2017 (7) TMI 301 - ITAT CHANDIGARH

Addition on account of profit earned on sale of property - stock-in-trade - substituting sale consideration with FMV of the property - assessee has challenged the reference made to the DVO u/s 131(1)(d) - Held that:- We are inclined to agree with the contentions of the assessee that reference made in the present case to the DVO for determining the FMV of the property sold was not in conformity with law. It is not disputed that the reference in the present case was made u/s 131(1)(d) of the Act and further it is also not disputed that the asset was a stock-in-trade of the assessee. It is settled law that the reference to the DVO can be made only by resorting to specific provision providing for the same by the Legislature and not by virtue of or by invoking any general provision.

The reference in the present case having been made under general provision u/s 131(1)(d) is, therefore, illegal and invalid and beyond the powers of the Assessing Officer. Further, even for a moment if we assume that reference was made u/s 142A and the mentioning of section 131(1)(d) was wrong, the reference, we hold, is still not valid since, as rightly argued by the Ld. counsel for the assessee, as per the provisions of section 142A prevailing at the time the reference was made, the reference could have been made only for determining the cost of construction of the asset and not the sale consideration of the asset.

Considering the fact that the assessee has established the sale consideration received by virtue of the sale deed, coupled with the fact that no shred of evidence, of the assessee having earned more than the stated consideration, has been brought on record by the Revenue, we unhesitantingly hold that the Assessing Officer has erred in taking the fair market value as the sale consideration received by the assessee and by doing so has sought to tax the notional profits of the assessee, which is not permissible under the Act.

Assessee has rightly referred to the decision of the Apex Court in the case of CIT vs Calcutta Discount Co. Ltd. (1973 (4) TMI 6 - SUPREME Court) wherein it was held that where a trader transfers goods to another trader at a price less than the market price and the transaction is a bonafide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the profit from the transaction.

Thus reference made to the DVO for determining the FMV of the property was invalid and as consequence the sale consideration of the property could not have been substituted by FMV determined by the DVO. - Decided in favour of assessee.