ITAT Delhi Holds Section 50C Adjustment Not Permissible at 143(1) Processing Stage

ITAT Delhi Holds Section 50C Adjustment Not Permissible at 143(1) Processing Stage

CK International Pvt. Ltd. filed its return of income for AY 2019-20 on 25.07.2020 declaring total income of Rs. 12,15,528. The return was processed by the CPC under Section 143(1) of the Income Tax Act, wherein an adjustment of Rs. 14,68,000 was made by adopting the stamp duty value of an immovable property instead of the declared sale consideration, resulting in an addition under the head “Long Term Capital Gains”.

The assessee challenged the adjustment before the Commissioner of Income Tax (Appeals), who partly allowed the appeal but upheld the applicability of Section 50C and further directed the Assessing Officer to refer the valuation to the DVO and compute income under Section 56(2)(vii)(b). Aggrieved, the assessee filed an appeal before the ITAT, contending that the invocation of Section 50C was beyond the limited scope of adjustments permissible under Section 143(1).

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Main Issue: Whether an adjustment under Section 50C of the Income Tax Act can be made while processing a return of income under Section 143(1) without providing the assessee an opportunity of reference to the DVO.

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Tribunal’s Rulling: The ITAT held that the scope of adjustments permissible under Section 143(1) is extremely limited and does not extend to debatable issues requiring examination or exercise of discretion. The Tribunal observed that Section 50C is a deeming provision which cannot be applied mechanically and must be read as a whole, including the statutory right of the assessee under Section 50C(2) to seek valuation by the DVO.

Relying on Amit Sabharwal v. ACIT and Inder Jeet Malik, the Tribunal held that making an adjustment under Section 50C at the return processing stage deprives the assessee of a valuable statutory right and violates principles of fairness. The Tribunal further noted that such an issue is clearly outside the purview of “incorrect claim apparent from the return” as contemplated under Section 143(1)(a).

Therefore, the Tribunal declared the adjustment made under Section 50C while processing the return under Section 143(1) as illegal and deleted the addition in entirety.

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