2016 (10) TMI 1259 - AT - Income Tax

Addition u/s 69 - unexplained investment - reference of matter to the District Valuation Officer (DVO) for estimation of investment made in land at fair market value - investment made by the assessee in purchase of 11 plots in the course of its business - HELD THAT - A careful perusal of the provision divulges that in order to invoke this provision it is sine qua non that the assessee must have made investments which are not recorded in the books of account. The factum of the assessee having made investment should be first proved by the AO only then the burden shifts on the assessee to prove the source of investment. Such investment outside the books of account must be positively proved by the AO and not only inferred from the attending facts. If such an investment outside the books is not proved the assessee cannot be called upon to prove the source of such a hypothetical investment. Apart from relying on the DVO s report the AO has not brought on record any other material to indicate that the assessee did make investment in purchase of plots over and above that declared in the books of account. The legislature is also not oblivious of the practice of understatement of consideration in the transactions of immovable properties in certain cases. That is why apart from inserting section 50C which is applicable in the hands of a seller section 56(2)(vii) was introduced w.e.f. 1.10.2009 for charging to tax the difference between stamp value and the declared consideration in the hands of the buyer if such difference is more than Rs. 50, 000/-. As this is a substantive provision inserted w.e.f. 1.10.2009 the same cannot be applied to the assessment year 2006-07 under consideration. Ex consequenti the entire addition made by the AO is deleted. The ground taken by the assessee is allowed and that by the Revenue is dismissed. Addition on account of stamp duty and registration charges - AO applied 8% rate on the alleged excess investment made by the assessee the CIT(A) proportionately reduced the same. In view of the fact that the substantive addition u/s 69 on account of the alleged investment made by the assessee has been deleted in an earlier para this consequential addition is also liable to be deleted. - Decided against revenue.

Summary

Issues:
- Addition u/s 69 of the Act
- Confirmation of addition on account of stamp duty and registration charges

Analysis:

Issue 1: Addition u/s 69 of the Act
The first issue in the appeals pertains to the addition made under section 69 of the Act. The dispute arose from the valuation of land purchased by the assessee for development and sale. The Assessing Officer (AO) relied on the District Valuation Officer's (DVO) report to determine the fair market value of the property, resulting in an addition of unexplained investment under section 69. The ld. CIT(A) reduced the addition based on a chart filed by the assessee indicating the purchase rates from 11 persons. The key contention was whether the AO properly rejected the books of account before relying on the DVO's report. Citing the Supreme Court's decision in Sargam Cinema vs. CIT, it was held that without rejecting the books of account, the AO's reliance on the DVO's report for addition was not valid. The subsequent argument regarding the insertion of section 142A was dismissed as it did not apply to the assessment year 2006-07, governed by the Sargam Cinema judgment. As the investment outside the books was not conclusively proven by the AO, the entire addition under section 69 was deleted.

Issue 2: Confirmation of addition on account of stamp duty and registration charges
The second issue concerned the confirmation of addition on stamp duty and registration charges. Since the substantive addition under section 69 was deleted, the consequential addition related to stamp duty and registration charges was also set aside. The ld. CIT(A) had proportionately reduced the charges, but the deletion of the primary addition rendered the consequential addition invalid. Consequently, the appeal of the assessee was allowed, and that of the Revenue was dismissed.

In conclusion, the tribunal ruled in favor of the assessee by deleting the additions made under section 69 of the Act and the consequential charges, highlighting the importance of proper rejection of books of account before relying on external valuation reports and the application of relevant legal provisions based on the assessment year in question.