IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `B : NEW DELHI BEFORE SHRI DEEPAK R. SHAH, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO.3092/DEL/2009 ASSESSMENT YEAR : 2005-06 ASSTT. COMMISSIONER OF INCOME-TAX, M/S. EXCELLENT LAND CIRCLE 11(1), NEW DELHI. VS. DEVELOPERS (P) LTD., 7-SOUTH PATEL NAGAR, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANISH GUPTA, DR. RESPONDENT BY : SHRI AMITOJ ANEJA, CA. O R D E R PER DEEPAK R. SHAH, ACCOUNTANT MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIII, NEW DELH I, DATED 20 TH APRIL, 2009 FOR THE ASSESSMENT YEAR 2005-06 IN AN APPEAL A GAINST ASSESSMENT ORDER FRAMED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND BEFO RE US:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,0 0,00,000/- ON 2 ACCOUNT OF UNDER VALUATION OF SALE PRICE OF THE PRO PERTY BASED ON RENT CAPITALIZATION METHOD. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE I.E. AS BUILDERS/ESTATE AND PROPERTY DEVELOPER. THE ASSESS EE FILED RETURN OF INCOME DECLARING INCOME OF RS.19,43,380/-. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE WAS OWNING ONE PROPERTY AS ITS STOCK-IN-TRADE, WHICH WAS SOLD FOR A SUM OF RS.100 LACS. THE SAID PROPERTY WAS PURCHASE DON 30 TH OCTOBER, 2003 FOR A SUM OF RS.80 LACS. THE PURCHASE PRICE AND OTHER EXPENSES INCURRED FOR ACQUIRING THIS PROPERTY WERE WORKED OUT AT RS.96,65,300/-. THE PROPERTY WA S GIVEN ON RENT TO M/S. JOY INTERNATIONAL MANAGEMENT ACADEMY PVT. LTD. FOR A MONTHLY RENT OF RS.2 LACS WITH EFFECT FROM 1.8.2004. LATER ON THE ASSES SEE SOLD THE PROPERTY FOR A SUM OF RS.100 LACS. THE ASSESSING OFFICER FIRSTLY NOTED THAT THE ANNUAL RENT RECEIVABLE BY THE ASSESSEE IS RS.24 LACS. RENT REC EIVED IS GENERALLY 1% PER MONTH OF THE FAIR MARKET VALUE OF THE PROPERTY. IF SO DONE THE VALUE OF PROPERTY SHOULD BE AROUND RS.2.5 CRORES. THE ASSES SING OFFICER NOTED THE UNDER VALUATION. THE ASSESSING OFFICER ALSO NOTED THAT IN ANOTHER COMPANYS CASE NAMELY IAG DEVELOPERS AND PROMOTERS REFERENCE WAS MADE TO DVO FOR DETERMINING FAIR MARKET VALUE UNDER SECT ION 142A OF THE ACT WHEREIN ALSO SIMILAR CIRCUMSTANCES PREVAILED. IN T HE SAID CASE THE DVO VALUED THE PROPERTY BY RENT CAPITALIZATION METHOD A S PER RULE 3 OF SCHEDULE 3 III OF THE WEALTH-TAX ACT, 1957. THE ASSESSEE OBJE CTED TO ADOPTION OF VALUE AS DETERMINED UNDER WEALTH-TAX RULES WHILE COMPUTIN G THE INCOME. THE ASSESSING OFFICER REJECTED THE CONTENTION AND DETER MINED THE SALE CONSIDERATION AS RS.300 LACS ON THE BASIS OF RENT C APITALIZATION METHOD AND COMPUTED THE BUSINESS PROFIT BY SUBSTITUTING HIS VA LUATION AGAINST THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE. THIS RESUL TED INTO ADDITION OF RS.200 LACS. 4. BEFORE THE LEARNED CIT(A) DETAILED SUBMISSIONS W ERE MADE. IT WAS CONTENDED THAT THE PROPERTY HELD BY THE ASSESSEE IS STOCK-IN-TRADE AND NOT CAPITAL ASSET. THE ASSESSEE HAS DECLARED ACTUAL SA LE CONSIDERATION. THERE IS NO PROVISION TO SUBSTITUTE THE FAIR MARKET VALUE OF THE PROPERTY FOR THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE. RELIANCE W AS PLACED ON SEVERAL COURTS DECISIONS INCLUDING THAT OF HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS. SMT. NILOFER J. SINGH, 309 ITR 233. THE L EARNED CIT(A) HELD THAT EVEN IF THE ASSESSING OFFICER HAD AN APPREHENSION T HAT PROPERTY WAS UNDER VALUED, THERE IS NO EVIDENCE OR SUPPORTING CIRCUMST ANCES BASED ON OTHER SIMILAR TRANSACTION OR INCRIMINATING EVIDENCE OF O N MONEY WHICH COULD SUPPORT THE ESTIMATION FOR ACTUAL RECEIPTS ARRIVED AT BY THE A.O. MERELY ON SUSPICION AND BY APPLYING RENT CAPITALIZATION METHO D, IT CANNOT BE UPHELD THAT THE ACTUAL SALE CONSIDERATION RECEIVED BY THE ASSESSEE WAS MUCH HIGHER. 4 SINCE SALE PROCEEDS COULD NOT BE DETERMINED ON THE BASIS OF ESTIMATION, THE ADDITION MADE BY THE A.O. IS NOT JUSTIFIED. THE RE VENUE IS IN FURTHER APPEAL BEFORE US. 5. WHEREAS THE LEARNED DR SHRI MANISH GUPTA SOUGHT TO RELY UPON THE FINDING OF THE ASSESSING OFFICER, THE LEARNED COUNS EL FOR THE ASSESSEE SHRI AMITOJ ANEJA REITERATED THE SUBMISSIONS MADE BEFORE THE COMMISSIONER (APPEALS) AND HIS FINDINGS THEREON. 6. WE HAVE CONSIDERED THE RELEVANT FACTS, ARGUMENTS ADVANCED AND THE CASE LAWS CITED. THE FOLLOWING THREE DATES ARE IMP ORTANT. I) THE PROPERTY UNDER CONSIDERATION WAS PURCHASED O N 30 TH OCTOBER, 2003 FOR A SUM OF RS.80 LAKHS. II) THE PROPERTY WAS LET OUT VIDE LEASE DEED DATED 15 TH JULY, 2004, EFFECTIVE FROM 1 ST AUGUST, 2004 AT A MONTHLY RENT OF RS.2 LAKHS. III) THE PROPERTY WAS SOLD ON 17 TH FEBRUARY, 2005 FOR A SUM OF RS.1 CRORES. 6.1 THE ASSESSING OFFICER HAS MADE AN ADDITION IN T HE SALE PRICE ADOPTING THE REPORT OF THE VALUATION OFFICER IN SOME OTHER C ASE OF RENTED PROPERTY, TAKING RENT CAPITALIZATION AS THE BASIS AND ADOPTIN G A MULTIPLIER OF 12.5. THE PURCHASE PRICE OF RS.80 LAKHS STANDS ACCEPTED IN TH E ASSESSMENT YEAR FOR THE YEAR 2004-05 I.E. IMMEDIATELY PRECEDING ASSESSMENT YEAR. BESIDES ALLEGING THAT THE FAIR MARKET VALUE EXCEEDS HIS ESTIMATION O F THE VALUE THAT THE PROPERTY COULD BE SOLD FOR, THERE IS NO OTHER EVIDE NCE/MATERIAL OR EVEN AN 5 ALLEGATION THAT ANY AMOUNT HAS BEEN RECEIVED OVER A ND ABOVE THE SAID SALE PRICE. REFERENCE IS INVITED TO PARAGRAPHS 3.8 TO 3 .9 OF THE ASSESSMENT ORDER. THE A.O. HAS REFERRED TO THE DECISION OF THE DELHI BENCH OF THE ITAT IN THE CASE OF HANEMP PROPERTIES REPORTED IN 101 ITD 19(DE L) IN SUPPORT. 6.2 THE CIT(A) DID NOT ACCEPT THE VERSION OF THE A. O. HOLDING THAT THERE IS NO PROVISION FOR MAKING A REFERENCE T O THE DVO FOR ARRIVING AT THE SALE PROCEEDS OF STOCK IN TRADE. WHEN A REMAND REPORT WAS SOUGHT FROM THE A.O. AS RE GARDS THE APPLICABILITY OF SEC.69 OR 60B APPLICATION OF WHICH IS A CONDITION PRECEDENT TO 142A IT IS STATED THAT NO COMMENTS CAN BE FURNISHED IN THIS RESPECT. RELYING UPON THE DECISION OF THE SUPREME COURT IN K .P. VARGHESE VS. ITO, 131 ITR 597 AND CIT VS. P.V. KALYANSUNDARAM, 2 94 ITR 49 AS WELL AS THE HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF SMT. NILOFER I SINGH 309 ITR 233 (DEL), THE LEARNED CIT( A) HELD THAT FAIR MARKET VALUE OF A PROPERTY CANNOT BE SUBSTITUTED FO R THE STATED SALE PRICE WITHOUT BRINGING ON RECORD ANY CONCRETE BASIS THEREOF. 7. THERE IS NO DISPUTE TO THE FACT THAT THE PR OPERTY OWNED BY THE ASSESSEE WAS ITS INVENTORY AND AS SUCH FORMING PART OF ITS S TOCK-IN-TRADE. THE PROFIT ON SALE OF SAID STOCK-IN0TRADE IS ASSESSABLE UNDER SECTION 28 OF THE ACT. SECTION 28 PRESCRIBES THAT THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION 6 WHICH WAS CARRIED ON BY THE ASSESSEE SHALL BE CHARG EABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. UNDER SECTION 145(1) INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE COMPUTED IN ACCORDANCE WITH EI THER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSEE. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. AS PER MERCANTILE SYSTEM OF ACCOUNTING THOSE INCOME WHICH ACCRUES TO THE ASSESS EE IS CHARGEABLE TO TAX. ON THE SALE OF STOCK-IN-TRADE, WHAT ACCRUES TO THE ASSESSEE IS ACCRUING AS PER THE SALE DEED EXECUTED BY THE ASSESSEE. THE ASSESS EE HAS DECLARED THE INCOME ON THE BASIS OF SALE DEED EXECUTED BY IT. T HERE IS NO PROVISION IN SECTION 28 TO SUBSTITUTE THE ACCRUED CONSIDERATION FOR MARKET VALUE OF SUCH CONSIDERATION. THE ASSESSING OFFICER HAS SIMPLY AP PLIED WEALTH-TAX RULES FOR VALUING PROPERTY BUT HAS NEITHER EXAMINED THE P URCHASER NOR HAS INDEPENDENTLY FOUND OUT WHETHER THE ASSESSEE HAS RE CEIVED ANY CONSIDERATION OVER AND ABOVE THE STATED CONSIDERATION. EXCEPT TH E SUSPICION OR AN OPINION THAT THE PROPERTY IS UNDERVALUED, NO MATERIAL IS AV AILABLE TO THE ASSESSING OFFICER TO PRESUME THAT ANY ON MONEY WAS RECEIVED BY THE ASSESSEE OR THAT ANYTHING OVER AND ABOVE THE STATED CONSIDERATION AC CRUED TO THE ASSESSEE. WHERE THE ASSET SOLD BY THE ASSESSEE IS A CAPITAL A SSET, THE INCOME FROM WHICH IS CHARGEABLE AS CAPITAL GAIN. PRIOR TO INSE RTION OF SECTION 50C THERE 7 WAS NO PROVISION TO SUBSTITUTE FAIR MARKET VALUE FO R THE CONSIDERATION ACCRUING AS A RESULT OF TRANSFER FOR THE PURPOSE OF CAPITAL GAIN UNDER SECTION 48 OF THE ACT. WHILE CONSIDERING THOSE PROVISIONS THE HONBLE DELHI HIGH COURT IN THE CASE OF NILOFER I SINGH (SUPRA) HELD T HAT THE REVENUE IS NOT JUSTIFIED IN SUBSTITUTING ACTUAL SALE CONSIDERATION IN AGREEMENT TO SELL BY VALUE ARRIVED AT BY DVO. IT WAS ALSO HELD THAT THE RE IS NO NECESSITY TO COMPUTE FAIR MARKET VALUE. SECTION 50C WAS INTRODU CED BY FINANCE ACT, 2002 WITH EFFECT FROM 1.4.2003 WHEREIN THE ASSESSIN G OFFICER IS EMPOWERED TO SUBSTITUTE THE VALUE ADOPTED BY STAMP VALUATION AUTHORITY FOR THE PURPOSE OF SECTION 48 TO BE THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER FOR PURPOSE OF COMPUTING GAIN. HOWEVER, THE SAID PROVISION IS ONLY WITH REFERENCE TO COMPUTATION OF CAPITAL GAIN AND BEING THE DEEMING PROVISION WILL STRICTLY APPLY FOR THE PURPO SE OF COMPUTING CAPITAL GAIN ALONE. THE SETTLED LAW IN THIS REGARD IS THAT DEEMING PROVISIONS ARE TO BE STRICTLY CONSTRUED AND WILL NOT EXTEND TO AREAS OTHER THAN THE SAME IS DEEMED TO APPLY. THE DEEMING PROVISION PRESUMES UN REAL THING AS REAL THING. THEREFORE, PROVISION OF SECTION 50C CANNOT BE IMPORTED WHILE COMPUTING PROFITS AND GAINS OF BUSINESS OR PROFESSI ON. IN SUCH A SITUATION ONLY THE INCOME ACCRUING TO THE ASSESSEE CAN BE TAX ED UNDER SECTION 28 OF THE ACT. SINCE THERE IS NO FINDING THAT CONSIDERAT ION RECEIVED BY THE ASSESSEE 8 ON SALE OF STOCK-IN-TRADE IS OVER AND ABOVE THE STA TED CONSIDERATION, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING ANY AD DITION BY ESTIMATING THE FAIR MARKET VALUE. 7.1 THE ISSUE IS NO MORE RES INTEGRA. THE SANCTITY OF THE SALE PRICE VIS-- VIS ITS FMV IS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DECISIONS: 1. CIT VS. GULSHAN KUMAR, 257 ITR 703 (DEL); 2. CIT VS. SUSHILA MITTAL & ORS., 250 ITR 531 (DEL) ; 3. DEV KUAMR JAIN VS. ITO & ANR., 309 ITR 240 (DEL) ; & 4. CIT VS. SMT. NILOFER I SINGH, 309 ITR 233 (DEL) THE DECISION OF HANEMP PROPERTIES (P) LTD. VS. ACIT , 101 ITD 19 (DEL) IS A DECISION WITH REFERENCE TO THE DETERMINATION OF T HE `PURCHASE PRICE AND NOT THE SALE PRICE AND, THEREFORE, HAS NO APPLICATION N OR CAN IT LEAD TO THE INVOCATION OF SECTION 142A OF THE ACT. SECONDLY, FOR COMPARISON WITH THE FAIR MARKET VALU E OF AN ASSET THERE ARE SPECIFIC SECTIONS LIKE SECTION 50C OR SECTION 5 5A WHICH HAVE NO APPLICATION WHATSOEVER TO THE DETERMINATION OF SALE PRICE TO STOCK IN TRADE. REFERENCE IS MADE TO THE DECISION OF MUMBAI ITAT IN THE CASE OF INDERLOK PROPERTIES VS. ITO, 318 ITR 234 (MUM.)(AT). 8. IN THE RESULT THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER, 2009. SD/- SD/- (GEORGE MATHAN) (DEEPAK R. SHAH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH DECEMBER, 2009. 9 ITA NO.3092/DEL/2009. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, IT`AT.