2022 (7) TMI 1583 - AT - Income Tax

Addition made u/s 50C(1) within the ambit of adjustments provided u/s 143(1)(a) - HELD THAT - Undoubtedly section 50C is a deeming provision. Though sub-section (1) of section 50C provides for substituting the stamp duty value as deemed sale consideration in place of the declared sale consideration however sub-section (2) carves out an exception by providing that if the assessee objects to the stamp duty value the valuation has to be referred to DVO and in case the value determined by the DVO is lower than the stamp duty value the value determined by DVO has to be considered for computing capital gain in terms with sub-section (3) of section 50C. Therefore sub-section (1) to section 50C cannot be considered in isolation. By making an adjustment of the nature contemplated under sub-section (1) to section 50C that too by CPC the Department takes away a valuable statutory right given to the assessee to object to the value determined by stamp valuation authority. Therefore such type of adjustment cannot be made u/s 143(1)(a). This is so because at the stage of processing of return u/s 143(1)(a) if such an adjustment is made the assessee does not get an opportunity to object as per section 50C(2). More so when conditions of the 1st and 2nd proviso to section 143(1)(a) are not complied. Therefore hold that the addition made by CPC under section 50C(1) by way of adjustment u/s 143(1)(a)(ii) is unsustainable. Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the addition made under section 50C(1) of the Income-tax Act, 1961, can fall within the ambit of adjustments provided under section 143(1)(a) of the Act.
• Whether the Centralized Processing Center (CPC) exceeded its jurisdiction by making an adjustment under section 143(1)(a)(ii) of the Act.
• Whether the sale consideration being less than the stamp duty value constitutes an "incorrect claim" under section 143(1)(a)(ii) of the Act.
• Whether the adjustment under section 143(1) can be made without providing the assessee an opportunity to object as per section 50C(2) of the Act.
• Whether the principles of natural justice were violated due to the absence of an opportunity for the assessee to be heard before the CPC and NFAC.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 50C of the Income-tax Act, 1961, is a deeming provision that substitutes the stamp duty value as the deemed sale consideration if it exceeds the declared sale consideration of an immovable property. Section 143(1) outlines the procedure for processing returns, allowing adjustments for arithmetical errors, incorrect claims apparent from the return, and other specified circumstances.

Court's Interpretation and Reasoning

The Tribunal examined whether the adjustment made under section 50C(1) could be considered an "incorrect claim" under section 143(1)(a)(ii). It concluded that section 50C, being a deeming provision, must be read in its entirety, including subsections (2) and (3), which provide the assessee the right to object to the stamp duty value and seek a valuation from the Department Valuation Officer (DVO).

Key Evidence and Findings

The CPC added the difference between the declared sale consideration and the stamp duty value to the assessee's income, based on section 50C(1). The Tribunal found that this adjustment deprived the assessee of the statutory right to object to the stamp duty value as per section 50C(2).

Application of Law to Facts

The Tribunal determined that the adjustment under section 143(1)(a)(ii) was inappropriate because it did not allow the assessee the opportunity to challenge the stamp duty value through the DVO, as provided under section 50C(2). The Tribunal emphasized that section 50C should not be applied in isolation, and the assessee's right to object is a crucial statutory provision.

Treatment of Competing Arguments

The Tribunal addressed the argument that the sale consideration being less than the stamp duty value constituted an "incorrect claim." It clarified that such an interpretation would ignore the statutory rights provided under section 50C(2), and adjustments at the processing stage should not bypass these rights.

Conclusions

The Tribunal concluded that the addition made by the CPC under section 50C(1) by way of adjustment under section 143(1)(a)(ii) was unsustainable. It held that such adjustments could not be made without allowing the assessee the opportunity to object, as per the statutory framework.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

The Tribunal stated, "On a conjoint reading of section 143(1)(a)(ii) along with Explanation it becomes very much clear that the addition under section 50C(1) cannot be in the nature of incorrect claim as provided in Explanation to section 143(1)(a)(ii) of the Act."

Core Principles Established

• Section 50C as a deeming provision must be applied in its entirety, including the right to object to the stamp duty value.
• Adjustments under section 143(1) should not bypass statutory rights provided to the assessee, such as the right to a valuation by the DVO.
• The principles of natural justice require that the assessee be given an opportunity to object to adjustments that impact their tax liability.

Final Determinations on Each Issue

• The adjustment made under section 50C(1) by the CPC under section 143(1)(a)(ii) was deemed unsustainable.
• The Tribunal deleted the addition, allowing the appeal in favor of the assessee.