2025 (4) TMI 1085 - HC - Income Tax

De novo assessment proceedings - requirement of affording a personal hearing - Long term capital gains on sale of land - applicability and effect of Section 50-C - tax liability of child selling property as given power of attorney by other siblings after fathers death - HELD THAT - Appellate Tribunal had remitted the matter to the file of the assessing officer for de novo assessment after affording due opportunity of hearing to the appellant. The expression de novo assessment had been explained in Headstrong Services India (P) Ltd. 2020 (12) TMI 1086 - DELHI HIGH COURT held that once the ITAT directed the assessing officer to decide the matter de novo it meant that a new hearing of the matter had to be conducted as if the original hearing had not taken place consequently the assessing officer had to decide the matter in accordance with the procedure mentioned in the statute. A mere look at the impugned order would show that the assessing officer had taken into account the materials gathered on the earlier occasion. Though the assessing officer was expected to proceed on the premise that the slate was wiped clean such an approach was not adopted. The acknowledgement generated by the department itself indicates that the assessee had requested the authority to grant hearing through video conference before passing any order. Admittedly the assessing officer had not granted any opportunity of personal hearing to the assessee. As per the statutory provision and as per the order of the Income Tax Appellate Tribunal due opportunity of hearing should have been given to the assessee. Admittedly such an opportunity of hearing was not given to the assessee. The learned single Judge had not taken note of these twin aspects. In this view of the matter the order impugned in this writ appeal is set aside. Applicability and effect of Section 50C - The sale consideration declared in the sale deed dated 26.02.2007 is not relevant and that the value has to be determined u/s 50-C of the Income Tax Act. If the guideline value is more than the value declared in the document then guideline alone is relevant for payment of tax. What the executant of the sale deed received is of no consequence. Though the petitioner is bound by the valuation made by the department in terms of Section 50-C of the Act he is entitled to be heard on the question of his share of tax liability. This is because Samuel was not the exclusive owner of the property. The matter is remitted to the file of the assessing officer who has to act as per law . Writ appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

• Whether the assessing officer was justified in completing the assessment without granting the assessee a personal hearing, especially after the matter was remitted for de novo assessment by the Income Tax Appellate Tribunal (ITAT).
• The applicability and effect of Section 50-C of the Income Tax Act, 1961, concerning valuation of sale consideration for capital gains tax purposes when the guideline value exceeds the declared sale consideration.
• The relevance of the sale consideration declared in the sale deed versus the guideline value fixed by the department, and whether the actual receipt of sale consideration by the assessee affects tax liability.
• The entitlement of the assessee, who was a co-owner, to be heard on the proportionate share of tax liability arising from the sale of the jointly owned property.
• The procedural correctness of the assessment proceedings, particularly compliance with principles of natural justice, including the opportunity to cross-examine witnesses such as the purchaser and co-owners.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the assessing officer complied with the requirement of affording a personal hearing during the de novo assessment proceedings.

Relevant legal framework and precedents: The Income Tax Appellate Tribunal had remanded the matter for de novo assessment, requiring the assessing officer to conduct a fresh hearing as if the original hearing had not taken place. The Division Bench of the Delhi High Court in Principal Commissioner of Income Tax-4 v. Headstrong Services India (P) Ltd. clarified that a direction for de novo assessment mandates a complete fresh hearing in accordance with statutory procedure.

Section 144B(6)(vii) and (viii) of the Income Tax Act, 1961, provides that where a variation is proposed in the draft order, the assessee may request a personal hearing, which must be granted via video conferencing or similar technology.

Court's interpretation and reasoning: The Court observed that the assessing officer relied on earlier gathered materials instead of conducting a fresh hearing. Despite the assessee's request for a personal hearing through video conferencing, no such opportunity was granted before passing the final assessment order.

Key evidence and findings: The acknowledgement from the Income Tax Department confirmed the request for hearing, but the order was passed without granting it.

Application of law to facts: The Court held that the failure to grant a personal hearing violated the statutory mandate and principles of natural justice, especially in the context of a de novo assessment.

Treatment of competing arguments: The department contended that the assessment was proper and that cross-examination requests were futile. However, the Court prioritized statutory procedure and fair hearing rights over these arguments.

Conclusion: The Court set aside the impugned order on this ground, emphasizing the necessity of affording the assessee a personal hearing in de novo proceedings.

Issue 2: The applicability of Section 50-C of the Income Tax Act in determining the sale consideration for capital gains tax.

Relevant legal framework and precedents: Section 50-C mandates that if the consideration declared in the sale deed is less than the stamp duty valuation (guideline value), the latter shall be deemed to be the full value of consideration for capital gains computation.

Court's interpretation and reasoning: The Court reaffirmed that the sale consideration declared in the deed (Rs. 15 Lakhs) is not relevant if it is lower than the guideline value fixed by the department (Rs. 55,37,300/-). The valuation under Section 50-C is determinative for tax purposes.

Key evidence and findings: The sale deed and the guideline value were examined, and the department's valuation was upheld.

Application of law to facts: The Court held that the actual receipt of sale consideration by the assessee is immaterial under Section 50-C; the deemed consideration based on guideline value governs tax liability.

Treatment of competing arguments: The assessee argued non-receipt of sale consideration and that tax should be on proportionate ownership. The Court accepted the latter point but rejected the argument about actual receipt affecting valuation.

Conclusion: The Court held that the guideline value is relevant and binding for tax computation under Section 50-C, irrespective of actual payment received.

Issue 3: The assessee's entitlement to be heard on the question of his proportionate share of tax liability arising from the sale of jointly owned property.

Relevant legal framework: The property was co-owned by six siblings, with five executing a power of attorney in favor of the appellant for sale. Tax liability must correspond to the share of ownership.

Court's interpretation and reasoning: While the valuation under Section 50-C applies to the entire property, the assessee is entitled to be heard on his share of tax liability, as he was not the exclusive owner.

Key evidence and findings: The power of attorney and the joint ownership facts were acknowledged.

Application of law to facts: The Court remitted the matter to the assessing officer to determine the correct proportionate tax liability and provide the assessee an opportunity to present his case on this aspect.

Treatment of competing arguments: The department did not dispute the co-ownership but maintained the valuation for the entire property.

Conclusion: The Court recognized the need for proportionate tax assessment and hearing on this issue.

Issue 4: Procedural correctness and natural justice concerning cross-examination of purchaser and co-owners.

Relevant legal framework: Principles of natural justice require that an assessee be given a fair opportunity to present and test evidence, including cross-examination where relevant.

Court's interpretation and reasoning: The Court found no merit in the claim that denial of cross-examination of the purchaser and siblings violated natural justice, as the sale deed and power of attorney documents were conclusive. The siblings had relinquished their rights, and the sale deed was self-explanatory.

Key evidence and findings: The remand report stated siblings had given up rights, and the sale deed was executed by the authorized person.

Application of law to facts: The Court held that cross-examination in this context would not have served any useful purpose.

Treatment of competing arguments: The assessee's request for cross-examination was viewed as an attempt to delay proceedings.

Conclusion: No violation of natural justice was found on this ground.

3. SIGNIFICANT HOLDINGS

"Once the ITAT directed the assessing officer to decide the matter de novo, it meant that a new hearing of the matter had to be conducted, as if the original hearing had not taken place, consequently, the assessing officer had to decide the matter in accordance with the procedure mentioned in the statute."

"If the guideline value is more than the value declared in the document, then guideline value is relevant for payment of tax. Whether the petitioner has received the aforesaid amount is of no consequence. As long as a sale was effected the petitioner is bound by Section 50 C of the Income Tax Act."

"Though the petitioner is bound by the valuation made by the department in terms of Section 50-C of the Act, he is entitled to be heard on the question of his share of tax liability. This is because Samuel was not the exclusive owner of the property."

"The failure to grant a personal hearing to the assessee during de novo assessment proceedings, despite a request and statutory mandate, violates principles of natural justice and statutory procedure."

The Court set aside the impugned order and remitted the matter to the assessing officer with directions to:

• Conduct a fresh assessment de novo in accordance with statutory procedure.
• Afford the assessee an opportunity of personal hearing, including via video conferencing as per Section 144B(6)(vii) and (viii).
• Determine the tax liability based on the guideline value under Section 50-C, irrespective of the declared sale consideration or actual receipt.
• Hear the assessee on the proportionate share of tax liability, given the co-ownership of the property.