2011 (7) TMI 766 - HC - Income Tax

Search and seizure - In the normal course unless the assessee proves that her property is of lower value than the adjoining property her property would have fetched the same or almost the same price as that of the property of the uncle and father which was simultaneously sold - This Court has in several decisions taken note of the notorious practice of underestimation of value in documents to reduce the high incidence of stamp duty - If receipt of more than the declared amount as consideration is proved by documents necessarily the assessment is sustainable - Appeal is allowed by way of remand to CIT(A)

Summary

Issues:
Assessment of capital gains under Section 153A of the Income-tax Act, validity of assessment made in the name of the husband for income arising from the investment made by the wife under Section 64(1)(iv) of the Income-tax Act, protective assessment made in the name of the wife under Section 153A of the Act, consideration of seized documents and information collected from the computer in the assessment process, significance of adjoining properties sold at different prices, the role of confirmation from the purchaser in assessment proceedings.

Analysis:
The judgment by the Kerala High Court, delivered by Justices C.N. Ramachandran Nair and P.S. Gopinathan, pertains to connected appeals arising from the assessment of capital gains under Section 153A of the Income-tax Act. The respondents, a husband and wife, had properties sold in the wife's name, allegedly purchased with funds borrowed from the husband. The Department collected information from the computer in the assessees' house and recovered documents from the lady's father and uncle, who were adjoining landowners. The assessment was made in the husband's name for the income from the wife's investment under Section 64(1)(iv) and protective assessment was also made in the wife's name under Section 153A.

The Commissioner of Income-tax (Appeals) allowed both appeals, which were confirmed by the Tribunal. However, the High Court found the orders of the appellate authorities not sustainable for multiple reasons. Firstly, the authorities did not adequately consider the seized documents and information from the computer. The Court noted that all three properties sold were adjoining, and the neighbouring owners confirmed receiving more than the documented value as sale consideration. The Court highlighted the practice of underestimating property value to reduce stamp duty and emphasized the need to consider the collected sale value information. The Court also addressed the unrealistic expectation of confirmation from the purchaser, stating that if unaccounted payments are proven through documents, the assessment stands.

The Court concluded that the appellate authorities erred in canceling the assessment based on the lack of confirmation from the purchaser. The judgment set aside the Tribunal and appellate authority orders, remanding the matter for reconsideration by the CIT (Appeals). The assessee was given an opportunity to prove the property's lesser value compared to neighbouring properties to justify the sale at a lower price, with the burden of proof on the assessee if the materials from the computer were proven false.

In summary, the High Court allowed the appeals, emphasizing the importance of considering seized documents and information from the computer in assessments, addressing the significance of adjoining properties sold at different prices, and clarifying the role of purchaser confirmation in assessment proceedings.