By TIOL News Service

KOLKATA, FEB 05, 2016: THE issue is - Whether in order to invoke the provisions of section 69B, the burden is on the revenue to prove that the assessee has invested in property over and above what is disclosed in its balance sheet. YES is the answer.

Facts of the case

A) The assessee had purchased immovable properties from Sambhunath Bose and Bishwanath Bose for Rs. 48,00,000/- and disclosed the same in its balance sheet. The AO observed that the value determined by the stamp valuation authority for the subject mentioned properties were Rs. 1,05,13,370/- and accordingly treating the same to be the fair market value of the properties, sought to make an addition of Rs. 57,13,370/- as unexplained investment in the assessment. On appeal, the CIT(A) held that the adoption of fair market value as determined by stamp valuation authority as actual sale consideration of the property is not warranted as admittedly the assessee was only the purchaser of the property and not the seller and accordingly the provisions of section 50C would not be applicable in the facts of the case.

B) The assessee was in receipt of Rs. 1,21,60,000/- towards share application money. Accordingly, the shares were allotted by the assessee to various parties to the tune of Rs. 2,90,20,000/- out of monies lying in the opening balance of share application money and out of monies received during the year, leaving a balance in share application money to the tune of Rs. 32,00,000/- at the end of the A.Y. The assessee filed copies of balance sheet of 5 body corporate except Belfast Engineering (P) Ltd to explain that the parties had sufficient sources in their balance sheet to invest in shares of the assessee company. The AO did not raise any query regarding share application money received from Meena Devi Agarwal to the tune of Rs. 25,00,000/- and accepted the same as genuine. He found that the balance sheets of 5 shareholders were filed who had invested Rs. 64,00,000/- and no bank statements of those new shareholders were filed. Accordingly he held that the identity and creditworthiness of the new shareholders could not be verified and accordingly brought the share capital of Rs. 89,60,000/- as unexplained cash credit u/s 68. On appeal, the CIT(A) deleted the addition made by AO

Having heard the parties, the Tribunal held that,

Stamp valuation vis-a-vis unexplained investment

++ it is noted that in order to invoke the provisions of section 69B, the burden is on the revenue to prove that the assessee has invested in property over and above what is disclosed in its balance sheet. We find that there is nothing on record to show that the assessee had made any additional investment in addition to what has been stated in the books of accounts. We hold that no addition could be made in the hands of the purchaser on the basis of stamp duty charged by the sub-registrar. We also find the valuation adopted by stamp valuation authority is only for the purpose of capital gain as prescribed u/s 50C which has got very limited scope. This legal fiction has been created for computation of capital gain only in the case of seller of any asset. We hold that the same cannot be extended in the case of the purchaser to estimate the undisclosed investment;

++ the 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 latter 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 Asst Year 2006-07, the mandate of section 56(2)(vii) cannot apply retrospectively. In view of the aforesaid findings, we hold that no addition could be made in the hands of the assessee buyer and hence we find no infirmity in the order of the CIT(A);

Unexplained cash credit

++ it is seen that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. The Apex Court in the case of CIT vs Lovely Exports (P) Ltd, has clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received. In view of the aforesaid findings and respectfully following the decision of the Apex court, we find no infirmity in the order of the CIT(A).

(See 2016-TIOL-212-ITAT-KOL)