Income Tax Appellate Tribunal - Delhi
Namita Singh, New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
[ DELHI BENCH "F" DELHI ]
BEFORE SHRI RAJPAL YADAV, JM & SHRI K. D. RANJAN, AM
I. T. Appeal No. 2256 (Del) of 2008.
Assessment year : 2004-05.
The Income-tax Officer, Ms. Namita Singh,
W a r d : 32 (1), Vs. C - 41, Nizamuddin East,
N E W D E L H I. N E W D E L H I.
PAN / GIR No. AARPS 4469C.
AND
C. O. No. 79 (Del) of 2010.
[ in I. T. Appeal No. 2256 (Del) of 2008 ].
Assessment year : 2004-05.
Ms. Namita Singh, The Income-tax Officer,
C - 41, Nizamuddin East, Vs. W a r d : 32 (1),
N E W D E L H I. N E W D E L H I.
PAN/GIR No. AARPS4469C.
( Appellants ) ( Respondents )
Assessee by : Shri V. K. Sabharwal, Adv.;
Department by : Shri B. Kishore, Sr. D. R.;
O R D E R.
PER K. D. RANJAN, AM :
This appeal by the Revenue and the cross objection by the assessee for assessment year 2004-05 arise out of the order of the ld. CIT (Appeals)-XXVI, New Delhi. These appeals 2 I. T. Appeal No. 2256 (Del) of 2008.
A N D C. O. No. 79 (Del) of 2010.
were heard together and for the sake of convenience, are disposed of, by this consolidated order.
2. The ground of appeal raised by the Revenue in I.T.A. No. 2256 (Del) of 2008, reads as under:-
" The ld. CIT (Appeals) has erred on facts and in law by not accepting the valuation made by the DVO in respect sale of property and also in respect of investments made in other property and in allowing relief of Rs.1,26,26,422/-. "
3. The grounds of appeal raised by the assessee in C.O. No. 79 (Del) of 2010, read as under:-
"1. That the assessment framed under section 143(3) of the Act is against the provisions of law contained under section 153 of the Income-tax Act, 1961;"
2. That the addition on account rent of Rs.36,000/- made by the assessing officer and upheld by the ld. CIT (Appeals) is against the facts and to the provisions of law."
4. First we take up the appeal filed by the Revenue. The only issue for consideration in Revenue's appeal relates to deleting the addition of Rs.1,26,26,422/- on the basis of the DVO's report in respect of sale of property and also in respect of investments made in other properties. The facts of the case stated in brief are that the assessee sold property known as flat No. B-28, Lajpat Nagar, New Delhi in May, 2003 for sale consideration of Rs.12 lakhs. The said property was purchased by the assessee on 25th October, 1996 for a sum of Rs.12 lakhs. Thus the capital gain on account of sale of property was admitted as NIL. The assessing officer in order to ascertain the market value of the property deputed an Inspector of Income-tax to make enquiries about the fair market value of the property sold. The Inspector of Income-tax vide his report dated 6/01/2006 reported that the premises bearing No. B-III/28 at Lajpat Nagar-III, New Delhi, was constructed floor-wise. He also made inquiry from M/s. Kohli Property Dealers. The estimated the value of the property according to M/s Kohli Property Dealers in the year 2003 floor-wise was as under :-
3I. T. Appeal No. 2256 (Del) of 2008.
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Ground Floor Rs.55 to 60 lakhs;
First Floor Rs.50 to 55 lakhs;
Second Floor Rs.35 to 45 lakhs;
Third Floor Rs.35 to 40 lakhs.
The built-up plot area was about 200 sq. yds. and the current value of the entire property was about Rs.2 crores. Since there was huge difference between the value shown by the assessee and the report of the Inspector, the assessing officer referred the matter to the valuation officer under section 50C/55A of the Act with the prior approval of the Addl. CIT, Range : 32, New Delhi. DVO vide his report dated 5/12/2006 estimated the value of the property as on May, 2003 at Rs.57, 58,400/-. The assessing officer obtained comments of the assessee. The assessee raised preliminary objection that the ld. DVO had not valued property as per normal practice in the real estate business. The assessee has purchased these apartments complete with all fittings etc. The valuation of the property could not be done by calculating the cost of each item like sanitary fittings, kitchen fittings, electric fittings and wood-work etc. The assessee had not made any addition or alteration in the apartment under reference. Any change made by the tenant according to which her/his requirement could not be part of the investment made by the assessee. The area of the flat at B-28, Lajpat Nagar was about 1200 sq. ft. and according to the DVO the cost per sq. ft. would come to Rs.4,800/- per sq. ft. as against actual cost of Rs.1,000/- per sq. ft. The property was situated in rehabilitation colony and the contractor made construction of the building. The quality of material used by the contractor and self-made building has no comparison. It was also submitted that the value of the rented properties or occupied properties could not be compared with vacant plot purchased in auction or otherwise. A vacant property has higher value as compared to property occupied by a tenant or otherwise. The assessee also challenged the assessee's share in the land. The owner of the apartment is entitled to proportionate undivided share in the land of the property. There was no specific portion that could be assumed to be belonging to the owner of the flat. Therefore, the proportionate area of 57.56 sq. mts. was wrongly taken by the DVO for the purpose of valuation. The assessing 4 I. T. Appeal No. 2256 (Del) of 2008.
A N D C. O. No. 79 (Del) of 2010.
officer considered the objections raised by the assessee and rejected the same. He adopted sale consideration of Rs.57,58,400/- as sale consideration as per DVO's report and computed capital gains of Rs.39,36,760/-.
5. The assessee had made investment in shop Nos. 11, 12 and 12-A at N-5, NDSE-II, New Delhi for an amount of Rs.24 lakhs. In order to verify the fair market value of the investment the matter was referred to the valuation officer, who estimated the value of assets at Rs.1,51,26,800/-. The copy of the valuation report was forwarded to the assessee for her comments. The assessee vide her letter dated 20/12/2006 objected the valuation on the following grounds :-
" (a) The lease rent of all the three properties is at Rs.65,000/- as against Rs.97,500/-
adopted by the DVO;
(b) Interest free securities were at Rs.1,35,000/- only as against Rs.3,90,000/- taken by the DVO. Also it has been contended that the rate of interest charged at 15 per cent is on the higher side.
(c) The cost of property per sq. ft. as per DVO comes to Rs.25,211/- as against actual/declared cost of Rs.3,000/- per sq. ft. "
6. During the course of assessment proceedings it was submitted by the assessee that the properties in question were purchased by the assessee which were earlier let out to M/s. Bharti Cellular Ltd. vide Rent Agreement dated 17/07/2001 for a period of nine years at a monthly rent of Rs.65,000/- in respect of all the three properties. However, this contention of the assessee was not found to be correct in view of assessment order of the MCD filed by the assessee which clearly stated that the property No. 11 and 12 were rented out to Bharti Cellular and third property No.12-A was self-occupied. The submissions made by the assessee were based on the lease deed dated 5/06/2004. Since the lease deed relied upon by the assessee was outside the purview of financial year under consideration, the same was rejected. As regards interest free 5 I. T. Appeal No. 2256 (Del) of 2008.
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securities, the assessee's contention was based on lease agreement entered into by the assessee with UTI Securities wherein interest free securities of Rs.1,35,000/- had been provided being three months security of the rent of Rs.45,000/-. The DVO while arriving at the figure of interest free security at Rs.3,90,000/-, he had taken six months security on the rent of Rs.65,000/- paid by M/s. Bharti Cellular. The AO noted that the assumption of the DVO for a period of six months was not based on any documentary evidence. He, therefore, took the interest free security at Rs.1,97,500/- being three months' rental paid by M/s. Bharti Cellular Ltd. As regards the rate of interest, the AO adopted the rate at 12 per cent as against 15 per cent taken by the DVO. On the basis of the above, the AO computed annual rent of the properties at Rs.11,93,400/- from which he deducted Municipal Tax of Rs.18,355/-. He estimated the valuation of the property on rent capitalization method at Rs.1,46,88,062/-. The assessing officer from the estimated value of the property determined at Rs.1,46,88,062/- reduced the sale consideration of Rs.57,58,400/- and determined undisclosed investment of Rs.89,29,662/-.
7. Before the ld. CIT (Appeals) it was submitted that the report of the valuation officer should be supported by evidence otherwise the same will not be binding on the assessing officer. The Inspector of Income-tax has no jurisdiction to enter into the powers of the assessing officer. He had estimated the value of the property at the hearsay of the alleged property dealer, namely, M/s. Kohli Property Dealer. It was also stated that the statement of property dealer was not given to the assessee to confirm what the Inspector had reported. Since no summon was issued to the property dealer for taking the statement and for cross examination by the assessee, reliance cannot be made on Inspector's report. It was also submitted that the valuation officer has not given any sale instances. No confirmation from purchasing assessee was available for any of the alleged extra payment made by him, if any, other than what has been stated in the agreement. According to the assessee whatever has been submitted in the agreement has to be accepted true and correct unless contrary proved. No proceedings were initiated against the buyer of the flat in regard to its cost. It was also submitted that the property was referred to the valuation officer under section 55A of the Act for ascertaining the market value as on May, 2003. The provisions of section 55A(a) of the Act will be applicable in the cases where the assessing officer or the 6 I. T. Appeal No. 2256 (Del) of 2008.
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Departmental officer had pointed out any defects or discrepancies in the valuation report submitted by the assessee. The assessee placing reliance on several decisions and in view of the above it was submitted that the valuation of the property made by the valuation officer was not justified.
8. As regards investment in property No. N-5, N.D.S.E.-I, New Delhi, it was submitted that the assessee has purchased all the three properties for a sum of Rs. 24 lakhs from Shri Atul Talwar. The property purchased was in the residential colony and the total super area of the three properties was at 770 sq. fts. which was let out to M/s. Bharti Cellular Ltd. at a monthly rent of Rs.65,000/-. The investment was made out of sale proceeds of residential flat No. B- II/28, Ground Floor, Lajpat Nagar, New Delhi and from personal sources, there was no capital gain from sale of Lajpat Nagar flat and in any case the capital gains from sale of residential house was exempt if invested in the purchase of a residential house under section 54 of the Act. The approved valuer had estimated the value of the three properties at Rs.23,10,000/- vide report dated 2/07/2003. The assessing officer without pointing out any defect, deficiencies or objections in the assessee's valuer report referred the matter to the Departmental Valuation Officer under section 142A of the Income-tax Act in order to find out the market value. It was submitted that provisions of section 142A were applicable in the circumstances that the assessee had made investment and such investment was un-explained. There was no material evidence to establish that the assessee had made investment over and above that was recorded in the sale deed. In the absence of any such evidence, no addition could be made under section 69 of the Act.
9. It was also submitted that the valuation report was not binding on the assessing officer. There was nothing to indicate any unaccounted amount was invested in purchase of the properties. The assessee relied on the decision of Hon'ble Supreme Court in the case of Smt. Amiya Bala Paul Vs. CIT 262 ITR 407 (SC).
7I. T. Appeal No. 2256 (Del) of 2008.
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10. The ld. CIT (Appeals) in respect of valuation of the property, which was sold, observed that the report of the DVO was only advisory in nature and not binding on the assessing officer. The case laws relied upon by the assessee indicated that in a case where there was nothing to indicate that any unaccounted money was invested, no addition was warranted on the basis of the valuation report. The assessing officer apart from the report of the DVO has not discussed any factor in the assessment order, while adopting the value of property at Rs.57,58,400/-. The assessee's objections have been quoted in the assessment order, but the AO had taken the sale value of the property at Rs.57,58,400/- without adequately considering the objections raised by the assessee. The valuation officer has adopted the rate per sq. ft. at Rs.4,800/- as against Rs.1,000/- per sq. ft. He had not considered the fact that the flat was situated in the rehabilitation colony. The AO has brushed aside the objections raised by the assessee. The ld. CIT (Appeals) after considering the report of the DVO as well as the assessee's objections estimated the purchase price of the property at Rs.1,200/- per sq. ft. and thus determined the value of the flat at Rs.14,40,000/-.
10.1 As regards purchase of property consisting of three shops at N-5, NDSE-I, it was submitted by the assessee that the property was located in the residential area, which has been misused by using it for commercial purpose. The carpet area of the property purchased was 600 sq. ft. [super built up area of 770 sq. ft.]. As per assessee, cost of carpet area per sq. ft. comes to Rs.4000/-. It was submitted that the approved valuer valued the property at Rs.23,10,000/-. No defects were pointed out by the assessing officer. The AO has accepted the DVO's report with minor adjustments. According to the assessee the valuation adopted by the valuation officer comes to Rs.24,480/- per sq. ft. The assessee produced copy of sale deed of the premises, which were comparable with the property in question. The copy of sale deed related to premises B-9, NDSE Housing Society. The super built up area of the property was 488 sq. ft. which was sold for Rs.4,75,000/- at the price of approx. Rs.975/- per sq. ft. Since the property purchased was located in the residential colony, the assessee's property was comparable with that of premises B-9, NDSE Housing Society. It was also submitted that the DVO has not given any comparable sale instance for valuing the property at such excessive amount. The valuation officer has 8 I. T. Appeal No. 2256 (Del) of 2008.
A N D C. O. No. 79 (Del) of 2010.
wrongly taken super built up area of shop at 1155 sq. ft. as against 770 sq. ft. The ld. CIT (A) after considering the decision of Hon'ble Supreme Court in the case of K. P. Verghese Vs. ITO 131 ITR 597 (SC) and ITAT decision in the case of Sanjay Chawla Vs. ITO 89 I.T.D. 586 held that there was no evidence against the assessee, which has been brought on record to show that the value of the property purchased had to be rejected. He accordingly directed the assessing officer to adopt the purchase price as shown by the assessee.
11. Before us, the ld. AR of the assessee submitted that for the purpose of determining the capital gains, the full value of consideration has to be taken as per provisions of section 50C of the Act. There was nothing on record to suggest that the assessee had received any amount more than what was recorded in the sale deed. Therefore, the addition made in respect of capital gains is not justified. He placed reliance on the following decisions :-
(1) Dev Kumar Jain Vs. ITO 212 Taxation 329 (Del);
(2) CIT Vs. Sushila Mittal & Others 250 ITR 531 (Del.);
(3) CIT Vs. Gulshan Kumar 123 Taxman 1111 (Del.); & (4) Sanjay Chawla Vs. ITO 89 I.T.D. 586.
12. It was further submitted that for the purpose of computation of capital gains full value of consideration is to be taken and not fair market value of the property. As regards investment in the property, the ld. AR of the assessee submitted that provisions of section 142A of the Act has been amended by Finance Act, 2010 with effect from 1/07/2010 for the purpose of determining fair market value of the immovable property. Since the assessee had purchased property in May, 2003 reference made by the assessing officer under section 142A of the Act is not justified. It was also submitted that the properties purchased are in residential colony and, therefore, the valuation could not be made at such an exorbitant rate. The DVO has not referred any comparable case in order to arrive at the value of the shops. It was also submitted that full facts 9 I. T. Appeal No. 2256 (Del) of 2008.
A N D C. O. No. 79 (Del) of 2010.
of the assessee's case that the property was located in residential area, have not been considered by the valuation officer. He further submitted that the valuation made on the basis of rent capitalization method is not justified.
13. On the other hand, the ld. Sr. D.R. supported the order of the assessing officer. He submitted for the purpose of investment reference to valuation officer under section 142-A of the Act was justified. Rent capitalization method for valuation of the property is an appropriate method. No defects have been pointed out by the assessee in adopting the rent capitalization method. The assessing officer was fair to refer the matter to the valuation officer to have a report from an expert. It has been submitted that for the purpose of determining the value of investment, reference to the valuation cell was justified. He placed reliance on the decision of the ITAT in the case of ITO Vs. Five Star Health Care Pvt. Ltd. 42 SOT 153 (Del.) wherein invoking of the provisions of section 69 read with section 142A was held to be justified.
14. We have heard both the parties and gone through the material available on record. The assessee had shown capital gain on sale of flat at B-28, Lajpat Nagar at NIL. As against this the ld. CIT (A) has estimated the full value of consideration at Rs.14,40,000/-. The assessee has not challenged the estimation of sale consideration by the ld. CIT (A) at Rs.14,40,000/- before this Tribunal. Further, there is no material on record to suggest that the assessee had received any amount other than what is recorded in the sale deed. However, for the purpose of computation of capital gains under section 48 of the I. T. Act, 1961 the assessee will be eligible to deduct from the full value of consideration the expenditure incurred wholly and exclusively in connection with the transfer of the asset and index cost of acquisition and index cost of any improvement to the property. The Legislature had used the expression 'full value of consideration' and not expression 'fair market value of the asset'. Section 50C of the Act provides the meaning of full value of consideration in certain cases. As per section 50C(1) where the consideration received or accruing as a result of 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 State Govt. [Stamp Valuation Authority] for the purpose of payment of stamp duty. In respect of such transfer, the 10 I. T. Appeal No. 2256 (Del) of 2008.
A N D C. O. No. 79 (Del) of 2010.
value so adopted or assessed or assessable shall for the purpose of section 48, be deem to be the full value of consideration received or accruing as a result of such transfer. However, as per section 50C(2) the assessing officer may refer the valuation of the capital asset to the valuation officer in a case where value adopted or assessed or assessable by stamp valuation authority exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted or assessed or assessable by the stamp valuation authority has not been disputed in any appeal or revision or no reference has been made before any authority, court or High Court. On combined reading of sub section (1) and (2) of section 50C it is clear that in the absence of any material to the effect that the assessee had received amount over and above the value on which stamp duty is payable, the full value of consideration will be the value adopted for the purpose of stamp valuation in respect of transfer of the asset.
15. Under section 142A of the Act the AO is empowered to refer to the valuation cell for the purpose of making an assessment or reassessment where an estimate of the value of any investment referred to in section 69 or 69B or the value of any bullion, jewellery or other valuable article, referred to in section 69A or section 69B. Thus provisions of section 142A are applicable where the value of investment is to be determined. Provisions of section 142A are not applicable for the purpose of determination of full value of consideration. Therefore, in our considered opinion, in the absence of any contrary evidence, full value of consideration cannot be estimated under section 142A. The AO has to adopt the value for the purpose of stamp valuation as per circle rates as on the date of transfer. From the sale deed or from the assessment order or appellate order of the ld. CIT (A) it is not clear as to whether the flat at Plot No. B-28, Lajpat Nagar, was transferred at circle rate prescribed for the purpose of stamp valuation. We, therefore, feel it proper to set aside the matter to the file of the AO with the directions to examine whether the value of the property sold is at Rs.14,40,000/- or the value was higher as per circle rates applicable as on the date of transfer, than this amount for the purpose of stamp valuation. In case the value of flat, as per circle rate, was higher than the sale price mentioned in the sale deed, which has been enhanced to Rs.14,40,000/- by CIT(A). The AO will adopt the value of flat as per circle rates and determine the capital gains accordingly. The AO will also keep in mind the request of assessee, if any, made u/s.50C(2) for determination of full value of consideration.
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15.1 Now coming to the investment made by the assessee in three shops at N-5, NDSE-I, New Delhi. The DVO has estimated the fair market value of the assets at Rs.1,46,88,062/-. The ld. CIT (Appeals) has deleted the addition based on the valuation report on the ground that the AO has not brought any material on record apart from DVO's report to show that there was any undisclosed investment in the property purchased by the assessee. He has also observed that for making an addition the assessee must be shown to have received or paid more than what is recorded or disclosed by him as the consideration.
15.2 Before us the ld. AR of the assessee submitted that provisions of section 142A of the Act are not applicable on the ground that Amendment to section 142A has been made by Finance Act, 2010 with effect from 1/07/2010. We have gone through the provisions of section 142A(1) before and after the amendment made by Finance Act, 2010. Section 142A was inserted by Finance Act, 2004 w.r.e.f. 1.4.1972 for purposes of estimating the value of certain investments. Section 142A as applicable for assessment year 2004-05 under consideration reads as under:
"142A. (1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 69B or the value of any bullion, jewellery or other valuable article referred to in section 69A or section 69B is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him."
15.3 Section 69 of Income Tax Act, 1961 deals with unexplained investments not recorded in books of accounts, if any, maintained by the assessee for any source of income; section 69A is applicable in the cases where in any financial year the assessee is found to be owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income; and section 69B is applicable in cases where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, 12 I. T. Appeal No. 2256 (Del) of 2008.
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and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income and assessee offers no explanation about nature and source of investment/acquisition or offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory provisions sections 69/69A/69B will be attracted. The assessing officer in order to estimate the value of such investments in assets may refer the matter to valuation officer.
15.4 Another contention of the assessee is that the provisions of section 142A of the Act are not applicable for assessment year 2004-05 on the ground that amendment to section 142A has been made by Finance Act, 2010 with effect from 1/07/2010. Finance Act, 2010 amended section 142A by inserting words 'or fair market value of any property referred to in sub section (2) of section 56' with effect from 1/07/2010. Under section 56(2) incomes specified in clauses
(i) to (vii) shall be changeable to income tax under the head income from other sources. As per sub- clause (b) of clause (vii) of section 56(2) where an immovable property exceeding the stamp duty value of which exceeds Rs 50,000/- is received by a person on or after 1/10/2009 from a person other than mentioned in second proviso without consideration the stamp duty value of such property will be assessed as income under the head 'income from other sources' in the case of recipient. Proviso to clause (vii) of section 56(2) provides that where the stamp duty value of property as referred to in sub clause (b) is disputed by the assessee on the ground mentioned in sub section (2) of section 50C, the assessing officer may refer the valuation of the property to a valuation officer and the provisions of section 50C and section 155(15) shall as far as may apply in relation to stamp duty value of such property for the purpose of sub clause (b) as they apply for valuation of capital asset under those sections. In other words the assessing officer may refer the valuation of the property to the valuation officer in a case where (a) the assessee claims before any assessing officer that the value adopted or assessed or assessable by stamp valuation authority exceeds the fair market value of the property as on the date of transfer; (b) the value so adopted or assessed or assessable by the stamp valuation authority has not been disputed in any 13 I. T. Appeal No. 2256 (Del) of 2008.
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appeal or revision or no reference has been made before any authority, court or High Court. Thus in order to enable the assessing officer in the circumstances mention u/s 50C(2), to refer the valuation of the property received from a person other than specified for section 56(2)(vii)(b), section 142A was amended by insertion words 'or fair market value of any property referred to in sub section (2) of section 56' with effect from 1/07/2010.
15.5 Our view gets support from Memorandum explaining the provisions in Finance Bill, 2010 which explains the Legislative intention for insertion of words 'or fair market value of any property referred to in sub section (2) of section 56' in section 142A. Clause (xxi) and (xxxiii) of Finance Bill, 2010 has been explained under the head 'taxation of certain transactions without consideration or for inadequate consideration'. The relevant portion of Memorandum explaining provisions is reproduced as below:-
" Under the existing provisions of section 56(2)(vii), any sum of money or any property in kind which is received without consideration or for inadequate consideration [in excess of the prescribed limit of Rs.50,000/-] by an individual or a HUF is chargeable to Income-tax in the hands of recipient under the head 'income from other sources'. However, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision.
The existing definition of 'property' for the purpose of section 56(2)(vii) includes immovable property being land or building or both, shares in securities, jewellery, archeological collection, drawings, paintings, sculpture or any work of art;
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(b) The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts, particularly, after abolition of the Gift-tax Act. The provisions were intended to 14 I. T. Appeal No. 2256 (Del) of 2008.
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extend the tax net to such transactions in kind the intent is not to tax the transactions entered into in the normal course of business of trade, the profits of which are taxable under specific head of income. It is, therefore, proposed to amend the definition of 'property' so as to provide that section 56(2)(vii) will have application to the 'property' which is in the nature of a capital asset of the recipient and, therefore, would not apply to stock-in-trade, raw-material and consumable stores of any business of such recipient;
(c) In several cases of immovable property transactions there is a time-gap between the booking of a property and the receipt of such property on registration which results in a taxable differential. It is, therefore, proposed to amend clause
(vii) of section 56(2) so as to provide that it would apply only if the immovable property is received without any consideration and to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of immovable property. These amendments are proposed to take effect retrospectively from 1st October, 2009 and will accordingly apply in relation to assessment year 2010-11 and subsequent years;
(d) It is proposed to amend the definition of 'property' as provided in section 56 so as to include transactions in respect of bullion. This amendment is st proposed to take effect from 1 June, 2010 and will accordingly apply in relation to assessment year 2011-12 and subsequent years;
(e) It is proposed to amend section 142A(1) to allow the assessing officer to make a reference to the valuation officer for an estimate of the value of property for the purposes of section 56(2). This amendment is proposed to take effect from 1st July, 2010. "
15.6 From plain reading of the Memorandum explaining the provisions in Finance Bill, 2010 the Legislative intention is clear. The amendment to section 142A (1) has been made with a view to value the immovable property which is received by the assessee being an individual or a 15 I. T. Appeal No. 2256 (Del) of 2008.
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HUF from person other than relatives without any consideration. The assessing officer can make reference to the valuation officer under section 142A for determination of fair market value of the property for the purpose of assessment in respect of properties received without consideration referred to in section 56(2) of the Act and that too when assessee when assessee claims that the value adopted or assessed or assessable by stamp valuation authority exceeds the fair market value of the property as on the date of transfer. Therefore, it is incorrect on the part of the ld. counsel for the assessee to say that with effect from 1st July, 2010 reference to valuation cell can only be made in respect of immovable properties. Accordingly we reject this contention of the assessee.
15.7 Here we would like to mention that in case of capital gains the Legislature has enacted section 50C, according to which, full value of consideration would mean the stamp value for the purpose of stamp duty for transfer of such asset. However, for the purpose of determination of investment made by the assessee the Legislature in its wisdom has made provision under section 142A for reference to valuation cell for the purpose of determination of market value of the investment. The Legislature is aware of the fact that in the hands of seller for the purpose of capital gains the full value of the consideration will be as per circle rates fixed for the purpose of stamp duty. However in the case of purchaser the sale consideration mentioned in sale deeds cannot be treated as full value of investment. The Legislature has provided for a reference to the valuation officer in section 142-A of the Act in a case where assessee makes investment falling under sections 69/69A/69B of the Act. In the case of assessee the investment of Rs 24,00,000/- in three commercial properties has been made. The assessee had made investment in purchase of shops located in one of the costliest area of Delhi. The assessee had received gross annual rent in respect of shop No. 11 and 12 at the rate of Rs.65,000/- per month totaling to Rs.7,80,000/-. The rent for shop No. 12-A was received at the rate of Rs.32,500/- per month and the annual rent will be at Rs.3,90,000. The total gross annual rent from these properties was determined at Rs.11,70,000/-. Thus minimum annual return from these properties was 11,70,000/- which cannot be fetched from properties valuing at Rs 24,00,000/-. The receipt of extra ordinary high returns from these properties suggests that value of the impugned properties should be much 16 I. T. Appeal No. 2256 (Del) of 2008.
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higher than the value shown by the assessee in sale deeds. As per wealth valuation of properties is made by taking annual return @ 8 to 10% of the value of the property and at about 50% as in the case of the assessee. We are aware of the legal position that the addition cannot be made merely based on the valuation report. But in the instant case receipt of extraordinary high return indicate to the human probabilities that the market cost of investments should be very high as compared the value recorded in sale deeds. It is also a settled law that the Revenue cannot be asked to prove the impossible particularly in the circumstance where actual information is in possession of the assessee. The difference in valuation as per registered valuer's report or sale deed vis a vis DVO's report is not small. It almost is almost six times. Therefore, the decision of ITAT Delhi Bench in the case of ITO Vs. Five Star Healthcare P. Ltd. (supra) will be applicable.
15.8 ITAT, Delhi in the case of ITO Vs. Five Star Healthcare P. Ltd. (supra) for AY 2006- 07 has held that the AO was right in invoking provisions of section 69 read with section 142A of the Act. In this case the assessee company had purchased land for consideration of Rs.7 lakhs. The AO observing that the land was under-valued, referred the valuation of the land to the DVO, who valued the property at Rs.22 lakhs. The AO made addition of Rs.15 lakhs towards undisclosed investment under section 69B of the Act. There was huge difference in the amount shown to have expended by the assessee on purchase of land and the amount representing the average rate of similar property in the area and the difference was almost three-fold. The assessee did not disclose proper value of investment made by it in the books of accounts. It was held that where there was under-statement of investment by the assessee, the difference being more than three-fold, section 69B was clearly attracted and there was no infirmity in the action of the AO when he made reference to the DVO under section 142A of the Act. The burden will be on the assessee to prove that it had actually paid the amount, which is stated in the title deed.17
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15.9 In view of above and following the decision of the ITAT, Delhi Bench in the case of Income-tax Officer Vs. Five Star Healthcare Ltd. (supra) it is held that reference to the valuation cell under section 142-A of the Act is justified.
16. In the case of assessee as discussed above rent received by the assessee is extraordinary high. Rent capitalization method of valuation of the property for estimating the vale of investments is also an approved method recognized in law and prescribed in wealth tax Act which is also applicable for valuation of property covered by sections 69/69A/69B of IT act, 1961. During the course hearing ld. AR of the assessee had not denied/objected the applicability of capitalization method of valuation of the property. Hence it is held that DVO was justified to value the investments in properties by adopting rent capitalization method.
17. Now coming to the valuation of the property by adopting rent capitalization method, the ld. DVO has estimated the value of property by multiplying factor of 12 .5 as per Rule 3 of Schedule III with net maintainable rent which is defined in Rule 4 of Schedule III. The assessee had received gross annual rent in respect of shop No. 11 and 12 at the rate of Rs.65,000/- per month totaling to Rs.7,80,000/-. The rent for shop No. 12-A was received at the rate of Rs.32,500/- per month and the annual rent taken by the DVO is at Rs.3,90,000/-. The assessing officer has taken into account the notional interest on advance of Rs.1,95,000/- received by applying the rate of 12 per cent at Rs.23,400/-. The total gross annual rent from these properties was determined at Rs.11,93,400/- including of notional interest on advance at Rs.23,400/-. From this figure Municipal Tax of Rs.18,355/- has been deducted and net maintainable rent was determined at Rs.11,75,045/- as against actual gross rent of Rs.11,70,000/-. Net maintainable rent for the purposes of Rule 3 in relation to an immovable property shall be the amount of gross maintainable rent, as reduced by amount of taxes levied by any local authority in respect of the property and a sum equal to 15 per cent of gross maintainable rent. As per Rule 5, gross maintainable rent is to be computed in respect of property which is let and will be the amount received or receivable by the owner as annual rent or the annual value assessed by the local 18 I. T. Appeal No. 2256 (Del) of 2008.
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authority in whose area the property is situated for the purposes of levy of Property Tax or any other tax on the basis of such assessment, whichever is higher. Therefore, for the purpose of determination of gross maintainable rent the interest on advance received cannot be included. Moreover, the assessing officer has allowed the deduction in respect of Municipal Taxes paid by the assessee at Rs.18,355/-, but no deduction of a sum equal to 15 per cent of gross maintainable rent has not been allowed. Further it is not known whether the soaps purchased by the assessee are free-hold or lease-hold. If it is a case of lease hold property, proviso to Rule 3 will come into operation, according to which where the unexpired period of lease of such land is 50 years or more, the figure 10 should be taken in place of 12.5 and in a case un-expired of lease of such land is less than 50 years, the figure 8 has to be substituted in place of figure 12.5 In view of above, we feel it proper to set aside the matter to the file of the assessing officer with the directions to compute the value of the property as per Rule 3 of Schedule III of the Wealth-tax Act, 1957.
18. Now coming to the cross objections of assessee, the first issue raised relates to completion of assessment under section 143(3) of the Act, which is contrary to provisions of section 153 of the Act. The assessee had not taken this ground before the ld. CIT (Appeals). Before us the ld. AR of the assessee could not substantiate as to how the assessment framed was contrary to the law contained under section 153 and, therefore, this ground of appeal is rejected.
19. The next ground of cross objection for consideration relates to confirming the addition of Rs.36,000/- made by the assessing officer and upheld by the ld. CIT (Appeals). The facts stated in brief are that the assessing officer has taken the rent of the property B-28, Lajpat Nagar at Rs.36,000/-. The premises were vacated by the tenant at the end of May, 2003, as per notice dated 26th April, 2003 placed at page 19. Thereafter the premises were in self-occupation of the assessee. The said property was sold vide agreement dated 1st August, 2003. The AO while making assessment under section 143(3) of the Income-tax Act, 1961 made addition of Rs.36,000/- on assumption that the property continued to be on rent from June and July, 2003 19 I. T. Appeal No. 2256 (Del) of 2008.
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without enquiry or bringing any material on record. The assessee was receiving rent since the beginning by cheque and there was no such deposit in the assessee's bank account to indicate the receipt of rent for the months of June and July, 2003 as per bank statement, as such, addition of Rs.36,000/- was unjustified. The ld. CIT (Appeals) called for the comments of the AO in respect of submissions made by the assessee. It was stated by the AO that no new evidence was put forward by the assessee to show that the said premises remained vacant during these months. The ld. CIT (A) noted that even if the said premises remained vacant for the months of June and July, 2003 then also the assessee was liable to declare her income as deemed rent for these months under section 23(4)(b) of the Act. In rejoinder the assessee did not make any submission. Therefore, the ld. CIT (A) upheld the addition.
20. We have heard both the parties. The contention of the assessee is that the Lajpat Nagar property was vacant for the period of June and July, 2003 and, therefore, the income cannot be assessed on notional basis. Under section 23(1) the annual value of any property shall be deemed to be (a) the sum for which property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable. In the case of assessee the house property was vacant for the months of June and July, 2003. Therefore, the annual value of the property has to be determined as per the provisions of section 23(1)(c) as actual rent received or receivable by the owner will be less than the sum for which property might reasonably be expected to let from year to year. Since the assessing officer while adding the rent of Rs.36,000/- had not examined the case in the light of provisions of section 23(1)(c) and had not considered assessee's contention in respect of vacancy of the house property, we therefore, set aside this issue also to the file of the assessing officer with the directions to examine the case of 20 I. T. Appeal No. 2256 (Del) of 2008.
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the assessee in the light of provisions of law and decide the issue after affording the assessee a reasonable opportunity of being heard.
21. In the result, the appeal filed by the Revenue and the cross objection filed by the assessee are partly allowed, for statistical purposes.
Order pronounced in the open court today on : 30th August, 2011.
Sd/- Sd/-
[ RAJPAL YADAV ] [ K. D. RANJAN ]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 30th August, 2011.
*MEHTA*
" Copy of the order forwarded to : -
1. Appellants.
2. Respondents.
3. CIT,
4. CIT (Appeals),
5. DR, ITAT, NEW DELHI.
True Copy. By Order.
Assistant Registrar, ITAT. "
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