AO can reply upon valuation of DVO only after proving understatement in price consideration as per sale deed

Brief of the case:

Tribunal examined two main issues in this case firstly, whether any addition is required to be made in the hands of assessee on account of unexplained investment in purchase of house property. Secondly, whether assessees have paid any amount over and above the consideration shown in the sale deed which can be added u/s 69B on account of unexplained investment.
While dismissing the appeal filed by revenue the ITAT took note of several decisions, including CIT vs. Naveen Gera 2010 328 ITR 516 (Delhi) and other decisions, including that of K.P. Varghese vs. Income Tax Officer [1981] 131 ITR 597 (SC) of Supreme Court to show that the AO has to base his view with regard to under valuation, upon objective material.

Facts of the case:

• During search & Seizure operation sale agreement of property in dispute found in the possession of Sh. M. P. Jain.
• Property in question was agreed to be sold by one Sh.Gurdayal Singh, acting as the guardian of owner – Sh. Tarsem Singh who was the sole legal heir of the property by virtue of a Will of his grandmother.
• There was an agreement between Sh.Gurdayal Singh and Sh.Tarsem Singh with the purchaser Sh.M.P. Jain. The latter was occupying a portion, being tenant, since 1985.
• 20 lacs had been paid by the MP Jain by a cheque dated 27.04.1989. Some disputes arose which led to the filing of the suit by Sh.M.P.Jain, being Suit No.1345/1989 on the file of this Court.
• During the course of the suit proceedings, apparently a compromise was arrived at and Sh.M.P.Jain paid further Rs. 10 lakhs by way of an Account Payee cheque dated 06.09.1989.
• A compromise application under Order 22 Rule 3 CPC was moved and the statement of parties was recorded. Sh. Gurdayal Singh died on 13.12.1994 and the original owner of the property Sh.Tarsem Singh died on 13.08.1996.
• This did not resolve the entire issue because some dispute between the Legal Representatives of Tarsem Singh broke out.
• By that time agreement to sell had not been acted upon and the conveyance deed had not been executed by Sh.Tarsem Singh. Ultimately, the LRs parted with the property for a consideration of Rs. 35 lakhs, which was received by them in equal shares on 18.12.2006. This was the total value of the property mentioned in the original Agreement to Sell.
• When these transactions were reported, the AO doubted the valuation that why the sale deed was not registered upto 2006. He formed an opinion that the agreement dated 27.04.1989 might have not been given effect to because the sale deed had been executed on l8.12.2006 which ultimately led to the suspicion of under valuation of the property and was referred to the District Valuation Officer (DVO).
• Based upon his determination, the value of the property was decided to be Rs. 2,75,25,780/-. After adjusting the sum of Rs. 35 lakhs, the AO brought to tax the balance amount and determined the tax liability of Rs. 60,06,445/-
• CIT (A) accepted appeal and directed that instead of market value indicated by the DVO, the circle rate was to be looked into.
• ITAT allowed appeal filed by assessee and deleted the appeals filed by revenue.

Contention of the revenue:

• The ITAT fell into error in accepting that the settlement arrived at in 2006 was genuine.
• The entire sequence of events disclosed that there was no dispute, and through “the dispute” the Legal Representatives sought to take advantage to contrive a compromise and to avoid tax.

Contention of the assessee:

• Assessee relied upon the judgments of Hon’ble Delhi High Court in the case of CIT vs. Naveen Gera reported in 328 ITR 516 and CIT Vs. Smt. Suraj Devi reported in 328 ITR 604 to emphasize that that the primary burden of proof with regard to concealment of income was on the revenue and it was only when the said burden was discharged that reliance could be placed on the valuation report ofthe DVO. Further assessee relied upon the judgment of Hon’ble Delhi High Court in the case of CIT vs. Puneet Sabharwal 338 ITR 485 in the same context.

Held by the court:

• It is evident that the ITAT took into consideration the suit for injunction filed by the purchaser Sh. M.P. Jain and the compromise statement dated 18.09.1989. It is also evident that despite the statement being recorded on 18.09.1989, title was not conveyed to the purchaser even though he continued to be in the possession of the property.
• It is a matter of fact that on 18.09.1989, the statement was recorded by the Court. At the same time, equally the title was not conveyed to the purchaser.
• In the agreement, the parties ultimately agreed to abide by the statement recorded by the court in the year 1989, ipso facto, could not have been the ground for suspecting its bonafide. Given the fact that an order XXII Rule 3 CPC application was filed and the compromise duly recorded in the Court, we are of the opinion that the ITAT’s order does not lead to any substantial question of law requiring consideration.