2010 (10) TMI 529 - AT - Income Tax

Addition of income Undisclosed investment in the property - As purchase consideration of Rs. 7 lakh was much less than the value fixed by the Government, the AO referred the valuation of land to the valuation officer vide letter dated 9th September, 2008 who furnished the report vide letter dated 24.11.08, wherein the property valued at Rs 22,22,500 - Assessee has not mentioned any reason for the transaction being made below the circle rate therefore, relying upon the valuation report the AO has made addition of Rs. 15,22,500 - It is submitted that onus in the present case was on the AO to prove that additional amount was expanded over and above the amount shown in the books of account by the assessee for acquiring the asset and such onus has never been discharged by the AO - Department has ample evidence on record which is in the shape of circle rate of valuation report that the market rate of that property was three fold of the amount stated by the assessee in the sale deed - No doubt sec. 50C will not have any application in the case of purchaser of the property but in the present case the addition has been made only u/s 69B of the Act read with sec. 142A of the Act - The burden will be on the assessee to prove that it had actually paid the amount which is stated in the title deed and no extra consideration has been passed Decided against the assessee

Issues Involved:
1. Legality and correctness of the CIT(A)'s order.
2. Deletion of addition of Rs. 15,22,500/- on account of undisclosed investment in property under Section 69B of the Income Tax Act.
3. Validity of the valuation report and its implications.
4. Applicability of Section 50C and Section 69B in the context of the case.

Detailed Analysis:

1. Legality and Correctness of the CIT(A)'s Order:
The revenue appealed against the CIT(A)'s order dated 28.01.2010 for A.Y. 2006-07, arguing that the order was "wrong, perverse, illegal and against the provisions of law." The CIT(A) had deleted the addition of Rs. 15,22,500/- made by the AO on account of the assessee's undisclosed investment in property under Section 69B of the Income Tax Act.

2. Deletion of Addition of Rs. 15,22,500/-:
The AO observed that the land purchased by the assessee was valued at Rs. 22.22 lakhs as per the circle rate fixed by the State Government, while the purchase consideration was only Rs. 7 lakh. This discrepancy led to the AO adding Rs. 15,22,500/- to the assessee's income as unexplained investment under Section 69B. The CIT(A) deleted this addition, holding that there was no evidence of understatement of investment and that Section 50C, which applies to sellers, could not be applied to the buyer.

3. Validity of the Valuation Report:
The AO referred the valuation of the land to the valuation officer, who confirmed the fair value of the property as Rs. 22,22,500/-. The assessee contested this valuation, arguing that the agreement to purchase the property was executed on 8.6.05, and the valuation report dated 28.12.05 could not be relied upon due to the time gap. The CIT(A) agreed with the assessee, stating that the valuation report suffered from material defects and could not be the sole basis for addition under Section 69B.

4. Applicability of Section 50C and Section 69B:
The CIT(A) observed that Section 50C is applicable only to the seller, not the buyer. For Section 69B to apply, the AO must prove that the amount expended by the assessee exceeds the amount recorded in the books, and the assessee offers no satisfactory explanation. The CIT(A) relied on several judicial precedents to support this view, including the decision in CIT Vs. Lalit Bhasin, which emphasized the need for concrete evidence to invoke Section 69B.

Tribunal's Decision:
The Tribunal noted that Section 69B is a deeming provision applicable when the AO finds that the investment made by the assessee exceeds the recorded amount, and the explanation offered is unsatisfactory. The Tribunal observed that the AO had validly exercised his power under Section 142A to refer the valuation to the DVO. However, the Tribunal acknowledged the assessee's argument regarding the timing of the agreement and the need for a fair opportunity to explain its case.

The Tribunal restored the issue to the AO with directions to give the assessee a reasonable opportunity to prove that Section 69B was not applicable and that the amount stated in the title deed was the actual consideration paid. The burden of proof was placed on the assessee to show that no extra consideration had been passed.

Conclusion:
The appeal by the revenue was treated as allowed for statistical purposes, with the case being remanded to the AO for further examination in light of the Tribunal's observations.

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