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2014 (7) TMI 470 - AT - Income TaxAddition u/s 69B investments not fully disclosed - Average market value of land Held that - There was no basis for the AO to hold that price for both the parcel of land could not be the same and he erred in presuming that the excess area of land would not have been given without any extra payment being made by the assessee to the other company i.e. M/s. Vishnu Apartment Pvt. Ltd. over and above the amount which according to AO is the estimated value of 0.60 acres of land at Maidawas - the AO erred in presuming that the value of excess land received by the assessee company in exchange was valuing more without any material to base his finding on this aspect Relying upon Commissioner of Income-Tax, AP Versus Dhanrajgirji Raja Narasingirji 1973 (3) TMI 6 - SUPREME Court - a business man knows his interest best and nobody has to sermonize how he should conduct his business. CIT(A) has rightly observed that the AO has failed to discharge the burden upon him to prove that the assessee has made investment at an understated value; and the same has not been brought on record in its books of account; and estimated the investment on the basis of average value of land which is erroneous without any evidence on record to substantiate his view that the appellant/ assessee has paid more than what was shown in its books of account - the AO could not have invoked the provisions of section 69B to fasten the addition on the assessee based on doubts/ conjectures and surmises - there was no material or evidence before the AO to conclude that the assessee had paid a consideration over and above the amount mentioned in the registered sale deed thus, the amount shown as the value of the property in the registered sale deed has been taken as correct, unless the contrary is proved by credible evidence - no opportunity of being heard as required by law has been given by the AO before invoking the provisions of section 69B of the Act the order of the CIT(A) is upheld Decided against Revenue.
Issues Involved:
1. Deletion of addition of Rs. 88,35,349/- by the CIT(A) based on the average market value of the land. 2. Assessing Officer's (AO) justification for making the addition under Section 69B of the Income Tax Act. 3. Evaluation of the land exchanged and its impact on inventory valuation. 4. Methodology for determining the fair market value of land. 5. Burden of proof and evidentiary requirements for invoking Section 69B. Detailed Analysis: 1. Deletion of Addition of Rs. 88,35,349/- by CIT(A): The primary issue revolves around the deletion of an addition amounting to Rs. 88,35,349/- by the CIT(A). The AO had made this addition under Section 69B of the Income Tax Act, based on his assessment that the assessee had acquired 0.57 acres of excess land without fully disclosing the investment in its books. The CIT(A), however, found that the AO was not justified in making this addition based on the average market value of the land. 2. Assessing Officer's Justification for Making the Addition: The AO observed that the assessee exchanged 0.60 acres of land in Village Maidawas for 1.17 acres in Village Behrampur, thus acquiring an additional 0.57 acres. The AO presumed that this excess land must have involved extra consideration beyond the declared amount of Rs. 76,32,000/-. The AO's assessment was based on the average market value of similar parcels of land, which he calculated to be Rs. 1,95,51,581/- per acre. The AO concluded that the assessee had suppressed the value of its closing stock by Rs. 88,35,349/-. 3. Evaluation of the Land Exchanged: The assessee argued that the land received in Behrampur had less commercial value due to several factors such as distance from Gurgaon Bus Stand, locational disadvantages, and the physical condition of the land. The assessee maintained that the value of the exchanged land was equal to the land given in Maidawas, which was reflected in their books at Rs. 76,32,000/-. The CIT(A) accepted these arguments, noting that the valuation of land depends on various factors and cannot be determined by a mechanical average. 4. Methodology for Determining Fair Market Value: The CIT(A) found that the AO's method of calculating the fair market value based on an average rate per acre was not a recognized method. The value of land varies based on factors like geographical location, proximity to main roads, and potential usage. The CIT(A) noted that the AO's presumption of extra payment was not supported by any material evidence. 5. Burden of Proof and Evidentiary Requirements: The CIT(A) emphasized that the AO failed to discharge the burden of proving that the assessee had made an investment at an understated value. The AO's addition was based on conjectures and surmises without credible evidence. The CIT(A) highlighted that the actual cost of the land was shown in the assessee's closing stock and audited balance sheet, and there was no basis for the AO to conclude otherwise. Conclusion: The Tribunal upheld the CIT(A)'s order, concluding that the AO was not justified in making an addition under Section 69B based on an estimated average market value. The Tribunal found that the AO's method of valuation was flawed and lacked evidentiary support. The appeal by the revenue was dismissed, affirming the deletion of the addition of Rs. 88,35,349/-. The Tribunal reiterated that the valuation of closing stock should be based on cost or market value, whichever is lower, and that the burden of proof lies on the AO to substantiate any claims of undisclosed investments.
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