Mohd. Ilyas Ansari Vs ITO (ITAT Mumbai)
Assessing Officer mechanically applied provisions of section 56(2) to difference between stamp duty value and actual sale consideration paid by assessee and made additions, without making any efforts to find out actual cost of property, additions made by Assessing Officer were to be set aside.
In this case Assessing Officer completely ignored the valuation report of the Government Registered valuer submitted by the assessee and the submissions thereon. The Assessing Officer mechanically applied provisions of section 56(2) of the Act to bring the difference between the stamp duty value and the actual sale consideration paid by the assessee without making any efforts to find out the actual cost of the property when in fact the assessee stated that the property when purchased was under semi construction stage and there were disputes between builders and the purchasers and ultimately the builder was abandoned the project and left. The assessee also stated that what was purchased as per the agreement is different than what was given to him as the property was sold to two persons. So there is dispute in the area acquired by the assessee also. In such circumstances, it was all the more necessary for the Assessing Officer to refer it to the Valuation Officer which he miserably failed. Even at the stage of appellate proceedings when the assessee produced Valuation Officer’s report who valued Flat No. 601 in the very same Building at ₹.1,00,76,000/- the Ld.CIT(A) should have called for remand report and in turn the Valuation Officer’s report which the Ld.CIT(A) failed to do so. In such circumstances the addition made by the Assessing Officer is totally unjustified and cannot be sustained. We are also of the opinion that the revenue cannot be allowed a second inning by sending the matter back to the Assessing Officer to prove before the Assessing Officer that the sale consideration was the fair market value of the property purchased by the assessee when the assessee was all along disputing valuation of the property and the revenue miserably failed to find out the correct value of the property both at assessment stage as well as at first appellate stage. The decisions referred to above squarely applies to the facts of the assessee’s case. Thus in the facts and circumstances of the case and also in view of the above judicial pronouncements we direct the Assessing Officer to delete the addition made u/s. 56(2) of the Act. Ground No.2 of grounds of appeal is allowed.
28. Ld. Counsel for the assessee also made submissions with regard to additional ground raised i.e provisions of section 56(2)(vii)(b) does not apply to the property which is still under construction and made elaborate submissions on this. The Ld. Counsel for the assessee also made submissions that the addition was entirely made in the hands of the assessee though the flat was purchased by the assessee jointly with his wife. It is also argued that the Ld.CIT(A) erred in taking area of the flat at higher figure than the actual area of the flat in possession. Since we have allowed Ground No. 2 of grounds of appeal of the assessee and deleted the addition made u/s. 56(2)(vii) all other contentions raised in other grounds of appeal including the additional ground are left open as the adjudication of all these grounds would render academic at this stage. The assessee is at liberty to agitate all these grounds at an appropriate stage.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) – 33, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 21.08.12017 for the A.Y. 2014-15.
2. Assessee has raised following grounds in its appeal: –
“1. The Ld. CIT(A) erred in confirming addition of ₹.1,80,49,999/-u/s. 56(2)(vii) of I.T. Act 1961.
2. Without prejudice to the above, the Ld. CIT(A) erred in confirming the order of LAO though the Assessment Order is liable to be cancelled on the ground that the LAO failed to refer the issue of valuation to District Valuation Officer though he was legally required to do so.
3. Without prejudice to the above, the Ld. CIT(A) erred in confirming addition in respect of share of wife in the property.
4. Without prejudice to the above, the Ld. CIT(A) erred in confirming entire addition made by LAO, though the area of flat was in fact less than what the LAO had taken. Both the lower authorities erred in taking the area of flat at a higher figure.”
2. Assessee has also raised following additional ground in his appeal:
“1. On the facts and circumstances of the case and in law, the addition made u/s 56(2)(viib) of Rs. 1,80,49,999/- is unsustainable and bad in law since Section 56(2)(viib) applies only to immovable properties i.e. property which are fully constructed and not on properties which are under construction. In case of the appellant, the property purchased was under construction which is established by the report of Perfect Valuations & Consultants, being a Govt. Regd. Valuer submitted by the appellant during the course of assessment proceedings.”
4. Learned Counsel for the assessee submitted that the additional ground raised in the appeal is purely a legal ground, as to whether the provisions of section 56(2)(viib) apply to the immovable property fully constructed and not for the properties partially constructed and no fresh facts have to be examined and therefore prayed that in view of the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd., v. CIT [229 ITR 383] the additional ground be admitted for adjudication.
5. On the other hand, Ld. DR has opposed for admission of the additional ground. Ld. DR submits that since there is no distinction in the Act as to the applicability of the provisions of section 56(2) to either fully constructed properties or partially constructed properties, the additional ground shall not be entertained at this stage.
6. On hearing both sides, we are of the view that the additional ground raised by the assessee is purely a legal ground and required no verification of the facts and thus following the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd., v. CIT (supra), we admit the additional ground for adjudication.
7. Briefly stated the facts are that, assessee engaged in the business of readymade garments in the name of M/s Shadab Garments filed his return of income on 04.09.2014 declaring total income of ₹.2,67,260/. During the year under consideration, the assessee purchased Flat No.1102 in the building “Nebulla Empress” jointly with his wife for a total consideration of ₹.40,00,000/- and flat is a part of Slum Rehabilitation Authority Development Project which was started by M/s Gurunanak Developers(I) P. Ltd. However, due to dispute between the partners and financial crunch the builder was not able to complete the project. The builder subsequently decided to exit from the project leaving the project halfway. However, they entered into an agreement with M/s Waterfront Geo Solution Pvt. Ltd. which tried to revive the project. But this partner too did not complete the project and as a result the flat was sold for distress price of ₹.40,00,000/- to the assessee. The sale was registered and thereafter the builder disappeared without completing the project. The agreement was made by the builder for a flat admeasuring 1360 sq. feet. However, when the assessee got the possession of flat he found that it has been sold to two persons. The actual area of the flat too was only 784 sq. feet against the agreement area of 1360 sq. feet.
8. During the course of assessment proceedings, the Assessing Officer noticed that the stamp duty valuation of the flat is ₹.2,20,49,999/- but the assessee shown to have purchased only for ₹.40,00,000/-. The assessee was required to explain as to why the difference is not to be treated as income u/s. 56(2)(vii) of the Act. The assessee filed a valuation report of Perfect Valuation & Consultants, being a Govt. Regd. Valuer who valued the flat at ₹.82.60 lakhs. During the assessment proceedings the assesse filed this valuation report disputing the valuation made by the Stamp Valuation Authority. However, the Assessing Officer did not refer the matter of valuation to the District Valuation Officer, though the valuation of stamp valuation authority was disputed by the assessee by way of valuation report. The Assessing Officer made an addition of ₹.1,80,49,999/- u/s. 56(2)(viib) of the Act in the hands of the assessee. The assessee filed an appeal before the Ld. CIT(A) against the above order. However, the Ld. CIT(A) also did not consider the valuation report submitted by the assessee holding that the assessee had not disputed the valuation made by the stamp valuation authority. Accordingly, the Ld.CIT(A) confirmed the addition made and passed the order against the assessee.
9. Now firstly coming to the regular grounds of appeal, Ground No. 1 of grounds of appeal is general in nature and requires no adjudication.
10. With regard to Ground No. 2 of grounds of appeal i.e. the Ld.CIT(A) erred in confirming the order of the Assessing Officer though Assessment Order is liable to be canceled on the ground that the Assessing Officer failed to refer the issue of valuation to the District Valuation Officer though he was legally required to do so, Ld. Counsel for the assessee submits that the Assessing Officer did not refer the matter of valuation of the property to the District Valuation Officer even though the assessee disputed the valuation made by the Stamp Valuation Authority. Ld. Counsel for the assessee submitted that during the course of assessment proceedings, the assessee had filed before the Assessing Officer a copy of Valuation Report of the Perfect Valuation & Consultants, being a Govt. Regd. Valuer who valued the flat at ₹.82.60 lakhs. The same was filed before the Ld. Assessing Officer since the assessee disputed the valuation made by the stamp valuation authority. But the Assessing Officer completely ignored the same. Ld. Counsel for the assessee further submits that when the assessee disputes the valuation made by the Stamp Valuation Authority, the Assessing Officer has to refer the matter of valuation to the District Valuation Officer. This duty is cast on the Assessing Officer as per the provisions contained in proviso to section 56(2)(vii)(b) of the Act and section 50C(2) of the Act.
11. Learned Counsel for the assessee submitted that the proviso to section 56(2)(vii)(b) of the Act provides that where the assessee disputes the stamp duty valuation of the immovable property on the grounds mentioned in sub section (2) of section 50C of the Act, the Assessing Officer shall refer the matter of valuation to the Valuation Officer. Section 50C(2) of the Act provides that the Assessing Officer has to refer the matter of valuation to the District Valuation Officer provided two conditions are satisfied. First, the assessee claims before the Assessing Officer that the value adopted by assessed or assessable by the Stamp Valuation Authority exceeds the fair market value as on the date of transfer. Second, the assessee does not dispute the valuation adopted by the Stamp Valuation Authority by way of filing any appeal or revision before any other authority, court or High Court.
12. Learned Counsel for the assessee submitted that, coming to the facts of the case in hand, it is submitted that both the conditions specified in section 50C(2) of the Act have been satisfied. With regard to the first condition, it is submitted that the stamp valuation authority assessed the value of the Flat at ₹.2,20,49,999/- which is much more than the purchase consideration of ₹.40,00,000/- paid and since the same was not acceptable to the assessee, during the course of assessment proceedings submitted a copy of valuation report of Perfect Valuation & Consultant, being a Govt. Regd. Valuer who valued the flat at ₹.82.60 lakh. The same was filed disputing the valuation made by the stamp valuation authority. Accordingly, the first condition is fulfilled. Ld. Counsel for the assessee submitted that the view taken by Ld.CIT(A) is that the assessee had not submitted a formal letter objecting to the valuation made by Stamp Valuation Authority. In this regard it is submitted that thought the assessee had not filed a formal letter disputing the valuation adopted by the stamp valuation authority, still it is a fact that assessee objected as he did file the copy of valuation report from a Government approved valuer according to which the value of the property is much less than the Stamp Duty value of the property and it clearly shows that the assessee disputed the valuation.
13. Learned Counsel for the assessee with regard to the fulfillment of second condition of section 50C(2) of the Act submitted that assessee has not disputed the valuation made by the Stamp Valuation Authority by way of any appeal or revision before any other authority, Court or High Court. Accordingly, the second condition also stands fulfilled. Thus, it is submitted that both the conditions as stipulated u/s 50C(2) of the Act are satisfied. It is submitted that though the assessee has disputed the valuation adopted by the stamp valuation authority by furnishing a copy of valuation report the courts have held that even where a simple request is made by the assessee to refer the matter of valuation to the District Valuation Officer, the Assessing Officer is duty bound to do the same. This is because the term “may” used in section 50C(2) of the Act has to be read as “should” so that the provision is not rendered redundant.
14. Ld. Counsel for the assessee placed reliance on the following decisions in support of his contentions: –
(i) CIT v. Sh. Chandra Narain Chaudhri in Income Tax Appeal No.287 of 2011 dated 29.08.2013 of Hon’ble Allahabad High Court.
(ii) Meghraj Baid v. ITO [114 TTJ 841] [Jodhpur ITAT]
(iii) Appadurai Vijayaraghavan vs. JCIT (OSD) [369 ITR 486 (Mad)]
(iv) ITO v. Manjurani Jain [(2008) 24 SOT 24 dated 17.04.2008 (Delhi ITAT)]
15. Therefore, in view of the above judgments, Ld. Counsel for the assessee submitted that where the assessee is challenging the assessed value of the Stamp Valuation Authority, the Ld. Assessing Officer ought to have referred the matter of valuation to the District Valuation Officer, which is not done.
16. Ld. Counsel for the assessee further strongly placing reliance on the decision of the Delhi Bench of the Tribunal in the case of ITO v. Aastha Goel in ITA.No. 6005/Del/2017 dated 08.10.2018, submitted that on identical circumstances the Tribunal following the decision of the Delhi Tribunal in the case of ITO v. Aditya Narain Verma (HUF) in ITA.No. 4166/Mum/ 18 dated 07.06.2017 rejected the request of the revenue that the matter be referred to Assessing Officer for the purpose of valuation of the property and directed to delete the addition made by the Assessing Officer.
17. Counsel for the assessee also placed reliance on the decision of Agra Bench of the Tribunal in the case of Hari Om Garg v. ITO in ITA.No. 342/Agra/2017 dated 31.05.2019 and submitted that the Agra Bench of the Tribunal had considered various decisions on the issue and held that the revenue cannot be allowed a second inning by sending the matter back to the Assessing Officer enabling the revenue to fill the lacunae and shortcomings and putting the assessee virtually to face a re-trail for no fault of him and to again prove before the Assessing Officer that the sale consideration was the fair market value of the property purchased by him.
18. On the other hand, the Ld. DR strongly supported the orders of the lower authorities. Ld. DR further submitted that in case the Tribunal is not agreeing with the decision of the Assessing Officer the matter may be restored to the Assessing Officer for referring the issue to the Valuation Officer.
19. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied on. In this case the Assessing Officer while completing the assessment noticed that assessee had purchased immovable property i.e. Flat No. 1102 in the Building “Nebulla Empress” for an amount of ₹.40,00,000/-. However, he observed that the market rate of the said property as per Stamp Duty Authority is ₹.2,20,49,999/-. The assessee was therefore required to explain as to why the difference between stamp value and the purchase value amounting to ₹.1,80,49,999/- should not be considered as income chargeable to tax under the head “Income from Other Sources” under section 56(2)(vii) of the Act.
20. In reply assessee filed letter explaining as to why the property was purchased only for ₹.40,00,000/- which is as under: –
“The assessee has actually acquired only one residential unit of 225 sq.ft. Flat A-1102 during the year and further the assessee’s wife has acquired A-1102 and both the flats were acquired at combined price of Rs.40 lacs. The area by combination of assessee and his wife is much lower of the value adopted by the stamp valuation authority. Assessee is innocent and never acquired such huge area of flat of 1360 sq. ft. The value adopted by the Stamp valuation authority exorbitantly exceeds the fair market value of the property as on the date of transfer.
There was extreme educational hardship and was not able understand the terms of the agreement which were beyond the actual facts and are in astronomical figures. The assessee was kept in complete dark about the description of the property.”
21. The assessee also furnished valuation report dated 04.11.2016 from Government Registered Valuer wherein the Government Valuer applying composite market rate value for valuation and assuming only 65% work was done as the property was still under construction valued the property at ₹.82 Lakhs. By submitting the report of the Government Registered Valuer the assessee disputed the Stamp duty value of the property. However, the Assessing Officer not appreciating the submissions of the assessee adopted the stamp duty value of the property as deemed purchase consideration and applying the provisions of section 56(2)(vii), the difference between the stamp duty valuation of the property and the actual consideration paid by the assessee was brought to tax which is amounting to ₹.1,80,49,999/-. While bringing to tax the said difference between Stamp Duty valuation and the actual consideration paid the Assessing Officer observed that in the sale agreement the area of the flat has been shown at 1360 square feet and the same was sold by the developer to the assessee as per agreement though the Registered Valuer has come to the conclusion that only 65% of the construction was completed.
22. On appeal the Ld.CIT(A) sustained the order of the Assessing Officer observing that when the consideration as shown in the conveyance deed is less than market value determined by the Stamp Valuation Authorities for the purpose of charging the stamp duty, the provisions of section 56(2)(vii) are clearly applicable and the Assessing Officer has rightly applied the said provision. We observe from the order of the Ld.CIT(A) that in the course of the appellate proceedings the assessee submitted valuation report of the Valuation Officer-II Mumbai dated 07.10.2016 in respect of Flat No. 601 of the very same Building i.e. Nebula Empress, Mumbai wherein the said flat in the property was valued at ₹.1,00,76,000/-. We observed that even at this stage the Ld.CIT(A) did not choose to either call for the remand report or refer it to the Valuation Officer for the correct valuation of the property, instead he finds no reason to accept and apply the valuation of some other flat which in his opinion is atleast five floor above Flat No 601 with consequential escalation in cost, different areas of two flats and amenities etc.,
23. We observe that the assessee all along is disputing the valuation by submitting Registered Valuer report before the Assessing Officer and also explaining that the property was semi furnished and even at the first appellate stage the report of the Valuation Officer – II, Mumbai was also furnished wherein in the very same Building Flat No. 601 was valued at ₹.1,00,76,000/- but the lower authorities completely brushed aside the objections of the assessee. The Assessing Officer failed in his duty to refer the matter to the Valuation Officer as provided u/s. 50(C)(ii) r.w. proviso to section 56(2)(vii) of the Act.
24. In the case of ITO v. Astha Goel the Delhi Tribunal in ITA.No. 6005/Del/2017 dated 08.10.2018 considered almost similar situation wherein the Ld.CIT(A) deleted the addition made by the Assessing Officer u/s. 56(2)(vii)(b) being the difference in Stamp Duty Valuation and the purchase consideration paid, for the reason that though the assessee disputed valuation no reference was made to the Valuation Officer by the Assessing Officer, when remand report was called for by the Ld.CIT(A) as the assessee furnished nearest sale instances as comparables even at that stage the Assessing Officer failed to refer the matter to the Valuation Officer, in those circumstances the Ld.CIT(A) deleted the difference between the valuation of the property as per the Stamp Value and the valuation as per the purchase deed of the property which decision was upheld by the Tribunal observing as under:-
“14. We have considered the rival arguments made by both the sides and perused the material available on record. We find the assessee in the instant case had jointly purchased the property located at E-886, Narela Industrial Complex DSIIDC Narela, Delhi with her husband Shri Rachit Garg each having 50% undivided share in the said property at purchase price of Rs.75,00,000/-. We find on the basis of price adopted by the stamp valuation authority at Rs.2,80,00,000/-, the Assessing Officer made addition of Rs.1,02,50,000/- in the hands of the assessee by following the provisions of section 56(2) of the I.T. Act. We find, in appeal, the ld. CIT(A) deleted the addition, the reasons for which have already been reproduced in the preceding paragraph. It is the submission of the ld. DR that since the ld. CIT(A), instead of calling for a report from the DVO, had deleted the addition on the basis of submissions made by the assessee, therefore, the order of the ld. CIT(A) is not in accordance with law and the order of the ld. CIT(A) be reversed. In his alternate argument it is his submission that the matter should be restored to the file of the Assessing Officer.
15. It the submission of the ld. counsel for the assessee that when the assessee had furnished copy of the registered valuer and has also brought to the notice of the Assessing Officer during the assessment proceedings regarding the arbitrary adoption of circle rate by the stamp valuation authority, the Assessing Officer, instead of referring the matter to the DVO proceeded to make the addition on the basis of the valuation adopted by the stamp valuation authority. Further, during the appellate proceedings, the assessee had filed sale instances of two comparable cases in the nearby area which were forwarded by the ld. CIT(A) to the Assessing Officer and the Assessing Officer at that time also did not refer the matter to the DVO. Therefore, the order of the ld. CIT(A) being in accordance with law should be upheld.
16. We find merit in the above argument of the ld. counsel for the assessee. It is an admitted fact that during the course of assessment proceedings the assessee had filed a valuation report of Captain Suresh Dutt & Associates, Government of India approved and registered valuers, who valued the property at Rs.75,40,000/- vide their report dated 07.06.2013, copy of which is placed at pages 33 to 37 of the Paper Book. It is also an admitted fact that the assessee during the course of assessment proceedings had filed the representations made by the Narela Industrial Complex Welfare Association to the then Chief Minister of Delhi dated 09.12.2010 and another on 30.01.2014, copies of which are placed at pages 29 to 32 of the Paper Book. However, it is strange to note that there is not a whisper in the assessment order by the Assessing Officer on the above facts. Even though the assessee has brought to the notice of the Assessing Officer regarding the arbitrary valuation adopted by the stamp valuation authorities, the Assessing Officer instead of referring the matter to the DVO, made the addition on the basis of the difference in the purchase price and value adopted by the stamp valuation authority. We find during the course of appellate proceedings apart from various submissions made by the assessee, two sale instances of nearby areas were filed before the ld. CIT(A) as additional evidences and the ld. CIT(A) forwarded those evidences in shape of sale instances to the Assessing Officer for his comments. At that time also, the Assessing Officer did not refer the matter to the DVO and simply requested the ld. CIT(A) to adjudicate the issue on merit of the case. The relevant portion of the remand report, copy of which is placed at page 42 and 43 of the Paper Book, reads as under :-
“The AR of assessee vide his letter dated 27.06.2017, during the remand stage furnished the sale deeds of two properties of same location and area i.e. 350 sq.mts. The descriptions of the both the properties is as under:-
