$~19
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% DECIDED ON: 25.04.2014
+ ITA 176/2014
COMMISSIONER OF INCOME TAX DELHI I ..... Appellant
Through: Mr. Rohit Madan, Sr. Standing Counsel
with Mr. P. Roy Choudhuri, Advocate.
versus
AGILE PROPERTIES PVT.LTD. ..... Respondent
Through: None.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
1. In this case, the Revenue is aggrieved by an order of the
Income Tax Appellate Tribunal (ITAT) dated 27.08.2013. It urges
that the view expressed by the Tribunal is contrary to Section 69B.
2. The assessee had reported - during the relevant assessment
year, i.e., 2007-08 - purchase of agricultural property in Najafgarh,
New Delhi; the value of the investment was disclosed to be
Rs.5,22,78,280/-. The Assessing Officer (AO) noticed some
discrepancies with respect to the investment inasmuch as there was
difference of Rs.1,34,130/- which led to his referring the matter with
regard to valuation of properties to the District Valuation Officer
ITA 176-14 Page 1
(DVO) under Section 142A. In the report, DVO reported the value of
the investment of the agricultural property as Rs.10,51,69,640/-. The
AO on receiving the report issued notice to the assessee to show cause
why the valuation of the investment ought not to be enhanced to the
figure indicated by the DVO. In the course of the proceedings before
the AO, the statement of one Mr. Naveen Goyal, an official of the
assessee was recorded. He expressed the inability to ensure the
presence of the sellers of the properties purchased by the assessee.
Another individual Mr. Sanjay Mittal, a Director of the company was
summoned; he did not comply with the orders. In these
circumstances, the AO enhanced the value and confirmed it as
Rs.10,51,69,640/-. The assessee appealed successfully to the CIT (A)
which accepted its contentions. Feeling aggrieved, the Revenue
appealed to the Tribunal which by the impugned order rejected the
same.
3. It is argued that the report of the DVO had high evidentiary
value given the circumstance that the assessee did not cooperate in the
enquiry by the AO. It is contended that the DVO's report took into
consideration all the relevant materials such as the value of the
surrounding lands and the market value thereof. In view of these
circumstances as well as the inability of the assessee to produce the
sellers of the land purchased by it, the approach and order of the AO
was justified.
4. This Court notices that the Tribunal rejected the Revenue's
contentions holding that the onus to prove under valuation through
positive evidence is upon the Revenue. The Tribunal had relied upon
ITA 176-14 Page 2
the judgments of the Supreme Court reported as CIT v. Daulat Mal
Rawat Mal, 87 ITR 349 (SC), K.P. Verghese v. ITO, 131 ITR 597
(SC) and CIT v. Bedi & Company, 230 ITR 580 (SC). The entirety of
the circumstances, i.e., the examination of the assessee's
representations, the report of the DVO etc. were considered and
discussed by the Tribunal in the operative part of its reasoning at
paragraph 6-8. The relevant discussion is extracted below: -
"7. Now, as per Section 69B of the Act, the requirements
which need to be satisfied are that the assessee has made
investment, or the assessee is found to be the owner of any
bullion, jewellery or other valuable article and it is found that
the investment exceeds the corresponding amount recorded in
the books of account and either the assessee offers no
explanation about such excess amount, or the explanation
offered is not satisfactory. Thus, the sine qua non u/s 69B of
the Act is for the Assessing Officer to reach a findings on the
basis of evidence, that the assessee has made investment
outside its books of account. Only on the basis of such a
finding can an addition be made u/s 69B. So far as regards
investment over and above that recorded in the books of
account, the onus, rather the burden, is on the department to
prove such allegation, as has been held in, inter alia, CIT v.
Daulat Mal Rawat Mal, 87 ITR 349 (SC), K.P. Verghese v.
ITO, 131 ITR 597 (SC) and CIT v. Bedi & Co. (P) Ltd., 230 ITR
580 (SC). The department has argued that in the present case,
the assessee did not cooperate in the assessment proceedings
with the Assessing Officer and so, the onus on the department is
deemed to have been discharged. In this regard, it is seen that
before making the reference to the DVO, the Assessing Officer
examined one of the representatives of the assessee, asking if
the sellers could be identified and produced. To this, he
expressed his inability. It is seen that in the sale deed (copy at
APB 13-36), the name and address of the seller is very much
there. This sale deed had been duly produced before the
Assessing Officer. The Assessing Officer recorded, u/s 131 of
ITA 176-14 Page 3
the Act, a statement of Shri Naveen Kumar Goyal, one of the
Directors of the assessee company on 20.08.2009. therein, a
specific question (Question 12) was asked as to if the deponent
could identify and produce the sellers of the land. Shri Goyal
responded by saying that he could not produce the sellers.
Now, when, undisputedly, the details of the sellers of the land to
the assessee were on record before the Assessing Officer and
the Assessing Officer had all power to make inquiry under the
Act from such sellers and the Assessing Officer, for reasons
best known to him, did not make any such inquiry, the onus on
the department to prove that the investment made by the
assessee was in fact more than that depicted in its books of
account, did not get discharged at all. In the following cases,
as correctly noted by the Ld. CIT (A), it has been held that the
onus is on the revenue to substitute apparent consideration and
that addition u/s 69B of the Act can be made only on the basis
of positive material or evidence regarding consideration in
excess of what is recorded in the books as having been paid
and that no addition u/s 69B of the Act can be made simply on
the basis of difference of opinion as to the market value of the
asset: -
i) ,,CIT vs. Banwarilal Murwatiya, 2008-TIOL-124-HC-RAJ-IT.
ii) ,,Sanjay Chawla v. ITO, 89 ITD 586-606
iii) ,,ITO vs. Satyanarayan Agarwal, 112 TTJ 717 (JD)
iv) ,,Jai Marwar Co. (P) Ltd. v. ACIT, 79 TTJ 178 (JD)
v) ,,Dilshad Trading Co. (P) Ltd. vs. ITO, 49 ITD 348 (Bom)
8. It is only on the basis of a definite finding of the
Assessing Officer to the forgoing effect that a reference can be
made to the valuation officer u/s 142A of the Act. It goes
without saying that the provisions of Section 142A(1) of the Act
are merely machinery provisions and the substantive provisions
of Section 69B cannot be overridden by them. IN the present;
;case, on the other hand, undisputedly, the Assessing Officer
did not have any such material before him, which could form
the basis for reference being made to the DVO u/s 142A of the
Act, as has been rightly held by the Ld. CIT (A)."
5. This Court had in the decision reported as CIT v. Dinesh Jain,
ITA 176-14 Page 4
HUF, ITA 1667/2010 dated 28.09.2012 and ITA 85/2011 and
connected cases occasioned to consider an identical question. After
noticing the relevant provision, i.e. Section 69B, the Court noticed in
paragraph 9 as follows: -
"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
ITA 176-14 Page 5
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 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 citizens 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
ITA 176-14 Page 6
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
ITA 176-14 Page 7
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 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."
6. In the matter CIT v. Dinesh Jain (supra), this Court also relied
upon the ruling in Lalchand Bhagat Ambica Ram v. Commissioner of
Income Tax, Bihar & Orissa, (1959) 37 ITR 288 (SC) which held
that mere suspicion cannot take the place of proof. The Court was of
the opinion that mere reliance upon the report of the Valuation
Officer expressing his opinion as to the true value would be
inadequate material for the AO to constitute evidence in the absence
of positive evidence. In the present case too, the approach of the
Tribunal is in accord with what has been expressed in Dinesh Jain
ITA 176-14 Page 8
HUFs matter and the other judgments of the Supreme Court noticed
earlier. As such no substantial question of law arises.
7. So far as the second question relates, issue of short term capital
gain, in this regard the Tribunal had recorded as follows: -
"11. The assessee, during the year, had sold land measuring
1.26 acres in village Khaira for Rs.12 lac as against purchase
cost of Rs.13,75,550/-. The assessing Officer observed that
since the purchase cost had been understated by an amount of
Rs.29,80,511/-, correspondingly the sale price was also
understated by an equal amount of Rs.29,80,511/-, due to
which, according to the Assessing Officer the short-term capital
gain of Rs.29,80,511/- had also been understated by the
assessee in its return of income. The Ld. CIT (A) deleted the
addition made by the Assessing Officer.
12. In this regard, it has been correctly found that the
Assessing Officer had erred in taking the cost of acquisition
without considering the stamp duty towards such cost of
acquisition. The sale consideration was also taken at a rate
higher than the circle rate. Thus, whereas the stamp duty
payable and the correct sale consideration, based on the circle
rates, as per the provisions of Section 50C of the Act were to be
considered. This error has appropriately been rectified by the
Ld. CIT (A) while directing the Assessing Officer to recomputed
the STCG by taking the cost of plot at Rs.12 lac to include the
stamp duty towards the cost of acquisition. The Ld. CIT (A)
also correctly directed to apply the stamp duty rates to the sale
price of the plot for arriving at the STCG in view of the
provisions of Section 50C of the Act, while correctly holding
addition of various amounts towards sale of land over and
above the stamp duty rates, to be not justifiable, as per the
provisions of Section 50C of the Act."
8. We noticed that the CIT (A) had in fact directed the AO to re-
compute the short term capital gain by taking the cost of plot at Rs.12
ITA 176-14 Page 9
lac and to include the stamp duty towards the cost of acquisition. No
fault was found with this order by the Tribunal. We are un-persuaded
with the Revenue's contention that the Tribunal fell into error in
confirming the CIT (A)'s order.
9. In view of the above findings, the appeal has to fail; it is
accordingly dismissed.
S. RAVINDRA BHAT
(JUDGE)
R.V. EASWAR
(JUDGE)
APRIL 25, 2014
/vks/
ITA 176-14 Page 10
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