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TMI Blog2019 (9) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rification of P&L account, balance sheet computation of Income & submissions in respect of construction business, it is revealed that investment of ₹ 1,17,93,542/- is made in the land situated at Survey No.183 & 184 at village Tandalja. The break up of the said investment as shown in the books comprises of: Particulars Amount in Rs. Cost of land 45,61,000/- Cost of construction & Leveling Expenses 42,47,332/- Electric Expenses 86,760/- Fencing Expenses 1,49,600/- NA Expenses 1,33,540/- Raja Chitthi Expenses 2,79,010/- Document Registration Expenses 23,36,300/- Total 1,17,93,542/- From the registered document to this effect (bearing No.4153/2011 (BRA3/ ATA) dated 29.03.2011), it is noticed that against the consideration of ₹ 45,61,000/- declared / shown, ₹ 22,90,300/- is paid as stamp duty. The prevailing stamp duty rate in Gujarat is @4.90% advolrem on consideration or market value as per Jantri Rate. Accordingly, the value of the alleged property comes to ₹ 4,67,816/- (22,90,300*100/4.90), as against ₹ 45,51,000/-declared / shown. It may therefore be presumed that ₹ 4,21,79,800/- (4,67,40,80045,61,000) is undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (2014) 220 Taxman 112 (Guj), Wherein the question was of addition of the difference between the Stamp duty valuation and actual sale price paid as unexplained investment in the hands of the seller and was replied against the Department by holding hat section 50C applied to the seller only. In fact, this Court did not even admit the appeal and (ii) this decision was followed by this Court in the decision of Anand Banwarilal Adhukia vs. DCIT (2017) 244 Taxman 243. This Court, after having reproduced sections 69A and 69B regarding unexplained investment amongst others, stated as follows in para 8 of the judgment: "From the mere reading of aforesaid statutory provisions, it appears that section 50C of the Act which has been introduced is applied to a seller and not to the purchaser and therefore, ascertaining an amount of capital gain, it will be the tax in the hands of the seller on the basis of jantri price and making a reference and inquiring from the petitioner is of no avail and to this, learned counsel has rightly relied upon a decision of this Court in case of CI T v. Sarjan Realties Ltd. " And in para 9 of decision of Anand Adhukia (supra), this Court further pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompound wall, NA permission, electric connection, Rajja Chitti (building construction permission) and site office construction. 5 The explanation offered by the appellant - assessee was accepted by the Assistant Commissioner of Income Tax and the assessment order was, accordingly, passed on 20th December 2010. 6 It appears that thereafter, a notice under Section 263(1) of the Act came to be issued by the Principal Commissioner of Income Tax dated 12th January 2016 calling upon the appellant to show cause as to why the assessment for the assessment year 2011-12 should not be enhanced or cancelled. The notice reads as under: "No.BRD/Pr.CIT1/HQ/263/20/GE/201516 Date: 12.01.2015 (PAN : AAHFG1662R) To, M/s. Gayatri Enteprises, 2, Shilp Apartment, Mane Nagar, Munj Mahuda Akota, Vadodara. Sir, NOTICE U/S. 263(1) OF THE IT ACT Sub : Proceedings u/s263 of the IT Act for A.Y. 2011-12. With reference to the assessment order u/s 143(3) of the IT Act, passed by the Assessing Officer on 28.11.2013 for A.Y. 2011-12, it is to be noted that the same was erroneous in so far as it was prejudicial to the interest of revenue an account of the following: On ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "4.2.5 Assessee has contended that even if the Stamp duty valuation is to be considered, the same has to be examined in A.Y. 2008-09 and not current year, I.e. the year in which the land is purchased. In this regard, it is held that these contentions made by assessee are based on the document of agreement to sale (Banakhat), dated 31.08.2007, which has no validity in the eye of law, being unregistered. Registration Act, 1908 by Amendment Act 48 of 2001 has made the provision that documents containing contract of transfer for consideration (Sale agreement) relating to any immovable property should be registered. Section 54 of the Transfer of Property Act, 1882 defines that any property of more than 100 Rupees value can be transferred by a Registered deed only. Section 53A of Transfer of Property Act, 1882 speaks about the part performance of the written, contract where seller has handed over the possession of property to buyer but the deed is not registered then the possession holder can enjoy the limited rights of the property but however, any immovable property for the purpose of Section 53 A of Transfer of Property Act shall be registered otherwise such document if executed afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 with source thereof. The learned AR thereafter referred to MOU (memorandum of understanding) / Banakhat dated 31.08.2007 to point out that the agreement for purchase of land made way back in August 2007. A formal agreement for purchase of the land was ultimately made on 29th March, 2011 to give effect earlier Banakhat. It was submitted that the land was originally agricultural land which was converted into nonagricultural land'by the assessee and thereafter the actual registration was carried out in the FY 2010-11 concerning AY 201112 in question. The learned AR further emphasized that the payment qf sale consideration of ₹ 45,61,000/- was made in FY 2007-08 and possession of the land was taken. Only remaining amount of ₹ 99,000/was paid to the seller in FY 201011 (AY 2011-12) on 26.02.2011. In these circumstances, it was contended that the transaction do not relate to FY 2010-11 in question and therefore, the application of provision of Section 69B of the Act in AY 201112 is farfetched and cannot be subject matter of review under s.263 of the Act. The learned AR also pointed out that no material was found by the Pr.CIT to enable him to allege any element of undisclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned DR accordingly submitted that no interference with the order of the Pr.CIT is called for in the peculiar facts and the circumstances of the case. 8. We have examined the issue and perused the revisional order of the Pr. CIT passed under 3. 263 of the Act as well as the case laws cited. From the amount of stamp duty paid (₹ 22. 90 Lakh) and cost of land declared at the rate of (₹ 45. 61 Lakhs), the Pr. CIT found it selfevident that the value declared towards the consideration of purchase is abysmally low. The Pr.CIT recomputed the jantri value of the land at ₹ 467.40 Lakhs as against ₹ 45.6l Lakhs declared by the assessee. On these facts, the Pr.CIT was of the prima facie view that element of undisclosed income overtly exists in the purchase of land. The question that arises is whether the Pr.CIT was justified in setting aside the assessment order where the cost of purchase of land has been accepted summarily without any tangible inquiry in this regard on the fact of such documents. A perusal of the questionnaires issued and reply made by the assessee thereon clear]…no relevant meaningful inquiry was conducted in respect to correctn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is required to find that order sought to be revised is erroneous and caused prejudice to the Revenue. A lack of inquiry on a pertinent point which demonstrates possible revenue leakage of staggering amount would definitely tantamount to the order being both erroneous as well as prejudicial to the interest of the Revenue. Consequent upon the action of Pr.CIT, the assessment order is merely cancelled and set aside to the file of the AO for making relevant inquiries as specified for which objective material is available at the threshold. The assessee has not estopped in any manner from dealing with the inquiry as specified to the AO and to rebut the perception that the prima facie belief on error in the original order is not correct. The assessee is not prevented from supporting its case in any manner before the AO in the proceedings pursuant to Section 263 of the Act. We thus do not see any justifiable reason to interfere with the revisional action of the Pr.CIT." 10 Being dissatisfied with the order passed by the Appellate Tribunal, the appellant is here before this Court with the present Tax Appeal. 11 The principal contention raised by Mr. J.P. Shah, the learned senior couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C of the Act. Although we have something else in our mind so far as the applicability of Section 50C of the Act is concerned, yet, we may look into the provisions closely. 17 Section 50C was introduced in the Incometax Act, 1961 by the Finance Act, 2002 with effect from 1st April 2003 for substituting the valuation done for the Stamp Valuation purposes as full value of the consideration in place of the apparent consideration shown by the transferor of the capital asset, being land or building and, accordingly, calculating the capital gains under Section 48. (1) Section 50C is a special provision for determining the full value of consideration in cases of transfer of immovable property, being land or building or both; (2) Section 50C provides that where the consideration declared to be received or accruing as a result of transfer of land or building or both is less than the value adopted or assessed by the Stamp Valuation Authorities for the purpose of payment of stamp duty in respect of transfer, then value so adopted or assessed by them shall be deemed to be the full value of consideration; (3) It is also provided that where the assessee claims that the value adopted or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer : ● Certain Amendments were made to this section by the Finance Act, 2016. Two provisos were added to subsection (1) which are as follows: Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer: Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed or assessable by the stamp valuation authority referred to in subsection (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer. ● BASIC INGREDIENTS OF THE PROVISIONS i) There should be a transfer of capital asset, being land or building or both; ii) There should be a transfer of such capital asset by way of registration with the Stamp Duty Authorities; iii) Stamp duty is sought to be imposed by the Stamp Valuation Authorities at certain value of the capital asset which is different than the sale consideration shown in the documents of transfer sought to be registered; iv) Where valuation done by the Stamp Valuation Authorities for levying Stamp duty is less than the sale consideration shown by the assessee in the sale deed Section 50C cannot be invoked; v) Where valuation done by the Stamp Valuation Authorities for levying stamp duty is more than the sale consideration shown by the transferor in the sale deed then such higher valuation will be considered as full value of consideration and, accordingly, such full value of consideration be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essable would also be treated as full value of consideration; xiv) Use of the word 'shall' in Section 50C makes it mandatory for the assessing Officer to adopt the valuation done by the SVA in place of apparent consideration, if necessary conditions under Section 50C are satisfied. The Assessing Officer has no discretion. ● WHAT IS 'FULL VALUE ' The phrase 'full value' has been explained by the Hon'ble Supreme Court in CIT vs. George Anderson & Co. Ltd. (CIT v. George Anderson & Co. Ltd. [1967] 66 ITR 622 (SC)). It is held therein that full value of consideration is the full sale price actually paid. The expression 'full value' means the whole price without any reduction whatsoever and it cannot be referred to the adequacy or inadequacy of the price bargained. It also does not have the reference to the market value of the capital asset which is the subjectmatter of the transfer. However, Section 50C creates a fiction and, therefore, it is a departure from the established principles. SECTION 50C IS CONSTITUTIONALLY VALID : It has been held that classification for preventing evasion of tax and undervaluation of transaction by substituting apparent sale consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land (Atul G Puranik v. ITO (2011) 11 Taxmann.com 92(Mum) or to ascertain FMV of the property as on 1st April 1981 which is, in fact, the cost of acquisition of the property at the discretion of the assessee (Shri Pyare Mohan Mathur HUF v. ITO (2011) 12 taxmann.com 170 (Agra). ONUS AND ITS DISCHARGE: Under Section 50C when stamp duty valuation of a property is higher than apparent sale consideration shown in the instrument of transfer then onus to prove that fair market value of the property is lower than such valuation by the SVA is on the assessee who can reasonably discharge this onus by submitting necessary material before the Assessing Officer, such as valuation by an approved valuer. Thereafter onus shifts to the Assessing Officer to show that material submitted by the assessee about fair market value of the property is false or not reliable. (Ravi Kant v. ITO (2007)110 TTJ Delhi 297). EXEMPTION AND SECTION 50C : When valuation done by the SVA is adopted as full valuation of consideration under Section 50C then such value adopted will result in larger capital gain for the assessee as compared to what is disclosed by him. For the purpose of getting benefit under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of stamp duty in respect of such transfer, such value shall for the purpose of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. 7. Clearly thus, section 50C of the Act by a deeming fiction substitutes the consideration received on sale of a capital asset by stamp duty valuation. Such deeming fiction, however, is applicable only in case of a seller for the purpose of section 48 of the Act. 9. From the aforesaid decision, it is quite clear that provision of Section 50C would apply to a seller only and not the purchaser and therefore, to make reference casually in case of petitioner, who is purchaser, is not just and proper. 10. The other relevant statutory provision which is required to be considered is Section 69 of the Act. Section 69 of the Act pertains to unexplained investment, whereas Section 69A pertains to unexplained money etc. and likewise, Section 69B pertains to amount of investment etc. not fully disclosed in books of accounts and therefore, these statutory prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer to hold that in case of an assessee falls under sections 69, 69A and 69B as the case may be, that he can, to estimate the value of such unexplained investment or expenditure in bullion, jewellery etc., call for the report of the Valuer. Initial starting point for triggering a reference to the Valuer, therefore, has to be invocation of sections 69,69A or 69B of the Act. It is only when any of these provisions come into play that the Assessing Officer can resort to section 142A for estimating the value of such investment or expenditure. Sequence cannot be put in the reverse. In other words, the Assessing Officer would have no authority to call for the report of the Valuer under section 142A to judge whether there has been any unexplained investment or expenditure as referred to in sections 69, 69A and 69B of the Act. It would only amount to fishing inquiry and not investigation under section 142A of the Act. In our opinion, the scheme of the provisions when read harmoniously would lead to a situation where in case the Assessing Officer, during the pendency of assessment or reassessment, is of the opinion that sections 69, 69A and 69B of the Act can be invoked; in order to estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the final assessment cannot be undertaken and therefore, in the background of that particular case, the issue was dealt with of Section 142A of the Act. Again, in the said decision, there was a civil construction work was also undertaken by the assessee, whereas in the present case the property has been purchased by the petitioner in as it is manner. It is also reflecting from the said decision that well before time, the assessment period is getting over, reference came to be made by issuing notice in the month of November,2011 and therefore, the background of the facts is quite distinct from that of case on hand. Therefore, we are of the opinion that no much reliance is possible to be made on the proposition of the said decision. No doubt, it is true that Section 142A of the Act can be resorted to even during the assessment or after assessment but, at the same time, while making said reference, the officer has to satisfy the conditions precedent which are be reflected in relevant statutory provisions, which in the present case are completely missing and therefore, we are of the opinion that no such action is permissible in law. We are of the opinion further that ratio laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While doing so, the Commissioner (Appeals) placed reliance upon the decision of the Tribunal in DCIT v. Virjibhai Kalyanbhai Kukadia, 138 ITD 255, wherein it has been held that the provisions of section 50C of the Act cannot be applied for making addition under section 69B of the Income Tax Act. The revenue carried the matter in appeal before the Tribunal who upheld the order passed by the Commissioner (Appeals). 3. Mrs. Mauna Bhatt, learned senior standing counsel very fairly invited the attention of this court in the case of Commissioner of IncometaxIV v. Sarjan Realities Ltd., (2014) 220 Taxman 112 (Gujarat) wherein the court has held thus:- "6. As is well known, section 50C of the Act makes special provision for full value of consideration in certain cases. Subsection (1) thereof provides that where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of stamp duty in respect of such transfer, such value shall for the purpose of section 48, be deemed to be the full value of the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value thereof may be deemed to be the income of the assessee of the financial year immediately preceding the assessment year in which the assessee is found to be the owner of such bullion, etc. 7 The scheme of Sections 69, 69A. 69B and 69C of the Incometax Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature and source by the assessee, then the source would stand disclosed and will, therefore, be known and the income would be treated under the appropriate head of income for assessment as per the provisions of the Act. However, when these provisions apply because no source is disclosed at all on the basis of which the income can be classified under one of the heads of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, as a deductible trading loss on its confiscation, because, such deemed income did not fall under the head of income "profits and gains of business or profession". 22 Thus, the ratio discernible from the aforesaid decisions of this Court is that the 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. However, 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. 23 Therefore, we propose to examine the issue at hand from a limited angle whether a presumption could have been drawn about the excess amount alleged to have been made by the appellant - assessee at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch which revealed any understatement of the purchase price. That is precisely the reason why the Assessing Officer had to resort to Rule 3 of Schedule III to the Wealth Tax Act. This Rule does not even claim to estimate the "fair market value" of an asset; it merely lays down a procedure for computing the value of an asset for the purposes of the Wealth Tax Act.. The Schedule derives its authority from Section 7(1) of the Wealth Tax Act. The section, as it now stands, has dropped all pretensions to ascertaining the fair market value of an asset for the purposes of the Wealth Tax Act. Prior to the amendment made w.e.f. 141989 the section provided for the estimation of the fair market value of an asset on the principle of what it would fetch if sold in the open market. This involved an assumption of an open market, be it fictional, a willing seller and a willing buyer, all fictional. This fiction facilitated a realistic estimation of the fair market value of the property, and it moved with the ups and downs of the market. Not anymore. From 141989, the value was frozen. For all times to come, an immovable property that fetches rent shall be valued at 12.5 times the net maintainable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch now stands omitted) applied to the transferor of property for a consideration that was lesser than the fair market value by 15% or more; in such a case, the Assessing Officer was conferred the power to adopt the fair market value of the property as the sale price and compute the capital gains accordingly. The Supreme Court held that it was the burden of the Assessing Officer to prove that there was understatement of consideration and once that burden was discharged it was not required of him to prove the precise extent of understatement and he could adopt the difference between the stated consideration and the fair market value of the property as the understatement. The subsection was held to provide for a "statutory best judgment" once actual understatement was proved; it obviated the need to prove the exact amount of understatement. Additional reasons for the result were (a) that the marginal note to the section referred to "cases of understatement"; (b) the speech of the Finance Minister while introducing the provision; and (c) the absurd or irrational results that would flow from a literal interpretation of the subsection, which could not have been intended by the legislatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable yardstick to measure the extent of understatement. But since it may not be possible in all cases to prove the precise or exact amount of undisclosed investment, it is perhaps reasonable to permit the Assessing Officer to rely on some acceptable basis of ITA No.1814/2010 & conn. Page 8 of 10 ascertaining the market value of the property to assess the undisclosed investment. Whether the basis adopted by the Assessing Officer is an acceptable one or not may depend on the facts and circumstances of the particular case. That question may however arise only when actual understatement is first proved by the Assessing Officer. It is only to this extent that the rigour of the burden placed on the Assessing Officer may be relaxed in cases where there is evidence to show understatement of the investment, but evidence to show the precise extent thereof is lacking. 14. In Lalchand Bhagat Ambica Ram Vs. Commissioner of Income Tax, Bihar and Orissa (1959) 37 ITR 288, the Supreme Court disapproved the practice of making additions in the assessments on mere suspicion and surmise or by taking note of the notorious practices prevailing in trade circles. At page 299 of the report, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the Assessing Officer, he referred the matter to the Valuation Cell of the department for determining the cost of the properties on the date of acquisition. The District Valuation Officer submitted his report as per which the value was higher by an amount of ₹ 12,54,206/in respect of the concerned properties. In the aforesaid factual background, Justice A.K. Sikri (as His Lordship then was) speaking for the Bench observed as under: "7. Coming to the first question, it does not arise for consideration. As per the question formulated, the property was sold by the assessee whereas, in the instant case, the properties in question were purchased by the assessee and were not sold by him. Even if we treat the same as typographical mistake, we are of the view that it would not be necessary to decide this question in view of the answer that we propose to give to question no.2. 8. As far as the question no.2 is concerned, as already indicated above, the Assessing Officer solely relied upon the report of the DVO. Apart from this, there was admittedly no evidence or material in his possession to come to the conclusion that the assessee had paid extra consideration over and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay condoned. Leave granted. In the present case, we find that the Tribunal decided the matter rightly in favour of the assessee inasmuch as the Tribunal came to the conclusion that the Assessing Authority (AO) could not have referred the matter to the Departmental Valuation Officer (DVO) without books of accounts being rejected. In the present case, a categorical finding is recorded by the Tribunal that the books were never rejected. This aspect has not been considered by the High Court. In the circumstances, reliance placed on the report of the DVO was misconceived. For the above reasons, the impugned judgment of the High Court is set aside and the order passed by the Tribunal stands restored to the file. Accordingly, assesee succeeds. Civil Appeal is allowed. No order as to costs." 8. Further the Supreme Court in its order dated 16th February, 2010 in Civil Appeal No. 9468/2003 has held as under:- "Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the District Valuation Officer (DVO). Opinion of the DVO per se is not an information for the purposes of reopening assessment under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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