Rakesh Narang, New Delhi vs Department Of Income Tax

This appeal by the Revenue is directed against the order passed by

the CIT(A) on 27.06.2011 in relation to the assessment year 2008-09. ITA No.4137/Del/2011

2. The only ground raised herein is against the deletion of addition of

Rs.49,15,000/- made by the Assessing Officer (AO) u/s 69B on the basis

of the report of the Departmental Valuation Officer (DVO).

3. Briefly stated, the facts of the case are that the assessee purchased

during the relevant year a property, B-79, Lajpat Nagar-I, New Delhi,

for a consideration of Rs.34 lac. The AO opined that the declared

purchase price was far less than its fair market value. A reference was

made to the DVO for determining the fair market value of the property.

Such value was determined at Rs.83.15 lac. This led to the making of an

addition of Rs.49.15 lac (Rs.83.15 lac minus Rs.34 lac) u/s 69B of the

Act. The ld. CIT(A) ordered for the deletion of the addition, against

which the Revenue is aggrieved before us.

4. We have heard the rival submissions and perused the relevant

material on record. It is noticed that the extant addition was made by the

AO u/s 69B of the Act. The relevant part of this section stipulates that:

'Where in any financial year the assessee has made investments or ......

and the Assessing Officer finds that the amount expended on making

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such investments or .... exceeds the amount recorded in this behalf in

the books of account maintained by the assessee for any source of

income, and the assessee offers no explanation about such excess

amount or the explanation offered by him is not, in the opinion of the

Assessing Officer, satisfactory, the excess amount may be deemed to be

the income of the assessee for such financial year.' The pre-requisite

conditions for making an addition under this section are that firstly, the

assessee should have made investment and then the AO should find that

the amount actually expended on making such investment is more than

the amount recorded in the books of account. In other words, there

should be some positive evidence with the AO to find that the assessee

had, in fact, invested more amount than that actually recorded in the

books of account. Such a finding by the AO can be based on some

positive evidence about the making of more investment than that

declared in the books of account. This section cannot be triggered on a

mere presumption of the AO. When the legislature has unambiguously

provided so, it is impermissible to substitute such a finding with a

presumption about actual investment having been made by the assessee 3 ITA No.4137/Del/2011

at a level higher than that depicted in the books of account. Only some

positive and irrefutable evidence converts a presumption into a finding.

Absent affirmative evidence, what remains is a mere supposition of

unexplained investment etc., which cannot take the place of a finding of

the AO towards unexplained investment.

5. Adverting to the facts of the instant case, we find that the only so

called evidence in the hands of the AO for the assessee having made

investment of Rs.49.15 lac outside the books of account, is a report of

the DVO. There is hardly any need to accentuate that a Valuer's report

is nothing but an estimate of cost of construction. There can be several

factors affecting valuation or the price finally bargained. Valuation is

not a fool-proof scientific tool of the measurement of the cost of

construction. Ordinarily, there arises difference in two valuations. Even

rates for valuation under CPWD and State PWD for estimating the cost

of construction differ. As regards the price settled in a transaction, here

again we find that there are several factors affecting the same. The price

finally bargained depends upon a host of factors, such as, terms and

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conditions of payment, need and capacity of the buyer or seller to

buy/sell, peculiar features attached to property suiting or not suiting a

particular customer etc. The crux of the matter is that the value of a

property estimated by the DVO or the Registered Valuer, can never be

conclusive of the price finally bargained. Reverting to the facts of the

case, we find that the AO made addition u/s 69B of the Act only on the

basis of the DVO's report. If such a report, which is a mere estimate of

the cost of construction of the property is kept aside, there is nothing to

show that the assessee, in fact, made more investment than that

declared, calling for an addition u/s 69B.

6. The Hon'ble Supreme Court in the case of K.P. Varghese vs. ITO

(1981) 131 ITR 597 (SC) has held that the onus of establishing that the

conditions of taxability are fulfilled, is always on the Revenue. It is for

the Revenue to show that there is an understatement of the

consideration. It further laid down that to throw the burden of showing

that there is no understatement of the consideration on the assessee,

would be to cast an almost impossible burden upon him to establish a

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negative. Similar view has been reiterated in CIT vs. Shivakami Co. P.

Ltd. (1986) 159 ITR 71 (SC). In this case, their Lordships have laid

down that no addition can be made unless there is evidence that more

consideration than what was stated in the document, was received. In

the light of the above decisions, it is manifest that no addition can be

made unless the Revenue proves understatement of consideration with

some cogent evidence, apart from a mere estimate of the cost of

valuation.

7. At this juncture, it would be relevant to note that in order to tap the

cases of such understatement of consideration yielding less than the due

collection of tax, the legislature stepped in by inserting section 50C

which is a 'Special provision for full value of consideration in certain

cases'. This section came to be inserted by the Finance Act, 2002 w.e.f.

1.4.2003. Relevant part of sub-section (1) of this section provides that :

'Where the consideration received or accruing as a result of the transfer

by an assessee of a capital asset, being land or building or both, is less

than the value adopted or assessed or assessable by any authority of a

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State Government (hereafter in this section referred to as the "stamp

valuation authority") for the purpose of payment of stamp duty in

respect of such transfer, the value so adopted or assessed or assessable

shall, for the purposes of section 48, be deemed to be the full value of

the consideration received or accruing as a result of such transfer.'. It is

ostensible that this deeming provision deals with a situation in which the

consideration received as a result of transfer of a capital asset by an

assessee is, less than the stamp value. When this condition is met with,

then the section operates to substitute the stamp value with the full value

of the consideration received or accruing as a result of such transfer for

the purposes of computing capital gain u/s 48 of the Act. Thus it is

evident that section 50C is a deeming provision, which is applicable

only 'for the purposes of section 48'.

8. A deeming provision or a legal fiction, as it is commonly called, is

one whose mandate does not exist but for such provision. Due to such

provision only, the given imaginary state of affairs is taken as reality

despite it being at variance with the scope of the enactment. It is trite

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law that a deeming provision cannot be extended beyond the purpose for

which it is intended. The Hon'ble Supreme Court in CIT vs. Amarchand

N. Shroff (1963) 48 ITR 59 (SC) considered the scope of a deeming

provision and held that the fiction cannot be extended beyond the object

for which it is enacted. In CIT vs. Mother India Refrigeration Industries

P. Ltd.(1985) 155 ITR 711 (SC) the same view has been reiterated by

holding that the "legal fictions are created only for some definite

purpose and these must be limited to that purpose and should not be

extended beyond their legitimate field."

9. Coming back to our context, we find that section 50C is a deeming

provision, which is applicable only for the purpose of section 48. The

latter section spells out the mode of computation of capital gain. To put

it simply, the substitution of 'full value of consideration received' with

'the stamp value' in terms of section 50C, is applicable in the hands of

the seller of the property who has to compute capital gains u/s 48

pursuant to the transfer of a capital asset in the nature of land or building

or both. On the contrary, section 69B, which is again a deeming

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provision, governs the cases in which investment made by the assessee

is not fully disclosed. In other words, section 69B applies to the

purchaser of an asset, in contradistinction to sec. 50C, which applies to

the seller of an asset.

10. The position about the substitution of 'stamp value' with the

'consideration received' in case the latter is lower than the former, in the

hands of the seller only, leaving the differential investment made by the

buyer untaxed, appears to have been realized by the Parliament. That is

why, the legislature has inserted clause (vii) to section 56(2) by the

Finance (No.2) Act, 2009 w.e.f. 1.10.2009, inter alia, providing that

where an individual or a Hindu undivided family receives, in any

previous year, from any person or persons on or after the 1st day of

October, 2009,-- (b) any immovable property,-- (i) without

consideration, the stamp duty value of which exceeds fifty thousand

rupees, the stamp duty value of such property shall be considered as

income under the head 'Income from other sources' and ; (ii) for a

consideration which is less than the stamp duty value of the property by

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an amount exceeding fifty thousand rupees, the stamp duty value of such

property as exceeds such consideration, shall be considered as income

under the head 'Income from other sources'.

11. A conjoint reading of sections 50C and 56(2)(vii) makes it vivid

that whereas 'stamp value' has been substituted with the 'full value of

consideration' in case the later is less than the former in the hands of the

seller by virtue of section 50C, the substitution of the 'stamp value' with

the 'actual purchase price, in excess of Rs.50,000/-' has been made

effective in the hands of the buyer only where any immovable property

is purchased after 1.10.2009. As the assessee before us is a buyer,

naturally, his case will not be covered u/s 50C but will be governed by

section 56(2)(vii). Since section 56(2)(vii) is applicable on cases in

which the individual or HUF receives immovable property on or after

1.10.2009 and we are dealing with a case in which the property has been

purchased by the assessee in the financial year 2007-08, the mandate of

section 56(2)(vii) cannot apply retrospectively. Once this provision is

not applicable, the ratio decidendi in the case of K.P. Varghese (supra)

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and Shivakami Co. P. Ltd. (supra) would apply leaving no scope for

making addition in the circumstances as are prevailing in the instant

case. We, therefore, uphold the view taken by the ld. CIT(A) on this

issue.

12. In the result, the appeal is dismissed.

The order pronounced in the open court on 16.02.2015.

Sd/- Sd/- [DIVA SINGH] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated, 16th February, 2015. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT

AR, ITAT, NEW DELHI.

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