FAKHRUDDIN T.MALIK,MUMBAI vs. ITO WD.21(1)(5), MUMBAI

In this appeal, the assessee has raised the following grounds: – “i. On the facts and in the circumstances of the case the learned CIT (A) has erred in confirming the addition made by assessing officer U/S 143(3) of the I.T. Act of Rs. 14,34,500.

The brief facts of the case are that the assessee is an individual and for the year under consideration, filed his return of income on 27.12.2015, declaring a total income of Rs.2,43,890/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) were issued. During the assessment proceedings, it was observed that the assessee has purchased two properties, namely Flat No. 701 and 702 at Olive Apartment, Santacruz, Mumbai. Since, there was a difference in the stamp duty value as on the date of agreement and the agreement value, the assessee was asked to show cause as to why the said difference should not be treated as income of the assessee under section 56(2)(vii)(b)(ii) of the Act. In his response, the assessee submitted that he had agreed and negotiated the purchase consideration with the builder in March, 2012, and accordingly, the purchase consideration was agreed of Rs.98 lacs for Flat No. 701 and Rs.1,17,00,000/- for Flat No.702. The assessee submitted that he paid Rs.50,000/- in cash as a booking amount. Accordingly, the assessee claimed that as the booking and allotment were done in the Financial Year 2011-12, the market value of the property should be considered as per the Ready Reckoner of the year 2012.

The Assessing Officer (“AO”), vide order dated 26.12.2016 passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that there is no evidence on record to prove that the agreed consideration or part thereof was paid by any mode other than cash on or before the date of agreement for the transfer of immovable property. Therefore, the AO held that the Ready Reckoner rates of the year 2012 cannot be applied in the instant case. Accordingly, the AO made an addition of Rs.14,34,500/- being the difference between the stamp duty value as on the date of agreement and the value of two residential flats purchased by the assessee under section 56(2)(vii)(b)(ii) of the Act.

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the addition made by the AO under section 56(2)(vii)(b)(2) of the Act. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned Authorized Representative (“learned AR”) submitted that since there were many deficiencies in the flat purchased by the assessee, therefore, the assessee requested the AO to refer the matter for proper valuation to the Departmental Valuation Officer (“DVO”). The learned AR submitted that despite specific request from the assessee, the AO proceeded to make the impugned addition under section 56(2)(vii)(b)(ii) of the Act without making reference to DVO as mandated under the Act. In this regard, the learned AR also placed reliance upon the affidavit filed by the assessee.

On the other hand, the learned Departmental Representative vehemently relied upon the orders passed by the lower authorities and submitted that the addition under section 56(2)(vii)(b)(ii) of the Act was correctly made by the AO and there is no evidence that the assessee paid the consideration or part thereof in a mode other than cash on or before the date of agreement for transfer of the immovable properties.

We have considered the submission of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that the assessee purchased two residential flats in Olive Apartment, Santacruz, Mumbai. During the year under consideration, the stamp duty value as on the date of agreement was more than the value as per the agreement. The details of the properties purchased by the assessee are as follows: - Properties Agreement Value Stamp duty value as Difference on dated agreement Flat No.701 98,00,000/- 1,01,29,500/- 3,29,500/- Flat No.702 1,17,00,000/- 1,28,05,000/- 11,05,000/- Total 2,15,00,000/- 2,29,34,500/- 14,34,500/-

Since the stamp duty value on the date of agreement was higher than the consideration paid by the assessee for the purchase of the aforesaid two residential flats, the AO proceeded to make the addition of Rs.14,34,500/- being the difference between the stamp duty value as on the date of agreement and the value as per the agreement, under section 56(2)(vii)(b)(ii) of the Act. It is the plea of the assessee that there are various deficiencies in the flats purchased by the assessee, and therefore, the value adopted by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer. In this regard, the assessee has filed an affidavit sworn on 22.07.2024, submitting as follows: - “I say that the residential flats no. 701 and 702 are in the Tenant rehabilitation Building where in majority of the floors & flats are occupied by the tenants and only last 3 floors are occupied by the Purchasers like me and hence Maintenance and cleanliness of Premises, elevation, lifts, Lobbies and peripheral area is very poor. I say that the construction work of the building is very poor, there is problem of leakage in every wall of the Building. I say the Builder has not completed the structure work of Building and it has remained incomplete and unfinished. I say that the Builder has not obtained NOC from CFO fire department. I say the Builder has not obtained occupation Certificate till date. I further say that during the assessment 2014, I had requested to appoint and hereby refer the matter to Department Valuation Officer (DVO). I am making this affidavit to be produced before the concerned authorities regarding the above said facts.”

We find that similar submissions were made before the learned CIT(A), as noted at page 4 of the impugned order, wherein the assessee submitted the deficiencies in the purchased flats like it is a tenant rehabilitation project, surrounded by the slum, not having proper approach road, incomplete and unfurnished work, occupation certificate not received and because of which no water connection, higher property tax etc. From the said submissions, as noted on page 4 of the impugned order, we further find that the assessee specifically requested that the matter be referred for proper valuation to the DVO of the Income Tax Department.

Before proceeding further, it is relevant to note the provisions of section 56(2)(vii)(b)(ii) which reads as follows:

Thus, as per the provisions of section 56(2)(vii)(b)(ii) of the Act, if any individual or HUF received any immovable property for a consideration which is less than stamp duty value of the property by an amount exceeding Rs.50,000/-, then the stamp duty value of such property as it exceeding such consideration shall be chargeable to income tax under the head “income from other sources”. The first proviso to section 56(2)(vii)(b) provides that where the stamp duty of the immovable property as referred to in sub-clause (b) is disputed by the assessee on the grounds as mentioned in section 50C(2) of the Act, the AO may refer the valuation of such property to a Valuation Officer. In this regard, it is relevant to note the provisions of section 50C(2) of the Act, which reads as follows: - “(2) Without prejudice to the provisions of sub-section (1), where— (a) the assessee claims before any Assessing Officer that the value adopted or assessed 16[or assessable] by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub- section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. Explanation 1.— For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). Explanation 2.— For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.”

In the present case, it cannot be disputed that the value adopted by the stamp duty authority exceeds the value of the residential flats purchased by the assessee on the date of transfer and the value so adopted is also not in dispute in any appeal, revision or reference before any Authority, Court or High Court. Thus, both the conditions of section 50C(2) of the Act are fulfilled in the present case. Accordingly, we are of the considered view that the AO erred in not referring the valuation of the residential flats to the DVO. Further, the impugned order also suffers from the same vice as despite recording submission of the assessee in this regard, no reference was made to the DVO for the valuation as per the provision of the Act. Accordingly, in view of the facts and circumstances as noted above, we deem it appropriate to restore this issue to the file of the Jurisdictional AO for de novo adjudication after seeking a valuation report from the DVO as per the provisions of the Act. Needless to mention, no order shall be passed without affording a reasonable and adequate opportunity of hearing to the assessee. As a result, the impugned order is set aside, and the grounds raised by the assessee are allowed for statistical purposes.

In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 16/05/2025