AO Fails to Verify FMV with Valuation Officer u/s 50C(2) upon Taxpayer’s Dispute: ITAT Invalidates STCG Addition [Read Order]

The Lucknow Bench of the Income Tax Appellate Tribunal ( ITAT ) invalidated the addition of short-term capital gains ( STCG ) after the assessing officer failed to consult a valuation officer to verify the fair market value, as required under Section 50C(2) of the Income Tax Act when the taxpayer challenged the assessed value.

Nirmal Singh, the assessee along with his wife, purchased a property for Rs. 2,19,40,000 in assessment year 2014-15, which had a stamp duty valuation of Rs. 4,82,74,000. In 2021, the Assessing Officer ( AO ) issued a reassessment notice under Section 148, suspecting that income had escaped assessment.

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An addition of Rs. 2,14,22,053 was made under Section 56(2)(vii)(b) for income from other sources, and Rs. 49,11,947 under Section 50C for short-term capital gains. The assessee appealed against the reassessment and additions before the Commissioner of Income Tax (Appeals) [CIT(A)].

The assessee’s counsel argued that the  AO ignored the request and did not involve a Valuation Officer, continuing to use the stamp duty value for the assessment. However, the CIT(A) upheld the AO's decision, validating the use of the stamp duty value and dismissing the assessee's objections.

Aggrieved, the assessee challenged the CIT(A)’s order before the ITAT arguing that the failure to refer the valuation to an officer violated Section 50C and Section 56(2)(vii)(b), thus invalidating the additions.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The counsel argued that Section 56(2)(vii)(b) did not apply as the agreement to purchase was made before its introduction. The advance payments were made earlier, aligning the transaction outside the purview of the section.

On the contrary, the revenue counsel argued that the reassessment was valid based on discrepancies between declared income and property transactions and emphasized the applicability of Sections 56(2)(vii)(b) and 50C of the Income Tax Act due to the differences between actual consideration and stamp duty values.

The two-member bench comprising Anadee Nath Misshra ( Accountant Member ) and Subhash Malguria ( Judicial Member ) observed that the assessing Officer did not follow the mandated procedure of referring the valuation to a Valuation Officer as required under Sections 50C of the Income Tax Act.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The tribunal agreed with the assessee that the provisions of Section 56(2)(vii)(b) were incorrectly applied due to the dates of agreements and transactions. The tribunal referenced the previous ruling in ITO Vs. M/s. Aditya Narain Verma which stressed the need for proper valuation assessments before making additions.

Therefore, the tribunal invalidated the order of the CIT(A) and directed the AO to delete the additions of Rs.2,14,22,053 and Rs. 49,11,947. The appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

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