Dayaram Sobharam Vs ITO (ITAT Mumbai)
Summary: The ITAT Mumbai restored the issue concerning determination of capital gains of ₹82,63,000 to the Assessing Officer for fresh adjudication for Assessment Year 2016-17. The reassessment arose from information concerning transactions involving two immovable properties and the assessee firm’s failure to file its return of income. The assessee maintained that the firm had been constituted to collect rent on behalf of landlords and discharge municipal taxes and other statutory payments. It also contended that the registered agreements dated 09.11.2015 merely converted tenancy rights into ownership and did not represent a sale attracting Section 50C. The Assessing Officer treated the firm as the owner of the properties and, in the absence of supporting acquisition particulars and capital-gains workings, assessed the entire amount as short-term capital gains. The CIT(A) upheld the assessment.
Before the Tribunal, the assessee pressed its additional ground seeking a reference to the Departmental Valuation Officer under Section 50C(2). The Revenue did not object to restoration for this purpose. The Tribunal noted that the addition had been made without substantive particulars concerning the cost and date of acquisition and the relevant sale or purchase documents. It explained that Section 50C(2) provides a valuation mechanism where the assessee disputes the stamp valuation as exceeding fair market value and the statutory conditions are satisfied. With both parties agreeing to fresh examination, the Tribunal restored the capital-gains issue to the Assessing Officer, directing consideration of the assessee’s material, a DVO reference wherever warranted, and determination of capital gains after an effective hearing.
The Tribunal expressed no opinion on the merits and left all aspects open for consideration in accordance with law. The other grounds, including challenges concerning reassessment notices, digital signatures, the response period and faceless jurisdiction, were neither argued nor pressed and were not adjudicated. The appeal was allowed for statistical purposes; the disputed addition was not finally deleted on merits.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned appeal is preferred by the assessee against the order of Commissioner of Income-tax (Appeals), National Faceless Appeal Centre- Delhi, for Assessment Year 2016-17 dated 16.01.2026, arises out of order under Section 147 dated 12.03.2024 passed by the Assessment Unit Income-tax Department.
2. The grounds of appeal raised by the assessee, including the additional ground, are as under:
“1. The NFAC erred in upholding the validity of the reassessment proceedings without appreciating that the notice under section 148A(b) of the Act, the order passed under section 148A(d) of the Act and subsequent intimation letter generating DIN for issuing the notice under section 148 of the Act are not digitally signed by the Income Tax Authority. Thus, the said notices do not have any validity under the law and the same may be quashed and set aside.
2. The NFAC failed to appreciate that the notice dated 21.03.2023 issued under section 148A(b) of the Act provided only four (4) days to the Assessee i.e. upto 24.03.2023 for submitting the reply. The provisions of section 148A(b) of the Act mandates that proper opportunity of being heard should be granted by way of a show cause notice providing the Assessee not less than seven (7) days for filing the reply. Thus, the notice under section 148A(b) and the subsequent re-assessment proceedings are bad in law and the same may be quashed.
3. The entire reassessment proceedings are bad in law as the notice under section 148A(b) of the Act, the order under section 148A(d) of the Act and Assessing Officer instead of Faceless Assessing Officer. Thus, the same are in violation of the provisions of section 151A of the Act.
The addition of Rs.82,63,000/- made under section 50C of the Act is not justified
4. The NFAC erred in confirming the addition of Rs. 82,63,000/- made by the Ld.AO invoking the provisions of section 50C of the Act by treating the same as short term capital gains without appreciating that the Appellant has not sold any immovable property in the year under consideration. Thus, provisions of section 50C of the Act are not attracted in the present case. The addition of Rs.82,63,000/- made under section 50C is arbitrary and unjustified. The same may be deleted.
5. The NFAC failed to appreciate that the agreements dated 09.11.2015 were registered only for converting the tenancy rights into ownership. Therefore, the provisions of section 50C have no application in the present case. Thus, the addition of Rs.82,63,000/- made under section 50C of the Act is not justified and the same may be deleted.
6. The interest levied under section 234A/234B/234D of the Act is not justified and the same may be deleted.
7. The Appellant seeks leave to add, alter and amend the above grounds
Additional Grounds of Appeal
1. Without prejudice to the main grounds raised in the appeal, the Ld. AO erred in invoking the provisions of Section 50C of the Act and thereby making the addition of Rs.82,63,000/- under the head Short Term Capital Gains without making reference to the Departmental Valuation Officer (DVO) as per section 50C(2) of the Act. Thus, the addition of Rs.82,63,000/- made under section 50C of the Act is arbitrary and unreasonable. Hence, the reference may be made to the DVO and Thus, the addition made under section 50C of the Act is not justified and the same may be deleted.”
3. The brief facts of the case are that the assessee firm’s case was re-opened u/s 147 of the Act, on the basis of specific information regarding some financial transactions involving sales of immovable properties amounting to Rs.82,63,000/-. The assessee has not filed the return of income, in spite of sale of two immovable properties, therefore, the case therefore was re-opened for assessment of escaped income in the garb of ‘Capital Gains’ earned by the assessee. The assessee was show-caused with specific questions which were responded. However, the AO was not convinced with the variations. Finally, the AO has drawn the conclusion that the assessee firm had not filed its return of income despite having certain substantial transactions of immovable properties. The assessee’s contention that the partnership firm was formed with the intention to merely collect rent from tenants on behalf of the landlords and pay municipal taxes and other statutory payments could find favour from the AO. It is held by the AO that the assessee firm is absolute owner of the above immovable properties sold during the year. Therefore, it is clear that the assessee firm has transferred and liable for payment of capital gain r.w.s. Section 50C of the I.T. Act.
4. The submission of assessee regarding tenancy rights converted into ownership were not substantiated with corroborative evidences such as copy of agreement of transfer of tenancy rights etc. Further, during the assessment proceedings, the assessee has not submitted any details regarding of calculation of any capital gain inter alia the details such as cost of acquisition, date of acquisition, or acquisition has been taken at NIL and the sale of immovable properties are considered to be in the ownership of the assessee firm for less than three years. Accordingly, the entire amount of consideration of Rs.82,63,000/- was treated as short term capital gain of the assessee and the addition was made.
The Assessee preferred an appeal before the learned CIT(A), who had discussed the issue, but was not convinced with the submissions of the assessee therefore, had dismissed the appeal of the assessee with following findings:
“8. SUMMARY OF FINDINGS
8.1. I have carefully considered all the grounds of appeal raised by the appellant, the submissions made, the documents on record, and the applicable legal provisions.
8.2. Ground 1 – Notice under section 148 without DIN: The notice issued under section 148 can be read along with the intimation letter bearing DIN. The appellant participated in the proceedings without raising any objection. Section 292B of the Act is applicable. This ground is rejected.
8.3. Ground 2 – Insufficient time for notice under section 148A(b): The appellant contended that only four days were given instead of the statutory seven days. While this constitutes a procedural irregularity, the appellant was given adequate opportunity during the assessment proceedings, and no prejudice has been demonstrated. This ground is rejected.
8.4. Ground 3 – Notice under section 148 issued by JAO instead of NFAC:
section 144B of the Act. The appellant participated in the proceedings without objection. Section 292B applies. This ground is rejected.
8.5. Ground 4 – No transfer; no capital gains; section 50C not applicable: The registered document clearly shows the appellant as the “vendor” and “absolute owner” of the property. There is no evidence that the appellant acted in a fiduciary capacity. The transaction constitutes a “transfer” under section 2(47) of the Act, and the provisions of section 50C are therefore applicable. This ground is rejected.
8.6. Ground 5- Interest under sections 234A and 234B: The charging of interest under sections 234A and 234B is mandatory and consequential. In the present case, the conditions specified in these sections are satisfied. Therefore, interest under sections 234A and 234B is chargeable as a matter of law. This ground is rejected.
8.7. In view of the above, all the grounds of appeal raised by the appellant are rejected, and the order of the Assessing Officer is confirmed.
9. PENALTY PROCEEDINGS
9.1. The Assessing Officer has initiated penalty proceedings under the following sections:
(a) Section 271(1)(b) of the Act for non-compliance with notices issued under section 142(1).
(b) Section 271(1)(c) of the Act for concealment of income.
(c) Section 271F of the Act for failure to furnish return of income.
9.2. These penalty proceedings are separate and independent from the present appeal and will be decided by the Assessing Officer in accordance with law, after providing adequate opportunity of being heard to the appellant.
9.3. No observations are made on the merits of the penalty proceedings, as they are pending before the Assessing Officer.
10. RESULT
The appeal filed by the appellant is dismissed.”
5. Being aggrieved with the aforesaid decision of the learned CIT(A), the assessee is in appeal before us. At the outset, the learned counsel of the assessee had first requested to take up the additional grounds ofappeal regarding reference to the Departmental Valuation Officer (DVO) under the provisions of section 50C(2) of the Act. It was the submission that the AO has made addition under the head ‘short-term capital gain’ without making any reference to the DVO, which is arbitrary and unreasonable. Therefore, it is prayed to set aside the matter back to the file of AO to make a reference to DVO for valuation of the properties sold.
6. Per contra, the learned DR did not object to the request of the assessee and submitted that in case the matter is set aside to the file of AO for reference to DVO, the revenue did not have any objection to that.
7. We have considered the rival submissions, perused the material available on record and examined the case laws relied upon by the assessee. Admittedly, in the present case, the Assessing Officer has made the impugned addition in the absence of any substantive details furnished by the assessee with regard to the cost of acquisition, date of acquisition and the relevant sale/purchase deed in respect of the property in question.
correct quantum of capital gain have not been examined in their proper perspective.
8. At the same time, we find that sub-section (2) of section 50C of the Act contemplates a mechanism for determination of the fair market value of the capital asset where the assessee claims before the Assessing Officer that the value adopted or assessed by the stamp valuation authority exceeds the fair market value of the property and the relevant statutory conditions are satisfied. In such circumstances, the Assessing Officer may refer the valuation of the capital asset to the Valuation Officer in accordance with the provisions of the said sub-section.
9. In the present case, both the parties have fairly agreed that, in the interest of proper determination of the issue, the matter may be restored to the file of the Assessing Officer for making an appropriate reference to the Departmental Valuation Officer (DVO) and for thereafter determining the quantum of capital gain in accordance with law. Having regard to the aforesaid factual position and the consent of both the parties, we deem it appropriate, in the interest of justice and for a proper and effective adjudication of the issue, to restore the matter to the file of the Assessing Officer for fresh adjudication.
10. The Assessing Officer shall, after affording reasonable documents and factual particulars furnished by the assessee, make a reference to the DVO in accordance with the applicable provisions of section 50C(2) of the Act, wherever warranted, and thereafter determine the value relevant for the purposes of computation of capital gains in accordance with law.
11. The Assessing Officer shall also take into consideration the valuation report furnished by the DVO and all other relevant material placed on record by the assessee. Needless to say, the proceedings shall be undertaken in accordance with law and after providing due and effective opportunity of hearing to the assessee.
12. Accordingly, the issue relating to determination of the quantum of capital gain is restored to the file of the Assessing Officer for fresh adjudication in the aforesaid terms. We clarify that we have not expressed any opinion on the merits of the issue, and all aspects of the matter are left open for consideration by the Assessing Officer in accordance with law.
13. Since the matter is being restored to the file of the Assessing Officer for fresh adjudication in terms of our aforesaid observations, we do not deem it necessary to adjudicate upon the other grounds of appeal raised by the assessee, as the same were neither argued nor pressed before us. Accordingly, no finding is being recorded in
14. In the result, the appeal of the assessee stands allowed for statistical purposes.
Order pronounced in the open Court on 08/09/2026.
