Addition of Rs. 21,42,857 u/s 56(2)(vii)(b)(ii): ITAT Allows Appeal for Failure to Refer Valuation to DVO [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal(ITAT)allowed the appeal filed by the assessee, holding that the addition of Rs. 21,42,857 under Section 56(2)(vii)(b)(ii) of Income Tax Act,1961 could not be sustained due to the Assessing Officer(AO)’s failure to refer the property valuation to the Departmental Valuation Officer(DVO).

Bhavnaben Sanjaykumar Mistry,appellant-assessee, filed the return of income on 20.10.2024, declaring Rs. 14,08,850/-, which was initially accepted by the AO. However, the Principal Commissioner of Income Tax(Pr. CIT) set aside the order on 27.03.2019, directing a de-novo assessment due to the failure to apply Section 56(2)(vii)(b), leading to an underassessment of Rs. 21,42,857/-. The assessment was completed on 12.12.2019, with an addition of Rs. 21,42,857/- under the same section.

The assessee aggrieved by the order of AO appealed before then Commissioner of Income Tax(Appeals)[CIT(A)] who dismissed the appeal. The assessee then appealed before the tribunal.

Law and Procedure for Filing of Appeals

A delay of 139 days in filing the appeal was condoned as the assessee provided a reasonable explanation, and the appeal was admitted for hearing.

The assessee’s counsel argued that the assessee had paid a total stamp duty of Rs. 23,70,550/-, including an excess payment of Rs. 3,15,000/-, and calculated the market value at Rs. 4,83,78,572/- by capitalizing the stamp duty at 4.90%. The differential amount of Rs. 64,28,572/- was taxed under section 56(2)(vii)(b)(ii), with the assessee’s share of Rs. 21,42,857/- added to the total income.

The counsel also stated that the refund for the excess payment had not been received and that the AO had not considered key points raised by the assessee, including the fact that the consideration value was not less than the Jantri value, as certified by the Sub-Registrar.

The tribunal noted that the assessee had requested the AO, through letters dated 22.08.2019 and 27.11.2019, to refer the property valuations to the DVO as per section 50C of the Act. It found that the AO was obligated to refer the matter to the DVO under section 55A when the appellant raised objections.

The two member bench comprising Dr B.R.R Kumar (Vice- President) and Siddhartha Nautiyal(Judicial Member) stated that the AO could not disregard these objections and apply the deeming provisions without due consideration. It referenced the decisions of the Co-ordinate Benches in Amar Shiv Construction Pvt Ltd vs. DCIT and Jayshree Kothari vs. ITO, which held that such actions by the AO were not sustainable.

In short,the appeal filed  by the assessee was allowed.

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