NARENDRA KUMAR SINGH,NEW DELHI vs. ACIT, CENTRAQL CIRCLE-15, , NEW DELHI

ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 05/10/2018 passed by the Ld. Commissioner of Income-tax (Appeals)-XXVI, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2013-14, raising following grounds:

1. That under the facts and circumstances of the case Ld. CIT(A) has erred in law as which the addition of Rs. 50,61,000/- is upheld.

2. That under the facts and circumstances of the case Ld. CIT(A) has erred in law as much as in fact in upholding the applicability of provisions of section 50C of the Act. Section 50C, according to the facts of the case, does not apply as the nature of gains is gains from business of developing the property for the purpose of earning income and Section 50C(1) is not applicable to the gains from business. 3. Without prejudice to the above ground, in any case, the addition made by the AO is contrary to the provision of section 50C of the Act particularly in view of the fact that the assessee during the course of assessment proceedings had submitted evidence before the AO in which it was claimed that value adopted or assessed or assessable by the stamp valuation authority under sub section (1) of section 50C exceeds the fair market value of the property as on the date of transfer, therefore, the case of the assessee was covered by the provision of clause (a) of sub-section (2) of section 50C. The addition made by the AO is in complete disregard of Section 50C (2)(a) and CIT(A) also has failed to appreciate such disregard of the provision of Section 50C(2)(a) by the AO and has wrongly upheld the action of the AO on the ground that there was specific requirement laid down in the provisions for demand of valuation by the assessee. 4. That ld. CIT(A) has erred in law as much as in fact in upholding the chargeability of interest under section 234B, 234C and 234D of the Act.

2. Briefly stated facts of the case are that the assessee, an individual, filed return of income on 27/03/2015 declaring total income of Rs18,98,510/-which included salary from M/s Frontline Business Solutions Private Limited, profit and gains of the business from trading in “Agarbatties”, “Papad” and “badies” and short-term and long-term capital gain on sale of properties. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. During the year, the assessee sold 14 immovable properties. The Assessing Officer noted that out of those 14 properties, 9 flats were sold below the value prescribed by the Stamp Value Authority (SVA) of the relevant State government. In view of the provisions of section 50C of the Act, the sale consideration for the purpose of computing capital Stamp Valuation Authority (SVA) of the state government, whichever is higher. The learned Assessing Officer computed the short-term capital gain from sale of 13 properties at Rs.1,01,56,314/- in the assessment passed under section 143(3) of the Act, as against the short-term capital gain of Rs.52,44,274/- declared by the assessee. On further appeal, the Ld. CIT(A) upheld the addition made by the Assessing Officer. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.

3. The sole issue involved in the grounds raised by the assessee is of invoking section 50C of the Act and computing the short-term capital gain. 3.1 Before us, the ld. counsel of the assessee submitted that in the grounds of appeal, the assessee has contested addition of Rs.50,61,000/-, which has two components as under:

(i) By invoking section 50C Rs.49,12,040/- (ii) By treating loss shown in the Rs.1,48,956/- competition of income of Rs.74,478/- as profit of Rs.74,478/- Total Rs.50,61,000/- 3.2 In view of the above, the learned counsel submitted that while computing the assesseed income, the Assessing Officer started with returned income as profit of Rs.74,478/-, as against loss of Rs.74,478/- declared by the assessee. Thus, the Assessing Officer has made addition of Rs.74,478/-, which is an arithmetical error in the computation of total income. The learned Rs.74,478/- should accordingly be deleted. 3.3 Further, on the issue of addition of Rs.49,12,040/- the Ld counsel submitted that the activity of sale of properties was in the nature of the business and thus gain if any on sale of those properties must be computed under the head “profit and gains of the business” rather than under the head “capital gain”. The learned counsel submitted that though the assessee has declared the income is short-term capital gain, but the assessee is entitled to claim even for first-time before the Tribunal that the nature of activity carried by the assessee in respect of those flat is in the nature of the business. According to him, nomenclature given to a transaction is irrelevant and true nature is to be determined from the affairs of the transaction. In support of the contention he relied on the following judicial pronouncement:

❖ CIT vs Arvind Kumar Jain [2012] 205 Taxman 44 (Delhi)(MAG.); ❖ CIT vs Avery India Ltd. [2002] 255 ITR 485 (Calcutta); ❖ CIT vs Bhatia General Hospital [2018] 405 ITR 24 (Bombay); and ❖ Radials International Vs ACIT [2014] 367 ITR 1 (Delhi)

3.4 The Ld. counsel further submitted that in case of the income under the head profit and gains of the business, the provisions of the section 50C are not applicable. In support of the contention, he relied on the following judicial pronouncement:

❖ CIT vs Glowshine Builders & Developers (P.) Ltd [2018] 405 ITR 540 (Bombay) Para 7 upto para 11. ❖ CIT vs Thiruvengadam Investments (P.) Ltd [2010] 320 ITR 345 (Madras) Para 7 ❖ CIT vs Neelkamal Realtors & Erectors India (P.) Ltd. [2017] 246 Taxman 274 (Bombay) para 3(f)

3.5 Further, the learned counsel submitted that without prejudice that the income should have been taxed under the head “profit and gains of the business”, as an alternative, prior to invoking section 50C of the Act, the Assessing Officer should have referred the matter for valuation of the property to the Ld. District Valuation Officer. In support of his contention that for invoking section 50C of the Act, the Assessing Officer was bound to make reference to the DVO under section 50C(2) of the Act, the Ld. counsel relied on following case laws:

❖ Sunil Kumar Aggarwal Vs CIT 372 ITR 83 (Cal)— Para -8 ❖ Voltas Ld. Vs. ITO 161 ITD 199 (Mumbai)— Para 4.1 Page 7 3.6 On the contrary, the Ld. DR on the issue of addition of Rs.49,12,040/- submitted that, (i) the assessee himself has shown these assets as capital asset in the return of income and shown long-term capital gain (LTCG) and short-term capital gain (STCG) on their sale and also claimed deduction under section 54F against the long-term capital gain. (ii) the audit report for the proprietary business shows him as a trader of “Agarbatties”, “Papads” and “Badies. It does not include sale of land/buildings. No books of accounts have been maintained or produced before “lower authorities in relation to sale of properties. (iii) the properties were purchased long back in the year 2009 and then, never has been shown as business asset or a stock in trade.

(iv) no claim has been made either before the Assessing Officer or CIT(A) that the activity of the assessee or selling immovable properties constitute business activity. Such claim can only be made by way of additional ground, which has not been done so by the assessee. 3.7 On the issue of reference to the DVO, the Ld. DR submitted that no specific claim for reference to the DVO, was made by the assessee before the Assessing Officer. In support of her proposition that in absence of any specific request by the assessee, the Assessing Officer was not under obligation to refer the matter to the DVO, she relied on the following decisions:

“1. The conditions for making reference to the Valuation Officer under Section 55A are that (1) valuation done by the SVA is more than apparent sale consideration, (2) the assessee makes a claim before the Assessing Officer that fair market value of the property under transfer is less than the valuation done by the SVA. If these two conditions are satisfied the Assessing Officer is bound to make a reference to the Valuation Officer for determining fair market value of the property under transfer but where no such claim is made by the assessee before the Assessing Officer or he has not made any claim even before the SVA that valuation done by them is higher than fair market value of the property then the Assessing Officer is not bound at his own to make reference to the Valuation Officer. (Sharad Dinesh Photographer v. ITO[2011] 43 SOT 452 (Mum.) 2. The claim for reference to the Valuation Officer has to be justified by the assessee with prima facie material. Unless justified, the Assessing Officer may not make such reference. On the other hand, once a claim for reference is made, the Assessing Officer is statutorily required to refer the property to the DVO, unless he proves that materials submitted by the assessee in this regard are false or it cannot lead to the inference what the assessee wanted to him to draw.(Md. Shoib v. Dy. CIT [2010] 1 ITR (Trib.) 452 (Luck.).

3.8 We have heard the rival submissions and perused the relevant material on record. In the instant case, the assessee out of the property sold during the year into consideration, has claimed short-term capital gain of Rs.52,44,274/- on sale of 12 flats/properties. For computation of the short-term capital gain, the assessee has taken the sale consideration at the price at which properties are shown to have been sold in the registered sale deed. Whereas according to the Assessing Officer, in view of the specific section 50C of the Act, the assessee was required to take sale consideration for computation of the capital gain in the value at which properties are sold or the value of the properties considered by the stamp valuation authority for the purpose of stamp value in the registered sale deed, whichever is higher. The Assessing Officer has mentioned in the assessment order, the details of value shown by the assessee and the value as per stamp valuation authority. The Assessing Officer took the sale consideration as per section 50C of the Act at Rs.4,29,88,400/- Rs.3,28,32,086/-, computed the short-term capital gain at Rs.1,01,56,314/-. 3.9 Before us, the Ld. counsel has contested that while computing the adition in dispute, the Assessing Officer has made an arithmetical error of Rs.74,478/- as he started the computation of total income taking the amount of Rs.74,478/- as profit as against the loss of Rs.74,478/- shown by the assessee in the return of income. In our opinion, this is the issue of verification and the assessee would have filed application under section 154 of the Act before the Assessing Officer. However, in the interest of Justice, we direct the Assessing Officer to verify this fact and decide accordingly.

4.2 Irrespective of the facts, whether the ground has been filed by way of regular ground or additional ground, we admit the same following the Hon’ble Supreme Court in the case of NTPC Ltd. (Supra). We are not agreed with the claim of the learned counsel that nomenclature given in the return of income is not relevant. In the case laws relied upon by the learned counsel, the ratio is that entries made in the books of accounts in case of the transactions are not determinative of the character of the transaction and the transaction must be seen according to the provisions of the Income-tax Act. The case laws are not in relation to income declared by the assessee in the return of income itself. The assessee has not revised the return of income filed. If the assessee was having any doubt regarding the head of income, under which the gain on properties was falling, the assessee could have revised the return of income within the stipulated period. The assessee not filed revised return of income, but even did not make this claim either before the Assessing Officer or before the Ld. CIT(A). 4.3 In the instant case, the assessee himself has shown the transactions of sale of the property under the head capital gain and filed the return of income. Even in case of one property, the assessee declared long-term capital gain and claimed deduction under section 54F of the Act. Further, though the assessee is carrying business of trading in “Agarbatties”, “Papad” and “Badies”, but no books of accounts have been maintained in respect of the sale of properties. It is also seen that properties have not been shown as a stock-in-trade or business asset in any of the earlier years since purchase of the properties. When all these factual observation are seen cumulatively, the claim of the assessee that the activity of sale of properties should be treated as business fails. 4.4 In view of the above facts and circumstances, we reject the claim of the assessee that gain on sale of the properties should be assessed under the head profit of the business. 4.5 In view of above finding, the decisions relied upon by the assessee that no section 50C is applicable in case of the business income, are not relevant. 4.6 On the issue of making reference to the DVO, while invoking section 50C of the Act, sub-clause 2 of section 50C, has prescribed as under:

Special provision for full value of consideration in certain cases. 50C. (1) ………………………………………………………………….. (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.

4.7 On plain reading of the above section, it is clear that it is the assessee who has to claim that the value adopted by the Stamp Valuation Authority is more than the fair market value of the property, and then the Assessing Officer may refer the valuation of the capital assets to the valuation officer. In the case of Ravi Kant (supra) also this onus has been casted on the assessee. In Md. Shoib (supra) also it is held that claim for making reference to the valuation officer has to be justified by the assessee with prima-facie material. In the case of Shard Dinesh Photographer (supra), the Tribunal has held that the Assessing Officer is not bound to make reference to the Valuation Officer. 4.8 In the instant case before us, neither the assessee made any request for reference to the valuation officer nor filed any valuation report of the registered valuer in support of claim of fair market value of the properties. The Ld. CIT(A) has recorded this fact in his decision as under:

It is seen from the submissions that the appellant never sought before the AO that a reference to the Valuation Officer be made or the appellant had objections wrt the value adopted by the stamp duty officer. It is seen from perusal of the sub-section 2 of Section 50C as it stood then, that the appellant has to specifically dispute the valuations per the stamp duty officer and also seek a reference to the Valuation Officer. The appellant has not invoked this as required per the law. The jurisprudence referred above makes it incumbent upon the AO to make references only when the appellant specifically has objected as per the scheme of section 50C. It is clear from the material on record that the appellant did enter into the transactions at rates less than the stamp duty valuations, thereby getting in crosshajr of the provisions affection 50C. The jurisprudence referred above does not help the appellant as the appellant has not invoked the specific remedy or option made available as in section 50C at that time. In view of the clear factual matrix as above, I don't find any infirmity in the action of the AO in light of the specific provisions per section 50C and the extant jurisprudence in this regard.

(Emphasis supplied externally)

4.9 In view of the aforesaid, we reject the contention of the learned counsel that the Assessing Officer was bound to refer the matter to the learned DVO. In our opinion, the findings of the Ld. CIT(A) on the issue in dispute are well reasoned and we do not find any error in the same and accordingly, we uphold the same.

The grounds of the appeal of the assessee are dismissed accordingly. 5. In the result, the appeal of the assessee is dismissed. Order is pronounced in the open court on 12th April, 2019.