It has not been disputed that the four sellers of the agricultural lands were neither examined nor their statements recorded, nor sec. 50C was invoked against them. Under these circumstances, the addition on the basis of a presumption which according to I.T. Act can only be raised against seller, cannot be made in the hands of the purchaser. Besides, we find merit in the argument of learned counsel for the assessee that provisions of sec. 142A cannot be applied against a transaction which is stock in trade. Order of CIT(A) is upheld as being on just and proper observation.
INCOME TAX APPELLATE TRIBUNAL, DELHI
ITA No. 5597/Del/11 – A.Y. 2008-09
DCIT Vs. M/s Nihalsons Real Estate Developers
PER R.P. TOLANI, J.M::
This is revenue’s appeal against CIT(A)’s order dated 19-9-2011 relating to A.Y. 2008-09.
2. Following grounds are raised:
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) XXV, New Delhi has erred in deleting the addition of Rs. 35,11,000/- made by the AO on account of unexplained investment.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) XXV New Delhi has erred in deleting the addition of Rs. 63,00,000/- made by the AO on account of income from other sources.”
3. Apropos revenue’s first ground, brief facts are: Assessee purchased 4 properties for Rs. 66,70,000/-. According to Assessing Officer, the circle rate of the property was of Rs. 1,01,81,000/-, implying threby that assessee had understated the purchase. Assessing Officer in the hands of the assessed purchaser invoked provisions of Sec. 50C and 69B of the I.T. Act and made addition of Rs. 35,11,000/- as unexplained investment.
3.1. AO thus proposed to make the addition as unexplained investment u/s 69B. Assessee contended that:
(i) Sec. 50C and Sec. 69B were not applicable to assessee’s case. The properties in question were stock in trade and purchased for the purpose of business as part of stock-in-trade. Sec. 50C was in respect of a capital asset and not the stock in trade.
(ii) Sec. 50C is a presumptive section and the presumption is raised against the seller and Act does not prescribe any such presumption against the purchaser. Therefore, the addition was not justified.
3.2. Assessing Officer, referred it to DVO u/s 142A and however, made the addition of Rs. 35,11,000/-, observing as under: “The submissions of the A.R. have been examined critically. The agricultural land in NOIDA have been acquired by the Government of U.P. in lieu of compensation etc. paid to farmers. Therefore, the assessee has acquired a valuable right in the investment. The mater has, therefore, rightly been referred to the Valuation Officer in terms of Sec. 142A of the I.T. Act. As per the provisions of Sec. 50C of the I.T. Act the value of consideration as a result of transfer of land & building, has to be adopted according to the value determined by the State Government (Stamp Valuation Authority). Inversely, the cost of the asset in the hands of purchaser has to be in accordance with the value adopted by the State Government for which the Circle rates have been prescribed by the Stamp Valuation Authority. Since the assessee has declared investments at a lesser rate than the prescribed Circle rate, the suppressed value in the acquisition of land is treated as unexplained investment and added to the income of the assessee, which works out to Rs. 35,00,000/- (3,37,000 + 8,22,000 +8,22,000 + 15,30,000). Since the assessee has not disclosed the true particulars of transaction in the alleged purchase and sale of plot, I am satisfied that the assessee concealed the particulars of income and furnished inaccurate particulars of income for which the penalty proceedings under Sec. 271(1)(c) are being initiated separately.”
3.3. Aggrieved, assessee preferred first appeal before the CIT(A), before whom following judgments were relied on by the assessee: – Dinesh Kumar Mittal Vs. CIT (1992) 193 ITR 770 (All) – Amar Kumar Surana Vs. CIT (1997) 226 ITR 344 (Raj.) – CIT Vs. Naresh Khattar HUF (2004) 261 ITR 664 (Del) – CIT Vs. Smt. Noorjahan P.K. (1999) 237 ITR 570 (SC) – CIT Vs. Moghul Darbar (1995) 216 ITR 301 (AP) – DCIT Vs. Rohini Builders (2002) 256 ITR 360 (Guj) – Mitesh Rolling Mills P. Ltd. Vs. CIT (2002) 258 ITR 278 (Guj).
3.4. CIT(A) deleted the addition by following observations: “7.3. I have considered the addition of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee. There is no evidence on record to show that there has been any unexplained investment as claimed by the Assessing Officer . The AO has made the addition purely on the basis of circle rate which is apparently not justified without any supporting evidence and most of the case laws are also in favour of the assessee. After considering all the facts and circumstances of the case, I am of the vie that the Assessing Officer is not justified to make the addition and accordingly, the same is deleted.”
4. Apropos second ground, brief facts are: The assessee is a partnership firm, engaged in the business of purchase, sale and development of real estate. During the course of its business, assessee firm purchased a property D-127, at Sector 51, NOIDA vide sale deed dated 15-4-2005 for a consideration of Rs. 19,50,000/-, stamp duty of Rs. 78,100/- was paid thereon. The prices of the property increased in the meanwhile and assessee transferred the agreement to purchase in respect of this property for Rs. 63,00,000/- to one Shri Ranvir Singh Mahendru and Smt. Anita Mahendru. Being a tripartite deal at the time of conveyance of the property, it was conveyed by said Shri Arvind Aggarwal in favour of Mahendrus as a tripartite agreement dated 27-4-2007. As the property was conveyed directly by these two parties, the assessee further entered into a cancellation agreement dated 30-4-2007 with the original seller Shri Arvind Aggarwal. The assessee credited the resultant profit as business income in its return of income as under:
Total sale price Rs. 63,00,000
Amount paid to
Shri Arivind Aggarwal Rs. 19,00,000
Stamp duty Rs. 78,100 Rs. 19,78,100 Rs. 53,21,900
4.1. Assessing Officer , however, held that this transaction of Rs. 63,00,000/- was not the business transaction and was “income from other sources” as amount in lieu of surrender of rights held by assessee in the plot.
4.2. Aggrieved, assessee preferred first appeal, where CIT(A) deleted the addition, observing as under:
“4.7. I have considered the addition of the AO and the submissions of the assessee and I find considerable merit in the submission of the assessee. It is a common practice to enter into a tripartite agreement when the property is purchased and the same is sold to a third party without getting the property registered in the name of intermediary (i.e. the assessee firm). The assessee has duly declared the entire sale transaction in the P&L account as submitted by the assessee and as discussed above. The assessee has also claimed various expenses of Rs. 12,30,846/- and out of which the amount to the extent of Rs. 9,06,153/- has been disallowed by the AO which has been challenged in Ground no. 3 by the assessee. It has been submitted by the assessee that the Assessing Officer has made the disallowance of Rs. 9,06,153/- without any reason or finding or any discussion in the order which has been disallowed by the assessee himself. The assessee has also surrendered during the course of assessment proceedings, the amount of Rs. 50,000 paid to Sh. Arvind Aggarwal which has not been accounted for by the assessee in the books of account.
4.8. After considering all the facts and circumstances of the case, I am of the vie that there is considerable merit in the submission of the assessee that the Assessing Officer is not justified to make the addition without any valid reason and accordingly, the addition of Rs. 63,00,000/- is deleted but the addition of the surrendered amount of Rs. 50,000/- is confirmed.”
5. Aggrieved, revenue is before us.
6. Ld. DR relied on the order of AO.
7. Learned counsel for the assessee reiterated the arguments and case laws relied on before lower authorities. It is pleaded that:
(i) Provisions of Sec. 69B and Sec. 50C are not applicable to trading transactions;
(ii) The provisions of Sec. 50C have not been invoked against the sellers of the property who had earned capital gains thereon.
(iii) The land in question were agricultural land purchased from the villagers against whom no provisions u/s sec. 50C have been invoked.
(iv) Without invoking sec. 50C and making reference to these provisions against the seller, addition cannot be made in the hands of the assessee.
(v) The provision for reference to valuation u/s 142A, reference to sec. 69B for the investment and not for stock in trade; sec. 69B specifically refers to investment and not stock in trade. If the business transactions are taken to be investments, then each and every business transaction will be covered u/s 69B which is against the legislative intent and principles of interpretation as they lead to manifestly unjust result.
(vi) The burden to prove that the assessee has acquired the stock in trade at a price more than declared in the books, lied on the Assessing Officer. Mere reference to DVO’s report which is not sought in accordance with legal provisions, cannot discharge the burden of the Assessing Officer on this behalf. (vii) Since the DVO’s report could not have been called u/s 142A a sec. 69B does not cover stock in trade, the valuation report cannot beheld to be conclusive to hold that the assessee paid undisclosed amount, more so when neither the statement of the seller has been obtained nor a cross-examination has been allowed to the assessee.
(viii) Books of accounts of the assessee have nto been rejected. Without rejecting the books, the transactions of purchases entered therein cannot be held to be disturbed.
8. Apropos ground no. 2, it is pleaded that the necessary profits were already declared by the assessee in books of a/cs, as a business transaction, carried out in regular course of business. Addition of Rs. 50,000/- has been confirmed by CIT(A), which is accepted by assessee. Ld. Assessing Officer without appreciating the facts of the case has resorted to adding the same amount twice albeit at a higher figure of Rs. 63,00,000/- being the difference between the original purchaser and the sale price of the third party. CIT(A) on verification held that it was business transaction and profit of this tripartite transaction has been duly incorporated.
9. We have heard rival contentions and gone through the relevant material available on record. It has not been disputed that the four sellers of the agricultural lands were neither examined nor their statements recorded, nor sec. 50C was invoked against them. Under these circumstances, the addition on the basis of a presumption which according to I.T. Act can only be raised against seller, cannot be made in the hands of the purchaser. Besides, we find merit in the argument of learned counsel for the assessee that provisions of sec. 142A cannot be applied against a transaction which is stock in trade. Order of CIT(A) is upheld as being on just and proper observation.
10. Apropos the second ground, we do not find any infirmity in the order of CIT(A) who has verified the accounts and held that the profit in respect of this transaction was already entered in the books of account. The assessee is into the business of real estate and a tripartite property deal was a business transaction and the difference of earning revenue from MOU has been duly offered as business income. The difference of Rs. 50,000/- has been confirmed by CIT(A) which has been accepted by assessee. Thus, there was no justification on the part of AO to add a business transaction again as income from other sources. In view of these facts and circumstances, we see no infirmity in the order of CIT(A) on both the issues, which is upheld.
11. In the result, revenue’s appeal is dismissed. Order pronounced in open court on 20-7-2012.