Case Law Details
Ashutosh Sinha Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai bench, in the case of Ashutosh Sinha vs. ITO, addressed an appeal against an assessment order that had added a significant sum to the assessee’s income under Section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961. The core of the dispute revolved around the taxability of the difference between the actual consideration paid for a property and its stamp duty value, and whether a tax addition was justified when the difference fell within a reasonable margin.
Background of the Case
The assessee, Ashutosh Sinha, had purchased a property for a consideration of Rs. 6.05 crore. However, the stamp duty value of the same property was significantly higher at Rs. 8.23 crore. The Assessing Officer (AO) initiated reassessment proceedings, arguing that the difference of Rs. 2.18 crore was taxable in the hands of the assessee as “income from other sources” under the provisions of Section 56(2)(vii). The assessee contested this, submitting a valuation report from a registered valuer that pegged the fair market value (FMV) at Rs. 6.07 crore, a value close to the purchase price.
The assessee requested that the AO refer the matter to the Departmental Valuation Officer (DVO). The AO did so, but before the DVO’s report was received, he passed a draft assessment order based on the stamp duty value, subject to rectification once the DVO report was available. The assessee filed an objection with the Dispute Resolution Panel (DRP). The DRP, while initially questioning the maintainability of the objection on procedural grounds (a technicality regarding the signing of a form), ultimately proceeded to address the case on its merits.
The DVO eventually submitted a report valuing the property at Rs. 6.65 crore, which was still higher than the purchase price of Rs. 6.05 crore. The AO, based on this report and the DRP’s directions, finalized the assessment, leading to the appeal before the ITAT.
Key Issues and Tribunal’s Decision
The ITAT focused on two primary issues raised by the assessee:
1. Limitation of the Assessment Order: The assessee argued that since the DRP had initially held his objections to be non-maintainable, there were no valid directions from the DRP to the AO. Therefore, the final assessment order passed by the AO was barred by limitation. The ITAT rejected this ground. The tribunal reasoned that even though the DRP had raised a procedural issue, it had gone on to issue clear, categorical directions on the merits of the case. The AO was bound to follow these directions under Section 144C(13). The tribunal held that once the DRP had provided directions after considering the assessee’s objections, the final order could not be considered time-barred.
2. Applicability of Section 56(2)(vii): The assessee contended that Section 56(2)(vii) was an anti-abuse provision meant to curb black money transactions and should not be invoked when the transaction was genuine. The ITAT rejected this argument. The tribunal held that the language of the statute is clear and unambiguous. It emphasized that a literal interpretation must be applied to the law, and the courts cannot read into a statute a purpose that is not explicitly stated. The tribunal found that the deeming provision of Section 56(2)(vii) is triggered as long as the conditions specified in the section are met, regardless of whether there was an intention to evade tax.
3. The 10% Tolerance Margin: The assessee’s final and most successful argument was that even if Section 56(2)(vii) applied, the difference between the FMV determined by the DVO and the actual consideration paid was within the 10% tolerance limit. This is a crucial aspect of tax law, particularly under Section 50C, which deals with the taxability of capital gains from property sales. A third proviso to Section 50C provides that if the difference between the stamp duty value and the sale consideration is within 10%, the sale consideration is to be treated as the full value of consideration.
The ITAT applied this principle to the present case. It found that while the DVO’s final valuation was Rs. 6.65 crore, an analysis of the comparable sales instances used in the DVO’s own report showed that the average valuation should have been approximately Rs. 6.54 crore. The tribunal noted that the DVO’s calculation was flawed, as he had only taken the average of two sale instances when his own annexure provided three.
Based on the correct average valuation of Rs. 6.54 crore, the ITAT found that the difference between the purchase price (Rs. 6.05 crore) and the FMV (Rs. 6.54 crore) was less than 10%. The tribunal held that since the 10% tolerance limit applied, no addition could be made under Section 56(2)(vii)(b). It explicitly held that the 10% tolerance, though introduced in Section 50C effective from April 1, 2019, is a beneficial provision and can be applied retrospectively. Consequently, the ITAT directed the deletion of the entire tax addition.
Judicial Precedents and Principles Applied
The ITAT’s decision hinges on several key judicial principles and precedents:
- Literal Rule of Interpretation: The tribunal strictly adhered to the literal rule of interpretation when examining Section 56(2)(vii), a departure from the assessee’s argument for a purposive interpretation based on the legislative intent to curb black money. The tribunal cited the well-settled principle that when the language of a statute is clear, it must be interpreted as it is, without trying to ascertain the legislature’s intent. This is a common theme in tax jurisprudence, where the plain meaning of the text often takes precedence.
- 10% Tolerance Limit: The ITAT’s application of the 10% tolerance limit, a provision from Section 50C, to the context of Section 56(2)(vii) is a notable point. The tribunal’s decision to treat this as a beneficial provision that can be applied retrospectively is in line with the judgments of other courts. This principle is a key judicial precedent that has been adopted by various courts and tribunals to provide relief to taxpayers in genuine transactions where a minor difference exists between the transaction value and the stamp duty value. The tribunal’s finding that the DVO’s own report, when correctly analyzed, supported the assessee’s claim was a critical factual determination that led to the favorable outcome.
- Principle of Natural Justice: While not explicitly mentioned, the DRP’s decision to hear the case on merits despite a procedural technicality, and the ITAT’s subsequent careful examination of the facts, reflects the overarching principle of ensuring that justice is not denied due to mere procedural lapses.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed against final assessment order dated 03/01/2023 passed u/s.147 r.w.s. 144C(13) in pursuance of directions given by the DRP vide order dated 19/12/2022
2. In the grounds of appeal assessee has raised various grounds. In sum and substance the same are related to –
> Firstly, (ground No.1 & 5) that the assessment order dated 03/01/2023 passed u/s.147 r.w.s. 144C (13) is barred by limitation.
> Secondly, the ground No.2, the difference between the fair market value and the actual consideration cannot be added u/s.56(2)(vii) without appreciating that the said deeming provision cannot be invoked in the present case looking to the purpose and object behind insertion of the said section and
> Lastly, in the ground No.4, the valuation arrived by the DVO is incorrect.
3. The brief facts are that the assessee has filed return of income on 19/12/2016 declaring total income of Rs.74,40,440/-. Subsequently, on the basis of information that assessee has purchased a property with Smt. Neelu Sinha for a total consideration of Rs.6,05,00,000/-. However, the stamp duty value of the property at Rs. 8,23,74,006/-. Thus, there was a difference of Rs.2,18,74,006/- in the sale value. Since assessee had not shown the correct value in the return of income, therefore, case was reopened u/s.147 and notice u/s.148 was issued on 24/03/2021. The ld. AO in the reasons recorded based on such information held that since assessee is 50% shareholder in the property, therefore, amount of Rs.1,09,37,003/- is taxable in the hands of the assessee as per Section 56(2)(vii)(b)(ii).
3.1 During the course of assessment proceedings AO noted that the entire payment for the purchases of the property at Villa No.A1-02, Windmills of Your Mind, 331, Road no.5-B, EPIP Zone / Whitefiled Bengaluru, Karnataka-560 006 in joint ownership with Smt. Neelu Sinha during F.Y. 2015-16 on his own, hence, he was of view that differential amount between the sale consideration paid and stamp duty value of the property of Rs.2,18,74,006/- should be taxed in the hands of the assessee. During the course of assessment proceedings, assessee submitted that the property was purchased in the open market through a broker and also assessee had obtained valuation report of Registered Valuer who had determined the market value of property at Rs.6,07,68,000/- which is more or less similar to the agreement value of Rs.6,05,00,000/-. Assessee requested to refer the case of the DVO in case of disagreement. The ld. AO held that the contention of the assessee cannot be accepted because the provision of Section 56(2)(vii)(b) is very clear that the actual consideration for a property cannot be less than its stamp duty value. Thus, he held that assessee’s case clearly falls within the provision u/s. 56(2)(vii)(b) and therefore, the sum of Rs.2,18,74,006/- being the amount by which stamp value exceeds purchase consideration paid by the assessee is liable to be taxed under the head ‘income from other sources.’. The ld. AO however, had also noted that as per the request of the assessee, reference was made to the DVO for the valuation of the property, however, the assessment was getting time barred on 31/03/2022 and the valuation report was not received in his office. He observed that the determination of stamp duty value would be subject to rectification based on the outcome of the valuation report of DVO, Bangalore.
4. As spelled out from the order of the ld. DRP, the DVO has submitted the valuation report vide letter dated 24/12/2022 as he had valued property at Rs.6,65,90,250/- instead of stamp valuation duty of Rs.8,23,74,006/-. Thus, in the DVO’s report, the valuation is approximately more than Rs.60,90,250/-.
5. From the perusal of the order of the ld. DRP it is seen that the ld. DRP has noted that the Form No.35A has been signed by CA Jayesh Kapani and therefore, objection filed by the assessee itself is not maintainable. It has also been noted by the ld. DRP that before passing of the order by the ld. DRP, the assessee has placed on record the scanned copy of Form 35A signed by the assessee which was signed on 24/02/2022 which has been rejected by the ld. DRP on the ground that it was not submitted by the assessee before the expiry of the due date i.e., within 30 days from the date of the draft order of the ld. AO; and secondly, the assessee has stated to have signed the document on 22/04/2022. Finally, the ld. DRP held that the objection filed by the assessee is not maintainable. However, after holding so, the ld. DRP has proceeded to give directions on merits and on all the points on which assessee has raised the objection. Thus, finally, the ld. DRP has taken due consideration of the objections both legally as well as factually which were raised by the assessee.
6. Before us ld. Counsel submitted that once the ld. DRP has held that the objections filed by the assessee are not maintainable after giving detailed reasons then, there is no direction of the ld. DRP and accordingly, the final assessment order dated 31/01/2023 is barred by limitation because the ld. AO was then required to pass the order u/s.144C(3) on or before 31/05/2022 as last date for filing of objection on 24/04/2022 and order has to be passed by the ld. AO within one month from the end of the month in which the period of filing of objections is expired u/s.144C(4). Thus, finding given by the ld. DRP on merits are without any conclusions.
7. We have heard the ld. DR and also arguments raised by the DR. As noted above, the ld. DRP has held that since Form 35A has not been signed by the assessee within 30 days from the date of draft assessment order, then objections are not maintainable. The ld. DRP has refused to take the scanned copy of Form No.35A which was furnished before it. Assessee being a non-resident and was staying outside India and therefore, it was stated that the authorised representative to whom Power Of Attorney was given has signed the form No.35A and once it was pointed out then assessee has duly signed scanned copy of Form No. 35A. Once the ld. DRP has held that objection was not maintainable, then there was no requirement to deal with the merits of the issue. However, once the ld. DRP has taken into consideration all the objections raised by the assessee and has decided the objections of the assessee on merits and has given categorical direction to the ld. AO u/s 144C(5), then in terms of Section 144C(13) the ld. AO was bound to follow the directions of the ld. DRP issued u/s.144C(5) and he had no option. DRP should have then intimated to the AO to pass the order, which has not been done. Once the draft assessment order has been passed and assessee chooses to file the objection and if the said objections have been considered by the ld. DRP and directions have been issued, then in so far as Assessing Officer is concerned, he is bound to pass the final assessment order u/s. 144C(13). In our opinion, the ld. DRP once held objection is not maintainable, then same should have been intimated to the assessee and to the ld. AO in time and then ld. AO would pass the final assessment order within time and assessee would have sought remedy u/s. 250 before the ld. CIT (A). But here the ld. DRP has passed the direction taking into consideration all the objections raised by the assessee after giving all the opportunity to the assessee and has given categorical finding and direction to the ld. AO. Thus, under these circumstances, we cannot hold that final assessment order is barred by limitation. Accordingly, ground No. 1 & 5 as raised by the assessee is hereby rejected.
8. The next contention raised by the ld. Counsel is that Section 56(2)(vii) was brought in the statute for the specific purpose of curbing bogus capital building and money laundering transaction and it is an anti-abuse provision. The legislative intend behind the insertion of provisions of Section 56(2)(vii)(b) was to tackle the menace of black money and therefore, purposive construction should be given while interpreting the said Section. Once deeming provision was brought in the statute as an anti-abuse provision, then it has to be seen whether there is no anti-abuse for evading of tax has been resorted by the assessee. In support he placed reliance on the following circulars and the judgments which in sum and substance are as under:-
i. Section 56(2)(vii) which is the successor of section 56(2)(v) and 56(2)(vi) had been enacted with the specific purpose of curbing bogus capital building and money laundering transaction. It is an anti-abuse provision. Reliance was also placed on the following:
i. Circular No. 5/2005 dated 15.07.2005
ii. Circular No. 5/2010 dated 03.06.2010
iii. Circular No. 1/2011 dated 06.04.2011
b. The Hon’ble Courts have taken a view that such provisions can be applied only if there is any evasion of tax and if there is a finding to this extent. Reliance is placed on the following decisions:
i. 431 ITR 250(Kar) PCIT vs. Rajan Pai
ii. 175 ITD 449(Mum) ACTT vs. Subodh Menon
iii. 193 ITD 860 (Mum) ITO vs. Rajeev Ratanlal Tulsyan
(iv. 177 ITD 809(Del) Cinestaan Entertainment (P.) Ltd. vs. ITO (Para 27) – this order has been upheld in 433 ITR 82(Del) (HC) – [Ld. JM is a party]
v. 172 ITD 629 (Che) Vaani Estates (P.) Ltd. vs. ITO (para 7)
c. In fact, the Hon’ble Apex Court has time and again held that, where the provisions are inserted to deter tax evasion, then the same can apply only to tax evaders. Reliance is placed on the following decisions
i. 372 ITR 746(SC) CIT vs. Sati Oil Udyog Ltd. (para 18-22)
ii. 131 ITR 597 (SC) K. P. Verghese vs. ITO
d. In the facts of the present case, there is no allegation that the transaction is a bogus capital building or money laundering transaction or that any excess consideration has been paid. In such case, the provisions of section 56(2)(vii) cannot be invoked.
9. Section 56(2)(vii)(b) provides that certain income shall be chargeable to income tax under the head ‘income from other sources’ and clause vii read with sub-clause ‘b’ provides that where an individual replaced in any previous year any immovable property for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs.50,000/- then the stamp value of such property which exceeds its consideration is deemed to be income of the assessee. The relevant provision reads as under:-
(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017,—
(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
(b) any immovable property,—
(i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:
10. From a plain reading of the Section it is seen that the language of the statute is very clear and there is no ambiguity in such provision wherein it has been specifically provided that once consideration received is less than the stamp duty value of the property and if the stamp duty value of such property exceeds such consideration then it is deemed to be income chargeable to tax under the head ‘income from other sources’. It is trite and well settled law that the construction of the statute must be taken from the bare words of the Act. One should not look what could have been the intention of the legislature behind the legislating section and if a legislature did intend in this way, then it has to be expressed clearly in the language of the Section. The Courts cannot invent something which is not there in the statute nor should try to gauge the intention of the Legislature. It is only where the language of the statute in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, then a construction may be given which modifies the meaning of the words and even the structure of the sentence. In such circumstances, the Courts while interpreting the provision probable can go what was the purpose of bringing that legislation. Otherwise a literal construction has to be given and the deeming provision has to be given strict interpretation, especially where words of the statute are clear and unambiguous then recourse cannot be taken to principles of purposive interpretation, even if the literal interpretation results in hardship and inconvenience to the tax payer. The purposive construction can only be resorted to when there is ambiguity or the contradiction in two provisions for the same statute. Here, no such ambiguity or contradiction is there nor has been pointed out before us. A Court of law has nothing to do with reasonable or unreasonableness of a provision of a statute except as it may hold in interpreting what the legislature has clearly stated. If the language of the statute envisages only one meaning then it must be continued to mean and intended what it has been clearly expressed. Accordingly, the contention raised by the ld. counsel cannot be accepted.
11. Here in this case we cannot resort to purposive construction to see in this case, whether there was any intent for tax evasion or the transaction is for money laundering or tackling the menace of black money etc. The deeming provision gets attracted when the conditions mentioned in the section are attracted on the facts of the case. Accordingly, the contention raised by the ld. Counsel is rejected.
12. On merits another contention raised by the ld. Counsel is that herein difference between the fair market value as determined by the DVO and the actual consideration is within the range of 10% and therefore, no addition can be made u/s.56(2)(vii). Here the difference between FMV and the consideration is 10.06%. He further pointed out that the DVO has taken certain comparable sale transactions and has come out with certain average, based on certain presumptions. Ld. Counsel referred to the page 12 of the paper book and pointed out, that in the DVO’s report certain residential unit which has been taken as sale instance, the average comes to 6,54,60,425/-for which he handed over the chart before us to demonstrate the same. He further pointed out one of the sale instances which he has taken of Villa No.A-335 at page 12 of the PB has taken the value of Rs.6,50,00,000/- and at page 7 he has taken Rs.6,80,00,000/- Even otherwise also if the entire average of all the sale instances is taken, it comes to Rs. 6,64,60,425/- which falls within the range of 10% as the working of 10% comes to Rs.6,65,00,000/-. He also pointed out deficiencies in the various figures mentioned in the DVO’s report in the comparable sales with that of the assessee’s property as well as the comparable properties taken by the ld. DVO and pointed out various infirmities in the calculation in the DVO report itself and demonstrated that the same cannot exceed more than Rs.6.5 Crores. Thus, the difference here is much less than 10%, then no addition should be made.
13. On the other hand, ld. DR submitted that once DVO has taken the valuation based on comparable instances and has worked out the valuation at Rs.6,65,90,250/-, then it cannot be inferred based on that 10.6% should be accepted and further tinker with the valuation so as to bring within the range of 10%.
14. On perusal of the relevant material placed on record, we find that at the very first instance, assessee had filed Valuation Report by the Registered Valuer, who after detailed examination and reasoning has valued the fair market value of the property at Rs.6,07,68,000/- which was Rs.2,68,000/- more than the actual sale consideration shown by the assessee. Once the matter was referred to the DVO he has taken various sale instances of similar property in the same area and has taken an average of sale instances would derive at the valuation at Rs.6,65,90,250/-. We agree with the contention of the ld. Counsel that if the difference is less than 10% between fair market value and the sale consideration shown, then no addition should be made. This is so because third proviso to Section 56(2)(vii) provides reference to Section 50C for determining the valuation of the property of valuation officer. The third proviso to Section 50C provides that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed 10% of the consideration received shall be taken as full value consideration i.e. if the difference is less than 10%, the same can be taken as share market value. Though this provision has been brought in the statute w.e.f. 01/04/2019, however, Courts have held that the same is beneficial provision, therefore, benefit should be given with retrospective effect. Thus, we hold that if the difference between the actual sale consideration & FMV determined by the valuation officer is less than 10%, then no addition should be made u/s.56(2)(vii)(b).
15. Now, in this case from the perusal of DVO’s report, we find that at page 12, DVO has given the sale instance and the sale consideration of all those properties, the average of which comes to Rs.6,54,60,425/- as shown by the ld. Counsel before us. The DVO has only taken the average of two sale instances to arrive at the valuation of Rs.6,65,90,250/-, but in its annexure he has taken average of three sale properties in the same vicinity. Thus, looking all these facts we are in tandem with the contention raised by the ld. Counsel that from DVO’s report if the correct figures are taken of all the comparable sales instances, the average valuation of the property would be Rs.6.54 Crores which is admittedly less than 10% of the actual sale consideration and 10 % difference if added comes to Rs.6,65,50,000/-. Accordingly, on this ground, addition is directed to be deleted.
16. Other issues raised before us has become purely academic and the same is not adjudicated as we have deleted the addition on merits. Accordingly, appeal of the assessee is partly allowed.
17. In the result, appeal of the assessee is partly allowed.
Order pronounced on 29th August, 2023.
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