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Income Tax Appellate Tribunal, DELHI BENCHES : D : NEW DELHI
Before: SHRI R.S. SYAL & MS SUCHITRA KAMBLE
ORDER PER R.S. SYAL, AM:
These two cross appeals – one by the assessee and the other by the Revenue arise out of the order passed by the CIT(A) on 30.12.2010 in relation to the assessment year 2006-07.
The assessee has filed revised grounds of appeal.
3. The first issue raised in these appeals is against the addition u/s 69 of the Act. Briefly stated, the facts of the case are that the assessee is engaged in the business of purchase of lands/buildings and to develop the same for the purposes of disposing/maintaining. During the year under consideration, the assessee purchased freehold land measuring 17.83 acres for a sum of Rs.3,31,90,000/-. This land was purchased vide 11 sale deeds which were executed between 29.8.2005 and 28.9.2005.
The land is located within the MCD city limits. As the AO was not satisfied with the purchase consideration, he referred the matter to the 2 District Valuation Officer (DVO) for estimation of investment made in land at fair market value. The DVO sent his valuation report determining fair market value of the property at Rs.6,44,09,000/- as against the purchase price declared by the assessee at Rs.3.31 crore and odd. In determining such fair market value, the DVO considered a sale instance of agricultural land in the village Satbari, Mehrauli, New Delhi, after applying the relevant factors of adjustment. The differential amount of Rs.3,12,19,000/- (Rs.6,44,09,000 – Rs.3,31,90,000/-) was added u/s 69 of the Act as unexplained investment. The AO further estimated stamp duty at 5% and corporation tax at 3% for making a separate addition @ 8% on the so called understated purchase consideration, which addition worked out at Rs.24,97,520/-. The ld. CIT(A) took into consideration a chart filed by the assessee giving full details of land purchased from 11 persons as per which the rate per sq. yard ranged between Rs.228.89 to Rs.416.35. He, thus, noticed that the assessee offered rate of Rs.385/- per sq. yard on the basis of the above as against the DVO’s rate of Rs.746 per sq. yard. He estimated a rate of Rs.500 per sq. yard as reasonable. This led to reduction in addition from 3 Rs.3.12 crore and odd to Rs.99,66,500/-. The assessee is aggrieved against the sustenance of addition at Rs.99,66,500/-, whereas the Revenue is aggrieved against the relief allowed by the ld.CIT(A) amounting to Rs.2,12,52,500/-.
We have heard the rival submissions and perused the relevant material on record. It is observed that the only dispute on this issue is about the investment made by the assessee in purchase of 11 plots in the course of its business. Whereas the assessee went by the rates given in sale deeds as a proper measure of investment made, the AO estimated the investment made by the assessee on the basis of the DVO’s report, which valuation was partially reduced by the ld. CIT(A). The AO, in making this addition did not reject the books of account maintained by the assessee and straightway went ahead in making the addition on the basis of the DVO’s report. The Hon’ble Supreme Court in the case of Sargam Cinema vs. CIT (2010) 328 ITR 513 (SC) has held that where the books of account are not rejected by the AO, no reference can be validly made to the DVO for making an addition. The reliance of the ld. DR on some contrary judgment of some non-jurisdictional High Court is misplaced. It is obvious that when an issue has been decided by the Hon’ble Supreme Court, no lower Court, much less the Tribunal, can disobey the same. Relying on the direct judgment from the Hon’ble Summit Court on this issue, the action taken by the AO in making the addition on the basis of the DVO’s report, without first rejecting the books of account, cannot be sustained.
The ld. DR then contended that the position laid down by the Hon’ble Supreme Court is no more relevant after the insertion of section 142A of the Act. We are not convinced with the submission in so far as the extant assessment year is concerned. It is relevant to note that sub- section (2) of section 142A as inserted by the Finance (No.2) Act, 2014, w.e.f. 1.10.2014 provides that : `The Assessing Officer may make a reference to the Valuation Officer under sub-section (1) whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.’ There was no analogous provision prior to this insertion.
This shows that the position of law laid down by the Hon’ble Supreme Court in Sargam Cinema (supra) for not making any addition on the basis of the DVO’s report without first rejecting the books of account, is valid up to the period prior to the insertion of sub-section (2). As the assessment year under consideration is 2006-07, being, a year anterior to the amendment, the same will be governed by the judgment in Sargam Cinema (supra) and not the later amendment nullifying the pro tanto effect of this judgment.
Here it is pertinent to note that the Assessing Officer has made the addition u/s 69 of the Act. This section, in turn, provides that : `Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.’ A careful perusal of the provision divulges that in order to invoke this provision, it is sine qua non that the assessee must have made investments which are not recorded in the books of account. The factum of the assessee having made investment should be first proved by the AO, only then the burden shifts on the assessee to prove the source of investment. Such investment outside the books of account must be positively proved by the AO and not only inferred from the attending facts. If such an investment outside the books is not proved, the assessee cannot be called upon to prove the source of such a hypothetical investment. Adverting to the facts of the instant case, we find that apart from relying on the DVO’s report, the AO has not brought on record any other material to indicate that the assessee did make investment in purchase of plots over and above that declared in the books of account.
At this juncture, it is significant to mention that the legislature is also not oblivious of the practice of understatement of consideration in the transactions of immovable properties in certain cases. That is why, apart from inserting section 50C, which is applicable in the hands of a seller, section 56(2)(vii) was introduced w.e.f. 1.10.2009 for charging to tax the difference between stamp value and the declared consideration in the hands of the buyer, if such difference is more than Rs.50,000/-. As this is a substantive provision inserted w.e.f. 1.10.2009, the same cannot be applied to the assessment year 2006-07 under consideration. Ex consequenti, the entire addition made by the AO is deleted. The ground taken by the assessee is allowed and that by the Revenue is dismissed.
The only other issue which survives in the assessee’s appeal is against the confirmation of addition on account of stamp duty and registration charges. Whereas the AO applied 8% rate on the alleged excess investment made by the assessee, the ld. CIT(A) proportionately reduced the same. In view of the fact that the substantive addition u/s 69 of the Act on account of the alleged investment made by the assessee has been deleted in an earlier para, this consequential addition is also liable to be deleted. We order accordingly.
In the result, the appeal of the assessee is allowed and that of the Revenue is dismissed.
The order pronounced in the open court on 14.10.2016.