2023 (12) TMI 809 - AT - Income Tax

Undisclosed incomes - investment in Purchase/sale of immovable property - difference between circle rates made for payment of stamp duty charges to State Government and market rate of the property - assumptions made by AO to calculate FMV - purchase or sale consideration recorded in the registered conveyance deed and in books or accounts are not reflecting the fair market value thereof - HELD THAT - In this case, search action took place in these groups u/s 132 - AO compared the value mentioned in the sale deed of these properties with the fair market value of these properties calculated by him making strange assumptions and brought the difference between these two as undisclosed incomes of the assessee. These additions are not based on any corroborative materials to suggest that there was payment or receipt of money over and above the sale deed. Assessees have registered properties with the registration authorities as applicable valuations for the purpose of registration. In order to make addition as undisclosed income in these cases, the burden is on the revenue to prove that the Assessees herein have invested in any property or sold the property over and above what is in the sale deeds. There is nothing on record to show that the Assessees herein had made any investment or recieved consideration in addition to what has been disclosed in the sale deeds. In our opinion, no addition could be made in the hands of present Assessees on the basis of presumption when the valuation mentioned in the sale deed has been accepted by the registration authorities. No allegation by the ld. AO that there is any stamp duty valuation higher than the value mentioned in the sale deed. Details of buyers or sellers of these immovable properties, as the case may be, were already on record before the ld. AO and the ld. AO had all the powers to make enquiry under the Act from such sellers and buyers, the AO for the reasons best known to him did not make any such enquiry. Thus, the onus on the department to prove that investment was made by Assessees or sale consideration received by the Assessee, as the case may be was in fact more than that depicted in the sale deed did not get discharged at all. CIT (A) has rightly held that ld. AO cannot substitute the apparent consideration mentioned in the sale deed so as to adopt the market value without bringing any material on record to show that consideration disclosed in the sale deed is in excess of the value adopted by the assessee - AO cannot simply make additions on the basis of fair market value of the property. The grounds raised by revenue dismissed.

Issues Involved:
1. Addition of investment in purchase/sale of immovable property.
2. Validity of assumptions for calculation of Fair Market Value (FMV).
3. Calculation of FMV without rejection of books of accounts.
4. Addition made by AO citing wrong section 69 of the Income Tax Act.
5. Absence of direct positive evidence of understatement of consideration.
6. Power of AO to calculate FMV without direct evidence.
7. Legal provisions regarding substitution of actual consideration by FMV.
8. Assessment of completed assessments based on seized material.

Summary:

Issue 1: Addition of Investment in Purchase/Sale of Immovable Property
The common issue in the appeals was the addition of investment in the purchase/sale of immovable property, where the Assessing Officer (AO) added the difference between the fair market value (FMV) and the recorded purchase/sale consideration to the total income of the assessee.

Issue 2: Validity of Assumptions for Calculation of FMV
The CIT(A) invalidated the assumptions made by the AO for calculating FMV, including assumptions of on-money transactions, guaranteed returns, and market values being higher than circle rates. The CIT(A) held that these assumptions were not supported by evidence and were based on suspicion or surmise.

Issue 3: Calculation of FMV without Rejection of Books of Accounts
The CIT(A) held that the AO cannot resort to FMV calculation without rejecting the books of accounts. The AO's actions were contrary to various judicial precedents, including the Supreme Court's ruling in Sargam Cinema v. CIT.

Issue 4: Addition Made by AO Citing Wrong Section 69
The CIT(A) found that the AO incorrectly invoked section 69 of the Act for purchase transactions, which should have been under section 69B, and for sale transactions, which should have been under section 45.

Issue 5: Absence of Direct Positive Evidence of Understatement of Consideration
The CIT(A) noted that no incriminating material or direct evidence was found during the search to suggest understatement of consideration by the assessee. The AO's reliance on documents seized from a different person was deemed insufficient.

Issue 6: Power of AO to Calculate FMV without Direct Evidence
The CIT(A) held that the AO lacked the power to calculate FMV without direct evidence of understatement. The AO's actions were not supported by legal provisions, and the burden of proof was not met.

Issue 7: Legal Provisions Regarding Substitution of Actual Consideration by FMV
The CIT(A) emphasized that sections 69B and 45 of the Act do not allow for the substitution of actual consideration by FMV unless supported by direct evidence. The AO's actions were contrary to these provisions.

Issue 8: Assessment of Completed Assessments Based on Seized Material
The CIT(A) relied on judicial precedents, including the Delhi High Court's ruling in CIT vs. Kabul Chawla, which held that completed assessments can only be interfered with based on incriminating material unearthed during the search. The absence of such material in this case rendered the AO's actions invalid.

Conclusion:
The Tribunal upheld the CIT(A)'s orders, finding no infirmity in the deletion of additions made by the AO. The appeals filed by the Revenue were dismissed, and the cross objections filed by the Assessees were deemed in-fructuous and dismissed. The judgment emphasized the need for direct evidence and adherence to legal provisions in making additions based on FMV.

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