M/s. Jalaram & Co., Navsari V. The Income tax Officer,Ward-2, Navsari

ITA 3964/AHD/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7769 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-07-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 05-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGRAWAL
• Keywords: Sale consideration of property below Jantri Value; Business income; Deemed dividend; Capital receipt; Capital Gains
• Section: 50C; 41(2); 69; 6

Judgement Text

IN THE INCOME_TAX APPELLATE TRIBUNAL SMC-A BENCH, AHMEDABAD BEFORE SHRI R.V.EASWAR AND SHRI D.C.AGRAWAL ITA NO.3964/AHD/2008 (ASSESSMENT YEAR : 2005-06) M/S JALARAM & CO. 103, HAREKRISHNA COMPLEX, NEAR VASANT TALKIES, NAVSARI. VS. INCOME TAX OFFICER WQARD-2, NAVSARI. (APPELLANT) (RESPONDENT) APPELLANT BY : WRITTEN SUBMISSION RESPONDENT BY : SHRI RAJEEV AGRAWAL, CIT DR ( (( ( )/ )/)/ )/ ORDER PER AGRAWAL, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) WHEREIN HE HAS CONFIRMED AN ADDITION OF RS.4,16,400/- ON ACCOUNT OF DIFFERENCE IN RECORDED SALE CONSIDERATION OF PLOT OF LAN D PURCHASED BY THE ASSESSEE AS PER THE PURCHASE DEED AND THE AMOUNT OF VALUAT ION MADE BY STAMP VALUATION AUTHORITIES TREATING IT AS UNDISCLOSED I NVESTMENT. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE FIRM PURCHASED A P LOT OF LAND FOR RS.12,50,000/- BEING PRICE RECORDED IN THE TR ANSFER DEED. HOWEVER, THE STAMP VALUATION AUTHORITIES WORKED OUT T HAT THE VALUATION AT RS. 16,66,400/- AND CHARGED ADDITIONAL STAMP DUTY A T RS.39,980/-. WHILE FINALIZING THE ASSESSMENT, THE ASSESSING OFFICER POIN TED OUT THAT THE DIFFERENCE BETWEEN RECORDED PURCHASE PRICE AND VALUATION DONE BY STAMP VALUATION AUTHORITIES WORKED OUT AT RS.4,16,400/- WO ULD BE TREATED AS AN INVESTMENT MADE BY THE ASSESSEE, IN PURCHASE OF THE PL OT, NOT RECORDED IN THE REGULAR BOOKS OF ACCOUNT. ACCORDINGLY, T HE ASSESSING OFFICER INVOKED SECTION 69 OF THE ACT AND MADE THE ADDI TION OF RS.4,16,400/-. WHILE MAKING THIS ADDITION THE ASSESSING OFFICER NOTED 2 THAT EVEN THOUGH THE PROVISIONS OF SECTION 50C ARE APP LICABLE IN THE CASE OF CAPITAL GAINS ON TRANSFER OF PROPERTY BUT ASSESSEE HAS N O EVIDENCE OF ANY SORT WHICH COULD SHOW THAT PLOT WAS ACTUALLY PURCHASED AT THE PRICE DECLARED IN THE TRANSFER DEED EVEN THOUGH VALUATION O F THE SAID PROPERTY WAS DONE BY THE STAMP VALUATION AUTHORITIES AT RS. 16, 66,400/-. THUS, ACCORDING TO THE ASSESSING OFFICER, THE VALUATION DONE BY STAMP VALUATION AUTHORITIES IS CORRECT VALUE OF THE LAND AND, THEREFORE , BALANCE OF RS.4,16,400/- IS AN INVESTMENT MADE OUT OF UNKNOWN SOUR CES. 3. THE LD. CIT(A) HELD THAT THE ASSESSING OFFICER IS IN P OSSESSION OF SOME EVIDENCE WHICH SUGGESTS THAT PART OF THE INVESTMENT I NCURRED BY THE ASSESSEE HAS NOT BEEN RECORDED IN THE BOOKS OF ACCOUNT. THE EVIDENCE APPARENTLY IS THAT THE VALUATION WAS DONE BY THE STAMP VALUATION AUTHORITIES, ACCORDING TO WHICH THE UNEXPLAI NED INVESTMENT IS WORKED OUT AT RS.4,16,400/-. HE ACCORDINGLY, CONFIRMED T HE ADDITION. 4. BEFORE US NONE APPEARED ON BEHALF OF THE ASSESSEE BUT IN THE WRITTEN SUBMISSION, IT WAS POINTED OUT THAT THE ASSESSING O FFICER DID NOT HAVE ANY EVIDENCE TO ESTABLISH THAT ASSESSEE HAS MADE INVE STMENT WHICH WAS NOT RECORDED IN THE BOOKS OF ACCOUNT. RELIANCE OF THE ASSESSING OFFICER ON THE VALUATION DONE BY THE STAMP VALUATION AUTHORITIES IS HYPOTHETICAL. HE DID NOT CARRY OUT ANY ENQUIRY ABOUT T HE PAYMENT OF SO- CALLED INVESTMENT. THE ASSESSEE HAD NOT ACCEPTED THE VALUA TION DONE BY STAMP VALUATION AUTHORITIES. IN FACT, STAMP VALUATIO N AUTHORITIES ADOPTED ARBITRARY METHOD OF VALUING THE PROPERTY. THE AGGRI EVED PARTY HAS NO ALTERNATIVE BUT TO ACCEPT THE SAID VALUATION SO AS TO GE T PROPER TITLE OVER THE PROPERTY. THE VALUATION DONE BY STAMP VALUATION AUTHORITIES CANNOT BE TAKEN AS A REAL AMOUNT OF CONSIDERATION PAID BY TH E PURCHASER TO THE SELLER AS IT IS DONE FOR LIMITED PURPOSES OF LEVYING STA MP DUTY BY THE STATE GOVERNMENT AUTHORITIES. THE ASSESSING OFFICER HAS TO SHOW T HAT ASSESSEE 3 HAS ACTUALLY MADE THE INVESTMENT NOT RECORDED IN THE BO OKS. FURTHER, SECTION 50C COULD NOT BE INVOKED IN THE CASE OF THE ASSESSE E AS IT CAN BE INVOKED IN THE CASE OF SELLER OF THE LAND AND FOR CALCUL ATING CAPITAL GAINS ONLY. FURTHER, THE ASSESSING OFFICER DID NOT REJECT THE B OOKS OF ACCOUNT, THEREFORE, NO ASSUMPTION OF UNDISCLOSED INCOME CAN BE MAD E. NO DEFECTS IN THE BOOKS OF ACCOUNT WERE POINTED OUT. THE ASSESSEE R ELIED ON THE FOLLOWING AUTHORITIES: 1 SRI HAR SARUP COLD STORAGE & GENERAL MILLS VS. INCOME TAX OFFICER (27 ITD (DEL) 1) 2. SRI VENKATRAJA MODERN BOILED & RAW RICE RICE MILL VS. ACIT & ORS. 957 TTJ 493 (HYD)) 3. ITAT SMC BENCH AHMEDABAD IN TINA RAAVI BHATIA VS. ITO (ITA NO.3276/AHD/2008) 4. ITAT AHMEDABAD BENCH B IN SHRI SUGANCHAND C. SHA H VS. ACIT (IT (SS)A NO.199/AHD/2003) DATED 17-03-05. 5. HONBLE SMC BENCH, AHMEDABAD IN NISHABEN AMINBHA I MITHANI VS. ITO WARD 3(4), SURAT (ITA NO. 4120/AHD/2008) DAT ED 24.02.2009. 6. CGT VS. R. DAMODARAN 247 ITR 698 (MAD.) 7. KRISHNA KUMAR RAWAT & ORS. VS. UNION OF INDIA & ORS. 21 4 ITR 610 (RAJ.) 8. DINESHKUMAR MITTAL VS. ITO & ORS. 193 ITR 770 (ALL.) 9. GTO VS. VINODKUMAR HISSARIA 79 TTJ 580 (JD) 10. B. MACHINERY MFRS. (P) LTD. VS. DCIT 78 TTJ 857 TM 11. JAIKISHAN R.AGRAWAL VS. ACIT 66 TTJ 704 (PUNE) 12. MUSTAQ AHMED & ORS. VS. ACIT 66 TTJ 305 (JP) 13. KODISETTY SURYANARANA VS. GTO 47 TTJ 134(HYD) 4 14. TARUNKUMAR VS. ITO 31 ITD 500(PUNE) 15. ITO VS. ISLAM MUJTABA KHAN 63 ITRD 320(DEL.) 5. AGAINST THIS, THE LD. D.R. RELIED ON ORDER OF AUT HORITIES BELOW AND SUBMITTED THAT SECTION 50C GIVES CLEAR INDICATION THAT RE CORDED PRICE IS NOT CORRECT AND THAT IS WHY IT HAS ALLOWED TO SUBSTITUTE THE VALUATION DONE BY THE STAMP VALUATION AUTHORITIES IN PLACE OF DECLARE D CONSIDERATION. IT CAN BE DONE IN THE CASE OF SELLER THEN, TRANSACTION BEING THE SAME IT HAS TO BE ALSO DONE IN THE CASE OF PURCHASER. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE INVOLVED IS WHETHER DIFFERENCE BE TWEEN APPARENT CONSIDERATION RECORDED IN THE TRANSFER DEED AND VALUATI ON DONE BY THE STAMP VALUATION AUTHORITIES FOR LEVYING STAMP DUTY CAN BE TREATED AS UNDISCLOSED INVESTMENT TO BE TAXED U/S 69. IN OUR CONSID ERED VIEW, THIS PRESUMPTION RAISED BY THE ASSESSING OFFICER AND CIT(A) CANN OT BE LEGALLY SUSTAINED. SECTION 50C CREATES A LEGAL FICTION THEREBY APPARENT CONSIDERATION IS SUBSTITUTED BY VALUATION DONE BY STAM P VALUATION AUTHORITIES AND CAPITAL GAINS IS CALCULATED ACCORDINGLY. LE GAL FICTION CANNOT BE EXTENDED ANY FURTHER AND HAS TO BE LIMITED TO THE AREA FOR WHICH IT IS CREATED. HONBLE ANDHRA PRADESH HIGH COURT IN ADDL. CIT V. DURGAMMA P. (1987) 167 ITR 776 (AP) HELD THAT IT IS NOT POSSIBLE TO EXTEND THE FICTION BEYOND THE FIELD LEGITIMATELY INTENDED BY THE STATUT E. THE HONBLE COURT WAS DEALING WITH THE PROVISIONS OF SEC. 171(1) OF THE I. T.ACT IN THE CONTEXT OF WHICH IT WAS HELD THAT JOINT FAMILY SHALL BE DEEMED TO CONTINUE FOR THE LIMITED PURPOSE OF ASSESSING CASES OF JOINT FAMILIE S WHICH HAVE BEEN HITHERTO ASSESSED AS SUCH. IT IS NOT POSSIBLE TO EXTEND THAT FICTION TO OTHER CASES. SIMILAR VIEW WAS TAKEN BY THE HONBLE KERL A HIGH COURT IN CIT V. KAR VALVES LTD. (1987) 168 ITR 416 (KER.) WHE REIN IT IS HELD THAT LEGAL FICTION IS LIMITED TO THE PURPOSE FOR WHICH THEY ARE CREATED AND COULD 5 NOT BE EXTENDED BEYOND THAT LEGITIMATE FRAME. HONBL E KERALA HIGH COURT WAS DEALING WITH THE CASE WHERE ASSESSEE SOUGHT TO TAKE ADV ANTAGE OF SEC. 41(2) BY SUBMITTING THAT IF LIABILITIES ARE NOT LI QUIDATED AND OUTSTANDINGS ARE NOT COLLECTED, THEN BUSINESS COULD BE DEEM ED TO CONTINUE. HONBLE ALLAHABAD HIGH COURT IN CONTROLLER OF ESTATE DUTY V. KRISHNA KUMAR DEVI (1988) 173 ITR 561 (ALL.) HELD TH AT IN INTERPRETING THE LEGAL FICTION THE COURT SHOULD ASCERTAIN THE PURPOSE FOR WHICH IT WAS CREATED AND AFTER DOING SO ASSUME ALL FACTS WHICH ARE LOG ICAL TO GIVE EFFECT TO THE FICTION. HONBLE SUPREME COURT IN CIT V. MOTHE R INDIA REFRIGERATION PVT. LTD. (1985) 155 ITGR 711 (SC) HELD THAT LEGAL FICTIONS ARE CREATED ONLY FOR SOME DEFINITE PURPOSE AND THEY MUST BE LIMITE D TO THAT PURPOSE AND SHOULD NOT BE EXTENDED BEYOND THAT LEGITIMATE FI ELD. IN CIT V. BHARANI PICTURES (1981) 129 ITR 244 (MAD.) IT IS HELD THAT LEGAL FICTIONS ARE FOR A DEFINITE PURPOSE AND ARE LIMITED TO THE PURPOSE FOR WHICH THEY ARE CREATED AND SHOULD NOT BE EXTENDED BEYOND ITS LE GITIMATE FIELD. STATUTORY FICTION INTRODUCED IN ONE ENACTMENT CANNOT BE INCORPORATED IN OTHER ACT. THE POINT THAT LEGAL FICTION CANNOT BE EX TENDED TO A NEW FIELD WAS HIGHLIGHTED BY HONBLE MADRAS HIGH COURT IN CIT V. RAJAM T.S. (1988) 125 ITR 207(MAD.) WHEREIN IT IS HELD THAT SECTI ON 41(2) CREATES A LEGAL FICTION UNDER WHICH THE BALANCING CHARGE IS TREAT ED AS BUSINESS INCOME CHARGEABLE TO TAX BUT WHEN THIS AMOUNT IS DISTR IBUTED TO SHAREHOLDERS THEN IT WOULD NOT BECOME DEEMED DIVIDEND AND IT WOULD BE ONLY A CAPITAL RECEIPT AND NOT DISTRIBUTION OF ACCUMULA TED PROFITS. THUS, A LEGAL FICTION WAS INVOKED IN THE HANDS OF THE ASSESSEE CO MPANY AND WAS NOT EXTENDED IN THE HANDS OF THE SHAREHOLDERS. 7. IN THE PRESENT CASE, SECTION 50C CREATES A LEGAL FICTI ON FOR TAXING CAPITAL GAINS IN THE HANDS OF THE SELLER AND IT CANNOT BE EXTENDED FOR TAXING THE DIFFERENCE BETWEEN APPARENT CONSIDERATION A ND VALUATION DONE BY STAMP VALUATION AUTHORITIES AS UNDISCLOSED INVESTMENT U/S 69. IN FACT, 6 SECTION 69 ITSELF IS A LEGAL FICTION WHEREBY INVESTMENT INTO AN ASSET IS TREATED AS INCOME IF IT IS NOT DISCLOSED IN THE REGULAR B OOKS OF ACCOUNT. NO FURTHER LEGAL FICTION FROM ELSEWHERE IN THE STATUTE CAN BE BORROWED TO EXTEND THE FIELD OF SECTION 69. IT IS FOR THE LEGISLATU RE TO INTRODUCE LEGAL FICTION TO OVERCOME DIFFICULTY IN TAXING CERTAIN RECEIPT S OR EXPENDITURE WHICH OTHERWISE WAS NOT POSSIBLE UNDER NORMAL PROVISIONS O F THE ACT. IT IS WITH THIS PURPOSE THAT WHEN IT WAS FOUND DIFFICULT TO P REVENT TAX EVASION BY UNDERSTATING APPARENT SALE CONSIDERATION AS COMPARED T O THE VALUATION MADE BY STAMP VALUATION AUTHORITIES FOR THE PURPOSES O F LEVYING STAMP DUTY THEN IT WAS THOUGHT NECESSARY TO INTRODUCE SECTION 50 C FOR SUBSTITUTING APPARENT SALE CONSIDERATION BY VALUATION D ONE BY STAMP VALUATION AUTHORITIES. THIS FICTION CANNOT BE EXTENDED ANY FURTHER AND, THEREFORE, CANNOT BE INVOKED BY ASSESSING OFFICER TO TAX THE DIFFERENCE IN THE HANDS OF THE PURCHASER. 8. HONBLE MADRAS HIGH COURT IN CGT V. R. DAMODARAN (2 001) 247 ITR 698 HELD THAT STAMP VALUATION AUTHORITIES HAVE THEIR OWN METHOD OF EVALUATING THE PROPERTY. MERELY BECAUSE FOR THE PURPO SE OF STAMP DUTY, PROPERTY IS VALUED AT HIGHER COST, IT CANNOT BE SAID TH AT ASSESSEE HAS MADE MORE PAYMENT THAN WHAT IS STATED IN THE SALE DEE D. HONBLE ALLAHABAD HIGH COURT IN DINESH KUMAR MITTAL V. ITO (1 992) 193 ITR 770 (ALL.) QAUSHED THE ORDER OF AUTHORITIES BELOW, WHEREI N HALF OF THE DIFFERENCE BETWEEN THE AMOUNT PAID AND THE VALUE FOR PURPOSES OF STAMP DUTY WAS ADDED AS INCOME OF THE ASSESSEE BY THE ASSESSING OFF ICER. IT IS HELD THAT THERE IS NO RULE OF LAW TO THE EFFECT THAT THE VALUE DETERMINED FOR THE PURPOSES OF STAMP DUTY IS THE ACTUAL CONSIDERATIO N PASSED BETWEEN THE PARTIES TO THE SALE. I.T.A.T. SMC AHMEDA BAD IN ITA ANO.4120/AHD/2008 IN NISHABEN AMINBHAI MITHANI DELET ED THE ADDITION MADE U/S 69 ON ACCOUNT OF DIFFERENCE BETWEEN APPARENT CONSIDERATION AND VALUATION DONE BY STAMP VALUATION AUTHORITIES AF TER FOLLOWING VARIOUS 7 AUTHORITIES AS REFERRED TO ABOVE. AS A RESULT, WE DELETE THE ADDITION AND ALLOW THE APP EAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 24.7. 2009. SD/- (R.V.EASWAR) VICE PRESIDENT SD/- (D.C.AGRAWAL) ACCOUNTANT MEMBER AHMEDABAD, DATED:24.7.2009 PSP* COPY TO : (1) THE ASSESSEE (2) THE ASSESSING OFFICER (3) THE CIT(A) CONCERNED, (4) THE CIT, CONCERNED, (5) THE DR, ITAT, AHMEDABAD, (6) GUARD FILE. BY ORDER ASSTT. REGISTRAR / D EPUTY REGISTRAR ITAT, AHMEDABAD BENCHES AHMEDABAD.