Case Law Details
Amit Sabharwal Vs ADIT (ITAT Delhi)
no adjustment/addition under section 50C of the Act can be made while processing the ITR under section 143(1): ITAT Delhi
ITAT Delhi order whether the addition/adjustment of Rs. 36,51,250/- made u/s 50C(1) of IT Act can fall within the ambit of adjustments provided u/s 143(1)(a) of the Act
Summary: The case of Amit Sabharwal vs. ADIT before the ITAT Delhi revolved around adjustments made by the Centralized Processing Center (CPC) during summary processing under Section 143(1) of the Income Tax Act. The assessee disclosed Long-Term Capital Gains (LTCG) from the sale of a property in Noida, where the sale consideration was lower than the stamp duty valuation. The CPC invoked Section 50C(1), making an adjustment of ₹36,51,250 based on the difference between the actual sale consideration and the stamp duty valuation. The assessee objected, arguing that adjustments under Section 50C(1) require the valuation dispute to be referred to the Department Valuation Officer (DVO) as per Section 50C(2), which was not done in this case. The tribunal observed that Section 50C provides a legal framework for determining deemed sale consideration, which includes procedural safeguards for the assessee under Sub-section (2). Summary processing under Section 143(1) is limited to objective inconsistencies like arithmetic errors or mismatches with filed documents, and does not extend to subjective issues like valuation disputes. The ITAT ruled that the adjustment made by CPC was beyond the permissible scope of Section 143(1)(a) and violated the assessee’s statutory rights under Section 50C(2). Consequently, the addition of ₹36,51,250 was deleted, emphasizing that such matters must follow proper assessment procedures under Section 143(3).
Brief Facts:
- The assessee, Amit Sabharwal, filed his Income Tax Return (ITR) on 25.10.2019, declaring a total income of Rs. 62,43,461/-.
- He disclosed Long-Term Capital Gains (LTCG) of Rs. 46,23,385/- from the sale of an immovable property in Noida, for a sale consideration of Rs. 1,58,43,750/-.
- The stamp duty valuation (circle rate) of the property was Rs. 1,94,95,000/-.
- Both the actual sale consideration and the circle rate were fully disclosed in the ITR.
- During 143(1) processing, CPC proposed an adjustment of Rs. 36,51,250/- (the difference between the circle rate and actual sale consideration), invoking Section 50C(1).
- The assessee objected, but CPC still made the adjustment under Section 143(1)(a)(ii).
2. Legal Issue
Whether an addition under Section 50C(1) can be made as an adjustment under Section 143(1)(a)(ii), during the summary processing of returns?
3. Assessee’s Arguments
- Once the assessee objected to the application of Section 50C(1), the proper procedure under Section 50C(2) required the Assessing Officer (AO) to refer the valuation dispute to the Department Valuation Officer (DVO).
- The failure to make such a reference, and mechanically adjusting the declared sale consideration, violates the statutory safeguards provided under Section 50C.
- The adjustment under Section 143(1)(a) is permissible only in cases of objective errors or incorrect claims apparent from the return; a subjective determination under Section 50C(1) does not qualify.
- Cited Inder Jeet Malik vs. ITO (ITA No. 1024/Del/2022, dated 26.07.2022), where ITAT Delhi held that Section 50C adjustments cannot be made at the 143(1) stage without following due process under Section 50C(2).
4. Revenue’s Position
- CPC proceeded under Section 143(1)(a)(ii) on the ground that the assessee’s declared sale consideration was less than the stamp duty value, and such inconsistency justified the adjustment.
- The sale consideration and circle rate were both disclosed in the return, so the CPC treated it as an incorrect claim apparent from the return.
- The Revenue argued the adjustment was within the permissible scope of 143(1)(a).
5. Tribunal’s Observations
a) Understanding Section 50C
- Section 50C creates a legal fiction (deeming provision):
- Sub-section (1): Substitution of stamp duty value as deemed consideration for capital gains if it exceeds actual sale consideration.
- Sub-section (2): If the assessee objects to the stamp duty valuation, the AO must refer the case to the DVO for valuation.
- Sub-section (3): If the DVO’s value is lower, that becomes the final deemed sale consideration.
b) Summary Nature of Section 143(1)
- Section 143(1) is intended for summary processing, confined to objective issues like:
- Arithmetical errors
- Incorrect claims apparent from return
- Mismatches with Form 26AS, etc.
- The Explanation to Section 143(1)(a) defines “incorrect claim apparent from any information in the return.”
- An adjustment under Section 50C(1) is not purely arithmetical; it requires the assessee’s objection to be addressed via a DVO reference.
- If CPC makes such an adjustment, it denies the assessee the statutory right under Section 50C(2).
- Such complex determinations cannot be the subject matter of 143(1)(a) adjustments.
6. Tribunal’s Ruling
Key Findings:
- Section 50C must be read holistically, not in isolation.
- Sub-section (2) grants the assessee a valuable right to contest the stamp duty valuation.
- CPC cannot make adjustments under Section 143(1)(a) that effectively override Section 50C(2).
- Such adjustments fall outside the scope of 143(1)(a), particularly sub-clause (ii), as they are not incorrect claims apparent from the return.
- CPC’s action circumvented the procedure laid out in 50C(2) and 50C(3).
Decision:
- Relying on Inder Jeet Malik vs. ITO (ITA No. 1024/Del/2022), ITAT Delhi deleted the addition of Rs. 36,51,250/-.
- Held that no addition under Section 50C(1) can be made while processing ITR under Section 143(1)(a).
7. Case Citation Relied Upon
Inder Jeet Malik vs. ITO
- ITA No. 1024/Del/2022
- Order Date: 26.07.2022
- Held: Adjustment under Section 50C(1) at the CPC stage under 143(1)(a) is unsustainable because it deprives the assessee of the opportunity to invoke Section 50C(2) for DVO reference.
8. Legal Principles Established
1. Deeming provisions (like Section 50C) must be applied in entirety, including procedural safeguards.
2. Section 143(1)(a) adjustments are limited to objective inconsistencies; subjective issues requiring enquiry/referral are outside its scope.
3. Assessee’s statutory right to object under Section 50C(2) cannot be curtailed at the summary processing stage by CPC.
4. Adjustment under Section 50C(1) without DVO reference (on objection) amounts to violating principles of natural justice.
9. Practical Implication
- CPC cannot make Section 50C(1) adjustments at the 143(1)(a) stage if the assessee objects to the stamp duty valuation.
- Only regular assessment (Section 143(3)) following DVO reference can address such disputes.
- Taxpayers must promptly object to CPC adjustments invoking Section 50C to preserve their rights under 50C(2).
10. Final Holding of the Tribunal
Addition of Rs. 36,51,250/- under Section 50C(1), made via Section 143(1)(a)(ii) adjustment by CPC, is deleted.
No such adjustment/addition is permissible while processing returns under Section 143(1) without due compliance with Section 50C(2).
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal for the Assessment Year (hereinafter, the ‘AY’) 2019-20 filed by the assessee is directed against the order dated 22.10.2024 of the Addl./Joint Commissioner of Income Tax (Appeals)-5, Chennai [hereinafter, the ‘Addl. CIT(A)’].
2. The assessee, vide two grounds, has raised core issue is that whether the addition/adjustment of Rs.36,51,250/- made under section 50C(1) of the Income Tax Act, 1961 (hereinafter ‘the Act’) can fall within the ambit of adjustments provided under section 143(1)(a) of the Act.
3. The relevant facts giving rise to this appeal are that the assessee filed his Income Tax Return (hereinafter, the ‘ITR’) on 25.10.2019 declaring income of Rs.62,43,461/-. The assessee has shown Long Term Capital Gains of Rs.46,23,385/- on the sale of immovable property situated in Noida for sale consideration of Rs.1,58,43,750/- as against the circle rate of Rs.1,94,95,000/- shown in the ITR. The sale consideration and the circle rate as mentioned above of the said property were duly disclosed in the ITR. Keeping in view the provisions of Section 50C of the Act, the Assessing Officer (hereinafter, the ‘AO’)- CPC show caused the assessee under section 143(1) of the Act while processing the said ITR for working out the addition/adjustment of Rs.36,51,250/- by taking the sale consideration & circle rate at Rs.1,94,95,000/- instead of Rs.1,58,43,750/- as shown in the ITR (the difference between circle rate and sale consideration). In response to the show cause notice under section 143(1) of the Act, the assessee filed his objection before the AO-CPC. However, the AO did not take cognizance of the same and do needful as per the law. But he made the addition/adjustment of Rs.36,51,250/- under section 143(1)(a) of the Act. Aggrieved, the assessee filed appeal before the CIT(A)/Addl./Joint CIT(A), who dismissed the appeal observing as under: –
“The assessee is an individual having income under the head business income (as partner), income from other sources and long term capital gain on sale of leasehold residential property. Notice u/s 250 was issued on 01.06.2023, which was responded by the appellant on 09.06.2023. During the year, 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/-, i.e. 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.
As per Section 50 C of Income Tax 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.”
Further, the capital gain was computed on the basis of actual sale consideration. The facts of the case in the light of the grounds of appeal, statement of facts and the submissions made by the appellant were carefully considered. In the instant case, the appellant himself has admitted in the statement of facts that the property was sold below the guideline value. Hence, the appeal of the appellant is Dismissed.”
4. The Ld. Authorized Representative (hereinafter, the ‘AR’) contended that 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 AO was to refer the matter to the DVO for needful valuation and subsequent actions thereafter. However, the AO did not follow the proper procedure, once the same had been objected by the assessee, provided under section 50C of the Act; therefore the AO could not make any adjustment under section 50C(1) of the Act. To buttress the argument, the Ld. AR placed reliance on the decision in the case of Inder Jeet Malik in ITA No. 1024/Del/2022 (order dated 26.07.2022). It was categorically submitted that the present case got squarely covered by the decision of the Co-ordinate Bench in the case of Inder Jeet Malik (supra).
5. The Ld. Senior Departmental Representative (hereinafter, the ‘Sr. DR’), placing reliance on the finding of the first appellate authority requested for dismissal of the appeal on the reasoning that the said adjustment tantamount to the wrong claim under section 143(1) of the Act.
6. We have heard both parties at length and have perused the material available on record. The Co-ordinate Bench of Tribunal in the case of Inder Jeet Malik (supra) has held as under:
5. I have heard the parties and perused the materials on record. The basic issue requiring consideration is, whether the addition made under section 50C(1) can fall within the ambit of adjustments provided under section 143(1)(a) of the Act. It is noticed; the following adjustments can be made while processing the return under section 143(1) of the Act:
“Assessment.
143. (1) 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:–
(a) the total income or loss shall be computed after making the following adjustments, namely: –
(i) any arithmetical error in the return;
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;
(iii) 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 sub-section (1) of section 139;
(iv) 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;
(v) 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 ITA No. 1024/Del./2022 AY: 2019-20
(vi) 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:”
6. No doubt, in the present case adjustment has been made under sub-clause (ii) to section 143(1)(a). The expression “incorrect claim apparent from any information in the return” has been explained under Explanation to section 143(1)(a) of the Act and reads as under:
“Explanation- For the purposes of this sub-section-
(a) “an incorrect claim apparent from any information in the return”
shall mean a claim, on the basis of an entry, in the return-
(i) of an item, which is inconsistent with another entry of the same or some other item in such return;
(ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or
(iii) 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;
7. 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. This is so because, section 50C has to be read as a whole and cannot be restricted to sub-section (1) alone. It is fairly well settled; a deeming provision has to be taken to its logical end. Undoubtedly, section 50C is a deeming provision. Though, sub-section (1) of section 50C ITA No. 1024/Del./2022 AY: 2019-20 provides for substituting the stamp duty value as deemed sale consideration in place of the declared sale consideration, however, sub-section (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 (DVO) and in case the value determined by the DVO is lower than the stamp duty value, the value determined by DVO has to be considered for computing capital gain in terms with sub-section (3) of section 50C. Therefore, sub-section (1) to section 50C cannot be considered in isolation. By making an adjustment of the nature contemplated under sub- section (1) to section 50C, that too, by CPC, the Department takes away a valuable statutory right given to the assessee to object to the value determined by stamp valuation authority.
8. Therefore, such type of adjustment, in my considered opinion, cannot be made under section 143(1)(a) of the Act. This is so because, at the stage of processing of return under section 143(1)(a), if such an adjustment is made, the assessee does not get an opportunity to object, as per section 50C(2) of the Act. More so, when conditions of the 1st and 2nd proviso to section 143(1)(a) are not complied. Therefore, I hold that the addition made by CPC ITA No. 1024/Del./2022 AY: 2019-20 under section 50C(1) of the Act by way of adjustment under section 143(1)(a)(ii) is unsustainable. Accordingly, I delete the addition.”
7. We are of the considered view that this case is squarely covered by the decision of the Co-ordinate Bench of Tribunal in the case of Inder Jeet Malik (supra). We therefore, following the reasoning given by the Coordinate Bench in the case of Inder Jeet Malik (supra), hold that the no adjustment/addition under section 50C of the Act can be made while processing the ITR under section 143(1) of the Act. Accordingly, we delete the addition of Rs.36,51,250/-.
8. In the result, the appeal of the assessee is allowed.
Order pronounced in open Court on 12th March, 2025
Author Bio
The ITAT Delhi’s ruling highlights the complexities of Section 50C in ITR processing under Section 143(1). This decision reinforces the need for careful valuation to avoid unnecessary tax additions.