DCIT CIRCLE-1, RANCHI vs. SHRI ANUP CHAWLA, RANCHI

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI (Before Shri S. S. Godara, J.M. & Dr.A.L.Saini, A.M.)

ITA No. 08/Ran/17 : Asstt. Year : 2012-13

D.C.I.T, Circle-1, Ranchi Vs Shri Anup Chawla PAN: ABIPC2911M (APPELLANT) (RESPONDENT)

Appellant/department by : Shri Chandan Das, JCIT/ld.DR Respondent/assessee by : None appeared

Date of Hearing : 11-01-2019 Date of Pronouncement: 22-02-2019 ORDER PER BENCH: The captioned appeal filed by the revenue, is directed against the order dated 04-10-2016 passed by the ld. Commissioner of Income-tax (Appeals), Ranchi, which in turn arises out of the order passed by the Assessing Officer u/s. 143(3) of the Income-Tax Act, 1961 (in short, the Act) dated 12-03-2015.

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“I have considered the submissions of the appellant and have also perused the assessment order. Though the ld. Assessing Officer has finally made the addition invoking the provisions of section 56(2)(vii)(b) of the Act. She has also discussed and drawn reference to the provisions of section 50C and 69B of the Act. Before one discusses the applicability of section 56(2)(vii)(b) it would also be relevant to examine the provisions of section 50C and 69B. 5.2 The issue to be considered is whether the stamp duty value of an immoveable can be used for calculating the value of that property and for making the addition? Section 50C is a deeming provision where under the stamp duty rate is treated as full value of consideration for the purpose of computing capital gain under section 48. It is applicable in the case of a seller of property and therefore cannot be invoked in case of purchaser of property for the purpose of section 69B. 5.3 Section 69B reads as under: - "Amount of investments, etc., not fully disclosed in books of account Where in any financial year the assessee had made investments or is found to be the owner of any bullion. jewellery, or other valuable article, and the A.O. 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 A.O., satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year. " 5.4 When we examine the provisions of Sec.69B, we find that section 69B is a deeming fiction. It is provided that addition can be made by the Assessing Officer when the following three conditions Page3 are satisfied: -

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(1) If it is found that the assessee has made investment or the assessee is found to be the owner of any bullion, jewellery or other valuable article. and (2) If it is found that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in that behalf in the books of account maintained by the assesee, and (3) Either the assessee offers no explanation about such extra amount or the explanation offered by him is not satisfactory. [5.5] It is a settled rule of interpretation of a fiction that the Court should ascertain for what purpose the fiction is created and after ascertaining the purpose, the Court has to assume all facts which are incidental to the giving effect to that fiction. Such a deeming fiction would not be given a wider meaning that what it purports to do. The provisions would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. [5.6] In the case of CIT v. Naresh Khattar (HUF) [2003] 261 ITR 664 (Delhi) the Hon'ble Delhi High Court has held that to invoke the provisions of Sec.69B, the burden is on the Revenue to prove that the real investment exceeds the investment shown in the books of accounts of the assessee. In the case of Smt. Amar Kumari Surana v. CIT [1997] 226 ITR 344 (Raj.) the Hon'ble High Court has observed as under: - “10. It is true that merely on the basis of fair market value no addition can be made u/s.69B of the Act, 1961, but on the basis of sufficient material on record some reasonable inference can be drawn that petitioner has invested more amount than the shown in account books, then only the addition u/s. 69B can be made. The burden is on the Revenue to prove that real investment exceeds the investment shown in account books of the assessee”. Page4 [5.7] In the case of ITO v. Harley Street Pharmaceuticals Ltd. [2010] 38 SOT 486 (hd) it has been held that provisions of Sec.50C

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are applicable only for computation of capital gains in real estate transaction in respect of seller only and not for the purchaser. [5.8] The Hon'ble Supreme Court in the, case of K.P. Varghese v. ITO [1981] 131 ITR 597 has held that the onus of establishing that the conditions of taxability are fulfilled, is always on the Revenue. It is for the Revenue to show that there is an understatement of the consideration. It further laid down that to throw the burden of showing that there is no understatement of the consideration on the assessee, would be to cast an almost impossible burden upon him to establish a negative. Similar view has been reiterated in CIT v. Shivakami Co. (P.). Ltd. [1986] 159 ITR 71 (SC). In this case, their Lordships have laid down that no addition can be made unless there is evidence that more consideration than what was stated in the document was received. In the light of the above decisions, it is manifest that no addition can be made unless the AO proves understatement of consideration with some cogent evidence, apart from a mere estimate of the cost of valuation. [5.9] After having discussed the provisions of section 50C and 69B and its inapplicability in the present facts of the case, provisions of section 56 in general and 56(2)(vii) needs to be discussed and seen whether the addition made by the Ld. Assessing Officer can be justified? [5.10] Section 56 lies in the residual head of income, i.e 'Income from other sources'. Sub-section (1) which is a general provision, provides that income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under this head, if it is not chargeable to income tax under any of the heads specified in section 14, items A to E. [5.11] Sub-section (2) of section 56 deals with certain types of specific incomes which are chargeable under this residual head. Clause (vii) provides that where an individual or Hindu undivided family receives any immovable property for no consideration or a consideration which is less than the stamp duty value of the Page5 property by an amount exceeding rupees fifty thousand, the stamp duty value of such property (in case of receipt of property without consideration) or the stamp duty value as exceeds such 5 ITA No. 08/Ran/17 A.Y 2012-13 Shri Anup Chawla

consideration (in case of receipt of property at lower consideration) shall be considered as income under this head. The Board issued a Circular which inter alia explained various provisions of the Act. Circular-3 of 2014 read as follows:- “14. Taxability of immovable property received for inadequate consideration. 14.1 Sub clause (b) of clause (vii) of sub-section (2) of section 56 of the Income-tax Act, before its amendment by the Act, inter alia, provided that where any immovable property is received by an individual or HUF without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property would be charged to tax in the hands of the individual or HUF as income from other sources. 14.2 The said provision does not cover a situation where the immovable property has been received by an individual or HUF for inadequate consideration. Accordingly, the provisions of clause (vii) of sub-section (2) of section 56 have been. amended so as to provide that where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the difference between the stamp duty value of such property and the consideration, shall be chargeable to tax in the hands of the individual or HUFas income from other sources. 14.3 Considering the fact that there may be a time gap between the Date of agreement and the date of registration, it has been provided that Where the date of the agreement fixing the amount of consideration for the Transfer of the immovable property and the date of registration are not the same, the stamp duty value may be taken as on the date of the agreement, instead of that on the date of registration. This exception shall, however, apply only in a case where the amount of consideration, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement fixing the amount of consideration for the transfer of such Page6 immovable property. 14.4 Applicability: - This amendment takes effect from I" April, 2014 6 ITA No. 08/Ran/17 A.Y 2012-13 Shri Anup Chawla

and accordingly, applies in relation to the assessment year 2014-15 and subsequent assessment years. 5.17 Conjoint reading of the Finance Bill, 2013 and Circular-3 of 2014 brings out the fact that (relevant portions) : - a. The existing provision does not cover a situation where the immovable property has been received by an individual or HUF for inadequate consideration. It is proposed to amend the provisions of clause (vii) of sub-section (2) of section 56 so as to provide that where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees; the stamp duty value of such property as exceeds such consideration, shall be chargeable to tax in the hands of the individual or HUF as income from other sources. (Finance Bill, 2013). b. This amendment will take effect from r' April, 2014 and will, accordingly, apply in relation to the assessment year 20 J 4-15 and subsequent assessment years. (Finance Bill, 2013). c. 14.2 The said provision does not cover a situation where the immovable property has been received by an individual or HUF for inadequate consideration. Accordingly. the provisions of clause (vii) of sub-section (2) of section 56 have been amended so as to provide that where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the difference between the stamp duty value of such property and the consideration, shall be chargeable to tax in the hands of the individual or HUF as income from other sources. (Circular-3 of 2014) d. 14.4 Applicability: - This amendment takes effect from 1st April, 2014 and accordingly, applies in relation to the assessment year 2014-15 and subsequent assessment years. (Circular 3 of 2014) [5.18] The Finance Bill, 2013 and Circular-3 of 20 14 clearly bring out the fact that the cases of consideration which was considered to Page7 be inadequate (less than the stamp duty value) was sought to be introduced. Prior to this only no consideration cases were covered. The effective date for the said provision has also been clearly spelt 7 ITA No. 08/Ran/17 A.Y 2012-13 Shri Anup Chawla

out both in the Bill and the Circular which is from Assessment Year-20 14-15. The case of the appellant is that the consideration was less than the stamp duty value (and not a case of no consideration). Accordingly, provisions of section 56(2)(vii)(b )(ii) would apply. However, since the provision were not effective for Assessment Year-20 12-13 the same cannot be brought to tax in that year as no empowering provision was available on the statute. Grounds of appeal are, accordingly, allowed “.

Sd/- Sd/- (S. S. Godara) (Dr. A.L.Saini) Judicial Member Accountant Member Dated:22 -02-2019 *PRADIP (Sr.PS) Copy of the order forwarded to: 1. The Appellant/Department: DCIT, Cir-1, Ranchi 2 The Respondent/Assessee: Shri Anup Chawla, Panchsheel Enclave, 5 Main Road, Ranchi-834001. 3. The CIT-, 4. The CIT(A)-, 5. DR, Ranchi Benches, Ranchi True Copy, By order, Assistant Registrar /Senior P.S ITAT, Ranchi Benches Page8 8 ITA No. 08/Ran/17 A.Y 2012-13 Shri Anup Chawla