ITAT denies deemed valuation of land during return processing stage

 In a recent ruling, the Delhi Bench of the Income Tax Appellate Tribunal (“ITAT”) held that no adjustment under section 50C of the Income-tax Act (dealing with deemed valuation of immovable property) can be made at the stage of initial processing of return. The ITAT categorically ruled that invoking the deeming fiction of section 50C while issuing an intimation under section 143(1) is beyond the limited scope of prima facie adjustments permitted under the Act.

In this case, the assessee filed its return of income declaring long-term capital gains based on the actual sale consideration received on transfer of an immovable property. While processing the return under section 143(1), the Centralised Processing Centre adopted the stamp duty value as deemed sale consideration under section 50C and made an automatic adjustment, resulting in an addition to the declared capital gains. The adjustment was made without any reference to the Departmental Valuation Officer (“DVO”) and without granting the assessee any opportunity to object to the stamp duty valuation. The assessee had specifically contended that the property was sold at the prevailing market value, which was substantiated by comparable sale instances of another industrial unit in the same area referred to on record.

The ITAT examined the statutory framework of section 143(1) and noted that adjustments at the processing stage are confined to arithmetical errors, incorrect claims apparent from the return, or other limited categories expressly provided in the provision. It held that an addition under section 50C does not fall within the ambit of an “incorrect claim apparent from the return”, as section 50C is a deeming provision that operates subject to important safeguards. In reaching its conclusion, the ITAT relied on the coordinate bench decision in Amit Sabharwal v. ACIT, and Calcutta High Court’s ruling in Sunil Kumar Agarwal v. CIT, and held that section 50C cannot be applied in isolation at the processing stage and that any computation of capital gains by substituting stamp duty value involves debatable issues requiring proper adjudication. Accordingly, the adjustment made under section 50C while processing the return under section 143(1) was held to be illegal and was deleted in full.

This ruling reinforces the principle that deeming provisions like section 50C, which carry built-in safeguards involving valuation disputes, cannot be mechanically applied at the return processing stage. As a practical takeaway, taxpayers facing automatic adjustments under section 50C (or similar provisions) at the intimation stage have strong grounds to challenge such additions as being beyond the scope of section 143(1).