Express Earth Movers & Eqipment Pvt. ... vs Department Of Income Tax

I.T.A.No. 505 and 506/DEL/2012 A.Y. 2004-05 & A.Y. 2005-06 ACIT, C.C. 22 Express Earth Movers & Equipment New Delhi Vs. Pvt.Ltd. 2A, Avenue Cassia Westend Greens, Rajokari New Delhi 110 038

PAN: AAACE 9926 C (APPELLANT) (RESPONDENT)

Assessee by : Sh. Salil Kapoor, Adv.

Department by : Sh. Sanjay Prasad, CIT, DR

ORDER

PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER

These are appeals filed by the Revenue directed against two separate orders of the Ld.CIT(A)-III, Delhi dated 04.11.2011 pertaining to the Assessment Year (AY) 2004-05 and dated 2.11.2011 pertaining to the A.Y. 2005-06. Both are heard together and disposed of by this consolidated order.

2. Facts in brief:- The facts of the case are brought out at para 2 of the

Ld.CIT(A)'s order at para 1, for the A.Y. 2004-05, which is extracted for

ready reference.

"The assessee is a company and a search and seizure action u/s 132 of the Act was initiated on the assessee group on 6.11.2008 and a search warrant was also issued and executed in the name of the assessee. The original return of income u/s 139 of the Act was filed by the assessee on 27.10.2004. Thereafter, the case was centralised in CC 22, New Delhi and notice u/s ITA Nos. 505 & 506/Del/2012 AY: 2004-05 and 2005-06 Express Earth Movers & Equipment Pvt.Ltd.

153A of the Act was issued on 8.7.2009 and the assessee filed the return of income u/s 153A of the Act on 4.8.2009 at the original income. During the year under appeal, the assessee company is engaged in the business of providing heavy earth movers equipments and construction machinery, plants, equipments, accessories etc. On hire/lease. Return u/s 153A declaring income of Rs.24,020/- was filed on 4.8.2009 and the income of the assessee was assessed at Rs.1,89,00,030/-.

For the A.Y. 2005-06, the assessee filed a return of income u/s 153A declaring 'Nil' income and the A.O. assessed the total income at Rs.2,87,00,000/-.

2.1. The First Appellate Authority allowed the appeal of the assessee.

2.2. Aggrieved the Revenue is in appeal before us on the following grounds.

ITA 505/Del/12 for the AY 2004-05:

"1. On facts and in the circumstances of the case the Ld.CIT(A) erred in deleting the addition of Rs.1,87,99,500/- made by the AO on account of unexplained investment in property.

2. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in brushing aside the evidentiary value of the Valuation Report of the DVO, which was based on scientific method approved by the government without rebutting the facts mentioned therein.

3. The order of the Ld.CIT(A) is erroneous and is not tenable on facts and in law.

4. The appellant craves leave to add, alter, amend or vary the above grounds of appeal at or before the time of hearing."

ITA 506/Del/12 for the AY 2005-06:

1. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in addition of Rs.2,87,00,000/- made by the AO on account of unexplained investment in property.

2. The order of the Ld.CIT(A) is erroneous and is not tenable on facts and in law.

3. The appellant craves leave to add, alter, amend or vary the above grounds of appeal at or before the time of hearing."

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2.3. The assessee invoked Rule 27 of ITAT Rules but during the course of

hearing, he did not press the same. Thus this is dismissed as 'not pressed'.

3. Heard Shri Salil Kapoor, the Ld.Counsel for the assessee and Shri Sanjay Prasad, Ld.CIT, D.R. on behalf of the Revenue.

4. ITA 505/Del/2012 (AY: 2004-05):- The only addition that is disputed

before us for the A.Y. 2004-05, is addition made u/s 68 of the Income Tax

Act, 1961 (the Act). The findings of the AO are recorded at para 19, 20 and

21 of the assessment order which is extracted for ready reference.

"19. Perusal of the details furnished by the assessee company shows that the assessee has shown to have sold the above build up property at a price which is less than the fair market rate. As discussed above, the value as per the market rate for registration of the property is much lesser than the rate at which the property has been shown to have been transacted. The transaction has been between two unrelated parties acting at arm's length. The transaction is a normal commercial transaction not influenced by any non commercial factor such as love or affection etc. The assessee could not demonstrate any reason as to why the property would not be transacted at the market value. The only inference which can be drawn out of these facts it that the property has been transacted at market value but much lower consideration was shown in the registered documents. The difference of Rs. 1,87,99,500/- must have been received by the assessee company in cash in an unaccounted mode.

20. In view of above, the unaccounted receipts on sale price as determined by the Valuation Cell of the I.T. and that of taken by the Assistant Valuation Officer of Rs. 1,87,99,500/- is treated as unaccounted income of the assessee company.

Hence, the same is added to the total income of the assessee company.

21. Reliance in this regard is placed on the Hon'ble Supreme Court's decision

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in the case of Sumati Dayal Vs. CIT 214 ITR 801 and Durga Prasad More 1971 82 ITR 540 (SC).

(Addition of Rs. 1,87,99,500/-)

5. The First Appellate Authority at page 20 considered the submissions

of the assessee and held as follows.

"On a consideration and analysis of the submissions of the appellant it is noted that the valuation report in this case have been obtained u/s 142A of the Act, which bears the marginal note "Estimate by Valuation Officer in certain cases". As per section 142A (I) of the Act in order to estimate the value of any investment referred to in section 69/69 A or 69B of the Act, the AO may require the Valuation Officer to make an estimate of the value of such investment and report the same to the AO. That on the receipt of such report of the VO the AO may after giving the assessee an opportunity of being heard, take into account such report for making assessment or reassessment. That valuation made u/s 142A of the Act is only for the purpose of estimating the cost of investment u/s 69/69A & 69B of the Act and therefore, the scope of this section cannot be extended for determining the sale consideration of an asset. In the facts of the case it is not the value of the investment which is to be estimated in this case. That during the present assessment year the property has been sold by the assessee and therefore it is capital gain or unaccounted income earned out of such sale which is to be computed. Therefore for such purpose the reference to the DVO should have been legally made u/s 55A which has been in enacted with a view to ascertaining the fair market value of a capital asset for the purposes of chapter IV of the Act Under these circumstances there has been legal infirmity in making of reference by the AO.

It is further noted from the copy of sale deed dated 26.06.2003 in appellant's case that the same has been registered by registration authorities at Delhi and there is no reference in this sale deed as to higher stamp duty having

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been charged as compared to the stamp duty as mentioned on the declared sale consideration by the appellant. From this it can necessarily be inferred that the case of the appellant does not attract Section 50-C which is a special provision for full value of consideration in certain cases and which being a "deeming provision" has to be strictly construed. Additionally, the appellant has contended that no circle rates for stamp valuation purpose were applicable during the time of date of transfer in case of the appellant and that the same was introduced vide notification dated 18.7.2007. That accordingly in absence of any circle rate no addition can be made u/s 50C of the Act for which it was required that the process as ingrained in section 50C should have been followed and the reference to DVO should have been made u/s 55A of the Act and not u/s 142A.

It is also noted that the sale instance taken by the Valuation Officer that prima facie it is not a comparable one for the reason that the sale instance property was at a better location and was subjected to auction, which may fetch a better price than fair market value on account of competitive bidding. Secondly the unit rate sale consideration of the appellant is better than the other sale instances of adjacent property relied upon by the appellant during the appellate proceedings. The appellant's arguments regarding the comparable sale instance taken in valuation is acceptable and therefore, there is no case for making any addition to income as unaccounted receipt of cash on account of higher sale consideration than the registered sale price by the appellant during the year. In view of the above discussion in totality the addition of Rs. 1,87,99,500/- is directed to be deleted."

5. The Ld.D.R. could not controvert these factual findings of the First Appellate Authority.

6. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, on perusal of material on record, orders of the authorities below, case laws cited, we hold as follows.

7. The entire addition is based on the presumption that the assessee must have received an amount of Rs.18,79,500/- being the difference

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between the value of the property estimated by the D.V.O. and the amount declared as consideration in the sale deed of the property, which as per the AO is unaccounted receipt of cash for sale of property. There is not even an iota of evidence with the AO to come to a conclusion that the assessee has actually received cash, over and above the amount declared by it for the sale of this property. This is not a case where Sec.50C has been invoked. It is an addition made u/s 68. It is not a case of computation of capital gains. The factual finding of the Ld.CIT(A) could not be controverted by the Revenue. Thus both legally and factually the order of the First Appellate Authority is to be upheld.

8. In view of the above discussion we uphold the findings of the First Appellate Authority and dismiss the appeal of the Revenue for the A.Y. 2004-05.

9. ITA 506/Del/2012 (AY: 2005-06):-

For the A.Y. 2005-06 an addition u/s 68 amounts to Rs.2,87,00,000/- has been made based on property valuation done by a Bank empanelled valuer, of property which was purchased by the assessee, in Plot no.217, Block C, Rewari Line Industrial Area, Phase II, New Delhi 110 064. The sale deed of the transaction discloses that the property was purchased for Rs.45 lakhs on 31.8.2004. The property was valued by an approved Panel Valuer of Punjab National Bank on 1.9.2006 i.e. two years after the transaction of purchase, for Rs.4,86,00,000/- and the net realisable value was fixed at Rs.4,15,00,000/-. The A.O. reduced 20% from the said value of Rs.4,15,00,000/- @ 10% per year and arrived at net realisable value as on 31.8.2004 at Rs.3,32,00,000/- and considered this figure as the purchase consideration paid.

9.1. As the assessee had purchased the said property for the total consideration of Rs.45 lakhs, the difference between Rs.3,32,00,000 and Rs.45,00,000/- is taxed as unaccounted income u/s 68 of the Act during the year. The amount so taxed is Rs.2,87,00,000/-.

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9.2. The First Appellate Authority deleted the addition on the ground that:

(a) no incriminating documents or material was found to prove that the assessee has made unaccounted investment in the purchase of the property at Plot no.217, Block C, Rewari Line Industrial Area, Phase II, New Delhi 110 064. (b) On reference to the D.V.O. u/s 142A of the Act by the Assessing Officer, the value of such property was determined at Rs.46,96,000 and whereas the assessee has paid purchase consideration of only Rs.45 lakhs. (c ) There is nothing irregular or illegal on the part of the AO for making reference to the DVO for valuation of the property. (d) The valuation report given by the valuer of Punjab National Bank, at a much later point of time, cannot be taken as the cost of investment by the assessee. (e) The A.O. is not correct in completely ignoring the DVO's valuation report. The burden is on the Revenue to prove that the income sought to be taxed is within the taxing provisions. (f) The addition made u/s 68 of the Act, based on an estimate, in the proceedings u/s 153A, otherwise than through the mechanism provided u/s 142A, is bad in law.

He deleted the addition.

9.3. Aggrieved the Revenue is before us.

10. After hearing rival contentions we are of the considered opinion that the order of the First Appellate Authority has to be upheld for the reason that S.68 cannot be invoked under the facts and circumstances of the case. A hypothetical and imaginary addition has been made by the A.O.

The departmental Valuation Officer has on reference made u/s 142A of the Act valued the property at Rs.46.96 lakhs, which is marginally higher than the purchase consideration of Rs.45 lakhs disclosed by the assessee. The difference is negligible. Taking evaluation report value, arrived at 2 years after the date of transaction and then arbitrarily modified the value and thereafter treating this amount as sale.

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Under the circumstances no addition can be sustained on the ground that banker's valuer, after two years after the date of transaction, valued the property at a particular amount when no material is found in support of the AO's conclusion that the assessee had made unaccounted investments in purchase price. The AO can not ignore the DVO's report. The addition has been made on conjectures and surmises and without any basis. Hence the First Appellate Authority has rightly deleted the said addition.

In coming to this conclusion we draw strength from the following judgements of the Jurisdictional High Court.

(1) CIT vs. Aerens Infrastructure & Technology Ltd. (2011) reported in 16 Taxmann.com 400 (Delhi) where it is held as follows.

"Section 142A of the Income Tax Act, 1961 - Assessment - Estimate by Valuation Officer. Assessee purchased a property for certain consideration. Since valuation was found to be on lower side, A.O. made reference to DVO u/s 142A and made addition of amount of difference between valuation made by DVO and value declared by assessee. On appeal, CIT(A) gave partial relief to assessee. On second appeal, Tribunal deleted addition made by AO holding that reference made by AO invoking provisions of S.142A was without jurisdiction inasmuch as AO had not first recorded that there was an excess expenditure incurred by assessee in acquiring articles. Whether, on the facts, finding recorded by Tribunal was correct. Held, Yes."

(2) CIT vs. Anil Arora (ITA 340/2015) judgement dt. 22.5.2015 (Del) wherein it is held as follows.

"Having heard the Ld.Counsel for the Revenue, we find the contentions argued in the appeal to be wholly misplaced. It is fairly conceded (at bar) by the Counsel for the Revenue that the reference to DVO for estimation of the market value of the property in Punjabi Bagh was not based on any material discovered or seized during the search operations. The Counsel, however, referred to the case of another property in District Baddi (Himachal Pradesh), in respect of which documentary evidence indicated unaccounted consideration paid by the assessee, referred to by the A.O. in para 4.3 of his order. At the same time, Ld.Counsel also conceded that no addition to the tax liability of the assessee on account of the said other property has been made.

There is no nexus between the property in Baddi (Himachal Pradesh) and the property in Punjabi Bagh (West). There is undoubtedly no material available to even remotely reflect that consideration over and

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above what was shown to be paid in the registered sale deed of the West Punjabi Bagh property was made over to the seller. In these circumstances, it was not fair in the first place to refer the said property for estimation of its market value by DVO."

11. In the result Revenue's appeal for the A.Y. 2005-06 is dismissed.

12. In the result Revenue's appeals for both the A.Ys are dismissed.

Order pronounced in the Open Court on 29th June, 2015.

Sd/- Sd/- [H.S. SIDHU] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dt. the 29th June, 2015

· Manga

Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches

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