CIT vs. DINESH JAIN HUF

$~3
* IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of decision: 19.10.2012
+ ITA 610/2012

CIT ..... Appellant
Through: Mr. Abhishek Maratha, Sr.
Standing Counsel with Ms. Anshul Sharma,
Advocate.
versus

DINESH JAIN HUF ..... Respondent
Through: None.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR

R.V. EASWAR,J: (OPEN COURT)

This is an appeal by the revenue filed under Section 260A of the Income
Tax Act, 1961 (“Act”, for short) and the following substantial questions of law
are sought to be raised for our consideration.
“A. Whether the ITAT was correct in the eyes of law in deleting
the addition of ` 3,72,86,412/- made by the assessing officer on
account of the unexplained investment in the immoveable
properties?
B. Whether ITAT was correct in the eyes of law in quashing
the order passed by the assessing officer adopting the Fair
Market Value as the sale consideration of the property when he
had brought on record sufficient reasons to show cause that there
was under statements of sale consideration by the assessee?
C. Whether the impugned order passed by the ITAT is
perverse both in facts and law?”

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2. The assessee, who is the respondent in this appeal, is a Hindu Undivided
Family. There was a search under Section 132 of the Act on 9.12.2003 in the
residential/business premises and the related persons/concerns of Begum Gutka
group of cases and on the basis of the material seized during the search, a notice
under Section 153A of the Act was issued to the assessee calling upon it to file
the return of income. The assessee submitted that the original return filed may
be taken as the return filed in response to the notice. In the course of the
assessment proceedings, the assessing officer noticed that the assessee had
acquired immoveable properties for prices which according to him were very
low considering the rental income yielded by those properties. He accordingly
applied the rent capitalization method as provided in rule 3 of Part B of
Schedule III to the Wealth Tax Act and estimated the value of the properties at
higher figures and treated the difference between the prices shown by the
assessee and the value estimated by him as undisclosed investment of the
assessee, invoking Section 69B of the Act. The following are the details :

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On the above basis and the reasoning the assessing officer made an addition of
3,72,86,412/- under the head “income from other sources” as the unexplained
`
investment made in rent-yielding properties.
3. The assessee preferred an appeal to the CIT(Appeals) and contended that
there was no evidence to show that it had in fact paid anything more than the
price declared by it for the properties, that the conclusion of the assessing
officer to the contrary was based purely on surmises and conjectures and not on
any cogent material, that even the search did not yield any material or evidence
to show any undisclosed investment by the assessee. It was argued that at any
rate the value based on rent capitalization method as prescribed in the Schedule
III to the Wealth Tax Act was only a notional figure of fair market value of the
property which was different from the price paid for the property and that in
these circumstances the addition made by the Assessing Officer based upon the
provisions of Section 69B of the Act was arbitrary and had absolutely no basis.
It was also submitted on the basis of certain specific instances that even on
comparing the market rates for the properties, there was no understatement of
the consideration.
4. The CIT(Appeals) examined the contentions of the assessee in detail and
held that so far as the flat Nos.3 and 9, Palm Court are concerned, the facts are
substantially similar to the facts of the case of P C Jain (HUF), Smt. Lata Jain
and Dinesh Jain (individual) which cases had already been adjudicated by him
by orders dated 13.3.2008, 13.7.2008 and 18.8.2008 respectively. Following
his orders in those cases, which according to him were equally applicable to the
present case, he directed the assessing officer to rework the addition. In those
earlier cases the CIT(Appeals) had held that the amount declared by the
assessee as purchase price was not sacrosanct and that the assessing officer can
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go behind the prices declared to find the correct and fair valuation of the
immoveable properties since no direct evidence (of understatement) in such
transactions can be gathered. Adopting a similar line of reasoning the addition
made under Section 69B was directed to be reworked.
5. In respect of flat No.303 and 309, Palm Court also a similar line of
reasoning was adopted.
6. The result was that in respect of flat Nos.3 and 9, Palm Court, the
CIT(Appeals) sustained an addition of ` 52,90,000/- and in respect of flat
Nos.303 and 309, Palm Court he sustained an addition of ` 42,90,000/-.
7. So far as the property bearing No.M-64, G.K.-II is concerned, the
CIT(Appeals) was of the view that the price of ` 498.57 per sq.ft declared by the
assessee was abnormally low and could not by any standards be considered as
reasonable compared to the market value of the property. He noted that the
property was located in a commercial places and commanded a substantial
value in the open market and “merely on the ground that no evidences found
during search as regards the real value of investment, could not make the value
declared by the assessee is true and correct”. He estimated the value of the
property at ` 4,000 per sq.ft. by taking into account the locality and the rental
income as was done in the case of Dinesh Jain (individual) for the assessment
year 2001-02. Applying this rate the value of the property came to ` 80,20,000/-
as against 10,00,000/- declared by the assessee and 1,06,25,000/- adopted by
` `
the assessing officer. The addition sustained was thus reduced to ` 70,20,000/-
in respect of this property.
8. Both the assessee as well as the revenue preferred cross-appeals before
the Income Tax Appellate Tribunal (“Tribunal”). The Tribunal found that the
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facts of the present case were similar to the facts in the cases of Dinesh Jain
(individual) and Smt. Lata Jain. It noted that in those cases the matter had
already reached the Tribunal and the Tribunal had deleted the entire addition
made under Section 69B on the ground that there was no evidence to show any
understatement or suppression of the sale consideration/purchase consideration
and therefore, no addition can be made on the basis of the estimated market
value of the properties. The Tribunal held as follows :
“ 21. We have heard both the parties and gone through the
material available on record. In the instant appeals the AO has
estimated the value of investments in the impugned properties by
applying provisions of Schedule 3 of Wealth-tax Act. The ld.
CIT(A), however, following his decision in the case of Shri Dinesh
Jain and in the case of Smt. Lata Jain had estimated the value of
the property. The AO had not brought on record any material to
suggest that the value shown in the conveyance deeds was lower
than the amount passed on by the assessee to the sellers. ITAT,
Delhi Bench “B” in the case of Shri Dinesh Jain and Smt. Lata
th
Jain in consolidated order dated 30 September, 2009 in ITA
No.3422 (Del) of 2008 etc. has deleted the similar additions by
observing, as under :-
“5. We have considered the rival contentions and
carefully gone through the orders of the authorities
below. From the record, we found that on the basis of
sale deed found during the course of search in respect of
purchase of various properties, the AO found that
assessee was in receipt of rental Income in respect of
these properties. As per AO, the disproportionate yield of
income from these properties indicates that the amount
invested has been suppressed. Accordingly, he applied
rd
provision of Rule 3 Part (b) of the 3 Schedule to the
Wealth Tax Rules for the purpose of determining the fair
market value of these properties. The assessing officer
also make a reference to the DVO, as the reference was
made one day prior to the framing of assessment, he was
not in receipt of any DVO’s report. It is undisputed fact
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that department has not referred any incriminating
material having been found during the course of search
and investigation made thereafter which indicate that
assessee had paid anything more than what has been
stated in the sale deeds. It was also not the allegation of
the Department that there was any difference in the value
of the property as accepted by the Sub Registrar for the
purpose of stamp duty valuation. In view of the fact that
no material was found indicating anything paid over and
above the registered sale price of the property so
acquired, keeping in view of the decision of Hon’ble
Supreme Court in the celebrated judgment of K P
Verghese (supra) wherein it was held that onus lies on
the department to prove that some consideration over and
above the consideration stated in the sale deed have been
invested, no addition can be made on presumptions and
suspicions. In the latest case of CU vs. Shakuntala Devi
(ITA No.345/2007), Hon’ble Delhi High Court held “it
may be relevant to note that a division bench of the court
comprising Dr. Arijit Prasayath and Justice D.K.Jain, as
their lordships then were retreated that there must be a
finding of the revenue that the assessee had received
amounts over and above the consideration stated in the
sale deed, following the ratio of K.P.Verghese (supra). K
P Verghese (supra) has also been followed and applied
by the Supreme Court in CIT Vs. Godavari Corporation
Limited 200 ITR 567. The division bench of Hon’ble
Delhi High Court in CIT Vs. Ashok Khetrpal 294 ITR 143
observed that by referring to the report of valuation
officer in the absence of aiiy(sic) incriminating
documents found in the course of a search no addition
could be made by treating investment as undisclosed on
the basis of any DYC’s report. The decision in CIT Vs.
Mar Jam 287 ITR 285 is also to the same effect. In CIT
Vs. Shivakami Company (P) Ltd. 151 ITR 79 (SC), their
Lordships have once again reiterated that onus whether
the assessee had received more consideration than what
was stated in the documents of transfer, rested on the
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Revenue and in the absence of that burden having been
being discharged, it would be legally impressible to make
any inferences against the assessee.”
22. Since the issue is covered by the decision of the ITAT in the
case of Shri Dinesh Jain (supra) and the facts of the case are
identical to the facts of Shri Dinesh Jain, respectfully following
the precedent, it is held that the Ld. CIT(A) was not justified in
estimating the value of the investments in the properties contrary
to the amount mentioned in the conveyance deeds. Accordingly,
we set aside the order of the ld. CIT(Appeals) and direct the AO
to accept the value of the properties as declared in sale deeds.”

9. It is the correctness of the aforesaid order of the Tribunal that is called in
question in the present appeal by proposing the questions of law which we have
extracted in the beginning of the order. In the cases of the present assessee
itself as well as the Smt. Lata Jain and Dinesh Jain (individual), the correctness
of the orders of the Tribunal passed on similar lines was called in question
before this Court in ITA Nos.1667/2010, 85/2011 ( CIT Vs. DINESH JAIN
HUF ), 1800/2010, 1803/2010, ITA 1805/2010, 1807/2010, 1809/2010,
1811/2010, 1812/2010, 1813/2010, 1967/2010, 1972/2010 ( CIT Vs. LATA
JAIN ), 1815/2010, 1816/2010, 1817/2010, 1818/2010, 1819/2010, 1968/2010,
1969/2010, 1970/2010, 1971/2010 ( CIT Vs. DINESH JAIN ). This Court in its
order dated 28.9.2012 held that (a) Section 69B in terms requires the assessing
officer to first prove that the assessee has actually expended an amount which
he has not fully recorded in his books of account; (b) there has to be a finding
that such amount was actually paid by the assessee over and above the declared
consideration and the extra amount was not recorded in the assessee‟s books of
account; (c) the provisions of the Wealth Tax Act and Schedule III thereto
cannot be imported into the provisions of Section 69B because the enquiry
under the Wealth Tax Act is towards estimating the market value of the
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property which is different from the actual price paid for the property; (d)
Section 69B does not permit an inference to be drawn from the circumstances
surrounding the transaction that the purchaser of the property must have paid
more than what was actually recorded in this books of account, because such an
inference could be very subjective and could lead to the taxation of notional or
fictitious income contrary to the strict provisions of Article 265 of the
Constitution of India as held by the Supreme Court in the case of K P Verghese
Vs. ITO (1981) 131 ITR 597.
10. Since admittedly the facts in the present case are the same as in the
earlier decision of this Court, we see no infirmity in the decision taken by the
Tribunal to delete the entire addition made by the assessing officer under
Section 69B. As in the earlier decision of this Court, the first two substantial
questions of law are answered in the affirmative, in favour of the assessee and
against the revenue. We hasten to clarify that question „B‟ is improperly
worded inasmuch as it assumes that the assessing officer had brought on record
sufficient evidence to show understatement of sale consideration. This is an
erroneous assumption and no such evidence has been brought on record, as has
been pointed out by us earlier. The third and last question is answered in the
negative, against the revenue and in favour of the assessee.
The appeal filed by the revenue is accordingly dismissed with no order
as to costs.

R.V.EASWAR, J



S. RAVINDRA BHAT, J
OCTOBER 19, 2012/ vld
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