2019 (9) TMI 777 - HC - Income Tax

Undisclosed investment - difference between the stamp duty valuation and the actual purchase price - section 50C applicability - whether a presumption could have been drawn about the excess amount alleged to have been made by the appellant-assessee at the time of the purchase of the land having regard to the fact why he thought fit to pay such a huge stamp duty on a total sale consideration of ₹ 45 Lakh and odd ? - HELD THAT - Provisions of Section 50C of the Income Tax Act cannot be applied for the purpose of making addition under Section 69B of the Act. We fail to understand why Section 50C of the Act has been brought into play having regard to the facts of the present case. It is settled law that section 50C will apply to the seller of the property and not to the purchaser of the property. Section 50C of the Act does not seem to have been invoked by the authority below for the purpose of adding the income under Section 69B of the Act. At the most, the principle of law, as discernible from the provisions of Section 50C, could be said to have been indirectly applied for the purpose of taking the income under Section 69B of the Act. There is nothing on record to indicate as to what was the price of the land at the relevant time. Even otherwise, the same is a pure question of fact. Apart from the fact that the price of the land was different than the one, recited in the sale deed unless it is established on record by the department that as a matter of fact, the consideration as alleged by the department did pass to the seller from the purchaser, it cannot be said that the department had any right to make any additions. Section 69B of the Act does not permit an inference to be drawn from the circumstances surrounding the transaction that the purchaser of the property must have paid more than what was actually recorded in his books of account for the simple reason that such an inference could be very subjective and could involve the dangerous consequence of a notional or fictional income being brought to the tax contrary to the strict provisions of Article 265 of the Constitution of India which must be taxes on income other than agricultural income . There could not have been any presumption for the purpose of making addition under Section 69B of the Act. In the result, this appeal succeeds and is hereby allowed in favour of assessee

Issues Involved:
1. Whether the Tribunal was right in upholding the order of the Principal CIT based on the presumption that the difference between the stamp duty valuation and the actual purchase price is undisclosed investment in the hands of the assessee purchaser.
2. The validity of invoking Section 69B of the Income Tax Act for presumed undisclosed investment.
3. Applicability of Section 50C of the Income Tax Act to the purchaser.
4. The scope of powers under Section 263 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Tribunal's Decision on Principal CIT's Order:
The Tribunal upheld the Principal CIT's order, which presumed that the difference between the stamp duty valuation and the actual purchase price was an undisclosed investment by the assessee purchaser. The Principal CIT had issued a notice under Section 263, stating that the assessment order was erroneous and prejudicial to the interest of the revenue because the Assessing Officer failed to make proper inquiries regarding the investment in land. The Tribunal agreed with the Principal CIT that the assessment order was passed without proper verification and inquiry into the cost of purchase vis-à-vis the stamp duty paid, which indicated a potential undisclosed investment.

2. Validity of Invoking Section 69B:
The court emphasized that Section 69B does not permit an inference to be drawn from circumstances surrounding the transaction that the purchaser must have paid more than what was recorded in the books. The court cited the Delhi High Court's decision in CIT vs. Dinesh Jain HUF, which held that the burden of proof lies on the Assessing Officer to establish that there was an understatement of investment. The court concluded that the mere fact that the assessee paid a higher stamp duty does not automatically justify the presumption of undisclosed investment under Section 69B. The court noted that without concrete evidence of actual payment over and above the recorded amount, such a presumption would lead to a notional or fictional income being taxed, which is not permissible.

3. Applicability of Section 50C:
The court clarified that Section 50C applies only to the seller of the property and not the purchaser. Section 50C substitutes the consideration received on the sale of a capital asset with the value adopted or assessed by the Stamp Valuation Authorities for the purpose of calculating capital gains under Section 48. The court referred to its earlier decisions in CIT vs. Sarjan Realities Ltd. and Anand Banwarilal Adhukia vs. DCIT, which held that Section 50C is applicable only to the seller and not to the purchaser. The court found that the authorities below erred in indirectly applying the principles of Section 50C to the purchaser for the purpose of making additions under Section 69B.

4. Scope of Powers under Section 263:
While the court acknowledged the broad powers conferred under Section 263, it emphasized that these powers must be exercised based on concrete evidence and proper inquiry. The court noted that the Principal CIT's order and the Tribunal's decision were based on the presumption of undisclosed investment without substantial evidence. The court reiterated that the Assessing Officer must first prove the understatement of investment and then determine the exact extent of such understatement. The court found that the authorities failed to establish the foundational facts necessary to invoke Section 69B and, consequently, Section 263.

Conclusion:
The court allowed the appeal, quashing the impugned order of the Income Tax Appellate Tribunal. It held that there could not be any presumption for making an addition under Section 69B based on the difference between the stamp duty valuation and the actual purchase price. The substantial question of law was answered in favor of the appellant-assessee and against the Revenue.

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