2014 (8) TMI 600 - HC - Income Tax

Invocation of section 50C Circle rate referred at starting point Addition u/s 69 Held that - The difference between the circle rate and the amount paid was brought to tax as unexplained investment - Revenue has not relied upon Section 50C of the Act as the AO had not made reference to the DVO to compute the fair market value in terms of the provision, the addition made by invoking Section 69 cannot be sustained - The only basis and foundation of the order passed by the AO was the circle rate - Merely and solely on the basis of the circle rate, addition could have been made by the Assessing Officer by invoking Section 69 of the Act - The AO should have followed the procedure u/s 50C once dispute was raised by the assessee and reference should have been made to the DVO the lapse and failure on the part of the AO dents and knocks the foundation on the basis of which addition was made Decided against Revenue.

Summary

Issues:
1. Invocation of Section 50C of the Income Tax Act, 1961 for assessment year 2009-10.
2. Addition under Section 69 based on circle rates without invoking Section 50C.

Analysis:

1. Invocation of Section 50C:
The appeal pertained to the assessment year 2009-10, where the Revenue contended that Section 50C of the Income Tax Act was not invoked by the Assessing Officer. The Revenue argued that the circle rates were referred to at the beginning of the inquiry, and an addition was made under Section 69 of the Act. However, the court noted that the Assessing Officer did not rely on Section 50C and did not refer to the Departmental Valuation Officer to compute the fair market value. The court emphasized that the addition made under Section 69 without following the procedure under Section 50C could not be sustained. The Assessing Officer's failure to conduct further inquiry and examine the actual market price, solely relying on circle rates, was deemed insufficient. The court highlighted that the Assessing Officer should have followed the proper procedure under Section 50C when a dispute was raised by the assessee.

2. Addition under Section 69 based on circle rates:
The respondent-assessee had purchased two commercial shops, and the Assessing Officer made an addition based on the difference between the circle rate and the amount paid, treating it as unexplained investment. The court observed that the Assessing Officer's reliance solely on the circle rate without further investigation or reference to the Departmental Valuation Officer was a fundamental flaw. The court emphasized that the addition made under Section 69 was not sustainable due to the lack of proper procedure followed by the Assessing Officer. The court concluded that the foundation of the order passed by the Assessing Officer was weak, as it was solely based on the circle rate without proper valuation procedures under Section 50C.

In conclusion, the court dismissed the appeal, stating that they were not inclined to interfere with the order passed by the Tribunal. The judgment highlighted the importance of following the correct procedures under the Income Tax Act, specifically emphasizing the significance of invoking Section 50C for fair market valuation and avoiding arbitrary additions based solely on circle rates without proper valuation mechanisms.