to the District Valuation Officer (DVO) under Section 50C(2) read with Section 56(2)(vii)(b) of the Income Tax Act.

2. Whether the CIT(A) was correct in sustaining the addition of Rs. 40,88,615 as income from other sources under Section 56(2)(vii)(b)(ii) concerning the difference between the actual purchase price and the stamp duty value (SDV) of the immovable property.

ISSUE-WISE DETAILED ANALYSIS

1. Non-Referral to the DVO for Valuation under Section 50C(2)

- Relevant Legal Framework and Precedents: Section 50C(2) provides that if the assessee disputes the SDV adopted by the authorities, the AO may refer the valuation of the property to the DVO. The precedent set by the Calcutta High Court in Sunil Kumar Agarwal mandates such a reference to avoid miscarriage of justice, even if the assessee does not explicitly request it.

- Court's Interpretation and Reasoning: The Tribunal emphasized the need for a fair valuation process and acknowledged that the AO should have referred the matter to the DVO. The Tribunal relied on precedents that underscored the importance of using the legislative machinery to ensure fair treatment of taxpayers.

- Key Evidence and Findings: The Tribunal noted that the AO rejected the assessee's request for a DVO referral, citing the need to complete the assessment promptly. The Tribunal found this reasoning insufficient, given the legal requirement for a DVO referral when SDV is disputed.

- Application of Law to Facts: The Tribunal applied the principles established in previous cases, such as Sunil Kumar Agarwal and Narendra Kumar Lunia, to determine that the AO's failure to refer the valuation to the DVO was a procedural oversight that needed rectification.

- Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the AO's actions were justified due to time constraints but found that ensuring a fair valuation process was paramount.

- Conclusions: The Tribunal concluded that the AO should have referred the valuation to the DVO and remitted the matter back to the AO for fresh adjudication after obtaining the DVO's report.

2. Sustaining Addition as Income from Other Sources under Section 56(2)(vii)(b)(ii)

- Relevant Legal Framework and Precedents: Section 56(2)(vii)(b)(ii) applies when an individual receives immovable property for a consideration less than the SDV by an amount exceeding Rs. 50,000, thereby treating the difference as income from other sources.

- Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) applied Section 56(2)(vii)(b)(ii) without considering the need for a DVO valuation, which could potentially alter the SDV and the resultant tax implications.

- Key Evidence and Findings: The Tribunal observed that the CIT(A) upheld the AO's addition based on the SDV, without addressing the procedural requirement for a DVO referral.

- Application of Law to Facts: The Tribunal applied the legal precedent that mandates a DVO referral in cases of SDV disputes, which could affect the applicability of Section 56(2)(vii)(b)(ii).

- Treatment of Competing Arguments: The Tribunal acknowledged the Revenue's reliance on the SDV but emphasized the procedural necessity of a DVO valuation to ensure accurate tax assessment.

- Conclusions: The Tribunal concluded that the addition under Section 56(2)(vii)(b)(ii) was premature without a DVO valuation and remitted the issue back to the AO for reconsideration post-DVO report.

SIGNIFICANT HOLDINGS

- The Tribunal held that the AO is required to refer the valuation of the property to the DVO under Section 50C(2) when the SDV is disputed, as established in Sunil Kumar Agarwal and other relevant cases.

- The Tribunal established that procedural fairness necessitates the use of the DVO's valuation to ensure accurate tax assessments, aligning with the legislative intent to prevent miscarriage of justice.

- The Tribunal remitted the matter back to the AO with instructions to obtain a DVO valuation and reconsider the addition under Section 56(2)(vii)(b)(ii) based on the revised valuation.

In conclusion, the Tribunal's decision underscores the importance of adhering to procedural requirements for property valuation disputes under the Income Tax Act, ensuring fair treatment of taxpayers and accurate determination of tax liabilities.