2012 (4) TMI 442 - HC - Income Tax

Valuation of property - ITAT considered AO was not justified in making the addition of Rs 75 lakhs being the difference between the apparent consideration and the real value of the assets of Company formed by HUF Held that - Agreement dated 30.11.2002 executed between Khandelwals and Shri Sunil Bedi all the requisite clearances were obtained by the seller - vide second MoU M/s Fashion Flair International Private Limited agreed to pay Rs.6.35 crore to M/s Span Properties Private Limited for purchase of its entire shareholding subject to obtaining necessary approval for construction of a commercial building on the land in question, and that there was no material produced by the assessee to indicate that the market value of the land had gone down between December, 2000 and November, 2002 - Since the entire share holding of Khandelwas in Span Properties Private Limited was transferred to Shri Sunil Bedi, he, on account of his ownership of the entire share holding of Span Properties Private Limited, also acquired ownership of the land in question. Hence, it would be difficult for us to accept that the value of the entire share holdings of Khandelwas in Span Properties Private Limited could have been less than Rs 6.35 crore minus the liabilities of the company - AO was justified in making the addition being the difference between the apparent consideration and real value of the assets against assessee.

Summary

Issues Involved:
1. Legitimacy of the addition of Rs. 75 lakhs to the income of the assessees.
2. Evaluation of the fair market value of Span Properties Pvt. Ltd.
3. Applicability of precedents and legal principles in determining the actual consideration received.

Detailed Analysis:

1. Legitimacy of the Addition of Rs. 75 Lakhs:
The primary issue was whether the ITAT was correct in law in holding that the Assessing Officer was not justified in making the addition of Rs. 75 lakhs, being the difference between the apparent consideration and the real value of the assets of M/s Span Properties Pvt. Ltd. The Assessing Officer held that the total worth of Span Properties Pvt. Ltd. was Rs 6.35 crore, while the recorded transaction was Rs 5 crore. The difference of Rs 75 lakh was considered as unrecorded cash consideration, leading to an addition of Rs 74,58,375 to the income of Shri Karan Khandelwal and a similar addition to Shri Sunil Bedi's income.

2. Evaluation of the Fair Market Value of Span Properties Pvt. Ltd.:
The Tribunal dismissed the appeals by the Revenue, stating that no sum over and above the stated consideration was received by the assessees. However, the High Court noted that the MoUs dated 22.03.2000 and 19.12.2000 valued the land at Rs 6.35 crore, subject to obtaining requisite clearances. By the time of the sale agreement dated 30.11.2002, all clearances had been obtained, and there was no evidence of a decrease in market value. The High Court found the Tribunal's conclusion that the consideration was only Rs 2.5 crore to be perverse, as it ignored the agreed value of Rs 6.35 crore.

3. Applicability of Precedents and Legal Principles:
The High Court referred to several precedents, including K.P. Varghese v. Income Tax Officer, which established that the burden of proving understatement of consideration lies with the Revenue. The Court held that the Revenue had discharged this burden through the MoUs and other facts. The Tribunal's reliance on the absence of direct evidence of additional consideration was deemed incorrect, as the High Court emphasized that the onus could be discharged by establishing facts and circumstances indicating understatement.

Conclusion:
The High Court concluded that the Assessing Officer was justified in making the addition of Rs 75 lakhs, as the actual consideration for the transfer of shares in Span Properties Pvt. Ltd. was not less than Rs 6.35 crore. The appeals were allowed in favor of the Revenue, and the Tribunal's findings were overturned. No order as to costs was made.