2019 (2) TMI 374 - AT - Income Tax

Unaccounted investment in property - addition for undervaluation of the property in the hands of the purchaser - assessment on the basis of market valuation by Registration Authority - Held that - It is not a denying fact that Section 50C is applicable in the case of the seller of the property to take into consideration the valuation of the property as per the value adopted by the Registration Authority. However, there is no provision under the Income Tax Act to deal with such situation in respect of the purchase of the property. Section 56(2)(x) was inserted into the Act with effect from 1st April 2017 to deal with such situation. However, it is well settled Law that substantive provisions could not be applied retrospectively. There is no other material brought on record to justify the conclusion that assessee-company made unaccounted investment in purchase of the property. No evidence on record to justify unaccounted payment for purchase of the property, the CIT(A) was justified in deleting the additions. A.O. did not gather any evidence to establish that payments were made by the assessee-company outside the books of account. - Decided against revenue.

Summary

Issues:
- Computation of unaccounted investment in property based on market valuation by Registration Authority.
- Jurisdiction under section 153C of the Income Tax Act, 1961.
- Additions on merit regarding unexplained investment in assets.
- Application of provisions like section 50C, 69B, and 56(2)(x) of the Income Tax Act.
- Legal validity of additions made by the Assessing Officer.
- Applicability of relevant case laws in determining undisclosed investments in property.

Analysis:

1. Computation of Unaccounted Investment: The case involved appeals by the Revenue against the CIT(A)'s order regarding the computation of unaccounted investment in property. The Revenue contended that the CIT(A) erred in holding that unaccounted investment in property cannot be computed based on market valuation by the Registration Authority. The CIT(A) accepted the explanation of the assessee-company that the valuation as per the Registration Authority does not necessarily imply unaccounted investment. The CIT(A) deleted the additions made by the Assessing Officer, emphasizing that there is no provision in the Income Tax Act for adding undervaluation of property in the hands of the purchaser.

2. Jurisdiction under Section 153C: The Assessing Officer proceeded against the assessee-company under section 153C of the Income Tax Act, 1961, after a search action was conducted. The AO made additions on account of unexplained investment in the assets based on the variation between sale consideration and market value as per the Registration Authority. The assessee challenged the jurisdiction under section 153C and the additions on merit before the CIT(A), who ultimately ruled in favor of the assessee, stating that no evidence was presented to establish unaccounted payments outside the books of account.

3. Application of Relevant Provisions: The case discussed the application of provisions like section 50C, 69B, and 56(2)(x) of the Income Tax Act. The CIT(A) highlighted that while section 50C deals with valuation in the hands of the seller for computing capital gains, there is no provision for computing unaccounted investment or undervaluation of property in the hands of the purchaser. The CIT(A) emphasized that specific deeming provisions exist for capital gains but not for unaccounted investments.

4. Legal Validity of Additions: The Revenue relied on the AO's order, while the assessee's counsel cited various decisions supporting the contention that no addition could be made without concrete evidence of unaccounted payments. The ITAT upheld the CIT(A)'s decision to delete the additions, stating that there was no evidence to justify the conclusion that unaccounted investments were made. The ITAT emphasized that the AO failed to gather any evidence of payments made outside the books of account.

5. Applicability of Case Laws: The assessee's counsel referenced several case laws to support the argument that additions cannot be made solely based on valuation differences without concrete evidence of unaccounted payments. The ITAT concurred with the CIT(A)'s decision to delete the additions, stating that the decisions cited by the assessee's counsel aligned with the conclusion that no addition could be made without substantial evidence of unaccounted payments.

In conclusion, the ITAT dismissed the appeals of the Revenue, upholding the CIT(A)'s decision to delete the additions related to unaccounted investments in the property. The judgment emphasized the necessity of concrete evidence to support additions and highlighted the absence of provisions in the Income Tax Act for adding undervaluation of property in the hands of the purchaser.