Quality Chemicals Industries Vs DCIT (ITAT Mumbai)
Section 50C Addition by CPC Despite Assessee’s Objection: Mumbai ITAT Gives Firm Another Chance
Summary: Can the CPC adopt the stamp duty value while processing a return when the assessee has specifically objected and claimed that an earlier agreement date is relevant under section 50C? The Mumbai Tribunal considered this question in Quality Chemicals Industries. It found that the assessee’s objection had not been properly considered, but also noted that the supporting documents had not been placed before the CIT(A). The matter was therefore restored to the CIT(A) for a fresh examination.
The difference of ₹43.18 lakh
The assessee, a partnership firm, filed its return for AY 2021–22 declaring total income of approximately ₹2.04 crore. In computing short-term capital gains on the sale of a building, it adopted a value of ₹65,82,588. The CPC found that the stamp duty value of the property was ₹1,09,01,034 and proposed to add the difference of ₹43,18,446 to the declared capital gains.
A communication proposing the adjustment was issued on 9 August 2022. The assessee responded on 26 August 2022, expressly disagreeing with it. Nevertheless, the CPC issued an intimation under section 143(1) on 2 November 2022, making the addition by adopting the higher stamp duty value.
Why the assessee objected
The assessee’s case was that the transaction had commenced on 7 October 2019, when the full sale price was received. According to the assessee, registration and delivery of possession took place only on 26 February 2021 because permissions, including those from MIDC, had to be obtained before completion.
On that basis, the assessee invoked the first proviso to section 50C(1). This proviso permits the stamp duty value on the date of the agreement to be considered instead of the value on the date of registration where the two dates differ, provided the statutory conditions are satisfied. The assessee also referred to a registered valuer’s report and raised a contention under section 50C(2).
The assessee further argued that the CPC could not decide these disputed factual questions through a prima facie adjustment under section 143(1)(a). Its objection was that the CPC had adopted the registration-year stamp duty value without examining the explanation already furnished in response to the proposed adjustment.
What happened before the CIT(A)?
In its appeal, the assessee challenged both the CPC’s power to make the adjustment and the application of section 50C on the facts. It maintained that its response to the proposed adjustment could not be treated as an empty formality.
However, the assessee did not follow through by furnishing the documents before the CIT(A). The appellate authority issued multiple electronic notices over the course of the proceedings. The assessee repeatedly sought adjournments but did not provide the material needed to substantiate its grounds. The CIT(A) concluded that the assessee had failed to prosecute the appeal and dismissed it without adjudicating the substantive grounds.
This failure became significant before the Tribunal. The assessee could say that the CPC portal did not allow it to upload the evidence with its objection. That explanation did not account for its failure to produce the same evidence during the first appeal, where an opportunity had been available.
Additional evidence before the Tribunal
The assessee then placed several documents before the Tribunal as additional evidence. These included a memorandum of understanding dated 7 October 2019, bank statements for verification of receipts from the buyer, an MIDC approval letter, and a valuation report dated 15 February 2022.
The Tribunal observed that the CPC had proceeded with the adjustment without properly considering the assessee’s objection. It also recorded that the objection before the CPC was unsupported by documents because of the limited facility available on the portal. At the same time, the Tribunal noted that the documents produced before it had not been furnished before the CIT(A) for examination and verification.
The Tribunal considered those documents relevant to determining the sale consideration to be adopted for capital gains purposes. Since they had not been verified by the first appellate authority, the Tribunal did not decide their evidentiary value itself.
Tribunal restores the appeal
To give the assessee an opportunity to establish its case with facts and evidence, the Tribunal restored the matter to the CIT(A). It expressly stated that it was making no observation on the merits of the documents. The assessee was directed to cooperate in the appellate proceedings.
The appeal was thus allowed for statistical purposes. This means that the assessee obtained a fresh hearing; it does not mean that the Tribunal finally deleted the ₹43.18 lakh addition or accepted the value adopted in the return.
Author’s comments
The order highlights a practical difficulty with a section 50C adjustment at the processing stage. A difference between the sale consideration reported in a return and the stamp duty value may be visible to the CPC. But where the assessee points to an earlier agreement, earlier receipt of consideration and a later registration dependent on permissions, deciding which value applies requires verification of documents and dates.
Equally, an assessee cannot rely only on having filed an objection with the CPC. If the issue reaches the CIT(A), the agreement, payment records, permissions and valuation material must be placed on record when called for. In this case, the Tribunal granted another opportunity, while specifically noting the assessee’s failure to use the earlier one.
There is also an important distinction to keep in view on remand. The first proviso to section 50C(1) refers to the stamp duty value on the agreement date, subject to its conditions. A registered valuer’s estimate does not automatically become that stamp duty value. The CIT(A) will have to examine what each document proves and how the relevant provisions of section 50C apply.
The ruling therefore gives the assessee a chance to prove its claim, while leaving the central question open: what value should ultimately be adopted for computing the capital gain?
Cases Discussed
- PCIT-3 vs Ashokji Chanduji Thakor, ITA Nos. 710, 711, 712, 713, 714 & 717 of 2018 (Gujarat High Court) — Relied upon by the CIT(A) while dismissing the appeal for non-prosecution.
- M/s Chemipol v/s Union Of India, Central Excise Appeal No.62 of 2009 (Bombay High Court) — Relied upon by the CIT(A) while dismissing the appeal for non-prosecution.
- New India Assurance vs Srinivasan (2000) 3 SCC 242 (Supreme Court) — Relied upon by the CIT(A) while dismissing the appeal for non-prosecution.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been filed by the Assessee against the order dated 16th January, 2026 for the assessement year 2021-2022, passed by the learned Commissioner of Income Tax (Appeals)[„Ld. CIT (A)‟], arising out of intimation u/s 143 (1) of the Income Tax Act, 1961 („the Act‟).
2. The Assessee has raised the following grounds before this Tribunal:
1. On the facts and in the circumstances of the case, the Addl / Jt. CIT (A), hereinafter referred to as the “JCIT (A)”, has erred in dismissing the appeal of the appellant without adjudicating any of the grounds raised by the appellant. The JCIT (A) has erred in not considering the facts of the case and the grounds of appeal raised by the appellant while deciding the appeal filed.
2. Without prejudice to the Ground – 1 above, the Centralized Processing Centre, hereinafter referred to as the “CPC”, has erred in making adjustment of Rs. 43,18,446/- to the income of the appellant in excess of the powers available to the CPC under the provisions of section 143(1) of the Act. The CPC has erred in not considering the express objections raised by the appellant against the proposed adjustments, thereby making the second proviso to section 143(1) as a nullity. The JCIT (A) has erred in not adjudicating the specific ground raised by the appellant in this regard and has thereby erred in confirming the action of the CPC.
3. Without prejudice to Ground – 1 and 2 above, the CPC has erred in making an addition of Rs. 43,18,446/- u/s. 50C of the Act. The impugned addition / adjustment is contrary to the provisions of the first proviso to section 50C(1) and also section 50C(2) of the Act. The CPC has erred in invoking the provisions of section 50C in a selective manner, thereby making impermissible addition in the case of the appellant. The JCIT (A) has erred in not adjudicating specific ground raised by the appellant in this regard and thereby confirming the addition which is not in accordance with the provisions of section 50C of the Act.
4. In view of the above, the appellant submits that the adjustments made vide the intimation u/s. 143(1) are beyond the powers available to the CPC and further the said adjustments are contrary to the provisions of section 50C. The appellant, therefore, prays that the adjustments resulting into addition may please be deleted or any other relief as deemed fit may please be allowed to the appellant.
3. The brief facts of the case; that the Assessee is a partnership firm (Quality Chemicals Industries), was engaged in manufacturing chemicals, and shifted to trading activities, filed its return of income u/s 139 for A.Y. 2021-2022 on 11.03.2022 declaring total income of Rs 204,48,030/- (comprising of STCG of Rs.27,94,421/-, LTCG Rs.1,74,15,956/-, business income from Business Rs 167,877/- & Other sources of Rs 69,776). The CPC, while processing return of income, found that stamp duty value of property sold was higher than the actual sale consideration reported by the assessee. Following that difference, CPC issued a communication to the Assessee on 9th August, 2022 for the proposed adjustment of Rs.43,18,446/- (difference between Rs.1,09,01,034/- & Rs.65,82,588/-) to the Short Term Capital Gains declared in the Return of Income. In response to that, the Assessee furnished its response on 26-08-2022, with disagreement to proposed adjustment with explanation “that sale transactions started on 07-10-2019 by receiving full value of sale price but with condition that all the permission from MIDC etc. are to be obtained before completion of sale transaction registration and handing over of the possession of building was completed on 26-02-2021, so sale price was taken as per the valuation report of registered valuer at Rs 65,82,588/- as on 01-04-2019 (being FMV for 07-10-2019) as per first proviso of section 50C(1) of the Income Tax Act, 1961”. For that case of the Assessee is covered by the first proviso to section 50C(1) of the Act.
4. The CPC considering the response of assessee passed an intimation order u/s 143(1) of the Act on 02.11.2022 making addition of Rs.43,18,446/-. This addition has been determined by adopting 2021 stamp duty value, Rs.1,09,01,034/- of transferred short term capital asset, being building.
5. Aggrieved by the intimation u/s 143(1) of the Act, Assessee filed an appeal before the Ld.CIT(A) disputing the additions, and challenged the authority of CPC to make adjustments in garb of provisions of section 143(1) of the Act.
6. The Assessee, while filing of an appeal in Form No. 35, has mentioned detail statement of facts in the Form No. 35, stating that adjustment made by the CPC is not within the powers available to the CPC under the provisions of section 143(1)(a) of the Act. The CPC has made the impugned adjustment under clause (ii) of the section 143(1)(a) of the Act, which reads as : “an incorrect claim, if such incorrect claim is apparent from any information in the return”. This clause relevant to deduction claimed by Assessee or allowance or relief etc., in the present case, there is no such claim for any deduction or allowance or relief in the return of income of the Assessee, therefore the clause (ii) of section 143(1)(a) does not have any application. The Assessee further stated that the action of the CPC in making this adjustment is in complete disregard of the second proviso to section 143(1)(a), which provides that in a case where the response is received from the Assessee, such response from the Assessee shall be considered before making any adjustment.
The mechanism provided in the second proviso is with a purpose that no wrong adjustments are made where they are not called for. The said mechanism is not mere ritual, or an empty formality, and the second proviso has to be followed in letter and spirit. Where there is no case for prima facie adjustments, the same cannot be made within the purview of section 143(1)(a) of the Act.
The Assessee also mentioned that its case falls under the ambit of provisions of the first proviso to section 50C(1) and also the provisions of section 50C(2) of the Act, so, assessee has correctly applied the said provisions on the basis of a valuation report of an independent valuer.
Once the Assessee has raised objection against the proposed adjustment and that too with a proper explanation about the facts of the case, the department could not have made the adjustment. Rather, it was open for the department to take up the regular assessment, where the Assessee could have explained all its contentions with proper reasoning and evidences. The Assessee cannot be put to a disadvantageous position on account of the failure of the department to take up the case of the Assessee for a regular assessment.
7. The Ld. CIT(A) during the course of appeal proceedings, provided multiple opportunities through notices in electronically mode, allowing to substantiate its grounds of appeal by furnishing of written submission and supporting documents. But, Assessee failed to comply with the same and repeatedly sought adjournments during the span of 2 year. Looking to non reply from assessee, with documentary or material evidence in support of the claims made, the Ld. CIT(A) observed that Assessee is not interested in pursuing the appeal, and relied upon following judgments, dismissed the appeal of the Assessee:
1. PCIT-3 vs Ashokji Chanduji Thakor, In ITA No. 710,711,712,713,714, 717 of 2018, Guj HC
2. M/s Chemipol v/s Union Of India [ Central Excise Appeal No.62 of 2009] Mumbai HC
3. New India Assurance vs Srinivasan (2000) 3 SCC 242, etc
8. Now, the Assessee is in appeal before Tribunal, and furnished additional evidences for admission under rule 29 of ITAT, Rules, 1963. On perusal of documents, prima facie it is found that these evidences comprising of memorandum of understanding dated 07-10-2019 executed between buyer and seller, bank statement for verification of contemporaneous receipts from the buyer, Approval letter from MIDC, Valuation report dated 15-02-2022 etc, have not been furnished before the Ld. CIT(A) for the examination and verification. The ld AR of assessee also stated that these evidences could not be furnished before CPC for not having facility on the IT portal, however, the Ld.CIT(A) would be the first authority, where Assessee could have produced in support of its grounds of appeal.
9. Per contra, learned DR relied upon the order of Ld.CIT(A) and CPC.
10. We have considered the rival submissions and perused the additional evidences and orders of authority, we, observed that CPC while passing an intimation under section 143(1) of the Act, did not considered the objection cum reply of the Assessee for the proposed adjustments. The objections of Assessee were also not supported with evidences, as these could not be uploaded at IT Portal for its limited permission of furnishing of reply.
11. Pertinently, before Ld.CIT(A), the assessee failed in prosecuting its appeal and furnishing all these evidences for examination and verification. The assessee furnished these additional evidences produced before us for consideration. We observed that, these are require to examine, verify by CIT(A) for determination of capital gain income by adopting the sale consideration of capital assets in terms of the applicable provisions, therefore, we deem it fit to restore the case to the file of Ld.CIT(A) and allow another opportunity to explain its case with facts and evidences to impart substantive justice to appellant. At this point of time, we are not putting any observation on the evidences / documents in relation to merits of the case. Thus, we, restore the case to the Ld.CIT(A) and direct the Assessee to co-operate in appeal proceedings.
12. In the result, the appeal of the Assessee is allowed for statistical purposes.
Order pronounced in the open court on 25.09.2026.
