Commissioner Of Income Tax Vii vs Shri Karan Khandelwal
2012 Latest Caselaw 2622 Del

                 *    IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                          Judgment reserved on: 28.03.2012
                                           Judgment pronounced on: 23.04.2012

+       ITA 334/2009

        COMMISSIONER OF INCOME TAX VII                                   ...       Appellant

                                           versus

        SHRI KARAN KHANDELWAL                                            ...       Respondent


Advocates who appeared in this case:
For the Petitioner          : Mr N.P. Sahni with Mr Ruchesh Sinha
For Respondent              : Mr P.S. Khandelwal in person for Mr Karan Khandelwal



                                                And
+       ITA No. 82/2009

        THE COMMISSIONER OF INCOME TAX III                               ...       Appellant

                                           versus

        SUNIL BEDI                                                       ...       Respondent


Advocates who appeared in this case:
For the Petitioner          : Mr Sanjeev Sabharwal
For Respondent              : Mr Satyen Sethi with Mr Arta Trana Panda

CORAM:
HON'BLE MR. JUSTICE BADAR DURREZ AHMED
HON'BLE MR. JUSTICE V.K.JAIN

V.K. JAIN, J.

1. By this common judgment, we shall dispose of both the appeals referred above.

ITA No.334/2009 is directed against the order dated 25.04.2008 passed by the

Income Tax Appellate Tribunal (herein after referred to as „the Tribunal‟), dismissing

ITA No.454/del/07 filed by the Revenue, in respect of assessment of the respondent Sh.

Karan Khandelwal, for the assessment year 2003-04. ITA No.82/09 is directed against

the order dated 09.05.2008 passed by the Tribunal dismissing the ITA No.2008/del/06

filed by the revenue in respect of the assessment of the respondent Sh. Sunil Bedi, for the

assessment year 2003-04. The facts giving rise to filing of these appeals can be

summarized as under:

Prem Shanker Khandelwal HUF was the sole owner of the land measuring 18 biswas

comprised in Khasra No.374 and land measuring 17 biswas comprised in Khasra No.375,

in the revenue estate of Village Sikandarpur, Ghosi, Tehsil and District Gurgaon, situated

at Main Mehrauli Gurgaon Road. A Memorandum of Understanding dated 22.03.2000,

was executed between Prem Shanker Khandelwal (HUF), through its karta Sh.

Premchand Shanker Khandelwal and Fashion Flare International Private Ltd. through its

Managing Director Sh. Choudhary Ajay Latyan, with respect to the aforesaid land

measuring 5300 sq. yards. Under the Memorandum of Understanding, Fashion Flare

International Private Ltd. was to purchase the aforesaid land for the total consideration of

Rs.6 crores 35 lacs. The seller was required to obtain approval/sanction/license to use the

aforesaid land for construction of a commercial building, from concerned authorities of

Haryana Government and the license as well as external development charges payable to

the Authorities, for grant of permit /license to construct a commercial building on the

aforesaid land, were to be deposited by Fashion Flare International Pvt. Ltd., which could

deduct the same from the said price agreed between the parties. All other charges and

levies imposed by the Authorities on conversion of the land used for commercial building

were to be deposited by the seller.

2. A Company namely Span Properties Pvt. Ltd., was then formed by Sh. P.S.

Khandelwal, his son Neeraj Khandelwal and Mrs. Sheela Khandelwal, and they held the

entire share capital of that company. The aforesaid land measuring 5300 sq. yards was

transferred to that company for a sum of Rs.20,60,000/-. The company (Span Properties

Pvt. Ltd.) entered into a Memorandum of Understanding dated 19.12.2008 with Fashion

Flare Pvt. Ltd. Vide this memorandum of Understanding, the time for performance of the

original MOU dated 22.03.2000, between Prem Shanker Khandelwal (HUF) and Fashion

Flare Pvt. Ltd was extended upto 31.03.2001. It was agreed between them that if the

permission which the seller had sought from the Government for construction of a

commercial building on the aforesaid land is granted then the entire shareholding of Span

Properties Pvt. Ltd. shall be transferred to Fashion Flare Pvt. Ltd., and the parties shall

comply with the terms and conditions of the MOU dated 22.03.2000. It was further

agreed that in case necessary permission/license/approval of Government of Haryana is

not given till 31.03.2001, the entire understanding shall be nullified and shall have no

effect. In that case, the seller was obliged to refund the advance money, which it had

received from the purchaser.

3. A Collaboration Agreement dated 15.07.2002 was then executed between Span

Properties Pvt. Ltd. on one hand and Ajay Chaudhary and Smt. Savita on the other hand.

It would be pertinent to note that Sh. Ajay Chaudhary was the same person through

whom Fashion Flare Pvt. Ltd. had entered into the MOU dated 19.12.2008 with Span

Properties Pvt. Ltd. Under the Collaboration Agreement, the Choudharys‟ were to pay

Rs.1 crore 40 lakh to Span Properties Pvt. Ltd as security deposit. They agreed to

construct a Central Air Conditioned Multistoried Building on the aforesaid land and

transfer half of the built up area (2760 sq. feet) to Span Properties (Pvt.) Ltd. free of any

cost. Before execution of this Collaboration Agreement, Span had already obtained

permission from Town and Country Planning Department of Haryana for change of land

used for development of the commercial building on the aforesaid land after paying a sum

of Rs.46,32,031/- on account of conversion charges, Rs.27,34,375/- on account of

additional conversion charges, Rs.64,47,656/- on account of external charges and

Rs.11,76,875/- on account of internal development charges. This Collaboration

Aagreement dated 15.07.2002 was terminated mutually vide letter dated 13.08.2002 from

Span International Pvt. Ltd. to Sh. Ajay Chaudhary and Smt. Savita Chaudhary.

4. A Collaboration Agreement dated 28.08.2002 was then executed between

Span Properties Pvt. Ltd. and JMD Promoters Private Limited, through its

Managing Director Shri Sunil Bedi. Under this MoU, JMD Promoters Private

Limited agreed to construct a building having approximately 54,000 square feet of

FAR on the land belonging to Span Properties Private Limited. The building

which JMD Promoters Private Limited had to construct on the land of Span

Properties Private Limited was to be a centrally air conditioned multi-storey

commercial building. A sum of Rs 2.50 crores was paid by JMD Promoters Private

Limited to Span Properties Private Limited as a non-refundable security for due

purpose of its obligations under the agreement and as part consideration. On

completion of the project, 25% of the entire built up area of the building (13500

square feet) and basement with proportionate ownership rights in the land

underneath was to come to the share of Span Properties Private Limited and

simultaneously the amount of Rs 2.50 crores which it had received from JMD

Promoters Private Limited as security was to be adjusted towards consideration.

Thus under this agreement, JMD Promoters Private Limited was to pay Rs 2.5

crores and 25% of the built up area of the proposed air conditioned commercial

building to Span Properties Private Limited.

5. An agreement dated 30.11.2002 was then executed between Shri Prem

Shanker Khandelwal, Shri Niraj Khandelwal, Shri Karan Khandelwal and Shri

Niraj Khandelwal (HUF) on the one hand and Shri Sunil Bedi, Managing Director

of JMD Promoters Private Limited on the other. Under this agreement

Khandelwals agreed to transfer entire share holding in Span Properties Private

Limited consisting of 216200 fully paid up equity shares to Shri Sunil Bedi for a

total sale consideration of Rs 2.50 crores. Pursuant to the aforesaid agreement, the

entire share holding of Khandelwals in Span Properties Private Limited was

transferred to Shri Sunil Bedi.

6. Vide assessment order dated 13.03.2006, the Assessing Officer of Shri

Karan Khandelwal held that the total worth of Span Properties Private Limited was

Rs 6.35 crore, whereas Shri Sunil Bedi and Shri Pinki Bedi had paid Rs 5 crore,

including loan liabilities of Span Properties Private Limited. He added Rs 60 lakh

to the aforesaid amount of Rs 5 crore on account of brokerage and commission.

The Assessing Officer was of the view that difference of Rs 75 lakh was nothing,

but the amount paid by Shri Sunil Bedi for acquiring Span Properties Private

Limited and that amount had not been recorded in the account books. He

accordingly made addition of Rs 74,58,375/- to the income declared by Shri Karan

Khandelwal in his return and also initiated penalty proceedings against him.

Vide assessment order dated 31.03.2005, the Assessing Officer of Shri Sunil

Bedi took an identical view and made an addition of Rs 75 lakh to the income

declared by Shri Sunil Bedi on the ground that the aforesaid amount represented

the cash consideration paid to Khandelwas which had not been recorded in the

books of account.

Appeals were filed by Shri Sunil Bedi as well as by Shri Karan Khandelwal

against the orders passed by their respective Assessing Officers. Both the appeals

were allowed by CIT (Appeals). The orders passed by CIT (Appeals) were

challenged by revenue before the Tribunal. The appeals filed by the revenue were,

however, dismissed.

7. In these appeals, the following substantial question of law arises for our

consideration:-

"Whether in the facts and circumstances of the case the ITAT was correct in law in holding that the Assessing Officer was not justified in making the addition of Rs 75 lakhs being the difference between the apparent consideration and the real value of the assets of M/s Span Properties (P) Ltd.?"

8. It is an admitted position that vide MoU dated 22.03.2000, Fashion Flair

International Private Limited had agreed to purchase land in question from Prem

Shanker Khandelwal (HUF). The same consideration was maintained in the MoU

dated 19.12.2000, the only difference being that under the first MoU, it was the

land which was to be transferred to Fashion Flair International Private Limited,

whereas under the second MoU, the entire share holding of Span Properties Private

Limited was to be transferred by Shri Prem Shanker Khandelwal, Niraj

Khandelwal and their heirs to Fashion Flair International Private Limited, after

grant of permission by Government of Haryana for construction of a commercial

building on the aforesaid land. Under these MoUs, the licence as well as external

development charges, etc. payable to the authorities, while obtaining

permission/licence to construct a commercial building on the aforesaid land were to

be borne by the seller. Thus, in the event of permission being granted by the

concerned authorities for construction of a commercial building on the aforesaid

land, the net amount payable to Khandelwals/Span Properties Private Limited

would be Rs 6.35 crore minus the charges paid to the concerned authorities while

obtaining permission for construction of a commercial building on the aforesaid

land.

9. It is not in dispute that the requisite approvals, including charge of land use

and licence for construction of a commercial building on land in question had been

obtained and conversion charges, additional conversion charges, external

development charges and external development charges had been paid by Span

Properties Private Limited before it entered into the Collaboration Agreement dated

28.08.2002 with JMD Promoters Private Limited. The relevant clauses of the said

agreement read as under:-

"AND WHEREAS the Owners had applied to the Town & Country Planning Department of State of Haryana, vide its letter dated 31.12.2001, agreed to change of land use for development of Commercial Building on the said Plot subject to the fulfillment of the conditions mentioned therein and thereafter the CLU (bearing No. G-1313-8DP-2002/2424 dated 8.2.2002 with the validity up to 8.02.2004)

was granted to the Owners on the terms mentioned in the CLU/Licence and in the Annexures thereto on receipt of Rs 46,32,031/- on account of conversion charges, Rs 27,34,375/- on account of additional conversion charges, sum of Rs 64,47,656/- on account of external development charges and Rs 11,76,875/- on account of internal development charges. All enhancement in the aforesaid charges shall be borne by the Owners till the occupation/completion certificate. AND WHEREAS the owners have also entered into an Agreement on 30.01.2002 in Form CLU-II (under rule 26(d) of Rules framed under the Punjab Scheduled Roads and Controlled Areas Restriction of Unregulated Development Act, 1963) with the Governor of State of Haryana, with regard to the development of a commercial Building on the said plot and payment of development and other charges and compliance of the other conditions of the CLU/licence.

10. The value of land in question, after change of land use so as to enable

construction of a commercial building and payment of conversion charges,

development charges, etc., was agreed by Kandelwals/Span Properties Private

Limited and Fashion Flair International Private Limited at Rs 6.35 crore, vide

MoUs dated 22.03.2000 and 19.12.2000. It can therefore be safely taken that the

value was not less than Rs 6.35 crore on 15.07.2002 when the Collaboration

Agreement was executed been Span Properties Private Limited and JMD

Promoters Private Limited and on 30.11.2002, when the agreement for sale of

share holding was executed between Khandelwal and Sunil Bedi, unless it is shown

that on account of reasons such as slump in the market or the permissible

coverage/FAR being reduced or the land use having been changed from

commercial to some other purpose, or some other reason, there was erosion in the

market value of the land between 22.03.2000/19.12.2000 and

28.08.2002/30.11.2002. We find that this was not the case of the assessee either

before the Assessing Officer or before the CIT (Appeals) or before the Tribunal

that on account of slump in the market, the value of land in the locality had gone

down between December, 2000 and November, 2002. No such plea has been taken

even before us. It was, however, contended by the learned counsel for the

assessees that at the time MoUs were executed on 22.03.2000 and 19.12.2000, the

parties were under an impression that the permissible FAR on the land in question

was 2, whereas Haryana Government permitted only 1.5 FAR while changing land

use and accorded necessary approvals and that is why the market value of the

property had gone down on account of permissible built up area having been

substantially reduced. We have carefully perused the MoU dated 22.03.2000 as

well as the MoU dated 19.12.2000. There is absolutely no mention in either of

these MoUs from which it may be inferred that the parties believed that the

permissible FAR at the time these MoUs were executed was 2. Admittedly, no

attempt was made by the assessees to lead evidence before the Assessing Officer to

prove that the permissible FAR at the time of execution of MoUs was 2. If the

permissible FAR on land in question at the time of execution of the MoUs, was 2,

it could have been easily proved by the assessee before the Assessing Officer, by

filing the relevant building bye-laws or summoning an official from the office of

concerned Authorities in Haryana. Since neither the MoU gives any indication

that the FAR in contemplation of the parties at the time of execution of these

documents was 2 nor has any evidence been produced to this effect, we are unable

to accept the plea that at the time MoUs were executed, the parties were under an

impression that permissible FAR on land in question was 2. No other ground has

been taken by the assessees to explain the alleged erosion in the market value

between December, 2000 and November, 2002. We, therefore, are of the view that

the Assessing Officer was justified in taking a view that the value of the land in

question at the time of sale of the shares of Span Properties Private Limited to Shri

Sunil Bedi was Rs 6.35 crore.

11. It is true that the transaction which ultimately materialized in this case was

of transfer of the entire share holding of Span Properties Private Limited to Shri

Sunil Bedi and not of sale of land in question to him. However, it is an undisputed

fact that Span Properties Private Limited was not engaged in any other business

activity at the relevant time and had no other asset. This is also evident from the

balance sheet of the company which is available on record. Since the entire share

holding of Khandelwas in Span Properties Private Limited was transferred to Shri

Sunil Bedi, he, on account of his ownership of the entire share holding of Span

Properties Private Limited, also acquired ownership of the land in question.

Hence, it would be difficult for us to accept that the value of the entire share

holdings of Khandelwas in Span Properties Private Limited could have been less

than Rs 6.35 crore minus the liabilities of the company. In fact, the MoU dated

19.12.2000 envisaged transfer of the entire share holding of Span Properties Private

Limited to Fashion Flair International Private Limited, after grant of requisite

permission to Span Properties Private Limited for construction of a commercial

building on land in question. The relevant clauses of the MoU dated 19.12.2000

read as under:-

AND WHEREAS, the FIRST PARTY had undertaken to obtain approval/sanction/permit/ licence to use the abovementioned land for construction of building from the concerned Authorities of the Government of Haryana AND WHEREAS, the Government of Haryana has not yet granted requisite permission to the FIRST PARTY for the construction of commercial building on the aforesaid land and a revised application for construction of Departmental Store with the facility of Shops, Restaurants and Officers had been filed duly signed by the FIRST PARTY as described by the SECOND PARTY.

AND WHEREAS, the parties have now mutually agreed as under:-

That the time of performance of the original understanding dated 22nd March, 2000 stands extended up to 31st March, 2001.

That the above said land BEARING KHASRA

(0-17 BISWAS), situated on main Mehrauli- Gurgaon Road in the Revenue Estate of Village Sikandarpur Ghosi, Tehsil & District Gurgaon, Haryana has not been transferred by the FIRST PARTY in favour of any other person and shall not be transferred from the name of M/s Span Properties Pvt. Limited, 12 Jamuna Road, Civil Lines, Delhi-110 054 till 31st March, 2001 in any manner whatsoever.

If requisite permission as applied by the FIRST PARTY to the concerned Authority of the Government of Haryana is granted to the FIRST PARTY then the entire share holding of Ms Span Properties Pvt. Ltd. 12 Jamuna Road, Civil Lines, Delhi-110 054, shall be transferred by Shri Prem Shanker Khandelwa, Shri Niraj Khandelwal and their heirs to the SECOND PARTY in terms and conditions of the Memorandum of Understanding dated 22nd March, 2000 and the parties shall religiously comply with all the terms and conditions as recorded in the Memorandum of Understanding dated 22nd March, 2000."

If the entire share holding of Span Properties Private Limited on 19.12.2000,

after grant of requisite permissions to Span Properties Private Limited for

construction of a commercial building on land in question, was valued at Rs 6.35

crore on 19.12.2000, the Assessing Officer was justified in taking the same to be

the true consideration for sale of this same share holding to Shri Sunil Bedi in

November, 2002, unless it can be shown that on account of factors such as erosion

in the value of the assets of the company, the market value of its shares also had

gone down during this period. But, that has not been shown to be the position in

the case before us.

12. There can be no dispute with the proposition of law that if the Assessing

Officer disputes the valuation discussed by the assessee, the onus is on the revenue

to prove that the ostensible consideration disclosed by the assessee was not the true

consideration and, therefore, there would be a presumption of correctness of the

consideration disclosed in the agreement dated 30.11.2002 between Khandelwas

and Shri Sunil Bedi. But, if the revenue is able to show from the material available

to the Assessing Officer that actual consideration was more than the ostensible

consideration disclosed by the assessee, the presumption stands duly displaced and

the Assessing Officer would be justified in taking a view that the difference

between the ostensible consideration and the real consideration reflected the

amount which was paid by the purchaser to the seller, but was not reflected in the

account books of the parties

13. During the course of arguments before us the learned counsel for the

Assessee referred to the decisions of the Supreme Court in K.P. Varghese v.

Income Tax Officer, Ernakulam And Anr. (1981) 4 SCC 173 and Commissioner

of Income Tax, Salem v. P.V. Kalyanasundaram (2007) 10 SCC 487 and the

decisions of this Court in Commissioner of Income Tax Central-III v. Suneet

Verma 145 (2007) DLT 280 (DB), Commissioner of Income Tax XI v. Shri

Puneet Sabharwal 291 338 ITR 485 (Delhi) and Commissioner of Income Tax v.

Naresh Khattar (2003) 261 ITR 664 (Delhi).

14. In K.P. Varghese (supra), the assessee sold a house which he had purchased

in 1958 to his daughter in law and five of his children, for the same consideration,

in the year 1965. The Assessing Officer sought to reopen the assessment invoking

the provisions of Section 52(2) of Income Tax Act and proposing to fix the market

value of their house in the year 1965 at Rs.65,000/- and assess the difference of

Rs.48,500/- as capital gains in the hands of the assessee, the action of the Assessing

Officer was challenged by the assessee by way of a writ petition, which was

allowed by a learned Single Judge of the High Court. The Full Bench of the High

Court, however, set aside the decision of the learned single judge and concurred

with the Assessing Officer.

The principal question which arouse for determination by the Supreme Court

turned on the true interpretation of Section 52(2) of the Act which provided that if

in the opinion of the Assessing Officer, the fair market value of a capital asset

transferred by the assessee, as on the date of the transfer, exceeded the full value of

the consideration declared by him, by an amount of not less than 15% of the value

declared, the full value of the consideration for such market asset shall be taken to

be its fair market value on the date of the transfer.

The argument of the revenue was that the only condition for attracting the

applicability of sub-Section 2 of Section 52 was that the fair market value of the

capital asset transferred by the assessee as on the date of transfer should exceed the

full value of the consideration declared by the assessee by an amount not less than

15% of the declared value.

Rejecting the contentions, the Supreme Court inter-alia observed as under:-

"There are many situations where the construction suggested on behalf of the Revenue would lead to a wholly unreasonable result which could never have been intended by the legislature. Take, for example, a case where A agrees to sell his property to B for a certain price and before the sale is completed pursuant to the agreement and it is quite well-known that sometimes the completion of the sale may take place even a couple of years after the date of the agreement-the market price shoots up with the result that the market price prevailing on the date of the sale exceeds the agreed price at which the property is sold by more than 15% of such agreed price. This is not at all an uncommon case in an economy of rising prices and in fact we would find in a large number of cases where the sale is completed more than a year or two after the date of the agreement that the market price prevailing on the date of the sale is very much more than the price at which the property is sold under the agreement. Can it be contended with any degree of fairness and justice that in such cases, where there is clearly no understatement of

consideration in respect of the transfer and the transaction is perfectly honest and bonafide and, in fact, in fulfilment of a contractual obligation, the assessee who has sold the property should be liable to pay tax on capital gains which have not accrued or arisen to him. It would indeed be most harsh and inequitable to tax the assessee on income which has neither arisen to him nor is received by him, merely because he has carried out the contractual obligation under-taken by him. It is difficult to conceive of any rational reason why the legislature should have thought it fit to impose liability to tax on an assessee who is bound by law to carry out his contractual obligation to sell the property at the agreed price and honestly carries out such contractual obligation. It would indeed be strange if obedience to the law should attract the levy of tax on income which has neither arisen to the assessee nor has been received by him. If we may take another illustration, let us consider a case where A sells his property to B with a stipulation that after some-time which may be a couple of years or more, he shall resell the property to A for the same price could it be contended in such a case that when B transfers the property to A for the same price at which he originally purchased it, he should be liable to pay tax on the basis as if he has received the market value of the property as on the date of resale, if, in the meanwhile, the market price has shot up and exceeds the agreed price by more than 15%. Many other similar situations can be contemplated where it would be absurd and unreasonable to apply Section 52 Sub-section (2) according to its strict literal construction. We must therefore eschew literalness in the interpretation of Section 52 Sub-section (2) and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands are tied and

we cannot find any escape from the tyranny of the literal interpretation But the scope of Sub-section (1) of Section 52 is extremely restricted because it applies only where the transferee is a person directly or indirectly connected with the assessee and the object of the under-statement is to avoid or reduce the income-tax liability of the assessee to tax on capital gains. There may be cases where the consideration for the transfer is shown at a lesser figure than that actually received by the assessee but the transferee is not a person directly or indirectly connected with the assessee or the object of under-statement of the consideration is unconnected with tax on capital gains. Such cases would not be within the reach of Sub-section (1) and the aseessee, though dishonest, would escape the rigour of the provision enacted in that sub- section. Parliament therefore enacted Sub-section (2) with a view to extending the coverage of the provision in Sub-section (1) to other cases of understatement of consideration.

Thus it is not enough to attract the applicability of Sub-section (2) that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeds the full value of the consideration declared in respect of the transfer by not less than 15% of the value so declared, but it is furthermore necessary that the full value of the consideration in respect of the transfer is under-stated or in other words, shown at a lesser figure than that actually received by the assessee. Sub-section (2) has no application in case of an honest and bonafide transaction where the consideration in respect of the transfer has been correctly declared or disclosed by the assessee, even if the condition of 15% difference between the fair market value of the capital asset as on the date of the transfer and the full value of the

consideration declared by the assessee is satisfied. If therefore the Revenue seeks to bring a case within Sub-section (2), it must show not only that the fair market value of the capital asset as on the date of the transfer exceeds the full value of the consideration declared by the assessee by not less than 15% of the value so declared, but also that the consideration has been under-stated and the assessee has actually received more than what is declared by him. There are two distinct conditions which have to be satisfied before Sub-section (2) can be invoked by the Revenue and the burden of showing that these two conditions are satisfied rests on the Revenue. It is for the Revenue to show that each of these two conditions is satisfied and the Revenue cannot claim to have discharged this burden which lies upon it, by merely establishing that the fair market value of the capital asset as on the date of the transfer exceeds by 15% or more the full value of the consideration declared in respect of the transfer and the first condition is therefore satisfied. The Revenue must go further and prove that the second condition is also satisfied. Merely by showing that the first condition is satisfied, the Revenue cannot ask the Court to presume that the second condition too is fulfilled, because even in a case where the first condition of 15% difference is satisfied, the transaction may be a perfectly honest and bonafide transaction and there may be no under-statement of the consideration. The fulfilment of the second condition has therefore to be established independently of the first condition and merely because the first condition is satisfied, no inference can necessarily follow that the second condition is also fulfilled. Each condition has got to be viewed and established independently before Sub-section (2) can be invoked and the burden of doing so is clearly on the Revenue. It is a well settled rule of

law that the onus of establishing that the conditions of taxability are fulfilled is always on the Revenue and the second condition being as much a condition of taxability as the first, the burden lies on the Revenue to show that there is understatement of the consideration and the second condition is fulfilled. Moreover, 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 the negative, namely, that he did not receive any consideration beyond that declared by him."

In para 18 of the judgment, the Supreme Court inter-alia held as under:-

"We must therefore hold that Sub-section (2) of Section 52 can be invoked only where the consideration for the transfer has been understated by the assessee or in other words, the consideration actually received by the assessee is more than what is declared or disclosed by him and the burden of proving such under-statement or concealment is on the Revenue. This burden may be discharged by the Revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is understatement or concealment of the consideration in respect of the transfer. Sub- section (2) has no application in case of an honest and bonafide transaction where the consideration received by the assessee has been correctly declared or disclosed by him, and there is no concealment or suppression of the consideration."

(emphasis supplied)

Section 52 of the Act, which came up for consideration before the Supreme

Court in the aforesaid case has since been omitted w.e.f. 1.04.1988. More

importantly, in the case before us, the burden which was placed on the revenue

stands duly discharged from the consideration disclosed in the admitted documents

viz. the Memoranda of Understanding dated 22.03.2000 and 19.12.2000, which are

the documents filed by none other than the assessee. From the consideration

disclosed in these documents, coupled with other facts and circumstances of the

case, it can be safely inferred that the actual value of shareholding transferred by

Khandelwals to Shri Sunil Bedi was not less than what is assessed by the AO and

the assessees had not disclosed the actual consideration in their income returns and

understated/concealed the actual consideration paid by Mr. Sunil Bedi to

Khandelwals.

In Sumeet Verma (Supra), certain loose papers and documents were

recovered during the course of his search. The Assessing Officer was of the view

that those documents showed that some amount had been paid towards purchase of

a property in Greater Kailash, over and above the amount disclosed in the

conveyance deed. The Assessing Officer, therefore, held that there was an

unexplained investment to the tune of Rs.41,50,000/-. The assessment order was

however set aside by CIT (Appeals) and his order was maintained by the Tribunal.

Considering the appeal filed by the revenue, it was noted by this Court that the

revenue did not examine the father of the assessee with respect to contents of the

documents which admittedly were in his handwriting, the mother of the assessee

had denied having paid any amount to the seller, over and above the disclosed

amount, some flat owners who had purchased the properties in the same building

had disclosed more or less the same price and even the sellers who were examined

had denied having received any consideration over and above the amount disclosed

in the conveyance deed. In these circumstances, this Court was of the view that the

view taken by CIT (Appeals) and the Tribunals were unexceptionable.

In Naresh Khatter (Supra), it was noticed by this Court that the only basis

for making the addition to the income of the assessee was the submission of the

learned senior advocate in Civil Court with respect to the investment made by the

assessee and, therefore, the only question for consideration before this Court was as

to whether the Tribunal was justified in taking a view that mere statement of

counsel was not conclusive of the matter. It was held by this Court that the

Tribunal was correct in holding that merely because counsel for the assessee had

made a statement in the Civil Court that the total investment in the property was

Rs.13 crores it cannot be said that there was sufficient material to come to the

conclusion that the said figure represented the actual investment. This Court was

of the view that there has to be something more that considering the legal

proposition, that burden was on the revenue to prove that the real investment

exceeded the investment shown in the books of accounts of the assessee. In taking

this view, this Court relied upon the decision of the Supreme Court in K.P.

Varghese (supra).

In Puneet Sabharwal (supra), the Assessing Officer suspected that the cost

of acquisition of three properties purchased by the assessee was more than the

consideration disclosed by him. He, therefore, referred the matter to the Valuation

Cell for determining the cost of this property on the date of acquisition. The

District Valuation Officer reported a valuation higher by Rs.12.54 lakh. That

amount was added by the Assessment Officer to the income of the assessee. The

appeal filed by the assessee was allowed by the CIT (Appeals) and his order was

maintained by the Tribunal. Rejecting the appeal filed by the Revenue, this Court,

inter alia, held as under:

As far as the question No. 2 is concerned, as already indicated above, the Assessing Officer solely relied upon the report of the DVO. Apart from this, there was admittedly no evidence or material in his possession to come to the conclusion that the Assessee had paid extra consideration over and above what was stated in the sale deed. This very issue has come up for consideration before this Court repeatedly and after following the judgment of the Supreme Court in the case of K.P. Varghese (supra), the aforesaid proposition of law is reiterated time and again. For our benefit, we may refer to the latest judgment of this Court in the case of CTT v. Smt. Suraj Devi 328 ITR 604, wherein this Court had held that the primary burden of proof to prove understatement or concealment of income is on the Revenue and it

is only when such burden is discharged that it would be permissible to reply upon the valuation given by the DVO. It was also held that the opinion of the Valuation Officer, per se, was not an information and could not be relied upon without the books of accounts being rejected which had not been done in that case.

9. The aforesaid principle of law has been reaffirmed in CTT v. Naveen Gera 328 ITR 516stating that opinion of the District Valuation Officer per se was not sufficient and other corroborated evidence is required. Mr. Maratha, learned Counsel appearing for the Revenue submitted that the judgment of the Supreme Court in K.P. Varghese (supra) has been explained by the Rajasthan High Court in the case of. Smt. Amar Kumari Surana v. Commissioner of Income Tax : [1997] 226 ITR 344 (Raj.).

In P.V. Kalyanasundaram (supra) the assessee purchased certain land for a

sum of Rs.4.10 lakh. During a search, certain notes on loose sheets, allegedly in

the hands of the assessee were found and seized. The department recorded the

statement of the vendor who confirmed that he had in fact received a total sum of

Rs.34.85 lakh, Rs.4.10 lakh by way of a Demand Draft and the balance in cash.

The vendor later retracted from his statement and filed an affidavit deposing that

the sale price was Rs.4.10 lakh only and the statements given earlier were

incorrect. In a subsequent statement, he again reverted to the earlier position and

deposed that the sale price was Rs.34.85 lakh. The Assessing Officer adopted the

enhanced figure and made an addition to the income of the assessee. The appeal

filed by the assessee was however allowed by the CIT (Appeals). Noticing that the

floor price fixed by the Authorities was much lower, the order of CIT (Appeal) was

maintained holding that the fact as to the actual sale price of the property, the

implication of the contradictory statements made by the vendor or whether reliance

could be placed on the loose sheets recovered in the search were questions of fact.

The appeal filed by the Revenue was dismissed.

The learned Counsel for Mr. Sunil Bedi has also relied upon CIT v. Ved

Prakash Choudhary [2008] 305 ITR 245 (Del), CIT v. Prem Nath Nagpal 214

CTR 51 (Del) CIT v. Shakuntala Devi [2009] 316 ITR 46 (Del) CIT v. Naveen

Gera [2010] 328 ITR 516 (Del) CIT v. Kishan Kumar and Others [2009] 315

ITR 204 (Raj.) and CIT v. Dr. S.Bharti [2002] 254 ITR 261 (Del).

In Ved Prakash (supra) during the course of search at the residence of

respondent two MoUs were recovered. The assessee admitted signatures on those

MoUs but denied having received the amount mentioned in the documents. The

Assessing Officer held that denial by the Assessee was only with a view to escape

the payment of tax liabilities and accordingly made an addition of Rs.50 lakh. The

Tribunal was of the view that though in view of Section 132(4A) of the Act, there

was a presumption of correctness the contents of MoU, the presumption being

rebuttable and the assessee having successfully rebutted the same, the addition was

not justified. Dismissing the appeal filed by the Revenue it was held by the Court

that it was not obligatory on the Assessing Officer to make a presumption and even

if the presumption was required to be made, the same was rebuttable. Noticing that

the assessee had denied the transfer of any money by him to the sellers and the

sellers had also denied receipt of any money from him, this Court was of the view

that in these circumstances, there ought to have been corroborative evidence to

show that there was in fact such a transfer of money.

In Naveen Gera (supra) the matter regarding valuation of the properties

purchased by the assessee was referred to the District Valuation Officer. Based

upon the Valuation Report, an addition was made by the Assessing Officer to the

income of the Assessee. The addition was, however, deleted by CIT (Appeal) and

the order passed by him was maintained by the Tribunal. Dismissing the appeal

filed by the Revenue, this Court accepted the contention that in absence of any

incriminating evidence that anything had been paid over and above than the stated

amount, the primary burden was on the Revenue to show that there had been an

understatement or concealment of income and it is only when such burden has been

discharged, would it be permissible to rely upon the valuation given by the District

Valuation Officer.

In Prem Nath Nagpal (supra), the assessee claimed to have acquired

property in question for a consideration of Rs.18.5 lakh and spent Rs.29,29,162/-

on its development. The District Valuation Officer however, valued the property at

Rs.3,04,62,000/-. Based upon the valuation report, the Assessing Officer made an

addition of Rs. 1,87,33,000/- in respect of understatement of the cost of acquisition

and additions of Rs.51,44,838/- in respect of understatement of expenditure on its

development. The addition was however deleted by CIT (Appeal) and the appeal

filed by the Revenue was dismissed by the Tribunal. Noticing that during search

only ownership of the property had been seized and no incriminating document had

been found, which could show that there was understatement of the purchase

consideration or the cost of improvement, this Court found no basis for addition to

be made to the income of the assessee.

In Shakuntala Devi (supra) the assessee had sold two plots of land. During

the course of a search, certain documents related to sale and purchase of the

property were found with him. The Assessing Officer made an addition on account

of different between the valuation declared by the assessee and the valuation

carried out at his behest. Another addition was made on account of unexplained

deposits in the bank account of the assessee. With respect to addition pertaining to

valuation of the properties, this Court noted that the Tribunal had discussed the

valuation and accepted the valuation given by the assessee. It had also noted that

the departments had failed to collect any information or material to show that any

consideration over and above the stated sale consideration had changed hands.

Taking note of the legal proposition that the onus to prove that the assessee had

received more consideration than what was stated in the documents of transfer

rested on the Revenue and that burden had not been discharged. The appeal filed

by the Revenue was dismissed.

In Krishna Kumar (supra), it was held that it is for the department to lead

positive evidence to show the fair market value of the property and establish that

the property was undervalued in the documents of sale. Noticing that there was no

document except Stamp Valuation Authority rates it was held that the rates of

Stamp Valuation Authority by itself could not be taken as the price at which the

property was purchased.

The decision in Dr. S.Bharti does not deal with the issue arising before us

and therefore is not applicable.

15. The proposition of law, which emerges from these decisions, including K.P.

Varghese (supra), is that if the Assessing Officer disputes the valuation of a

property, disclosed by the assessee, the onus is on the Revenue to prove that the

sale consideration disclosed in the sale documents has been understated and in fact

the assesse had received an amount higher than the amount disclosed by him. In

other words, it is for the Revenue to establish that the actual consideration received

by the assessee from the sale of the property was higher than the ostensible

consideration. However, this onus, placed on the Revenue, need not necessarily be

discharged by producing direct evidence of the assessee having received more than

the consideration disclosed in the sale documents. We appreciate the contention of

the Revenue that the Assessing Officer may not always be in a position to produce

direct evidence to this effect. In our view, the onus placed upon the Revenue can

be discharged by establishing facts and circumstances, from which it can be

reasonably inferred that the ostensible consideration was not the real consideration,

and that the assessee had, in fact, received an amount higher than the amount

disclosed by him in the sale documents, and consequently there was

understatement or concealment of the consideration. This is also the view taken by

Supreme Court in K.P. Varghese (supra). Whether the onus placed upon the

assessee has been discharged or not in a given case, would depend on the facts and

circumstances of each case.

16. In the case of Karan Khandelwal, the Tribunal while dismissing the appeal

filed by the Revenue observed as under:

We have carefully considered relevant facts, arguments advanced. The assessee herein have sold capital assets being shared held by them in M/s Span Properties P. Ltd.. the consideration flowing to the assessee from the transfer of share is only Rs.250 lakh. There is no material to hold that over and above the sated consideration, the assessee has received something more. Thus, irrespective of the value of the property owned by M/s Span Properties P. Ltd. no sum over and above the state consideration was received by the assessee. The capital gain is computed as per provisions of Section 48 of the Act. Under Section 48, the income chargeable is to be computed by deducting from the full value of

consideration received or accruing as a result of transfer of the capital assets, the cost of acquisition of the assets transferred, the cost of any improvement thereto and the expenditure incurred in connection with such transfer. There is no provision in Section 48 to replace the "full value of consideration received or accruing with "the fair market value of such capital assets". We accordingly hold that since the assessee has not received anything over and above the stated consideration, the fair market value cannot be replaced for computing capital gain. Accordingly, the order of learned CIT (A) needs no interference.

In the case of Sunil Bedi, the Tribunal took the following view:

We have perused the records and considered the matter carefully. The addition in this case has been made taking the market value of the property as per original MoU signed with Fashion Fair International Pvt. Ltd. for a sum of Rs.6.35 crore. The director of the said concern, had been examined and explained that the MoU was not executed as the company could not get the plot converted into commercial use. In any case, market value cannot be arrived only on the basis of MoU till the same is implemented. The cost of the land along with conversion charges as on 31.3.2012, was Rs.1,71,50,937/-. The assessee had purchased the same for a total consideration of Rs.5.60 crore. Even the valuation report cannot give the exact market value as there could always be difference of 10-15% in making the estimate by the valuer. In this case, the difference is about 50%. Moreover, the claim of the assessee that he had helped the seller in getting the plot converted into commercial use, has not been controverted by the revenue and, therefore comparatively lower sale value could be expected in case of the assessee. Under the circumstances, unless there is material to establish that the assessee had paid any consideration, over and above

the consideration mentioned in the agreement, addition would not be justified. We see no infirmity in the order of CIT (A), deleting the addition and the same is, therefore, upheld.

17. It would thus be seen that the Tribunal failed to give due consideration to the

fact that in the MoU dated 23.2.2000 as well as in the MoU dated 19.12.2000, the

consideration agreed between the parties was Rs.6.35 crore, subject to the seller

obtaining requisite clearances for construction of a commercial building on the land

in question and that by the time agreement dated 30.11.2002 was executed between

Khandelwals and Shri Sunil Bedi, all the requisite clearances, including change of

land use, had been duly obtained by the seller, at its own cost, without any

contribution from the purchaser. The Tribunal also failed to take note of the fact

that vide MoU dated 19.12.2000 M/s Fashion Flair International Private Limited

had agreed to pay Rs.6.35 crore to M/s Span Properties Private Limited for

purchase of its entire shareholding subject, of course, to the M/s Span Properties

Private Limited obtaining necessary approval for construction of a commercial

building on the land in question, and that there was no material produced by the

assessee to indicate that the market value of the land had gone down between

December, 2000 and November, 2002. The Tribunal failed to take note of the fact

that the burden which was placed upon the Revenue to show that there was an

understatement of the sale consideration stood discharged from the admitted facts

and circumstances of the case including the terms and conditions of the MoUs

dated 22.03.2000 and 19.12.2000. In these circumstances, the finding of the

Tribunal that no sum over and above the stated consideration was received by Shri

Sunil Bedi is clearly perverse since on considering the facts and circumstances

above, no reasonable person could have returned such a finding.

18. We note from the order passed by the Assessing Officer that he has added

the liability of 1,71,50,937/- as shown in the books on account of M/s Span

Properties Private Limited to the apparent consideration of Rs.2.5 crore which Mr.

Sunil Bedi claims to have paid to Khandelwals. The assessees do not claim that the

liabilities of the company were higher than this amount. The Assessing Officer has

further given benefit of Rs.60 lac to the assessee on account of liability towards

brokerage of commission. We notice from a perusal of the Collaboration

Agreement dated 28.8.2002 between M/s Span Properties Private Limited and M/s

JMD Promoters Private Limited and the agreement dated 30.11.2002 between

Khandelwals and Shri Sunil Bedi that there is no indication in these documents that

the deal was struck through any property dealer/broker. There is no indication of

any commission or brokerage in these documents. Even otherwise, it is quite

unusual that a brokerage of Rs.60 lacs would be payable on a sale consideration of

Rs.2.5 crore or even Rs.5 crore. We however would like to leave the matter at that,

without further deliberating on this aspect, since this is not an issue involved in the

appeals before us.

19. For the reasons stated hereinabove, we answer the question in favour of the

Revenue and against the assessee by holding that the Assessing Officer was

justified in making the addition of Rs.75 lac, being the difference between the

apparent consideration and real value of the assets of M/s Span Properties Private

Limited.

The appeals are allowed. No order as to costs.

V.K.JAIN, J

BADAR DURREZ AHMED, J APRIL 23, 2012 rb/bg/vn