2023 (8) TMI 1637 - AT - Income Tax

Validity of order passed u/s 147 r.w.s. 144C(13) as barred by limitation - HELD THAT - DRP has held that since Form 35A has not been signed by the assessee within 30 days from the date of draft assessment order then objections are not maintainable. The ld. DRP has refused to take the scanned copy of Form No. 35A which was furnished before it. DRP once held objection is not maintainable then same should have been intimated to the assessee and to the ld. AO in time and then ld. AO would pass the final assessment order within time and assessee would have sought remedy u/s. 250 before the ld. CIT (A). But here the ld. DRP has passed the direction taking into consideration all the objections raised by the assessee after giving all the opportunity to the assessee and has given categorical finding and direction to the ld. AO. Thus under these circumstances we cannot hold that final assessment order is barred by limitation. Accordingly ground No. 1 5 as raised by the assessee rejected. Difference between the fair market value and the actual consideration added u/s. 56(2)(vii) - As argued Section 56(2)(vii) was brought in the statute for the specific purpose of curbing bogus capital building and money laundering transaction and it is an anti-abuse provision - HELD THAT - Section 56(2)(vii)(b) provides that certain income shall be chargeable to income tax under the head income from other sources and clause vii read with sub-clause b provides that where an individual replaced in any previous year any immovable property for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs. 50, 000/- then the stamp value of such property which exceeds its consideration is deemed to be income of the assessee. The purposive construction can only be resorted to when there is ambiguity or the contradiction in two provisions for the same statute. Here no such ambiguity or contradiction is there nor has been pointed out before us. A Court of law has nothing to do with reasonable or unreasonableness of a provision of a statute except as it may hold in interpreting what the legislature has clearly stated. If the language of the statute envisages only one meaning then it must be continued to mean and intended what it has been clearly expressed. Accordingly the contention raised by the ld. counsel cannot be accepted. Here in this case we cannot resort to purposive construction to see in this case whether there was any intent for tax evasion or the transaction is for money laundering or tackling the menace of black money etc. The deeming provision gets attracted when the conditions mentioned in the section are attracted on the facts of the case. Accordingly the contention raised by the ld. Counsel is rejected. Addition u/s. 56(2)(vii)(b) - We agree with the contention of the ld. Counsel that if the difference is less than 10% between fair market value and the sale consideration shown then no addition should be made. This is so because third proviso to Section 56(2)(vii) provides reference to Section 50C for determining the valuation of the property of valuation officer. The third proviso to Section 50C provides that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed 10% of the consideration received shall be taken as full value consideration i.e. if the difference is less than 10% the same can be taken as share market value. Though this provision has been brought in the statute w.e.f. 01/04/2019 however Courts have held that the same is beneficial provision therefore benefit should be given with retrospective effect. Thus we hold that if the difference between the actual sale consideration FMV determined by the valuation officer is less than 10% then no addition should be made u/s. 56(2)(vii)(b). Valuation arrived by the DVO - HELD THAT - DVO has only taken the average of two sale instances to arrive at the valuation of Rs. 6, 65, 90, 250/- but in its annexure he has taken average of three sale properties in the same vicinity. Thus contention raised by the ld. Counsel that from DVO s report if the correct figures are taken of all the comparable sales instances the average valuation of the property would be Rs. 6.54 Crores which is admittedly less than 10% of the actual sale consideration and 10 % difference if added comes to Rs. 6, 65, 50, 000/-. Accordingly on this ground addition is directed to be deleted. Appeal of the assessee is partly allowed.

Summary

The core legal questions considered in this appeal are as follows:

1. Whether the final assessment order passed under section 147 read with section 144C(13) is barred by limitation, given the procedural timeline and the maintainability of the objections filed by the assessee before the Dispute Resolution Panel (DRP).

2. Whether the difference between the fair market value (FMV) and the actual consideration paid for an immovable property can be added as income under section 56(2)(vii) of the Income Tax Act, particularly considering the legislative intent and the applicability of anti-abuse provisions.

3. Whether the valuation of the property as determined by the Departmental Valuation Officer (DVO) is correct and can be relied upon to compute the deemed income under section 56(2)(vii)(b).

Issue 1: Limitation and Maintainability of Objections Before the DRP

The relevant legal framework involves the provisions of sections 147, 148, 144C(3), 144C(4), 144C(5), and 144C(13) of the Income Tax Act, which govern reassessment proceedings and the role of the DRP in resolving objections to draft assessment orders.

The assessee contended that the final assessment order dated 03/01/2023 was barred by limitation because the objections filed before the DRP were held to be not maintainable due to procedural defects-specifically, that Form 35A was not signed by the assessee within the stipulated 30-day period from the date of the draft assessment order. Consequently, the assessee argued that no valid directions were issued by the DRP, and therefore, the Assessing Officer (AO) was required to pass the final order within the prescribed time limit, which was not done.

The DRP had indeed rejected the objections on the ground of non-maintainability but proceeded to consider the objections on merits and issued directions to the AO under section 144C(5). The Court noted that once the DRP issues directions on merits, the AO is bound under section 144C(13) to pass the final assessment order in accordance with those directions.

The Court held that the DRP should have either intimated the non-maintainability of objections to the AO promptly, enabling the AO to pass the final order within time, or if the DRP chooses to consider the objections on merits and issue directions, the AO must comply with those directions. Since the DRP issued directions on merits, the final assessment order was not barred by limitation. The contention that the order was time-barred was accordingly rejected.

Issue 2: Applicability of Section 56(2)(vii) and the Legislative Intent

Section 56(2)(vii)(b) provides that where an individual acquires immovable property for a consideration less than its stamp duty value by an amount exceeding Rs. 50,000, the difference is deemed to be income under the head "Income from Other Sources." The provision is a deeming clause aimed at curbing tax evasion through undervaluation of property transactions.

The assessee argued that this provision is an anti-abuse measure intended to prevent bogus capital building and money laundering, and therefore, should be applied only if there is evidence of tax evasion or black money transactions. The assessee relied on various circulars and judicial precedents emphasizing the purposive construction of this provision and limiting its application to cases involving tax evasion.

The Court examined the statutory language and held that the provision is clear and unambiguous, and its application is triggered solely by the facts of the transaction-specifically, whether the consideration is less than the stamp duty value by the prescribed threshold. The Court emphasized the principle of literal construction, noting that purposive interpretation is warranted only when there is ambiguity or contradiction in the statute, which was absent here.

Accordingly, the Court rejected the argument that the provision should be confined to cases involving tax evasion or money laundering. The deeming provision applies strictly based on the factual matrix, irrespective of the alleged intent behind the transaction.

Issue 3: Correctness of Valuation by the Departmental Valuation Officer (DVO)

The valuation of the property was central to the computation of deemed income under section 56(2)(vii)(b). The AO initially relied on the stamp duty value of Rs. 8,23,74,006, which exceeded the actual consideration of Rs. 6,05,00,000 by Rs. 2,18,74,006, leading to the addition of the difference as income.

The assessee submitted a valuation report from a Registered Valuer, placing the FMV at Rs. 6,07,68,000, close to the actual consideration. The matter was referred to the DVO, who valued the property at Rs. 6,65,90,250, which was lower than the stamp duty value but higher than the sale consideration.

The assessee contended that the difference between the FMV as per the DVO and the actual consideration was within 10%, and therefore, no addition should be made. The assessee relied on the third proviso to section 50C, which provides that if the difference between the stamp duty value and consideration does not exceed 10%, the consideration shall be deemed to be the full value of consideration. Although this proviso was introduced with effect from 01/04/2019, the Court noted that it is a beneficial provision and should be applied retrospectively.

Upon detailed examination of the DVO's report, the Court observed that the DVO had taken an average of two comparable sales to arrive at the valuation of Rs. 6,65,90,250, whereas the average of all comparable sales mentioned was approximately Rs. 6,54,60,425. This figure was less than 10% above the actual consideration, and the 10% margin would bring the value to approximately Rs. 6,65,50,000.

The Court accepted the assessee's contention that the difference was within the 10% threshold and deleted the addition made under section 56(2)(vii)(b). Consequently, other issues became academic and were not adjudicated.

Significant Holdings:

"Once the draft assessment order has been passed and assessee chooses to file the objection and if the said objections have been considered by the ld. DRP and directions have been issued, then in so far as Assessing Officer is concerned, he is bound to pass the final assessment order u/s. 144C(13)."

"It is trite and well settled law that the construction of the statute must be taken from the bare words of the Act... Courts cannot invent something which is not there in the statute nor should try to gauge the intention of the Legislature."

"If the difference between the actual sale consideration & FMV determined by the valuation officer is less than 10%, then no addition should be made u/s. 56(2)(vii)(b)."

In conclusion, the Court upheld the validity of the final assessment order as not barred by limitation, rejected the narrow purposive interpretation of section 56(2)(vii), and allowed the appeal partly by deleting the addition on the ground that the difference between FMV and consideration was within the 10% threshold, thereby negating the applicability of the deeming provision for income computation.