2016 (3) TMI 648 - AT - Income Tax

Addition u/s 69 on account of unexplained investment - AO relied on the deeming provision of section 50C for drawing an inference that the property in question was transacted at the market value and the consideration received by the seller was based on such market value which was not shown in the sale deed for transfer of this property - Held that - Section 50C creates a legal fiction for taxing capital gains in the hands of the seller and it cannot be extended for taxing the difference between apparent consideration and valuation done by Stamp Authority is undisclosed income in the hands of the purchaser. It cannot be invoked for charging to tax an undisclosed investment in the hands of the transferee. It is also a point to mention, that Section 50C does not authorize addition with reference to the stamp value as an amount paid by the purchaser, so as to require him to explain the source thereof. Section 50C has a limited operation for assessment of the vendor and not buyer. Therefore, the reliance of the Assessing Officer on the deeming provisions of section 50C for his inference that the property was purchased for a consideration which is much lower than the market value is not justified when the purchase transactions are recorded on the sale deed which was executed before the Sub-Registrar and the identity of the vendor u/s 69 of the I.T. Act, 1961. The Hon ble High Court of Gujarat in the case of CIT vs. Usha Kant W Patel (2005 (12) TMI 63 - GUJARAT High Court ) have held that the Revenue must establish that there was an unrecorded investment in the relevant financial year and a presumption raised in the assessment proceedings on the basis of provisions of section 50C is not sufficient. The burden is on the Assessing Officer to establish an understatement of consideration which in this case has not been discharged by the Assessing Officer. The Assessing Officer did not make any independent enquiry to bring on record any cogent evidence to establish that the purchase consideration shown in the registered sale deed is much lesser than the market value of the property. - Decided in favour of assessee

Summary

Issues:
1. Addition of unexplained investment under section 69 of the Income Tax Act.
2. Addition of unexplained cash payment under section 69 of the Income Tax Act.
3. Acceptance of plea regarding cash payment made by the assessee.
4. Validity of the order passed by the ld. CIT(A).
5. Applicability of section 50C in determining undisclosed income.

Analysis:

Issue 1: Addition of unexplained investment under section 69
The Assessing Officer made an addition of Rs. 23,05,000 under section 69, alleging that the property was purchased below the circle rate but stamp duty was paid on the circle rate. The ld. CIT(A) deleted the addition, stating that the AO wrongly assumed the property was undervalued. The Tribunal observed that section 50C applies to sellers for capital gains, not buyers. The burden of proof lies on the AO to show understatement of consideration, which was not done in this case. The ld. AO's reliance on section 50C was deemed unjustified, and the addition was dismissed.

Issue 2: Addition of unexplained cash payment under section 69
The AO added Rs. 5,00,000 as unexplained cash payment. The assessee explained that the payment was made to the seller after delays in bank clearance, supported by a certificate and seller's confirmation. The Tribunal found the AO failed to appreciate the circumstances of the cash payment. The ld. CIT(A) rightly deleted the addition, as the cash source was adequately explained by the assessee.

Issue 3: Acceptance of plea regarding cash payment
The Tribunal noted the seller's certificate and the assessee's explanation regarding the cash payment. The ld. AO's failure to consider these explanations led to the deletion of the addition by the ld. CIT(A). The Tribunal upheld the decision, emphasizing the importance of considering all relevant evidence and explanations provided by the assessee.

Issue 4: Validity of the order passed by the ld. CIT(A)
The ld. CIT(A) correctly analyzed the facts and submissions, concluding that the AO's inferences were unjustified. The Tribunal reviewed the submissions and upheld the ld. CIT(A)'s decision, emphasizing the importance of proper evaluation of evidence and legal provisions in such cases.

Issue 5: Applicability of section 50C in determining undisclosed income
The Tribunal clarified that section 50C applies to sellers for capital gains and cannot be extended to tax undisclosed income in the hands of the buyer. The ld. AO's reliance on section 50C to justify the addition was deemed incorrect. The Tribunal highlighted that the burden of proof lies with the AO to establish understatement of consideration, which was not done in this case.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the ld. CIT(A)'s decision to delete the additions of unexplained investment and cash payment, emphasizing the importance of proper evaluation of evidence and adherence to legal provisions in income tax assessments.