HARI OM GARG ,HATHRAS vs. ITO-3(5), HATHRAS

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH; AGRA

BEFORE SHRI C.M. GARG, JUDICIAL MEMBER, AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER

I.T.A No.342/Agra/2017 (ASSESSMENT YEAR: 2014-15)

Hari Om Garg C/o Vs.. Income Tax Officer, Ganga Bhawan, Chambar Ward-3(5), Gate, Hathras. Hathras. PAN: ABEPG9141K (Appellant) (Respondent)

Appellant by Shri Pankaj Gargh, Adv. Respondent by Shri Waseem Arshad, Sr. DR.

Date of Hearing 10.04.2019 Date of Pronouncement 31.05.2019

ORDER Per, Dr. M. L. Meena, A.M.: This appeal, by the assessee is directed against the order dated 16.05.2017 of the Ld. Commissioner of Income Tax (Appeals), Aligarh [Hereinafter referred to as the “CIT(A)”] in respect of Assessment year 20014-15 wherein the assessee has raised the following grounds of appeal: “1. Because the Ld. CIT(A) has erred both in law and on facts in confirming addition of Rs. 25,65,000/- made by the Assessing Officer applying the provisions of section 56(2)(vii)(b)(ii) of the Income Tax Act. 2. Because the Ld. CIT(A) has further legally erred in ignoring the proviso after sub clause (c) of sub section (2)(vii) of section 56 of the Income Tax Act. The Assessing Officer has legally erred in

2 I.T.A No.342/Agra/2017 ASSESSMENT YEAR: 2014-15 not referring the valuation of impugned property to the Valuation Officer. On this ground the Ld. CIT(A) should have deleted the addition. 3. Because considering the facts of the case and the legal position the addition of Rs.25,65,000/- made by the Assessing Officer and confirmed by Ld. CIT(A) deserves to be deleted.”

I.T.A No.342/Agra/2017 ASSESSMENT YEAR: 2014-15 provisions would apply to a case where immovable property has been purchased. There is no force in the appellant’s arguments that the provisions apply only to a gift case. If it were apply to only for gift cases, there would be no need to mention the phrase “for a consideration” because the gift is supposed to be without consideration. Further, it is observed that the provisions of section 56 (2) (vii) (b) (ii) have been made applicable from A.Y. 2014-15 only and hence the case laws cited by the appellant being old cases and decided in a different context, would not apply to the present case. From consideration of the given facts, it is very much clear that the AO was fully justified in applying the provisions of section 56 (2) (vii) (b) (ii) and making an addition of Rs. 25, 65,000/-.

In view of the above, these grounds are being dismissed and the addition of Rs.25,65,000/- is confirmed.

I.T.A No.342/Agra/2017 ASSESSMENT YEAR: 2014-15 The addition was disputed in the appeal before Ld. CIT(A) who dismissed the appeal. Finding of Ld. CIT(A) Page 5 Para 5.2 Proviso after sub clause (c) to section 56(2)(vii)(b) reads as, “Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections.” . Section 56(2)(vii)(b) is consequential to section 50C. According to sub section (2) of section 50C if the assesse claims before the Assessing Officer that the value adopted by the stamp valuation authority exceeds the fair market value than the Assessing Officer may refer the valuation of the capital asset to the valuation officer. Reliance in this regard is on the judgment of Hon’ble ITAT Delhi in the case of Aastha Goel (Page 13 to Page 22 of Paper Book) wherein it is mentioned “It is submitted that the expression "so far as may be" as per the proviso to section 56(2)(vii) has always been construed to mean that those provisions may generally be followed to the extent possible. Reference is sought to be made to the judgment of R. Dalmia and Qrs. v. CIT 236 ITR 480 (SC), for the proposition that the expression "so far as may be" applies to all the provisions. (i) That this provision has employed the word "shall". By use of the word "shall", the provision has been made mandatory and it cannot be construed as directory. (ii) What has been made applicable by this provision is the provision of this Act." (iii) Deeming provisions are to be extended to the legitimate purpose for which these are enacted. Accordingly, proviso to Section 56(2)(vii) has to be treated as mandatory. Thereby meaning that in all cases covered by the said proviso, the provisions of section 50C as also of section 155(15) shall apply in all cases.” Before making addition applying provisions of section 56(2)(vii)(b) it is mandatory for the Assessing Officer to refer the matter to the Valuation Officer. The appellant before the Assessing Officer objected for the value to be taken according to the stamp valuation authorities. In the present case the Assessing Officer has made addition under section 56(2)(vii)(b) without making reference to the valuation officer as required by proviso after sub clause (c ) of section 56(2)(vii)(b). Hon’ble ITAT, Delhi bench in the case of ITO Vs. Aastha Goel: (i) In this case addition was made under section 56(2)(vii)(b). In the absence of the reference to the valuation officer, the Hon’ble ITAT held the addition to be invalid. Further, the Hon’ble ITAT also rejected the request of the Department to set aside the matter to the file of the Assessing Officer for referring the case to the Valuation Officer. Hon’ble ITAT, Agra bench in the case of Dr. Sanjay Chobey HUF (ii) Hon’ble ITAT, Mumbai bench in the case of Ajmal Fragnances & Fashions (P) Ltd. (iii) (iv) Hon’ble Calcutta High Court in the case of Sunil Kumar Agarwal Vs. Cff reported in 372 ITR 83

I.T.A No.342/Agra/2017 ASSESSMENT YEAR: 2014-15 (v) Hon'ble ITAT, Pune bench in the case of K.K. Nag Ltd. Vs. Addl CFF reported in 52 SOT 381 (vi) Hon’ble ITAT, Delhi bench in the case of Anil Kumar Jain Vs. ITO reported in 143 ITD 659 Thus, in view of the above referred judicial pronouncements and under the factual matrix it can be said that the Ld. AO has completely overlooked the Proviso to section 56(2)(vii) which is wrong, incorrect and unwarranted and hence the addition of Rs. 25,65,000/- u/s 56(2)(vii)(b) of the Act on account of difference between value of property as per stamp valuation and value as per purchase deed of the property under consideration deserves to be deleted. 5. Per Contra, the ld. DR relies on the impugned order. He prayed that matter may be restored to the AO so as to enable it to fill the lacunae and shortcomings of ascertaining actual value of transaction by getting DVO report. 6. Heard both the parties, perused the records and considered the cases cited before the Bench. 7. From the records we note that the assessee, in response to a show cause notice by the AO, the assessee submitted that, he had purchased the subject property for a total consideration of Rs. 10,00,000/- vide registered sale deed as per Para1, Pg. 3 of the Assessment order. It is evident that the AO merely adopted total value of the property as per circle rates shown at Rs. 35,65,000/- and on the basis of sale deed the AO has computed the difference between the actual consideration paid and fair market value as per circle rates without bringing on record any corroborative supporting evidences. The AO has merely rejected the assessee’s reply as “the assessee’s interpretation regarding section 56(2)(vii)(b)(ii) of the I.T.Act 1961 is not acceptable.” 8. In the present case, neither, the AO nor the ld. CIT(A) has made any efforts to crystalize the actual value of investment by the assessee in the purchase of the property by way of bringing material documentary evidence on record to establish the unexplained investment in the property by the assessee. Merely, rejection of the reply of assessee without giving valid reasons can not justify the action of the subordinate authorities. 9. The Sub-section (2) clearly mandates that where the assessee claims that the value adopted or assessed or assessable by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer, the AO would refer the valuation of such property to the Valuation Officer.

6 I.T.A No.342/Agra/2017 ASSESSMENT YEAR: 2014-15 Hon’ble Calcutta High Court, in the case of “Sunil Kumar Agarwal Vs. CIT” reported in 372 ITR 83 has clearly held that the AO, discharging quasi-judicial function, has the bounden duty to act fairly and to follow the course provided by law, which in that case, was the reference to the valuation officer. In the present case, in view of the assessee’s specific dispute and claim before the AO that stamp valuation of the property sold was not its “fair market value”, it was the bounden duty of the AO to have made reference to the Valuation Officer which, for the reasons not borne on records, was not made. Hon’ble Allahabad High Court in the case of CIT Vs Chandra Narain 10. Chaudhary in ITAT No.287/2011 vide Judgment dated 29.08.2013 in a case, though having different facts where assessee therein had filed more than one valuation Report , in the context of section 50C of the Act, held that “whenever objection is taken or claim is made before AO, that the value adopted or assessed or assessable by the Stamp Valuation Authority under sub-section (1) of Section 50-C exceeds the fair market value of the property on the date of transfer, the AO has to apply his mind on the validity of the objection of the assessee. He may either accept the valuation of the property on the basis of the report of the approved valuer filed by the assessee, or invite objection from the department and refer the question of valuation of the capital asset to DVO in accordance with Section 55-A of the Act. In all these events, the AO has to record valid reasons, which are justifiable in law. He is not required to adopt an evasive approach of applying deeming provision without deciding the objection or to refer the matter to the DVO under Section 55-A of the Act as a matter of course, without considering the report of approved valuer submitted by the assessee. The Hon’ble High Court further held that Section 50-C of the Act is a rule of evidence in assessing the valuation of property for calculating the capital gain. The deeming provision under Section 50 C (1) of the Act is rebuttable. It is well known that an immovable property may have various attributes, charges, encumbrances, limitations and conditions. The Stamp Valuation Authority does not take into consideration the attributes of the property for determining the fair market value in the condition the property is a offered for sale and is purchased. He is required to value the property in accordance with the circle rates fixed by the Collector. The object of the valuation by the Stamp Valuation Authority is to

7 I.T.A No.342/Agra/2017 ASSESSMENT YEAR: 2014-15 secure revenue on such sale and not to determine the true, correct and fair market value on which it may be purchased by a willing purchaser subject to and taking into consideration its situation, condition and other attributes such as it occupation by tenant, any charge or legal encumbrances. Hon’ble Jurisdictional High Court of Allahabad in the case of Dr. Shahsi 11. Kant Garg V. CIT 285 ITR 0158 has also observed “that if under the provisions of the Act an authority is required to exercise power or do an act in a particular manner, then that power has to be exercised and the act has to be performed in that manner alone and not in any other manner.“ 12. In the present case, as discussed above the AO not only passed a cryptic order without disputing any of the grounds of dispute raised by the assessee but also failed to follow the procedure prescribed in law i.e. making of a reference to the DVO as mandated by section 50C (2) of the Act. Therefore, the addition made by the AO cannot be approved. 13. Now, having held that since the AO failed to follow the procedure prescribed under the law and for this reason the addition cannot be held legally valid, the next question arises for consideration is whether the case be set aside to the AO for following the said procedure and then pass fresh order. 14. In this respect we state that though the powers of the Tribunal are wide enough but they should not be used to allow the department to make up its shortcomings, doing so would defeat the purpose of justice and fair play. Objection that the assessee did not request for making reference to the valuation cell, suffice would be to observe that assessee has no obligation to instruct the AO to follow the law. 15. Deciding similar issue, ITAT, Hyderabad in the case of ACIT V. Lalitha Karan, ITA No. 1130/Hyd/2015, order dated 04/01/2017 (copy placed in assessee’s compilation on Pgs. 7 – 15) has observed in para 7.1 - “when deeming provision was to be invoked, the same has to be construed strictly and it has to be taken to its logical conclusion i.e. upon not following the proper procedure prescribed therein, particularly, in the backdrop of the fact that the assessee has prima-facia shown that it was a tenanted property and, therefore, subject to certain encumbrances and also the fact the in the absence of obtaining a DVO’s report, asssessee cannot be put to the trouble of facing a virtual trial even

I.T.A No.342/Agra/2017 ASSESSMENT YEAR: 2014-15 after five years of appearing before AO/DVO at this stage to prove the sale price declared by her is reasonable.” 16. In the case of ACIT Vs Anima Investment Ltd [ 73 ITD 0125] Third Member, ITAT, Delhi observed in para 13 of the order as under – “The powers of the Tribunal in the matter of setting aside an assessment are large and wide, but these cannot be exercised to allow the AO an opportunity to patch up the weak part of his case and to fill up the omission. In my opinion, a party guilty of remissness and gross negligence is not entitled to indulgence being shown. In this context, I would like to make a reference to a decision of the Chennai Bench of the Tribunal in the case of Tatia Skyline & Health Farms Ltd. vs. Asstt. CIT (2000) 66 TTJ (Chennai) 203 : (1999) 70 ITD 387 (Chennai). In this decision, on the assessee’s request that the case be sent back to the AO for another round of enquiry and fresh assessment in accordance with law. the Bench, rejecting the assessee’s request has held that the remand order should be made in very rare and exceptional case, for example, if at original stage, patently grave error was committed by the original authority or that the order was made in haste owning to the limitation or that the first appellate authority had violated the rules of natural justice. Nothing like this has happened on the present case. The Bench has further observed that the Courts have also cautioned the Appellate Authorities by holding that remand should be made only in those cases where the original authorities have not passed orders in accordance with law but in no case, remand should be made only in those cases where the original authorities have not passed orders in accordance with law but in no case, remand should be made to enable an assessee to fill in the blanks or lacuna in the case which remains present. What applies to the assessee, would equally apply to the AO. Likewise, in the case of Smt. NeenaSyal vs. Asstt. CIT (1999) 70 ITD 62 (Chd.), the Chandigarh Bench of the Tribunal has observed that it is not the function of the Tribunal to allow further opportunity to the AO to cover up legal lapses made by him, by restoring the matter back to his file. Therefore, remand/setting aside order could not be made in this case to enable the AO to make up his earlier deficient work by initiating assessment proceedings for the third time after a lapse of considerable time.” 17. In the case of Raj Kumar Jain, reported as 50 ITD 0001 (ITAT, Allahabad), Ch. G. Krishnamurthy, the then President of ITAT, as a Third Member also observed in para 5 as follows - “The Tribunal acting as an appellate authority has to see whether the assessment framed by the Assessing Officer and whether the appellate order appealed against was according to law and properly framed on facts and whether there was sufficient material to support it. When there is no material to support it and when as observed by the learned Accountant Member the additions made by the Assessing Officer could not be sustained, it is not for the Tribunal to start investigations suo-moto and supply the evidence for the Department. If the additions are not supported by evidence, the only course open to the Tribunal is to delete the additions pointing out how the additions made could not be sustained for want of adequate supporting material. It is

I.T.A No.342/Agra/2017 ASSESSMENT YEAR: 2014-15 for the Department to gather the material and make proper assessments and the Tribunal is not in that fashion an IT authority. Under the IT authorities stipulated under the IT Act, the Tribunal is not one of them. It is purely an appellate authority. Therefore, the object of the appeal before the Tribunal is whether the addition or disallowance sustained was in accordance with law and supported by material. If there is no sufficient material, the addition must be deleted. The Tribunal cannot order further enquiry with a view to sustain the addition. This will amount to taking sides with the parties which is not the function of a judicial authority like the Tribunal.” The Hon’ble Supreme Court also in the case of ‘Parusram Pottery Works 18. Co. Ltd Vs. ITO’, 106 ITR 0001 (SC)] observed as follows – It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well- versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (emphasis supplied) The Coordinate Bench in the case of ‘Dr. Sanjay Chobey (HUF) Vs 19. ACIT’, Circle – 2(3), Jhansi, ITA No 140/Agr/2018 (Order dated 02/07/2018), in almost similar facts allowed the assessee’s appeal observing, vide para 14, as under – “The lower authorities passed the order in summery manner without going into the merits of the case and analyzing the legal issue involved, the applicability of Section 50C(2)(a) of the Act, in a particular. We further find that the AO has not found any adverse material evidence to indicate that the assessee has received any excess money over and above the sale consideration, in the return of income. In light of the peculiar facts of this case and in the absence of the DVO report, we are of the considered opinion that the assessee cannot put to travel up facing virtual trial to appear before the AO after three years to prove that the sale consideration declared by him was reasonable.” 20. In the present case, it is noted that neither the Assessing Officer nor the Ld. CIT(A) appreciated the contentions raised by the assessee while adopting the the stamp duty value as fair market value of the property purchased nor referred the matter to the DVO as was required U/s 50C(2) of the Act. The AO has also not found or alleged with any corroborative material evidence that the

I.T.A No.342/Agra/2017 ASSESSMENT YEAR: 2014-15 assessee has paid any excess amount over the sale consideration mentioned in the sale deed. 21. Considering the factual Matrix and binding legal decisions, the findings of ld. the CIT(A) in confirming the addition made by the AO can not be approved. In our considered onion, the department cannot be allowed a second inning, by sending the matter back to AO, enabling it to fill the lacunae and shortcomings and putting the assessee virtually to face a re-trial for no fault of him and to again prove before the AO that the sale consideration was the “fair market value” of the property purchased by him. This would amount to giving a lease of life to an order which on the basis of facts on records is unsustainable in law. 22. In the above view, we set aside the impugned order passed by the Ld. CIT(A). As such, the grievance of the assessee is found legally justified and resultantly, the addition is deleted. Accordingly, appeal is allowed. 23. In the result, the appeal is allowed. Order pronounced on 31/05/2019 under rule 34(4) of ITAT Rules, 1963.

Sd/- Sd/- (C.M. Garg) (Dr. M. L. Meena) JUDICIAL MEMBER ACCOUNTANT MEMBER *AKV*/DOC Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT AGRA

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