Case Law Details

Case Name : Gayatri Enterprise Vs ITO (Gujarat High Court)
Appeal Number : R/Tax Appeal No. 399 of 2019
Date of Judgement/Order : 20/08/2019
Related Assessment Year :
Courts : All High Courts (6000) Gujarat High Court (599)

Gayatri Enterprise Vs ITO (Gujarat High Court)

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.

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 the purchase of the land having regard to the fact why he thought fit to pay such a huge stamp duty on a total sale consideration of Rs. 45 lakh and odd. We shall confine our adjudication only on this limited issue whether such a presumption is permissible in law.

Section 69B of the Act reads as under:

“Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable articles, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.”

First, 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 other than agricultural income”.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1. This Tax Appeal under Section 260A of the Income-tax Act, 1961 (for short, ‘the Act, 1961’) is at the instance of an assessee and is directed against the order passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Ahmedabad dated 28th February 2019 in the ITA No.825/Ahd/2016 for the assessment year 2011-12.

2. The present Tax Appeal came to be admitted by this Court vide order dated 15th July 2019 on the following substantial question of law:

“Whether on the facts and in the circumstances of the case, the Tribunal was right in law in upholding that the order of the Principal CIT, which is based on the presumption that the difference between the stamp duty valuation and the actual purchase price is undisclosed investment in the hands of assessee purchaser, and therefore, the order of Assessing Officer not taxing the differences in hands of purchaser assessee is erroneous and prejudicial to the revenue?”

3. The case of the appellant, in his own words as pleaded in the memorandum of the Tax Appeal, is as under:

‘1.1 During the course of scrutiny assessment u/s. 143(3) for Asst. Year 2011-12, the Assessing Officer raised various queries, which were replied by the appellant. To one such query, in regard to investment in land of Rs. 1,17,93,542/- as on 31.03.2011 by a notice dated 18.10.2013 u/s. 142(1), the Chartered Accountant of the appellant by a letter dated 19.11.2013 gave a detailed reply pointing out that the possession of the land was taken on 31.03.2008 and the appellant is already assessed in Asst. Year 2008-09 and annexed the assessment order for Asst. Year 2008-09 along with that reply. The Assessing Officer passed an order u/s. 143(3) dated 28.11.2013. Thereafter, the Principal Commissioner of Income Tax-1, Vadodara issued a notice u/s. 263 dated 12.01.2016 pointing out that the above assessment was erroneous insofar as it was prejudicial to the interest of Revenue on account of the following:

“On verification of P&L account, balance sheet computation of Income & submissions in respect of construction business, it is revealed that investment of Rs. 1,17,93,542/- is made in the land situated at Survey Nos.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 & Levelling 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 (BRA-3/ATA) dated 29.03.2011), it is noticed that against the consideration of Rs. 45,61,000/- declared/shown, Rs. 22,90,300/- is paid as stamp duty. The prevailing stamp duty rate in Gujarat is @4.90% ad volrem on consideration or market value as per Jantri Rate. Accordingly, the value of the alleged property comes to Rs. 4,67,816/- (22,90,300*100/4.90), as against Rs. 45,51,000/- declared/shown. It may therefore be presumed that Rs. 4,21,79,800/- (4,67,40,800-45,61,000) is undisclosed investment.”

1.2 The Chartered Accountant of the Appellant gave a detailed reply dated 05.02.2016 pointing out amongst others that the investment was inquired into at the time of original assessment. Therefore, the notice is bad, and that the notice is also bad because the addition can be made u/s. 69B not on the basis of presumed investment but actual investment.

1.3 The Principal Commissioner of Income Tax rejected all the contentions and held that the Assessing Officer has failed to make proper inquiries, and therefore, the assessment order is erroneous and prejudicial to the interest of revenue.

1.4 The Appellant preferred an appeal to the Income Tax Appellate Tribunal (hereinafter “the Tribunal’). The Tribunal upheld the action of the Principal Commissioner of Income Tax holding that the assessment order is erroneous and prejudicial. The Tribunal recorded in para 8 of their order;

“While holding so, we are alive to the plea on behalf of the assessee that reasonable inquiry was made into various aspects concerning cost of land and also the purchase was made in the preceding years except for mere registration of the document in the current year.” (i.e. Asst. Year 2011-12)…… “The purchase transaction culminated and stood consummated during the year under review. Therefore, the cause of action did exist in relation to the assessment order in question. ”

and in the penultimate paragraph of the order, the Tribunal noted;

“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. ”

2. Being aggrieved and dissatisfied with the order dated 26.02.2019, received by the appellant on 09.04.2019, passed by “C” Bench of the Tribunal in I.T.A. No.825/Ahd/2016 for Assessment Year 2010-11, the Appellant begs to prefer this appeal before this Hon’ble Court on the following amongst other grounds:

(A) Both Principal CIT and the Tribunal failed to appreciate that their order is wrong because there is no presumption in law that the difference between the actual sale price and the stamp duty value is unaccounted investment by the purchaser assessee, and therefore, to be added u/s. 69B as undisclosed income.

(B) Both Principal CIT and the Tribunal missed two direct decisions of this Hon’ble Court (I) CIT v. Sarjan Realties Ltd. (2014)  (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 that 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 v. DCIT (2017) . 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 CIT v. Sarjan Realties Ltd.

And in para 9 of decision of Anand Adhukia (supra), this Court further pointed out;

“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. ”

(C) Both Principal CIT and the Tribunal failed to appreciate that the result of their approach will only increase the workload of the Departmental Officials because according to them every assessment order of the purchaser of immovable property, where there is a difference between the purchase price and the stamp valuation and no addition is made, is erroneous, and therefore, section 263 proceedings have to be taken.

(D) The Tribunal failed to take into consideration the wisdom of the legislature in applying such a situation in the hands of the seller only by provision of section 50C and that clause (x) was inserted in sub-section (ii) of section 56 in respect of the purchaser only from 01.04.2017 and therein the proviso is added that if there is prior agreement to sell, the stamp duty value on the date of the agreement is to be considered.’

4. Thus, it appears from the aforesaid pleadings that the appellant purchased a parcel of land during the financial year 2007-08 from one Jignesh Shivabhai Patel. Initially, an agreement of sale was executed by the original owner in favour of the appellant. The agreement of sale was registered on 31st August 2007. The total sale consideration was fixed at Rs. 45,61,000/-. On 31st August 2007 i.e. on the date of the execution of the agreement of sale, an amount of Rs. 10,25,000/- was paid towards earnest money and the possession of the land was also taken over. On 31st March 2008, the appellant, by way of cheques, paid the amount of Rs.35,36,000/-. Thereafter, the balance amount of Rs. 99,000/- was paid to the original owner on 26th February 2011. The appellant-assessee tried to explain to the Assessing Officer that he had taken over the possession of the land in the financial year 2007-08 and in view of the definition of the term “transfer” as defined under section 2(47) of the Act, the land could be said to have been transferred in favour of the assessee in the financial year 2007-08. The assessee also pointed out that after taking over the possession of the land, he incurred various expenditures like erecting fencing, land levelling, construction of the compound 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.CIT-1/HQ/263/20/GE/2015-16 Date: 12.01.2015

(PAN : AAHFG1662R)

To,

M/s. Gayatri Enteprises,
2, Shilp Apartment,
Mane Nagar, Munj Mahuda
Akola 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 insofar as it was prejudicial to the interest of revenue an account of the following:

On verification of P&L account, balance sheet computation of income & submission in respect of construction business, it is revealed that investment of Rs. 1,17,93,542/- is made in the land situated at Survey Nos.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 & Levelling 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 (BRA-3/ATA), dated 29.03.2011), it is noticed that against the consideration of Rs. 45,61,000/- declared/shown, Rs. 22,90,300/- is paid as stamp duty. The prevailing stamp duty rate in Gujarat is @ 4.90% ad-volem on consideration or market value as per Jantri Rate. Accordingly, the value of the alleged property comes to Rs. 4,57,40,816/- (22,90,300*100/4.90) as against Rs.45,61,000/- declared/shown, it may therefore be presumed that Rs. 4,21,79,800/- (4,67,800-45,61,000) is undisclosed investment.

2. In view of above, you are being granted an opportunity of being heard and to show cause as to why the aforesaid assessment made by the Assessing Officer for A.Y. 2011-12 should not be enhanced with a direction to make fresh assessment in accordance with the provisions of law in this regard. For this purpose, you may appear before the undersigned in person or through your authorized representative or file written submission on 29.01.2015 at 11:00 A.M./P.M. in case of non compliance, the matter will be decided on merits.

Yours faithfully,

sd/-
(R.K. Jain)
The Principal Commissioner of Income Tax 1″

7. The appellant-assessee gave a detailed reply to the aforesaid show-cause notice. The reply is at page : 26 of the paper book at Anneuxre : ‘I’.

8. The Principal Commissioner was not convinced with the reply of the appellant-assessee dated 5th February 2016. The Principal Commissioner, ultimately, quashed and set aside the assessment in exercise of his powers under Section 263 of the Act with a direction to frame the assessment afresh. The relevant observations made by the Principal Commissioner, in his order dated 15th February 2016, are as under:

“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 handedover 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 53A of Transfer of Property Act shall be registered otherwise such document if executed after 2001 shall have no effect for the purpose of part performance secured under section 53A of TP Act. Reliance is placed upon Hon’ble Supreme Court decision in the case of Suraj Lamp & Industries (P) Ltd., [2011],  (SC), wherein Hon’ble Apex Court has held that any immovable property can be legally and lawfully transferred/conveyed only by a registered deed of conveyance;

4.2.6 Without prejudice to the above, it is worthwhile to take & note of para 7 of the aforesaid agreement to sale (Banakhat), where it is clearly stated that the liability of the stamp duty to be paid at the prevailing rates at the time when the sale deed to this effect is registered, would be of the purchaser, i.e., assessee. Therefore, the. contention of assessee with regard to the period, as mentioned in the preceding para has no merits.

4.3 Considering the totality of facts, I am of the view that the A.O. has failed to make proper enquiries, examine the records and appreciate the facts and the law while deciding the issue. Failure on the part of the A.O. with regard to examination/verification of the vital issue, as discussed in Paras 4.1 to 4.13 herein above has rendered the assessment erroneous, insofar as, it is prejudicial to the interest of revenue. Therefore in exercise of the powers conferred by the aection 263 of the Income-tax Act, 1961, the assessment is set aside with the directions that the assessment should be framed afresh by A.O. After proper & discreet enquiries/verification on the aforementioned issue, examining the accounts and records of the assessee, gathering all the supporting evidences as encapsulated by Section 69B of the IT Act and after allowing reasonable opportunity of bearing heard to the assessee.”

9. The appellant-assessee, being dissatisfied with the aforesaid order passed by the Principal Commissioner went in appeal before Income Tax Appellant Tribunal, ‘C’ Bench, Ahmedabad. While dismissing the appeal, the Appellate Tribunal observed as under:

“6 The learned AR for the assessee submitted at the outset that the necessary background for exercise of revisional power of Pr.CIT does not exist. The learned AR referred to notice issued by the AO under s.142(1) of the Act dated 18.10.2013 to submit that the AO had initiated inquiry on investments of Rs. 1.17 crore as appearing in the balance sheet on 31.03.2011 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 non-agricultural land by the assessee and thereafter the actual registration was carried out in the FY 2010-11 concerning AY 2011-12 in question. The learned AR further emphasized that the payment qf sale consideration of Rs. 45,61,000/- was made in FY 2007-08 and possession of the land was taken. Only remaining amount of Rs. 99,000/-was paid to the seller in FY 2010-11 (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 2011-12 is far-fetched 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 undisclosed investment in the land purchased. The learned AR accordingly submitted that the Pr.CIT has overreached its power of review and consequent order passed under s.263 of the Act is bad in law. To support its contention towards non-applicability of section 263 of the Act, the learned AR for the assessee referred to and relied upon the decision of the coordinate bench in Dilshad Trading Co. (P) Ltd. v. ITO (1994) 49 ITD 348 (Bam.) and CIT v. Amit Corporation (2012) . (Guj); CIT v. Arvind Jewellers (2003) 259 ITR 502 (Guj) & (2015) CIT v. Fine Jewellery (India) Ltd. (2015) 372 ITR 303 (Bom).

7. The learned CIT-DR, on the other hand, supported the revisional order of the Pr.CIT and submitted that the Pr.CIT was well within its power to exercise supervisory jurisdiction of review against the palpably wrong order passed by the AO without considering a glaring and obvious payment of stamp duty totally disproportionate qua the cost of purchase of land as declared by the assessee. It was submitted that the AO has not made any inquiry into claim of the assessee towards bona fides of cost of purchase declared and assessment order has been passed in a cryptic & nondescript manner. The agreement has been registered and therefore the Stamp duty was paid during the year. Therefore, it was thus contended that the cause of action against the assessee did arise in the FY 2010-11 to the concerning AY 2011-12. The learned CIT-DR referred to the judgment of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) to contend that the Pr.CIT was entitled to cancel the order of the AO where the Revenue is loosing its lawful share of taxes owing to an apparently erroneous order passed by the AO. The learned DR contended that owing to lack of inquiry on the vital aspect of cost of purchase declared vis-à-vis notified jantri rate (as revealed from the stamp duty paid by the assessee) without demur, the assessment order suffered from error which was prejudicial to interest of Revenue. The learned CIT-DR submitted that the Pr.CIT has merely set aside the order of the AO for making requisite inquiry on the distinct possibility of revenue leakage in the backdrop of the fact that onus is squarely on the assessee to justify the correctness of declared cost of purchase on the face of substantially higher jantri value. 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 (Rs. 22. 90 Lakh) and cost of land declared at the rate of (Rs. 45. 61 lakh), the Pr. CIT found it self-evident that the value declared towards the consideration of purchase is abysmally low. The Pr.CIT re-computed the jantri value of the land at Rs. 467.40 lakh as against Rs. 45.6l lakh 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 correctness of the cost of purchase of land. What was inquired was source of cost of purchase declared. The issue raised by the Pr.CIT is altogether different and quite valid for that matter. A bare look at the assessment order also gives the infallible impression that the assessment order was passed in a routine and perfunctory manner without any discussion on any aspect of the assessment whatsoever. The preponderance of evidence clearly indicates unrealistically lower costs of purchases declared formally which would warrant an inquiry with the competent registering authority as well as with other comparable cases and by other realistic means. The Pr.CIT in discharge of its solemn duty under s.263 of the Act could not remain oblivious of the facts objectively drawn. There is an apparent plausibility in the action of the Pr.CIT by resorting to powers under s.263 of the Act which is of wide amplitude. The circumstances clearly exist which demands inquiry which was not done by the AO while discharging of statutory function. Thus, armed with fairly extensive powers, the Pr.CIT, in our view, has taken action compatible with circumstances. While holding so, we are alive to the plea on behalf of the assessee that reasonable inquiry was made into˙ various aspects concerning cost of land and also the purchase was made in the preceding years except for mere registration of the document in the current year. We are not impressed by such line of arguments when tested on the touchstone of section 263 of the Act. The purchase transaction culminated and stood consummated during the year under review. Therefore, the cause of action did exist in relation to the assessment order in question. Hence, the Pr.CIT was fully justified in invoking its power under s.263 of the Act to set aside the assessment framed without any application of mind on the crucial aspect which is self-revealing from the stamp duty payment itself.

9. The judicial precedents relied upon on behalf of the assessee are not found to be of any assistance. The decisions referred too are broadly based on the circumstances where either relevant material was not found or where it was found is a matter of fact that there was no failure on the part of the AO is to make inquiries. Needless to say, the scope of Section 263 of the Act is quite different. In order to invoke Section 263 of the Act, the competent authority 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 counsel appearing on behalf of the appellant is that there cannot be any presumption in law that the difference between the actual sale price and the stamp duty value would be unaccounted investment by the purchaser assessee and the same can be added under Section 69B of the Act as the undisclosed income. Mr. Shah submitted that Section 50C of the Act is applicable only to the seller and not to the purchaser. Mr. Shah submitted that the issue is directly covered by two decisions : (1) CIT v. Sarjan Realities Ltd. [2014]  (Mag.) (Guj) and (2) Anand Banwarilal Adhukia v. Dy. CIT [2017] [2016] (Guj.).

12. In such circumstances referred to above, Mr. Shah, the learned senior counsel appearing for the appellant prays that there being merit in this appeal, the same be allowed and the substantial question of law maybe answered in favour of the appellant – assessee and against the Revenue.

13. On the other hand, this appeal has been vehemently opposed by Mr. Varun Patel, the learned standing counsel appearing for the respondents. Mr. Patel submitted that no error, not to to speak of any error of law could be said to have been committed by the Appellate Tribunal in passing the impugned order. Mr. Varun Patel laid much stress on the fact that there is no explanation worth the name at the end of the appellant as to why he had to pay stamp duty of Rs. 22,90,300/-on the total sale consideration of Rs. 45,61,000/-. According to Mr. Patel, this fact is sufficient for the purpose of raising a presumption under Section 69B of the Act that the sale consideration of more than Rs. 44,61,000/- must have been paid by the appellant to the original owner. According to Mr. Patel, the stamp duty of Rs. 22,90,300/- would be liable to be paid if the sale consideration is of more than Rs. 4 crore.

14. Mr. Patel, in support of his submissions, has placed reliance on the following four decisions:

[1] CIT v. Amitabh Bachchan [2016] 384 ITR 200 (SC)

[2] Malabar Industrial Co. Ltd v. CIT [2000] 243 ITR 83 (SC)

[3] K.A. Ramaswamy Chettiar v. CIT [1996] 220 ITR 657 (Mad.)

[4] Swarup Vegetable Products v. CIT [1995] 187 ITR 412 (Ahd.)

15. In such circumstances referred to above, Mr. Patel prays that there being no merit in this appeal, the same maybe dismissed.

16. A lot has been argued on Section 50C 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 Income-tax 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 assessed for stamp duty purposes is more than the fair market value of the property as on the date of transfer and he has not disputed this value before the appellate authorities or the Court under the Stamp Duty Act then the Assessing Officer may refer the valuation of such property under transfer to the Valuation Officer in accordance with Section 55A of the Income-tax Act, 1961. If the fair market value so determined by the Valuation Officer is less than the value adopted for stamp duty purposes the Assessing Officer may take such fair market value to be the full value of consideration. On the other hand, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes the Assessing Officer shall adopt such fair market value determined by the Stamp Valuation Authorities as full value of consideration and he shall not adopt the valuation done by the Valuation Officer as full value consideration;

(4) The insertion of Section 50C is made effective from 1-4-2003 and, accordingly, would be applicable for the assessment year 2003-04 and the subsequent years.

Earlier there used to be a provision in Section 52 of the Income-tax Act, 1961 which enabled the Assessing Officer to refer the property under transfer to the Valuation Officer for determining the market value. However, in K.P. Varghese v. ITO [1981] 131 ITR 597 (SC), it was held that Section 52(2) cannot be applied to genuine transaction unless there are evidences to show that the consideration declared in the sale deed is understated. In other words unless the revenue was able to show that something over and above the sale consideration had passed hands between the transferee and the transferor, Section 52(2) could not be invoked. It became almost a herculean task for the Assessing Officer to collect evidence to show the exchange of additional money for consideration was other than the apparent sale consideration. Accordingly, it was considered to insert a deeming provision by way of Section 50C for substituting the apparent sale consideration by valuation done by SVA subject to certain conditions.

♦ SECTION 50C OF THE INCOME TAX ACT:

Section 50C. Special provision for full value of consideration in certain cases: (1) 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 (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 maybe 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 of electronic clearing system through a bank account, on or before the date of the agreement for transfer.

♦ Further this section was amended by Finance Act, 2018. Third proviso was added to sub-section (1) which is :

Provided also that where the value adopted or assessed or assessable by the stamp valuation authority does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of section 48, be deemed to be the full value of the consideration.

(2) Without prejudice to the provisions of sub-section (1), where—

(a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;

(b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court,

the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.

Explanation 1.For the purposes of this section, “Valuation Officer” shall have the same meaning as in clause (r) of section 2 of the Wealth Tax Act, 1957(27 of 1957).

Explanation 2.—For the purposes of this section, the expression “assessable” means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.

(3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-section (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 being valuation done by the Stamp Valuation Authorities will be substituted for apparent consideration;

(vi) The capital gains under Section 48 shall be computed accordingly on the basis of such higher full value of consideration and not on the basis of apparent consideration shown in the sale deed;

(vii) If the assessee, being transferor, claims before the Assessing Officer that fair market value of the property under transfer is less than the valuation done by the Stamp Valuation Authorities then the Assessing Officer may refer the property to the Valuation Officer for determining its fair market value as on the date of the transfer;

(viii) Such reference would be made in accordance with Section 55A;

(ix) On receipt of valuation report from the Valuation Officer, the Assessing Officer has to compare the fair market value as determined by the Valuation Officer with the valuation done by the Stamp Valuation Authorities under the Stamp Duty Act and with the apparent sale consideration shown by the assessee in the sale deed;

(x) Where valuation done by the Valuation Officer is more than the valuation done by the Stamp Valuation Authorities (SVA) then valuation done by the SVA would be taken as full value of consideration and capital gains will be calculated accordingly;

(xi) If valuation done by the Valuation Officer is less than the valuation done by the SVA then valuation done by the Valuation Officer would be adopted as full value of consideration as against the apparent consideration shown by the assessee or the valuation done by the SVA and capital gains be calculated accordingly;

(xii) If valuation done by the Valuation Officer is less than the valuation done by the SVA as well as sale consideration shown by the assessee in the sale deed then apparent consideration shown in the sale deed would alone be accepted as full value of consideration and capital gains be calculated accordingly, i.e. as shown by the assessee;

(xiii) With effect from 1.10.2009, applicable for the assessment year 2010-11 the Finance Act, 2009 (No.2) has enabled the Assessing Officer to find out Stamp Duty Value assessable by the SVA in cases where agreements to sale were executed, consideration changed hands and possession of the property was handedover to the buyer but without getting the transfer registered with the SVA. In such situation the stamp duty valuation assessable 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 v. George Anderson & Co. Ltd. (CIT v. George Anderson & Co. Ltd. [1967] 66 ITR 622. 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 subject matter 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 are neither unreasonable nor discriminatory. Section 50C pertains to a class of capital asset being land or building and its object is to bring the income arising from the capital gains. The charge of income is levied by virtue of Sections 4 & 5 and not by Section 50C. Therefore, insertion of Section 50C is within the legislative competence and is not violative of Article 14 of the Constitution of India. (Bhatia Nagar Premises Co-operative Society Ltd. v. Union of India [2011] 334 ITR 145/197 [2010]  (Bom.), K.R. Palanisamy v. Union of India [2008] 306 ITR 61/[2009]  (Mad.).)

SECTION 50C IS A LEGAL FICTION : Since Section 50C is a legal fiction its area and scope are confined to what is stated in the provision. Therefore, this provision can be invoked only when there is a transfer of land or building or both. Its operation cannot be extended to the other assessees or to other properties or to other circumstances than what is stated therein. It has also been held that Section 50C can be invoked if development rights are transferred along with the transfer of the land. What is to be seen is that there is a registered transfer deed. The additional rights given would not make any difference. So long as condition laid down under section 50C. i.e. instrument of transfer is registered in respect of the immovable property other events or additional transfer or rights or liabilities would be in consequential (Arif Akhatar Hussain v. ITO [2011] 45 SOT 257/(Mum)

SECTION 50C CANNOT BE APPLIED TO OTHER ASSETS OR FOR OTHER PURPOSES – Where a property is treated as stock-in-trade or business asset it would not be a capital asset and, therefore, provisions of Section 50C cannot be invoked (CIT v. Thiruvengadam Investments (P.) Ltd. [2010] 320 ITR 345 (Mad.), Thiruvengadam Investments (P) Ltd. ‘s case. Where flats were sold as business assets and were held in the books as stock-in-trade then Section 50C could not be invoked for computing business income by substituting valuation done by the SVA as real sale consideration as against actual sale price received by the assessee (Inderlok Hotels (P.) Ltd. v. ITO [2009] 32 SOT 419 (Mum), Asstt. CIT v. Excellent Land Develoeprs (P.) Ltd. [2010] 1 ITR (Trib) 563 (Delhi). Similarly, it has been held that section 50C cannot be made applicable to transfer of leasehold rights in land (Atul G Puranik v. ITO [2011] 132 ITD 499 (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] 46 SOT 315 (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 297 (Delhi).

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 54F the assessee cannot be expected to invest more than actual amount of capital gains accrued to him on the basis of sale consideration as per instrument of transfer. The legal fiction created by Section 50C in determining the capital gains cannot be extended to Section 54F or other provisions allowing exemption from capital gains as deeming Section can be applied only for the definite and limited purposes for which it is created. Therefore, capital gains and net consideration mentioned in exemption provisions such as Section 54F can be worked out on the basis of apparent sale consideration without imposing fiction created under Section 50C (Gouli Mahadevappa v. ITO [2011] 128 ITD 503/[2010] (Bang).

18. This Court in Anand Banwarilal Adhukia (supra) had the occasion to consider Section 69B of the Act along with Section 50C of the Act. In the said case, the petitioner was the purchaser of the property. He purchased the same for an amount of Rs. 60 lakh. He, thereafter, filed his return of income for the assessment year 2008-09 declaring the total income of Rs. 25,14,480/-. During the course of the assessment proceedings, the petitioner received a notice under section 142(1) of the Act calling upon him to show cause as to why an amount of Rs. 5 lakh should not be added to the purchase price of the property which he had purchased as the he had obtained a loan of Rs. 55 lakh from the bank. In the aforesaid factual background, this Court observed as under:

“8. From the bare 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 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 Commissioner of Income-tax-IV v. Sarjan Realities Ltd., (2013) . The relevant extract of the said decision reads as under :

6. As is well known, section 50C of the Act makes special provision for full value of consideration in certain cases. Sub-section (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 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 account and therefore, these statutory provisions are related to a case where assessee had made certain investment or expenditure or is found to be the owner of any bullion, jewellery etc. and the same are not properly recorded in the books of account. This Court in a decision in case of Me and Mummy Hospital (supra), while referring to these statutory provisions read with section 142A of the Act, has held that unless there is prima facie application of Section 69 of the Act, reference to the valuer under Section 142A of the Act is simply not permissible. It is only when there is some material before the Assessing Officer to hold that in case of an assessee falls under Section 69, as the case maybe, that he can, to estimate the value of such unexplained investment or expenditure in bullion, jewellery, etc. and can call for the report of the valuer and therefore, the Division Bench of this Court has observed that initial starting point for triggering a reference to the valuer, therefore, has to be invocation of Section 69 of the Act and therefore, unless and until such contingencies are reflecting on the record, reference under Section 142A of the Act cannot be resorted to. Relevant paragraphs of the said decision which have analyzed entire scheme of Section 142A of the Act are required to be reproduced hereinafter :

10. Power of the Assessing Officer for making a reference to the Valuation Officer seeking the estimate flows from sub-section (1) of section 142A. It provides that for the purposes of making assessment or reassessment under the Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, such reference to make an estimate of such value can be made to the Valuation Officer.

16. The Valuers report under section 142A of the Act is for the purpose of estimating value of such investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B of the Act. Unless, therefore, there is prima facie application of sections 69, 69A and 69B of the Act, reference to the valuer is simply not permissible. It is only when there is some material before the Assessing Officer to hold that in case of an assessee falls under sections 69, 69A and 69B as the case maybe, 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 estimate such unexplained investment or expenditure in acquisition of bullion, jewellery or valuable article, he can resort to valuation by the Valuation Officer in terms of sub-section (1) of section 142A of the Act. In the present case, no such material emerges from the record. To the contrary, neither from the order of reference nor from any other material, the respondent could point out that the Assessing Officer had invoked the provisions of sections 69,69A or 69B of the Act and in the process desired to obtain the estimate of unexplained investment or expenditure and for which purpose DVOs report was called. He simply gave no reasons in the order. No independent reasons, either flowing from the file or even in the form of an affidavit assuming the same would be permissible, are brought to our notice. Thus quite apart from the petitioners grievance that the Assessing Officer merely acted under the directives of the superior and did not, on his own application of mind, desire to call for the report, in absence of any valid reasons for making a reference, in our opinion, the order must fail.

11. Considering the aforesaid proposition of law laid down by this Court, it appears that here also, the Assessing Officer had no cogent material available nor to satisfy himself about the requirement of Section 69 of the Act and therefore, in the absence of it, the reference could not have been made under Section 142A of the Act. Simply because prior to 2 days the reference order came to be made, it cannot be said that the action of making reference during the period of assessment is justified. In fact, no purpose would be served to make such reference especially when the contingencies reflected hereinabove are not satisfied on the background of present facts. Therefore, considering this set of circumstance, we are of the opinion that the action of making reference is not tenable.

12. As against that, learned counsel for the revenue has heavily relied upon a decision in case of Bharathi Cement Corporation (P) Ltd. (supra). We have gone through the said decision and found that the case of Bharathi Cement Corporation (P) Ltd. (supra) was altogether on a different set of circumstance from the present one. In that case, the Assessing Officer was of the view that despite several reminders, the assessee had not produced any material and just dragged on the time so as to see 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 down by this Court in case of Me and Mummy Hospital (supra) is squarely covering the issue and almost in similar set of circumstance, this Court has taken a view, hence we see no reason to deviate from the proposition laid down by the said decision and therefore, the impugned action initiated by the authorities deserves to be quashed.”

19. In Sarjan Realities Ltd (supra), this Court observed as under:

“6. As is well known, section 50C of the Act makes special provision for full value of consideration in certain cases. Sub-section (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 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.”

20. This Court in the case of Pr. CIT v. Dharmaja Infrastructure [2019]  (Guj.) held as under:

“2. The assessment year is 2011-12. The respondent assessee had purchased two properties for a consideration of Rs. 1,55,00,000/- and Rs. 1,35,00,000/- respectively. However, the value adopted by the stamp duty authority as per the market rate was Rs. 2,55,45,000/- and Rs. 2,22,57,500/- respectively. According to the Assessing Officer, the assessee could not give any explanation with regard to the difference of amount of Rs. 1,88,02,500/- and he, therefore, considered such amount to be income from undisclosed sources not reflected in the books of account and treated the same as unexplained investment under section 69B of the Act. The assessee carried the matter in appeal before the Commissioner (Appeals), who allowed the appeal by holding that the Assessing Officer had relied upon the jantri rate without bringing any material on record to prove that the assessee, in fact, had made investment over and above that recorded in the books of account. 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 Income-tax-IV v. Sarjan Realities Ltd., (2014)  (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. Sub-section (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 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.”

4. As is evident from the facts as noted hereinabove, the Assessing Officer has sought to treat the difference between the market value assessed by the stamp authority and the purchase price as shown by the respondent assessee as an unexplained investment under section 69B of the Income Tax Act. This court in the above referred decision has held that section 50C of the Act by deeming fiction substitutes the consideration received on sale of a capital asset by stamp duty valuation. Such deeming fiction however, is applicable only in the case of a seller for the purpose of section 48 of the Act. In the facts of the present case, it is an admitted position that the respondent assessee is the purchaser and not the seller and hence, the valuation adopted by the Stamp authority could not have been made the basis from coming to the conclusion that there is unexplained investment. Moreover, as observed by the Commissioner (Appeals), no material was brought on record by the Assessing Officer to prove that the assessee had in fact made investments over and above that recorded in the books in the year under consideration.”

21. This High Court in the case of Mohmed Haji Hasan v. CIT [2001] 247 ITR 290/[2002]  (Guj) had the occasion to examine the scheme of Sections 69, 69A, 69B and 69C of the Act, 1961. The few relevant observations are as under:

“6. Under section 4 of the Income Tax Act, income Tax is to be charged in accordance with the provisions of the Act in respect of the total income of the previous year of every person. As provided by Section 5, the total income of any previous year of a person would, inter alia, include all income from whatever source derived which is received or is deemed to be received by such person, subject to the provisions of the Act. It will be seen from Section 69A the Act that where the bullion, jewellery or other valuable article is not recorded in the books of account and there is no explanation about the nature and source of its acquisition, or the explanation is not satisfactory, the value thereof maybe 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 Income-tax 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 maybe 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 income under section 14 of the Act, it would not be possible to classify such deemed income under any of these heads including income from “other sources” which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being given, then these provisions of section 69, 69A, 69B and 69C will not apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted.

8. The opening words of Section 14 “save as otherwise provided by this Act” clearly leave scope for “deemed income” of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from “other sources” because the provisions of sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case maybe, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head “Income from other sources”. Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered under the provisions of section 69, 69A, 69B and 69C of the Act in view of the scheme of those provisions.

9. It is, therefore, clear that, when the investment in or acquisition of gold, which was recovered from the assessee was not recorded in the books of account and the assessee offered no explanation about the nature and source of such investment or acquisition and the value of such gold was not recorded in the books of account, nor the nature and source of its acquisition explained, there could arise no question of treating the value of such gold, which was deemed to be the income of the assessee, 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 the purchase of the land having regard to the fact why he thought fit to pay such a huge stamp duty on a total sale consideration of Rs. 45 lakh and odd. We shall confine our adjudication only on this limited issue whether such a presumption is permissible in law.

24. Section 69B of the Act reads as under:

“Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable articles, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.”

25. First, 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.

26. 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 other than agricultural income”.

27. In taking the aforesaid view, we may refer to and rely upon the Delhi High Court decision in the case of CIT v. Dinesh Jain HUF [2012][2013] 352 ITR 629. We quote the relevant observations:

“9. A “finding” obviously should rest on evidence. In the present case, it is common ground that no incriminating material was seized during the search 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. 1-4-1989 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 1-4-1989, 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 rent.

10. There is a fundamental fallacy in invoking the provisions of the Wealth Tax Act to the application of Section 69B of the Income Tax Act, notwithstanding that both the Acts are cognate and have even been said to constitute an integrated scheme of taxation. Under the Income Tax Act, we are to find what was the real and actual consideration paid by the assessee and whether the full consideration has been recorded in the books. Under Section 7(1) of the Wealth Tax Act as it stood before 1-4-1989, we are to estimate the fair market value of the asset; after this date, it is not even estimation of the fair market value, but computation of the value of the asset on the basis of certain rules prescribed by the statute. If A dies leaving prime property in Connaught Place to his son B, B pays nothing for the property; the property may command a market price of several crores. If “A”, because of his love and affection for “B”, sells the property for Rupee One to “B”; in this case, the consideration paid is only Rupee One, though the property is worth several millions. If the Assessing Officer having jurisdiction over “B” has to make an addition under Section 69B, he can do so only if he “finds” that B has “expended” money which he has not fully recorded in this books of account; he cannot make any ITA No.1814/2010 & conn. Page 6 of 10 addition merely because the property could fetch several crore of rupees in the market.

11. Section 69B 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 tax contrary to the strict provisions of Article 265 of the Constitution of India and Entry 82 in List I of the seventh schedule thereto which deals with “Taxes on income other than agricultural income”. This was one of the major considerations that weighed with the Supreme Court in K.P. Varghese (supra) in which case the provisions of sub-section (2) of Section 52 fell for interpretation. It was observed that Parliament cannot choose to tax as income an item which in no rational sense can be regarded as a citizen’s income or even receipt. Section 52(2) (which 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 sub-section 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 sub-section, which could not have been intended by the legislature.

12. While the omitted Section 52(2) applied to the transferor of the property, section 69B applies to the transferee – the purchaser – of the property. It refers to the money “expended” by the assessee, but not recorded in his books of account, which is a clear reference to undisclosed income being used in the investment. Applying the logic and reasoning in K.P. Varghese (supra) it seems to us that even for the purposes of Section 69B it is the burden of the Assessing Officer to first prove that there was understatement of the consideration (investment) in the books of account. Once that undervaluation is established as a matter of fact, the Assessing Officer, in the absence of any satisfactory explanation from the assessee as to the source of the undisclosed portion of the investment, can proceed to adopt some dependable or reliable yardstick with which to measure the extent of understatement of the investment. One such yardstick can be the fair market value of the property determined in accordance with the Wealth Tax Act. We however clarify that this Court is not concluding that such yardstick is determinative; in view of the findings arrived at by us that the Assessing Officer did not gather foundational facts to point to undervaluation the adoption of the norms under the Wealth Tax Act is not commented upon by us.

13. The error committed by the income tax authorities in the present case is to jump the first step in the process of applying Section 69B – that of proving understatement of the investment – and apply the measure of understatement. If anything, the language employed in Section 69B is in stricter terms than the erstwhile Section 52(2). It does not even authorise the adoption of any yardstick to measure the precise extent of understatement. There can therefore be no compromise in the application of the section. It would seem to require the Assessing Officer even to show the exact extent of understatement of the investment; it does not even give the Assessing Officer the option of applying any reasonable yardstick to measure the precise extent of understatement of the investment once the fact of understatement is proved. It appears to us that the Assessing Officer is not only required to prove understatement of the purchase price, but also to show the precise extent of the understatement. There is no authority given by the section to adopt some reasonable 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 v. 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 observed as follows :

“Adverting to the various probabilities which weighed with the Income tax Officer we may observe that the notoriety for smuggling foodgrains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf.”

This takes care of the argument of Mr. Sabharwal that judicial notice can be taken of the practice prevailing in the property market of not disclosing the full consideration for transfer of properties.

15. Since the entire case has proceeded on the assumption that there was understatement of the investment, without a finding that the assessee invested more than what was recorded in the books of account, we are unable to approve of the decision of the income tax authorities. Section 69B was wrongly invoked. The order of the Tribunal is approved; the substantial question of law is answered in the negative, in favour of the assessee and against the CIT. ”

28. The decision of the Delhi High Court in Dinesh Jain (HUF) (supra) later can be followed. The Delhi High Court in the case of the CIT v. Puneet Subharwal [2011] 338 ITR 485/[2012]  (Mag.)/[2011]  was called upon to answer the following two questions of law:

“1. Whether the Assessing Officer was right in referring the question of fair market value of the property sold by the assessee, to the District Valuation Officer in terms of Section 55A of the Income-tax Act, 1961 (Act)? alternatively, was the Assessing Officer in terms of Section 48 read with Section 45(5) of the Act bound to accept the value stated in the registered sale deed?.

2. Whether the Income Tax Appellate Tribunal was right in holding that notwithstanding the report of the DVO, the Revenue had to prove that the assessee had in fact received extra consideration over and above the declared value of the sale?”

In the case before the Delhi High Court, the Assessing Officer was of the view that the cost of acquisition of the property as shown in the sale deed was much lower than the fair market value of the properties in the area concerned. On account of such doubt in the mind 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 Rs. 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 above what was stated in the sale deed. This very issue has come up for consideration before this Court repeatedly and after following the judgment of the Supreme Court in the case of K.P. Varghese (supra), the aforesaid proposition of law is reiterated time and again. For our benefit, we may refer to the latest judgment of this Court in the case of CIT v. Smt. Suraj Devi 328 ITR 604, wherein this Court had held that the primary burden of proof to prove understatement or concealment of income is on the Revenue and it is only when such burden is discharged that it would be permissible to reply upon the valuation given by the DVO. It was also held that the opinion of the Valuation Officer, per se, was not an information and could not be relied upon without the books of account being rejected which had not been done in that case.

9. The aforesaid principle of law has been reaffirmed in CIT v. Naveen Gera, 328 ITR 516 stating that opinion of the District Valuation Officer per se was not sufficient and other corroborated evidence is required. Mr. Maratha, learned counsel appearing for the Revenue submitted that the judgment of the Supreme Court in K.P. Varghese (supra) has been explained by the Rajasthan High Court in the case of Smt. Amar Kumari Surana v. Commissioner of Income Tax, 226 ITR 344.”

29. The Delhi High Court in the case of CIT v. Bajrang Lal Bansal [2011] 335 ITR 572/ (Mag.)/held as under:

“5. Ms. Rashmi Chopra, learned counsel for the revenue submitted that the Tribunal had erred in law in deleting the addition of 99,33,000/- as undisclosed income of the respondent-assessee under Section 69B of the Act, 1961.

6. It is settled law that the primary burden of proof to prove under-statement or concealment of income is on the revenue and it is only when such burden is discharged that it would be permissible to rely upon the valuation given by the DVO. (SeeK.P. Varghese (supra), CIT v. Shakuntala Devi, (2009) 316 ITR 46, CIT v. Manoj Jain, 287 ITR 285 and ITA No. 482/2010 decided by this Court on 5th May, 2010).

7. In any event, the opinion of the DVO, per se, is not an information and cannot be relied upon without the books of account being rejected–which has not been done in the present case. The Supreme Court in its order dated 19th October, 2009 in Civil Appeal No. 6973/2009 has held as under:-

“Delay 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 account 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 Section 147 of the Income-tax Act, 1961. The AO has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there is no merit in the Civil Appeal. The Department was not entitled to reopen the assessment.

Civil appeal is, accordingly, dismissed. No order as to costs.”

9. Moreover, in the present case, no evidence much less incriminating evidence was found as a result of the search to suggest that the respondent-assessee had made any payment over and above the consideration mentioned in the return of the respondent-assessee.”

30. The four decisions relied upon by Mr. Patel, the learned standing counsel appearing for the Revenue are on the scope of the powers under Section 263 of the Act. We need not go into such issue as we are inclined to quash the impugned order on the ground that there could not have been any presumption for the purpose of making addition under Section 69B of the Act.

31. In the result, this appeal succeeds and is hereby allowed. The impugned order passed by the Income Tax Appellate Tribunal, ‘C’ Branch, Ahmedabad dated 28th February 2019 is hereby quashed and set aside. The substantial question of law is answered in favour of the appellant-assessee and against the Revenue.

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