TMI Blog2019 (9) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... been indirectly applied for the purpose of taking the income under Section 69B of the Act. There is nothing on record to indicate as to what was the price of the land at the relevant time. Even otherwise, the same is a pure question of fact. Apart from the fact that the price of the land was different than the one, recited in the sale deed unless it is established on record by the department that as a matter of fact, the consideration as alleged by the department did pass to the seller from the purchaser, it cannot be said that the department had any right to make any additions. Section 69B of the Act does not permit an inference to be drawn from the circumstances surrounding the transaction that the purchaser of the property must have paid more than what was actually recorded in his books of account for the simple reason that such an inference could be very subjective and could involve the dangerous consequence of a notional or fictional income being brought to the tax contrary to the strict provisions of Article 265 of the Constitution of India which must be taxes on income other than agricultural income . There could not have been any presumption for the purpose of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the above assessment was erroneous in so far as it was prejudicial to the interest of Revenue on account of the following: On verification of P L account, balance sheet computation of Income submissions in respect of construction business, it is revealed that investment of ₹ 1,17,93,542/- is made in the land situated at Survey No.183 184 at village Tandalja. The break up of the said investment as shown in the books comprises of: Particulars Amount in Rs. Cost of land 45,61,000/- Cost of construction Leveling Expenses 42,47,332/- Electric Expenses 86,760/- Fencing Expenses 1,49,600/- NA Expenses 1,33,540/- Raja Chitthi Expenses 2,79,010/- D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the file of the AO for making relevant inquiries as specified for which objective material is available at the threshold. 2. Being aggrieved and dissatisfied with the order dated 26.02.2019, received by the appellant on 09.04.2019, passed by C Bench of the Tribunal in I.T.A. No.825/Ahd/2016 for Assessment Year 2010-11, the Appellant begs to prefer this appeal before this Hon ble Court on the following amongst other grounds: ( A) Both Principal CIT and the Tribunal failed to appreciate that their order is wrong because there is no presumption in law that the difference between the actual sale price and the stamp duty value is unaccounted investment by the purchaser assessee, and therefore, to be added u/s.69B as undisclosed income. ( B) Both Principal CIT and the Tribunal missed two direct decisions of this Hon ble Court (I) CIT vs. Sarjan Realties Ltd. (2014) 220 Taxman 112 (Guj), Wherein the question was of addition of the difference between the Stamp duty valuation and actual sale price paid as unexplained investment in the hands of the seller and was replied against the Department by holding hat section 50C ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant. The agreement of sale was registered on 31st August 2007. The total sale consideration was fixed at ₹ 45,61,000/-. On 31st August 2007 i.e. on the date of the execution of the agreement of sale, an amount of ₹ 10,25,000/- was paid towards earnest money and the possession of the land was also taken over. On 31st March 2008, the appellant, by way of cheques, paid the amount of ₹ 35,36,000/-. Thereafter, the balance amount of ₹ 99,000/was paid to the original owner on 26th February 2011. The appellant assessee tried to explain to the Assessing Officer that he had taken over the possession of the land in the financial year 2007-08 and in view of the definition of the term transfer as defined under Section 2(47) of the Act, the land could be said to have been transferred in favour of the assessee in the financial year 2007-08. The assessee also pointed out that after taking over the possession of the land, he incurred various expenditures like erecting fencing, land levelling, construction of the compound wall, NA permission, electric connection, Rajja Chitti (building construction permission) and site office construction. 5 The expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93,542/- From the registered document to this effect (bearing No.4153/2011 (BRA3/ ATA), dated 29.03.2011), it is noticed that against the consideration of ₹ 45,61,000/- declared / shown, ₹ 22,90,300/- is paid as tamp duty. The prevailing stamp duty rate in Gujarat is @ 4.90% advolem on consideration or market value as per Jantri Rate. Accordingly, the value of the alleged property comes to ₹ 4,57,40,816/- ( 22,90,300*100/4.90) as against ₹ 45,61,000/- declared/ shown, it may therefore be presumed that ₹ 4,21,79,800/- ( 4,67,80045,61,000) is undisclosed investment. 2 In view of above, you are being granted an opportunity of being heard and to show cause as to why the aforesaid assessment made by the assessing officer for A.Y. 2011-12 should not be enhanced with a direction to make fresh assessment in accordance with the provisions of law in this regard. For this purpose, you may appear before the undersigned in person or through your authorized representative or file written submission on 29.01.2015 at 11:00 A.M. / P.M. in case of non compliance, the matter will be decided on merits. Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudice to the above, it is worthwhile to take note of para 7 of the aforesaid agreement to sale (Banakhat), where it is clearly stated that the liability of the stamp duty to be paid at the prevailing rates at the time when the sale deed to this effect is registered, would be of the purchaser, I.e., assessee. Therefore, the . contention of assessee with regard to the period, as mentioned in the preceding para has no merits. 4.3 Considering the totality of facts, I am of the view that the A.O. Has failed to make proper enquiries, examine the records and appreciate the facts and the law while deciding the issue. Failure on the part of the A.O. With regard to examination / verification of the vital issue, as discussed in Para 4.1 to 4.13 herein above has rendered the assessment erroneous, in so far as, it is prejudicial to the interest of revenue. Therefore in exercise of the powers conferred by the Section 263 of the Incometax Act, 1961, the assessment is setaside with the directions that the assessment should be framed afresh by A.O. After proper discreet enquiries / verification on the aforementioned issue, examining the accounts and records of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oordinate bench in Dilshad Trading Co. (P) Ltd. vs. ITO (1994) 49 ITD 348 (Bam.) and CIT vs. Amit Corporation (2012) 21 taxmann.com 64 . (Guj); CIT vs. Arvind Jewellers (2003) 259 ITR 502 (Guj) (2015) CIT vs. Fine Jewellery (India) Ltd. (2015) 372 ITR 303 (Bam). 7. The learned CITDR, on the other hand, supported the revisional order of the Pr.CIT and submitted that the Pr.CIT was well within its power to exercise supervisory jurisdiction of review against the palpably wrong order passed by the AO without considering a glaring and obvious payment of stamp duty totally disproportionate qua the cost of purchase of land as declared by the assessee. It was submitted that the AO has not made any inquiry into claim of the assessee towards bonafides of cost of purchase declared and assessment order has been passed in a cryptic nondescript manner. The agreement has been registered and therefore the Stamp duty was paid during the year. Therefore, it was thus contended that the cause of action against the assessee did arise in the FY 2010-11 to the concerning AY 2011-12. The learned CITDR referred to the judgment of the Hon ble Supreme Court in the case of Malabar Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any discussion on any aspect of the assessment whatsoever. The preponderance of evidence clearly indicates unrealistically lower costs of purchases declared formally which would warrant an inquiry with the competent registering authority as well as with other comparable cases and by other realistic means. The Pr.CIT in discharge of its solemn duty under s.263 of the Act could not remain oblivious of the facts objectively drawn. There is an apparent plausibility in the action of the Pr.CIT by resorting to powers under S.263 of the Act which is of wide amplitude. The circumstances clearly exist which demands inquiry which was not done by the AO while discharging of statutory function. Thus, armed with fairly extensive powers, the Pr.CIT, in our view, has taken action compatible with circumstances. While holding so, we are alive to the plea on behalf of the assessee that reasonable inquiry was made into˙ various aspects concerning cost of land and also the purchase was made in the preceding years except for mere registration of the document in the current year. We are not impressed by such line of arguments when tested on the touch stone of Section 263 of the Act. The pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosed income. Mr. Shah submitted that Section 50C of the Act is applicable only to the seller and not to the purchaser. Mr. Shah submitted that the issue is directly covered by two decisions : (1) CIT vs. Sarjan Realities Ltd [(2014) 220 Taxman 112 (Guj)] and (2) Anand Banwarilal Adhukia vs. DCIT [(2017) 244 Taxman 243]. 12 In such circumstances referred to above, Mr. Shah, the learned senior counsel appearing for the appellant prays that there being merit in this appeal, the same be allowed and the substantial question of law may be answered in favour of the appellant assessee and against the Revenue. 13 On the other hand, this appeal has been vehemently opposed by Mr. Varun Patel, the learned standing counsel appearing for the respondents. Mr. Patel submitted that no error, not to to speak of any error of law could be said to have been committed by the Appellate Tribunal in passing the impugned order. Mr. Varun Patel laid much stress on the fact that there is no explanation worth the name at the end of the appellant as to why he had to pay stamp duty of ₹ 22,90,300/-on the total sale consideration of ₹ 45,61,000/-. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty purposes is more than the fair market value of the property as on the date of transfer and he has not disputed this value before the appellate authorities or the Court under the Stamp Duty Act then the Assessing Officer may refer the valuation of such property under transfer to the Valuation Officer in accordance with Section 55A of the Incometax Act, 1961. If the fair market value so determined by the Valuation Officer is less than the value adopted for stamp duty purposes the Assessing Officer may take such fair market value to be the full value of consideration. On the other hand, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes the Assessing Officer shall adopt such fair market value determined by the Stamp Valuation Authorities as full value of consideration and he shall not adopt the valuation done by the Valuation Officer as full value consideration; ( 4) The insertion of Section 50C is made effective from 142003 and, accordingly, would be applicable for the assessment year 200304 and the subsequent years. Earlier there used to be a provision in Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer. ● Further this section was amended by Finance Act Finance Act, 2018. Third proviso was added to subsection (1) which is : Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration. 2) Without prejudice to the provisions of subsection (1), where- ( a ) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under subsection (1) exceeds the fair market value of the property as on the date of transfer; ( b ) the value so adopted or assessed or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale consideration shown by the assessee in the sale deed Section 50C cannot be invoked; v) Where valuation done by the Stamp Valuation Authorities for levying stamp duty is more than the sale consideration shown by the transferor in the sale deed then such higher valuation will be considered as full value of consideration and, accordingly, such full value of consideration being valuation done by the Stamp Valuation Authorities will be substituted for apparent consideration; vi) The capital gains under Section 48 shall be computed accordingly on the basis of such higher full value of consideration and not on the basis of apparent consideration shown in the sale deed; vii) If the assessee, being transferor, claims before the Assessing Officer that fair market value of the property under transfer is less than the valuation done by the Stamp Valuation Authorities then the Assessing Officer may refer the property to the Valuation Officer for determining its fair market value as on the date of the transfer; viii) Such reference would be made in accordance with Section 55A; ix) On receipt of valuation report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans the whole price without any reduction whatsoever and it cannot be referred to the adequacy or inadequacy of the price bargained. It also does not have the reference to the market value of the capital asset which is the subjectmatter of the transfer. However, Section 50C creates a fiction and, therefore, it is a departure from the established principles. SECTION 50C IS CONSTITUTIONALLY VALID : It has been held that classification for preventing evasion of tax and undervaluation of transaction by substituting apparent sale consideration are neither unreasonable nor discriminatory. Section 50C pertains to a class of capital asset being land or building and its object is to bring the income arising from the capital gains. The charge of income is levied by virtue of Sections 4 5 and not by Section SOC. Therefore, insertion of Section 50C is within the legislative competence and is not violative of Article 14 of the Constitution of India. ( Bhatia Nagar Premises Cooperative Society Ltd. v. Union of India [2011] 334 ITR 145/ 197 Taxman 249 / [2010] 6 taxmann.com 120 (Bom.), K.R. Palanisamy V. Union of India [2008] 306 ITR 61 /[2009] 180 Taxman 253 (Mad.). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee who can reasonably discharge this onus by submitting necessary material before the Assessing Officer, such as valuation by an approved valuer. Thereafter onus shifts to the Assessing Officer to show that material submitted by the assessee about fair market value of the property is false or not reliable. ( Ravi Kant v. ITO (2007)110 TTJ Delhi 297). EXEMPTION AND SECTION 50C : When valuation done by the SVA is adopted as full valuation of consideration under Section 50C then such value adopted will result in larger capital gain for the assessee as compared to what is disclosed by him. For the purpose of getting benefit under Section 54F the assessee cannot be expected to invest more than actual amount of capital gains accrued to him on the basis of sale consideration as per instrument of transfer. The legal fiction created by Section 50C in determining the capital gains cannot be extended to Section 54F or other provisions allowing exemption from capital gains as deeming Section can be applied only for the definite and limited purposes for which it is created. Therefore, capital gains and net consideration mentioned in exemption provisions such as Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l asset by stamp duty valuation. Such deeming fiction, however, is applicable only in case of a seller for the purpose of section 48 of the Act. 9. From the aforesaid decision, it is quite clear that provision of Section 50C would apply to a seller only and not the purchaser and therefore, to make reference casually in case of petitioner, who is purchaser, is not just and proper. 10. The other relevant statutory provision which is required to be considered is Section 69 of the Act. Section 69 of the Act pertains to unexplained investment, whereas Section 69A pertains to unexplained money etc. and likewise, Section 69B pertains to amount of investment etc. not fully disclosed in books of accounts and therefore, these statutory provisions are related to a case where assessee had made certain investment or expenditure or is found to be the owner of any bullion, jewellery etc. and the same are not properly recorded in the books of account. This Court in a decision in case of Me and Mummy Hospital (Supra), while referring to these statutory provisions read with Section 142A of the Act, has held that unless there is prima facie application of Section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of these provisions come into play that the Assessing Officer can resort to section 142A for estimating the value of such investment or expenditure. Sequence cannot be put in the reverse. In other words, the Assessing Officer would have no authority to call for the report of the Valuer under section 142A to judge whether there has been any unexplained investment or expenditure as referred to in sections 69, 69A and 69B of the Act. It would only amount to fishing inquiry and not investigation under section 142A of the Act. In our opinion, the scheme of the provisions when read harmoniously would lead to a situation where in case the Assessing Officer, during the pendency of assessment or reassessment, is of the opinion that sections 69, 69A and 69B of the Act can be invoked; in order to estimate such unexplained investment or expenditure in acquisition of bullion, jewellery or valuable article, he can resort to valuation by the Valuation Officer in terms of subsection (1) of section 142A of the Act. In the present case, no such material emerges from the record. To the contrary, neither from the order of reference nor from any other material, the respondent could point out that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also reflecting from the said decision that well before time, the assessment period is getting over, reference came to be made by issuing notice in the month of November,2011 and therefore, the background of the facts is quite distinct from that of case on hand. Therefore, we are of the opinion that no much reliance is possible to be made on the proposition of the said decision. No doubt, it is true that Section 142A of the Act can be resorted to even during the assessment or after assessment but, at the same time, while making said reference, the officer has to satisfy the conditions precedent which are be reflected in relevant statutory provisions, which in the present case are completely missing and therefore, we are of the opinion that no such action is permissible in law. We are of the opinion further that ratio laid down by this Court in case of Me and Mummy Hospital (Supra) is squarely covering the issue and almost in similar set of circumstance, this Court has taken a view, hence we see no reason to deviate from the proposition laid down by the said decision and therefore, the impugned action initiated by the authorities deserves to be quashed. 19 In Sar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9B of the Income Tax Act. The revenue carried the matter in appeal before the Tribunal who upheld the order passed by the Commissioner (Appeals). 3. Mrs. Mauna Bhatt, learned senior standing counsel very fairly invited the attention of this court in the case of Commissioner of IncometaxIV v. Sarjan Realities Ltd., (2014) 220 Taxman 112 (Gujarat) wherein the court has held thus:- 6. As is well known, section 50C of the Act makes special provision for full value of consideration in certain cases. Subsection (1) thereof provides that where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of stamp duty in respect of such transfer, such value shall for the purpose of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. 7. Clearly thus, section 50C of the Act by a deeming fiction substitutes the consideration received on sale of a capital asset by stamp duty valuation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the owner of such bullion, etc. 7 The scheme of Sections 69, 69A. 69B and 69C of the Incometax Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of income under Section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income profits and gains of business or profession . 22 Thus, the ratio discernible from the aforesaid decisions of this Court is that the provisions of Section 50C of the Income Tax Act cannot be applied for the purpose of making addition under Section 69B of the Act. We fail to understand why Section 50C of the Act has been brought into play having regard to the facts of the present case. It is settled law that section 50C will apply to the seller of the property and not to the purchaser of the property. However, Section 50C of the Act does not seem to have been invoked by the authority below for the purpose of adding the income under Section 69B of the Act. At the most, the principle of law, as discernible from the provisions of Section 50C, could be said to have been indirectly applied for the purpose of taking the income under Section 69B of the Act. 23 Therefore, we propose to examine the issue at hand from a limited angle whether a presumption could have been drawn about the excess amount alleged to have been made by the appellant assessee at the time of the purchase of the land having regard to the fact why he thought fit to pay such a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seized during the search which revealed any understatement of the purchase price. That is precisely the reason why the Assessing Officer had to resort to Rule 3 of Schedule III to the Wealth Tax Act. This Rule does not even claim to estimate the fair market value of an asset; it merely lays down a procedure for computing the value of an asset for the purposes of the Wealth Tax Act.. The Schedule derives its authority from Section 7(1) of the Wealth Tax Act. The section, as it now stands, has dropped all pretensions to ascertaining the fair market value of an asset for the purposes of the Wealth Tax Act. Prior to the amendment made w.e.f. 141989 the section provided for the estimation of the fair market value of an asset on the principle of what it would fetch if sold in the open market. This involved an assumption of an open market, be it fictional, a willing seller and a willing buyer, all fictional. This fiction facilitated a realistic estimation of the fair market value of the property, and it moved with the ups and downs of the market. Not anymore. From 141989, the value was frozen. For all times to come, an immovable property that fetches rent shall be valued at 12.5 times t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's income or even receipt. Section 52(2) (which now stands omitted) applied to the transferor of property for a consideration that was lesser than the fair market value by 15% or more; in such a case, the Assessing Officer was conferred the power to adopt the fair market value of the property as the sale price and compute the capital gains accordingly. The Supreme Court held that it was the burden of the Assessing Officer to prove that there was understatement of consideration and once that burden was discharged it was not required of him to prove the precise extent of understatement and he could adopt the difference between the stated consideration and the fair market value of the property as the understatement. The subsection was held to provide for a statutory best judgment once actual understatement was proved; it obviated the need to prove the exact amount of understatement. Additional reasons for the result were (a) that the marginal note to the section referred to cases of understatement ; (b) the speech of the Finance Minister while introducing the provision; and (c) the absurd or irrational results that would flow from a literal interpretation of the subsection, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the understatement. There is no authority given by the section to adopt some reasonable yardstick to measure the extent of understatement. But since it may not be possible in all cases to prove the precise or exact amount of undisclosed investment, it is perhaps reasonable to permit the Assessing Officer to rely on some acceptable basis of ITA No.1814/2010 conn. Page 8 of 10 ascertaining the market value of the property to assess the undisclosed investment. Whether the basis adopted by the Assessing Officer is an acceptable one or not may depend on the facts and circumstances of the particular case. That question may however arise only when actual understatement is first proved by the Assessing Officer. It is only to this extent that the rigour of the burden placed on the Assessing Officer may be relaxed in cases where there is evidence to show understatement of the investment, but evidence to show the precise extent thereof is lacking. 14. In Lalchand Bhagat Ambica Ram Vs. Commissioner of Income Tax, Bihar and Orissa (1959) 37 ITR 288 , the Supreme Court disapproved the practice of making additions in the assessments on mere suspicion and surmise or by taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer was of the view that the cost of acquisition of the property as shown in the sale deed was much lower than the fair market value of the properties in the area concerned. On account of such doubt in the mind of the Assessing Officer, he referred the matter to the Valuation Cell of the department for determining the cost of the properties on the date of acquisition. The District Valuation Officer submitted his report as per which the value was higher by an amount of ₹ 12,54,206/in respect of the concerned properties. In the aforesaid factual background, Justice A.K. Sikri (as His Lordship then was) speaking for the Bench observed as under: 7. Coming to the first question, it does not arise for consideration. As per the question formulated, the property was sold by the assessee whereas, in the instant case, the properties in question were purchased by the assessee and were not sold by him. Even if we treat the same as typographical mistake, we are of the view that it would not be necessary to decide this question in view of the answer that we propose to give to question no.2. 8. As far as the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82/2010 decided by this Court on 5th May, 2010). 7. In any event, the opinion of the DVO, per se, is not an information and cannot be relied upon without the books of account being rejectedwhich has not been done in the present case. The Supreme Court in its order dated 19th October, 2009 in Civil Appeal No. 6973/2009 has held as under:- Delay condoned. Leave granted. In the present case, we find that the Tribunal decided the matter rightly in favour of the assessee inasmuch as the Tribunal came to the conclusion that the Assessing Authority (AO) could not have referred the matter to the Departmental Valuation Officer (DVO) without books of accounts being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. This aspect has not been considered by the High Court. In the circumstances, reliance placed on the report of the DVO was misconceived. For the above reasons, the impugned judgment of the High Court is set aside and the order passed by the Tribunal stands restored to the file. Accordingly, assesee succeeds. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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