2010 (7) TMI 1217 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining addition u/s 69 on the basis of circle rate in terms of provisions of section 50C.
2. Legality of presumption about unexplained investment.
3. Applicability of deeming provisions of section 50C for the purpose of section 69.

Summary:

Issue 1: Sustaining Addition u/s 69 Based on Circle Rate
The assessee contested the CIT(A)'s decision to sustain the addition u/s 69 based on the circle rate, arguing that section 50C's provisions, which pertain to the computation of capital gains, should not apply to section 69. The CIT(A) had directed the Assessing Officer to verify the actual investment based on the circle rates and consider any difference as undisclosed investment u/s 69.

Issue 2: Legality of Presumption about Unexplained Investment
The CIT(A) observed that the Assessing Officer's addition of Rs. 35,90,000/- u/s 69B was based on a valuation report from SIDBI, which was not provided to the appellant for comments. The CIT(A) noted that section 69B requires material evidence to establish undisclosed investment, and reliance on estimated valuation without supporting evidence is not justified. The CIT(A) also referenced several judicial pronouncements supporting this view.

Issue 3: Applicability of Deeming Provisions of Section 50C
The Tribunal referred to the decision in ITO Vs. Harley Street Pharmaceuticals Ltd., which held that the fiction created u/s 50C for substituting actual consideration with the value determined by the Registrar for stamp duty purposes is restricted to the computation of capital gains and cannot be extended to the buyer for the purpose of section 69. The Tribunal concluded that sections 69 and 69B cannot be invoked unless specific evidence of non-disclosure of investment is presented, which was not the case here.

Conclusion:
The Tribunal held that the provisions of section 50C are applicable only for the computation of capital gains in the case of the transferor and not for the buyer. Without specific evidence of non-disclosure of investment, no addition could be made to the income of the assessee u/s 69 or 69B. Consequently, the appeal was allowed.