2018 (9) TMI 859 - AT - Income Tax

Capital gain computation - genuineness of sale transaction - Not referring the matter under 50C (2) to the DVO for re-determination of the fair market value - whether the sale consideration and consequently the capital gain on sale of its land purportedly to assess Smart Estates Private Limited was correctly disclosed by the assessee? - Held that - It is an admitted fact that all the details relating to measures Smart Estates or M/s Aeren R Enterprises Private Limited including the pan card No are available before the Ld. AO. Record does not reveal that at any point of time the Ld. AO had issued any notice to M/s Aeren R Enterprises Private Limited, though the fact of M/s Smart Estates merging with M/s Aeren R Enterprises Private Limited was intimated to him. We find any amount of strength in the argument of the Council that the income has to be assessed in the hands of a proper person who has enjoyed the actual income in law and if M/s Aeren R Enterprises failed to disclose the income of SEPL in the returns of income for the assessment year 2012-13, Ld. AO should have realized that the escapement of income is in the hands of M/s Aeren R Enterprises but not the assessee, and in all fairness the Ld. AO should have taken steps under section 147/148 of the Act against M/s Aeren R Enterprises. We are at a loss to understand as to how the assessee could be made responsible for the escapement of income in the hands of M/s Aeren Enterprises and to make the assessee answerable for the same. We understand that the things would have been different should M/s Smart Estates or for that matter M/s Aeren R Enterprises denied the execution or existence of the agreements of sale or M/s Smart Estate s receiving the amount. nothing prevented the Ld. AO from making further enquiry by calling for the post merger financials of M/s Aeren R Enterprises or to consider the possibility of taking appropriate steps against M/s Aeren R Enterprises. The process adopted by the Ld. AO in this fact-finding exercise is not satisfactory. AO proposing to increase the value as per section 50C of the Act for the purpose of computation of capital gains, the assessee disputed the same by saying that is not at all correct and highly unjustified to increase the sale consideration to the value as per section 50C for the purpose of computation of capital gain. The Ld. AO did not record any reasons as to why the matter need not or shall not be referred to the DVO. When it is pleaded that the actual amount received is a far less than the circle rates of the registration authority or that the value adopted or assessed by the stamp valuation authority under subsection (1) thereof exceeds the fair market value of the property as on the date of transfer, the Ld. AO does not seem to have taken cognizance of the same to refer the matter to the DVO for the determination of the actual value under subsection 2 of section 50C of the Act. Authorities below have not examined the issue from a proper perspective and in the manner in which the facts deserve to be investigated, to ensure that the assessment is made as accurately as possible consistent with the statutory provisions. Thus a fit case to set aside the impugned order and to remand the matter to the file of the Learned assessing officer to decide the matter afresh in the light of our observations - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Validity of agreements between the assessee and M/s. Smart Estates Private Limited (SEPL).
2. Assessment of capital gains and applicability of Section 50C of the Income Tax Act.
3. Responsibility of tax liability and proper assessment of income.

Detailed Analysis:

1. Validity of Agreements:
The assessee argued that the agreements dated 24/09/2010 and 20/09/2011 with SEPL were genuine and involved a transfer of interest in the land, which should be considered under Section 2(47) of the Income Tax Act. The assessee claimed that SEPL acquired the right to get the sale deeds executed in favor of third parties, making the transaction a capital asset transfer. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] questioned the genuineness of these agreements, stating they were unstamped and unregistered, thus not valid under the Stamp Act, 1999, and the Transfer of Property Act. The AO concluded that the agreements were a device to evade tax, leading to the addition of ?8,93,27,615/- to the assessee's income.

2. Assessment of Capital Gains and Applicability of Section 50C:
The AO invoked Section 50C, which deals with the adoption of the value assessed by the stamp valuation authority for the purpose of calculating capital gains. The assessee disputed this, arguing that the actual sale consideration was less than the stamp valuation and requested a referral to the District Valuation Officer (DVO) for fair market value determination. The AO did not refer the matter to the DVO, which the Tribunal found erroneous. The Tribunal emphasized that when the assessee disputes the stamp valuation, the AO is bound to refer the matter to the DVO as per Section 50C(2).

3. Responsibility of Tax Liability and Proper Assessment of Income:
The Tribunal noted that the AO should have taken coercive steps against SEPL or its merged entity, Aeren R Enterprises Pvt. Ltd., for non-compliance and non-filing of returns. The AO's approach to penalize the assessee for SEPL's non-cooperation was deemed incorrect. The Tribunal highlighted that the income should be assessed in the hands of the entity that actually enjoyed it, suggesting that the AO should have initiated proceedings under Sections 147/148 against Aeren R Enterprises.

Conclusion and Remand:
The Tribunal found that the authorities below did not investigate the matter properly. It set aside the impugned order and remanded the case to the AO for fresh consideration, directing further enquiries and ensuring the assessment is consistent with statutory provisions. The appeal was allowed for statistical purposes.