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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI I.C.SUDHIR & SHRI PRASHANT MAHARISHI
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 1151/Del/2011 (Assessment Year: 2007-08)
ITO(Exemptions), Vs. Delhi Vocational School Trust Ward-III, Aayakar Bhawan, Society, Laxmu Nagar, Distt. Centre, C/o. Summer Fields School, New Delhi Kailash Colony, New Delhi PAN:AABCS4104H (Appellant) (Respondent)
Revenue by : Ms. Rachna Singh, CIT DR Assessee by: Shri Sanjeev Jain, CA Date of Hearing 05/09/2017 Date of pronouncement 18/09/2017
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal by the Revenue against the order of the ld CIT(A)-XII, New Delhi dated 03.11.2010 for the Assessment Year 2007-08. 2. The Revenue has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case, the ld CIT(A) erred in deleting the addition amounting to Rs. 445593000/- made u/s 69B on the basis of valuation report of DVO.” 3. Respondent assessee is a society registered under section 12 A of the income tax act. It is running Summerfield School under its management and New Delhi and it is submitted that the activities of the assessee are covered within the meaning of the charitable purpose under section 2 (15) of the income tax act and therefore the assessee is entitled for the benefit of section 11 and 12 of the income tax act in respect of its income. For the impugned assessment year, assessee filed its return of income on 24/10/2007 declaring nil income. 4. On scrutiny, the Ld. assessing officer noted that the assessee has purchased a land for consideration of Rs. 4.35 crores from M/s A. B. G estates on 27/06/2006 at New Delhi. The impugned land purchased is
Page 2 of 10 adjoining to the existing school of the assessee at greater Kailash – 1, New Delhi. The assessee has purchased the total area of land of Rs. 2.0 45 makers or 8267.67 m². Therefore, the Ld. assessing officer noted that the price of the land purchased by the assessee is Rs. 5 256/– per square metre which is very low considering the rates prevailing in South Delhi area. Therefore assessing officer asked the assessee to furnish the valuation report from the approved valuer for the said property which was submitted by the assessee from M/s Dayal & associates on 04/12/2009, which valued the above property at Rs. 4.28 crores. The Ld. assessing officer not satisfied with the same referred the matter to the district valuation officer who valued the above property at Rs. 48.90 crores. On receipt of the valuation report. The assessee was asked to explain why the difference of valuation from 48.90 crores to Rs. 4.35 crores should not be added under section 60 9B of the income tax act. The assessee submitted that the above plot was on utilise land and therefore there was no construction allowed on the same plot. The Ld. assessing officer rejecting the contention of the assessee and stating that the valuation report obtained by the assessee is bereft of any logic and therefore the addition of Rs. 44.5593 crores was made to the total income of the assessee under section 60 9B of the income tax act. 5. Assessee, aggrieved with the order of the Ld. assessing officer preferred an appeal before the Ld. CIT (A) who vide order dated 3/11 /2010 deleted the above addition holding that the assessing officer does not have any power to refer the matter to the valuation cell under section 140 2A of the income tax act. He further held that as the construction was not allowed on the land purchased by the assessee. The valuation report of the Ld. TPO is not correct as no adjustment has been given for such kind of defect in the marketability of the land. He further held that the assessee is using the above land for the purpose of the playground same does not have the marketability as determined by the Ld. departmental valuation officer. In the and he also held that the Ld. assessing officer has not proved that the assessee is made any investment over and above the declared amount and therefore the basic condition of the addition under section 69B has not been satisfied. Aggrieved with the order of the Ld. CIT A, revenue is in appeal before us.
Page 3 of 10 6. The Ld. CIT departmental representative, vehemently supported the order of the Ld. assessing officer and stated that assessee has got the above property at less than 10% of the value. She further submitted that affidavit submitted by the assessee that the subject not was on utilise land in the sanction layout plan at the time of acquisition and in the vacant lot at present and no construction is allowed thereon is devoid of any merit as no evidences been placed by the assessee. She Further submitted that the valuation reports furnished by the assessee of the registered valuer does not have any instances or comparable sale evidences, whereas the report of the Ld. departmental valuation officer is supported by the respective sale evidences in the nearby vicinity. She further submitted that the Ld. registered valuer has not stated anywhere that no construction can be made on the impugned plot. She submitted that the provisions of section 69B are attracted. 7. Ld. authorised representative heavily relied on the orders of the Ld. CIT (A) and submitted that the on the land no construction is permitted. He further submitted that provisions of section 69B can be attracted only if there is any finding of unaccounted money invested by the assessee over and above what is recorded in the books of accounts. Merely because there is a difference between the alleged market rate and the documented price no addition can be made. He further submitted that report of the DVO suffers from the severe infirmities as it did not grant any reduction for the purpose of construction. 8. We have carefully considered the rival contentions and also perused the orders of the lower authorities. In this case, the addition is made merely on the basis of the valuation report of the Ld. departmental valuation officer. The provisions of section 69B requires that there has to be a finding that assessee has invested much more than what is accounted for in the books of accounts. On identical facts and circumstances Hon’ble Delhi High Court in case of CIT versus agile properties private limited 45 Taxmann.com 512 has held as under:-
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 (DVO) under Section 142A. In the report, DVO reported the value of
Page 4 of 10 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.
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.
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 the judgments of the Supreme Court reported as CIT v. Daulat Mal Rawat Mal [1973] 87 ITR 349, K.P. Verghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) and CIT v. Bedi & Co. [1998] 230 ITR 580/97 Taxman 43 (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
Page 5 of 10 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 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 v. Banwarilal Murwatiya', 2008-TIOL-124-HC-RAJ-IT. (ii) 'Sanjay Chawla v. ITO', [2004] 89 ITD 586 (iii) 'ITO v. Satyanarayan Agarwal', [2007] 112 TTJ 717 (JD) (iv) 'Jai Marwar Co. (P) Ltd. v. Asstt. CIT', [2003] 79 TTJ 178 (JD) (v) 'Dilshad Trading Co. (P) Ltd. v. ITO', [1994] 49 ITD 348 (Bom)
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)."
Page 6 of 10 5. This Court had in the decision reported as CIT v. Dinesh Jain, HUF [2013] 352 ITR 629/[2012] 211 Taxman 23/25 taxmann.com 550 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.
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 addition merely because the property could fetch several crore of rupees in the market.
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
Page 7 of 10 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.
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.
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.
Page 8 of 10 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 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.'
In the matter Dinesh Jain HUF's (supra), this Court also relied upon the ruling in Lalchand Bhagat Ambica Ram v. CIT [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 HUF's (supra) matter and the other judgments of the Supreme Court noticed earlier. As such no substantial question of law arises.
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.
Page 9 of 10 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."
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 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 the present case, the Ld. assessing officer has merely gone on the basis of his personal knowledge that the property in that particular area was being transacted at substantially higher sum then the transacted price in case of the assessee. In fact, the proper course would have been examination of the of the seller and also finding out some evidence that whether there is any construction allowed on that particular land or not. The Ld. assessing officer is bestowed upon vast powers under the income tax act, which could have been utilised in such alarming facts of the case. 10. Hon’ble Delhi High Court. Apart from the above decision is also taken this view in several other series of decisions holding that merely on the basis of valuation report addition under section 69B cannot be made. 11. Therefore respectfully following the decision of the Hon’ble Delhi High Court as cited above, we confirm the finding of the Ld. CIT (A) deleting the above addition under section 69B of the income tax act. 12. In the result the appeal of the revenue on solitary ground is dismissed. Order pronounced in the open court on 18/09/2017. -Sd/- -Sd/- (I.C.SUDHIR) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:18/09/2017 A K Keot
Page 10 of 10 Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi