WHETHER THE ADJUSTMENT MADE UNDER SECTION 50C (1) OF THE INCOME TAX ACT, 1961 CAN FALL WITHIN THE AMBIT OF ADJUSTMENTS UNDER SECTION 143(1)(a) OF THE ACT?

[DR.MARIAPPAN GOVINDARAJAN]

Section 143 of the Income Tax Act, 1961 (‘Act’ for short) provides the procedure for computation of income. Section 143(1) provides for the adjustments to be made while computation of income of an assessee. The said section provides that Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:--

1. the total income or loss shall be computed after making the following adjustments, namely:

1. any arithmetical error in the return;
2. an incorrect claim, if such incorrect claim is apparent from any information in the return;
3. disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under section 139(1);
4. disallowance of expenditure 68 or increase in income indicated in the audit report but not taken into account in computing the total income in the return;
5. disallowance of deduction claimed under 69 section 10AA or under any of the provisions of Chapter VI-A under the heading ‘C.-- Deductions in respect of certain incomes’, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or
6. addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return.

In AMIT SABHARWAL VERSUS ASST. DIRECTOR OF INCOME TAX, CPC, BENGALURU/ITO, WARD 46 (3), NEW DELHI - 2025 (3) TMI 712 - ITAT DELHI, the assessee filed his Income Tax Return on 25.10.2019 declaring income of Rs.62,43,461/- for the Assessment Year (‘AY’ for short). The assessee, in his return, declared the capital gains for Rs. 46.23 lakhs on the sale of immovable property situated in Noida for the consideration of Rs.1.58 crores. But according to the guidance value the stamp duty is payable on Rs.1.95 crores. The assessee declared both the guidance value and sales value in his return.

The Assessing Officer, while making the assessment for the assessee, took the guidance value instead of the sale value. For this purpose, a show cause notice was issued to the assessee for the addition of Rs.36.51 lakhs between the guidance value and the sale value. The assessee filed objections before AO, CPC against the addition of the said amount. The Assessing Officer did not consider the objections raised by the assessee and added Rs.36.51 lakhs to the income of the assessee and computed tax accordingly.

The assessee filed an appeal before the First Appellate Authority, viz., the Commissioner of Income Tax (Appeals). The First Appellate Authority dismissed the appeal filed by the assessee. The First Appellate Authority observed that the appellant had sold a residential property in Noida for Rs.1,58,43,750/-. The guideline value of the said property on that date was Rs.1,94,95,000/-, the minimum value of that property as fixed by the State Government, at which property can be registered. The said property was sold at Rs. 1,58,43,750/-, which was below the guideline value fixed by the State Government. The First Appellate Authority further observed that according to Section 50C of the Act, the sale consideration value must not fall below the stamp duty value determined by the Stamp Value Authority. However, the income tax department allows a slight relief of 10% variation. Since the assessee himself admitted that the land was sold below the guidelines value, the First Appellate Authority dismissed the appeal.

Therefore, the assessee filed the present appeal before the Income Tax Appellate Tribunal (‘ITAT’ for short), New Delhi against the order of the First Appellate Authority. The appellant submitted the following before the ITAT-

• Once the assessee had filed his objection to the show cause notice for proposed adjustment under section 143(1) of the Act, the proper recourse available with the Assessing Officer was to refer the matter to the Departmental Valuation Officer for needful valuation and subsequent actions thereafter.
• The Assessing Officer did not follow the procedure as prescribed under Section 50C of the Act once the Assessee filed objections to the show cause notice for the addition of differential amount between the guidance value and sale value.
• The Assessing Officer, due to the above reason, cannot make addition to the income of the assessee.

The Revenue supported the findings of the Assessing Officer and confirmed by the First Appellate Authority.

The ITAT considered the submissions of both the parties. The ITAT analysed the provisions of Section 143 and 50C of the Act. The ITAT considered the issue to decided by it as to whether the addition made under section 50C(1) can fall within the ambit of adjustments provided under section 143(1)(a) of the Act.

The ITAT observed that adjustment has been made under sub- clause (ii) to section 143(1)(a) of the Act. The explanation to the above said Act provides that ‘an incorrect claim apparent from any information in the return’ shall mean a claim, on the basis of the entry in the return-

• of an item, which is inconsistent with another entry of the same or some other item in such return;
• in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or
• in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;

The ITAT observed that 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. Section 50C of the Act is to be read as a whole and cannot be restricted to sub-section (1) alone. A deeming provision has to be taken to its logical end. Section 50C is a deeming provision.

The ITAT observed that Section 50C(1) provides a deeming provision has to be taken to its logical end. Section 50C(2) carves out an exception by providing that if the assessee objects to the stamp duty value, the valuation has to be referred to the Department Valuation Officer. In case the value determined by the Department Valuation Officer is lower than the stamp duty value, the value determined by Department Valuation Officer has to be considered for computing capital gain in terms with Section 50(3). Without giving an opportunity to the assessee and complying with the provisions of Section 50C the Assessing Officer added the differential value between the guidance value and sales value is not sustainable. The conditions of the first and second provisos to Section 143(1)(a) are not fulfilled in this case. Therefore, the ITAT deleted the addition made by the Assessing Officer and confirmed by the First Appellate Authority.