TMI Blog2017 (7) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 taxi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DVO determined the value of the property at ₹ 7,38,78,923/-, much higher than ₹ 5 crores at which the assessee had sold the property. The same was confronted to the assessee. The assessee responded by stating that there were glaring mistakes in the DVO s report and that the reference to the DVO was also illegal. Further the assessee stated that DVO s report was unreasonable also for the reason that no opportunity was given to the assessee by the DVO to filed its contention/objections on the said report. The Assessing Officer rejected the assessee s contention, stating that the reference was valid and relied upon the decision of the Hon'ble Punjab Haryana High Court in the case of Jindal Strips Ltd. Vs. ITO, 116 ITR 825. The Assessing Officer also stated that the assessee had been given adequate opportunity and further all discrepancies pointed out in the DVO s report by the assessee were brushed aside by the Assessing Officer. The Assessing Officer thereafter substituted the sale consideration by the fair market value determined by the DVO and computed the profits on account of the sale of the impugned property assessable in the assessee s hands at ₹ 1,19, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral observations rather on the basis of expert i.e D.V.O. He has assessed the correct value of sale of the property and accordingly assessed the gain on sale of the residential property. As for as reference to the Deptt. Valuation officer is concerned the assessing officer has issued letter U/s 131(1)(d) of the I.T Act. For determining value of capital gain and cost of investment separate sections are there in the I.T. Act. 1961 when the residential property was sold as business asset, the assessing officer had to invoke sec 131(1 )(d) for making reference to the DVO. After duly confronting the report of the DVO to the assesses, the assessment has been made by the assessing officer. The case laws relied on by the appellant relate to sale of asset on which capital gain income is earned and not to the sale of residential house sold as business asset. In view of the facts of the case, the addition made by the assessing officer is upheld and ground of appeal taken by the assessee is dismissed. 5. Aggrieved by the action of the Ld. CIT (Appeals) the assessee has now come up appeal before us and has raised following grounds of appeal: 1. That the order dated 4-03-2016 passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. 6. All the ground raised by the assessee are against the action of the Ld. CIT (Appeals) in upholding the addition made by the Assessing Officer on account of profit earned on sale of property by substituting sale consideration with FMV of the property. The assessee has challenged the reference made to the DVO u/s 131(1)(d) of the Act and has also challenged the addition made stating that it tantamounted to taxing the notional profits of the assessee. 7. During the course of hearing the assessee filed a brief synopsis in writing of its submissions and summarized the key aspects in the case as follows vis a vis reference made to DVO: 2.1 Regarding Ground No.2 ,the key aspects concerning the addition are summarized as under for consideration by yours Honours; - Whether addition made only on conjectures and surmises is tenable? - Whether ascribing a notional value is permissible only on the basis of the valuation report of a DVO, without bringing any cogent material on record? - Whether the refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y invoking S.131(l)(d) of the Act is bad in law in view of SC in 262 ITR 407 and the 2009 Guidelines on Valuation of Immoveable Property of the Deptt of Revenue. - Accordingly, it is respectfully submitted that for the year under consideration, i.e., AY 2010-11, the established principles and settled law would apply to the impugned sale of property constituting stock in trade; that Revenue has no power to estimate/determine notional income unless the Act specifically provides or where cogent evidence is placed on record that an amount other than the stated sale value has been paid/received and that a DVO's report cannot be the sole basis for an addition. 9. The Ld. DR, on the other hand, relied upon the order of the CIT (Appeals) as well as of the Assessing Officer. 10. We have heard both the parties,carefully gone through the documents placed before us and also perused the orders of the authorities below. The undisputed facts which emerge are that the assessee in the course of carrying on its business, sold a property for ₹ 5 crores. The said property was in the nature of stock-in-trade and was purchased and sold as such and no construction was done on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property, Department of Revenue explaining the scope of reference to DVO u/s 142A of the Act. iv) Namita Singh, New Delhi Vs. Department of Income Tax, ITA No.2256/Del/2008. 12. The Ld. counsel for the assessee also contended that specific provision for substituting sale consideration of immovable property held as stock-in-trade was brought on the Statute by inserting section 43CA of the Act w.e.f. 1.4.2014, which in the first placed does not apply in assessee s case since it relates to assessment year 2010 11 and even otherwise the said section allows reference to the DVO for determining the FMV only on the insistence of the assessee and the Assessing Officer on his own has no power to make such reference. 13. The contention of the Ld. DR, on the other hand, is that the reference made u/s 131(1)(d) of the Act was valid as per the decision of the Hon'ble Jurisdictional High Court in the case of Jindal Strips Ltd. (supra). 14. We have heard both the parties on the issue. We are inclined to agree with the contentions of the Ld. counsel for the assessee that reference made in the present case to the DVO for determining the FMV of the property sold was not in conformi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry by him. 16. 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. Section 142A, inserted by Finance Act 2004 and applicable in the present case states as follows: 142A. Estimate by Valuation Officer in certain cases.-(1) For the purposes of making an assessment or re-assessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The existing provisions of section 131 provide that the Assessing Officer shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, when trying a suit. One such power which has been provided in clause (d) of subsection (1) of section 131, is the power to issue commissions. Section 75 of CPC and order XXVI of the Schedule thereto lays down the power of issuing commission', which inter alia, empowers the Court to make a local investigation and also to hold a scientific, technical and expert investigation . Using this power, the Assessing Officer has been making a reference to the Valuation Officer for estimating the cost of construction of properties. The scope of power vested in an Assessing Officer under section 131 to make a reference to the Valuation Officer for estimating the cost of construction of properties has been a subject-matter of litigation. A new section 142A has been inserted by the Finance (No. 2) Act, 2004 to specifically provide that an Assessing Officer has the power to make a reference to the Valuation Officer for estimating the value of investment, expenditure, etc. This section has been inserted with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee relied upon the decision of the Hon'ble Jurisdictional High Court in the case of Paramjit Singh Vs. ITO (2010) 195 Taxman 273 (P H) and stated that the sale consideration disclosed in sale deed has to be accepted and cannot be contradicted merely on the basis of oral evidence. The Ld. counsel for the assessee submitted that the actual sale consideration cannot be substituted by fair market value and relied upon the following decisions in this regard: 1) CIT Vs. Smt.Nilofer I. Singh (2009) 309 ITR 233 (Del) 2) CIT Vs. George Henderson Co. Ltd. (1967) 66 ITR 622 (SC) 3) Gillanders Arbuthnot Co. (1973) 87 ITR 407 (SC) 23. The Ld. counsel for the assessee also submitted that in a bonafide sale transaction nothing compels a trader to sell on market rate and sale consideration is to be accepted unless transaction is proven to be sham or bogus, the onus for which lies on the Revenue to establish. Reliance was placed on a number of decisions in this regard, particularly CIT Vs. Calcutta Discount Co. Ltd. (1973) 91 ITR 8. 24. On this score also we are in agreement with the Ld. counsel for the assessee. Evidently, the Assessing Officer has merely substituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and by doing so has sought to tax the notional profits of the assessee, which is not permissible under the Act. The reliance placed by the assessee on the decision of the Hon'ble Apex Court in the case of K.P. Varghese (supra) is apt, wherein it has been categorically held that the onus is on the revenue to prove understatement in the document and establish a condition of taxability. There has to be evidence that consideration actually received was more than what was disclosed or declared and it has to be established that the assessee has stated a false fact. 26. The Ld.Counsel for the assessee has rightly referred to the decision of the Apex Court in the case of CIT vs Calcutta Discount Co. Ltd.(1973) 91 ITR 8 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. 27. In view of the above, we hold that reference made to the DVO for determining the FMV of the property was invalid and as consequence the sale consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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