The Commissioner Of Income-Tax Coimbatore v. K. Dadakhan, Pollachi

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04/12/2002 CORAM THE HON'BLE MR.JUSTICE N.V.BALALSUBRAMANIANANDTHE HON'BLE MR.JUSTICE K.RAVIRAJA PANDIAN T.C.No.209 OF 1999(Reference No.205 of 1999) The Commissioner of Income-taxCoimbatore. ... Applicant -Vs- K. Dadakhan,Pollachi ... Respondent !For Applicant: Mr.T.Ravi KumarJr.Standing Counsel forIncome-tax cases. For Respondent:Mr.V.RamachandranSenior Counsel forMrs. Anitha Sumantha Prayer: Statement of the Case in R.A.No.564/Mds/1996(I.T.A.No.4078/Mds/1989) for the assessment year 1983-84 on the file of theIncometax Appellate Tribunal, C Bench, Madras forwarded for decision of theHigh Court. :ORDER K.RAVIRAJA PANDIAN,J. At the instance of the Revenue, the Income Tax AppellateTribunal set out a case and referred the following question of law for theopinion of this Court. " Whether , on the facts and in the circumstances of the case, theTribunal was right in law and had valid materials to disregard the sale priceof the property as recorded in the agreement dated 21.2.1983 which was seizedunder Section 132 and holding that the market value was only Rs.76,000/- and restricting the addition to the total income of the assessee to Rs.36,000/- asagainst the addition of Rs.1,67,00 0/- made by the assessing authority ?"2. The assessee, an individual entered into an agreement ofsale on 21.2.1983 with one Arumugam for purchase of land in an extent of 0.75acres with an uncompleted structure of Cinema Theatre for a totalconsideration of Rs.2,07,000/-. The said agreement was seized by the Revenuein the course of search conducted. The sale deed was registered on 2.3.1983for a consideration of Rs.40,000/-. The assessee claimed that the expenditurelaid out was only Rs.47,000/-,which includes the sale consideration ofRs.40,000 and other expenses towards registration and stamp duty in a sum ofRs.7000/-. The assessing officer made an addition of Rs.1,67,000 representingthe difference in the value between the sale agreement dated 21.2.1983 and thesale deed dated 2.3.1983. On appeal, the Commissioner of Income Tax (Appeal)deleted the addition made by the assessing officer. 3. The Tribunal on further appeal at the instance of the 3. The Tribunal on further appeal at the instance of the Revenue refixed the addition to Rs.36,000 on the ground that the assesseeagreed before Commissioner of Income Tax (Appeals) of the valuation arrived atby the Inspector in a sum of Rs.76,000. The Revenue being not satisfied withthe finding of the Tribunal moved for reference and hence the above reference.4. Mr. T.Ravi Kumar, Learned counsel appearing for theRevenue submitted that the Tribunal erred in accepting the valuation arrivedat by the Inspector, which has no legal base. He further submitted that thereason adopted by the Tribunal to disregard the agreed value in the agreementdated 21.2.1983 is unsustainable in law. He further contended that theexplanation offered by the assessee for inflation of the value of the propertyin the agreement was not substantiated by the assessee. He further submittedthat when the vendor himself admitted that he purchased the property forRs.6000/- and expended more than Rs.50,000 in putting up construction, by nostretch of imagination, it could be accepted or it could be considered as truethat the property was sold by him for a sum of Rs.40,000/-. He furtherhighlighted that as per the agreement, the assessee has paid a sum of Rs.45,000/- as advance, which is more than the total consideration as stated inthe sale deed. Hence he submitted that the value stated in the sale deed isnot reflecting the correct value of the property purchased. He furthercontended that when there are two prices, one as per the sale agreement andthe other as per the sale deed are available, the Tribunal could have acceptedeither of the price by adducing proper reasoning for the same. But, strangelyin this case accepted a value in between the two prices on the ground that thevalue has been arrived at by the Inspector of the Department and the same hasbeen accepted by the assessee before the Commissioner of Income Tax (Appeals), which is unsustainable in law. 5. On the other hand Mr.V.Ramachandran, learned Senior Counsel appearing for the assessee submitted that there is no wrong inaccepting the value arrived at by the Inspector , who is also a departmentalofficial. Though the assessee is not legally bound by the valuation arrivedat by the Inspector, in order to give quietus to the issue, the assessee hasaccepted the valuation and this is the only reason for the assessee for notmoving for a reference against the order of the Tribunal fixing the value atRs.76,000/-. He further contended that when an incomplete structure isoffered for sale, it always attached with sentiment and would not fetch a fairmarket price. In such an event, there is no surprise for a needy vendor to sell his property for his immediate needs for a lower price than the marketprice. The circumstances, under which the vendor sells the property weighmuch in determining the value. The vendor has explained the circumstances,under which he was compelled to sell the property. There is no contramaterial evidence produced by the department either to discredit the statementof the vendor or to prove that the price stated in the agreement has been paidby the assessee. The acceptance of the value fixed by the Inspector of theDepartment cannot be put against the assessee. 6. We carefully considered the argument of the learned counsel on either side and perused the materials on record.7. It is evident from the records that the assessee has sell his property for his immediate needs for a lower price than the marketprice. The circumstances, under which the vendor sells the property weighmuch in determining the value. The vendor has explained the circumstances,under which he was compelled to sell the property. There is no contramaterial evidence produced by the department either to discredit the statementof the vendor or to prove that the price stated in the agreement has been paidby the assessee. The acceptance of the value fixed by the Inspector of theDepartment cannot be put against the assessee. 6. We carefully considered the argument of the learned counsel on either side and perused the materials on record.7. It is evident from the records that the assessee has entered into an agreement of sale on 21.2.1983 for the purchase of the land inan extent of 0.75 acres with an incomplete superstructure thereon. The saleconsideration was shown as Rs.2,07,000/-. It is also stated in the agreementthat the assessee had paid a sum of Rs.45,000 as advance in respect of thesale transaction. The sale deed pursuant to the agreement was registered on2.3.1983, wherein the sale consideration had been shown as Rs.40,000/- In thestatement at the time of search , the assessee has explained that theagreement was a bogus one and made up for the purpose of obtaining loan forcompleting the cinema theatre. However, the assessee explained that theparties from whom loan to be obtained were not finalised. The vendor of theproperty one Arumugam, on examination by the Assessing Officers, has statedthat he purchased the land for a consideration of Rs.6000/- and had spent uptoRs.50,000 on the construction of the theatre on the land. He further statedthat he could not proceed further the construction due to his, his wife's andhis son's ill health and financial difficulty. He sold the property to theassessee for Rs.40,000/- and further stated that in the agreement dated21.2.1983 the price was inflated for the purpose of obtaining loan by theassessee. 8. If the amount of the sale consideration was an an inflatedone for the purpose of putting up the construction as contended by theassessee and his vendor, the assessee would have proved the same by referringthe further action taken by him in order to obtain loan on the basis of theagreement. For obtaining a loan for putting up the construction, no one wouldrely upon an agreement of sale rather than the sale deed , which only conferstitle on the assessee. The person without title cannot obtain loan on thebasis of an agreement for purchase of the property. Further, the time withinwhich the sale deed has been executed, which is hardly within 10 days from thedate of execution of the agreement, would belie the statement of the assesseeand his vendor. The further feature that the assessee has paid Rs.45 ,000/-as advance on the date of execution of the sale agreement also strengthen thecase of the Revenue. If really the sale price is only Rs.40,000, there is noquestion of paying over and above the sale consideration as advance. Thereceipt of Rs.45,000/- has not been denied by the vendor of the assessee andthe assessee has also not spoken about the excess payment of advance. Inrespect of sale or purchase of immovable property, the parties afternegotiating the terms of the sale transaction arrive at certain terms withregard to the price and the time within which the sale has to be executed andthereupon extract the terms and conditions by means of agreement. The agreement would bind both the parties and in case of breach of terms andconditions, it is always open to the parties to the agreement to takerecourse. If the parties arrive at certain variation in the terms of theagreement, definitely, they would have entered into another agreement byincorporating the varied conditions therein. Such is not the case here.9. The submission made on behalf of the assesse that the agreement would bind both the parties and in case of breach of terms andconditions, it is always open to the parties to the agreement to takerecourse. If the parties arrive at certain variation in the terms of theagreement, definitely, they would have entered into another agreement byincorporating the varied conditions therein. Such is not the case here.9. The submission made on behalf of the assesse that the agreement had not been acted upon also cannot be accepted, inasmuch as thesale deed has been executed only pursuant to the sale agreement. Hence it isthe bounden duty of the assessee to prove that the sale consideration asstated in the agreement has not been paid. Except the statement, there is nomaterial forthcoming from the assessee to the effect that the assessee paidonly Rs.40,000. In the absence of any such material evidence produced by theassessee, the contention of the Revenue that the sale consideration is only asagreed in the agreement cannot be faulted. The valuation as fixed by theInspector is also not based on any material. There is absolutely no legalbase for arriving the value by the Inspector of the Department. Out of thetwo amounts, one as stated in the agreement and another as stated in the saledeed , if the Tribunal is not accepting the amount as stated in the sale deed,the only option available to the Tribunal is to accept the agreement amount asthe sale consideration, in the absence of any material to the contra.10. Further the statement of the vendor that he purchased theproperty for a sum of Rs.6000/- and expended nearly a sum of Rs.50,000/- forthe purpose of construction would also militate against the assessee as to thepayment of consideration in a sum of Rs.40,000/- . Whatever may be thecircumstances, in which the vendor was placed, the consideration as toescalation of price during the relevant period in respect of the landedproperty and the amount spent thereon by the vendor for putting upconstruction would also lean in favour of the Revenue to come to theconclusion that the sale consideration shown in the sale deed is not correctand the consideration stated in the agreement is the real amount. Thereasoning given by the Tribunal that the department has not brought anyevidence to show that the assessee has purchased the property for Rs.2,07,000is misconceived in the sense that when the document of sale agreement isavailable showing the sale consideration as Rs.2,07,000/- it is for theassessee to prove by acceptable evidence that the sale consideration as shownin the agreement is only an inflated price by producing material evidence,atleast the guideline value of the land and the value of the superstructurefrom the registration department and from the approved valuer. Such course ofaction has not been taken by the assessee. Even the valuation arrived at bythe Inspector is also not based on such materials. Yet another factor thatthe assessee accepting the valuation of Rs.76,000/- as fixed by the Inspectorwould also clinch the issue in favour of the Revenue. The reasoning statedthat in order to purchase peace, the assessee has accepted the amount wouldnot stand to reason. When the reasoning given for the alleged inflation ofsale consideration has been itself negatived and the value as arrived at bythe Inspector is also not based on any acceptable material evidence, we are ofthe view that the consideration as stated in the sale agreement is the correctprice paid by the assessee for the purchase of the property and the Tribunalhas erred in accepting the value arrived at Rs.76,000/- by the Inspector asthe sale price. 11. Learned counsel for the assessee relied on the judgment 11. Learned counsel for the assessee relied on the judgment of this Court in COMMISSIONER OF INCOME-TAX VS. SRI PADMAVATHI COTTON MILLS(1999) 236 ITR 340 to sustain the argument that the sale consideration statedin the agreement of sale is inflated one. That was a case, in which theassessee had declared a higher quantity of closing stock to the bank for thepurpose of securing a loan than the one accounted in the books of accounts andreturned in the returns filed by the assessee. In the facts and circumstancesof that case, the Tribunal came to the conclusion that the closing stockdeclared in the return filed by the assessee was based on the books ofaccounts and having found so, the Tribunal accepted the closing stock declaredto the Bank for the purpose of obtaining a loan is an inflated one. In thatcase, there are materials to prove that the assessee had declared to the bankan inflated closing stock for the purpose of getting loan and on facts it hasbeen found that the returned closing stocks are in conformity with the booksof accounts. But in the facts of the present case, there is no such materialavailable to prove that the agreement consideration was inflated for thepurpose of obtaining loan. There is absolutely no iota of evidence to provethe said contention. Hence the above said judgment, in our considered view,is not applicable to the facts of the present case. 12. The same is the position in respect of the other decision relied on by the learned counsel for the assessee in the case of COMMISSIONEROF INCOME -TAX MADRAS VS. RAMAKRISHNA MILLS (COIMBATORE) LTD (197 4) 93 ITR49 . In that case also the addition made to the income returned by theassessee on the ground that there was discrepancy between the stock shown inits account books and the declarations made by it to the banks with whom thegoods had been hypothecated for the purpose of obtaining overdraft facilitieswas deleted by the Tribunal on the ground that though the declarations made tothe banks were only rough estimates the correct declarations had been made inthe returns submitted to the Textile Commissioner and these tallied with theassessee's books. In that factual situation, the Tribunal was justified incoming to the conclusion that the addition made on the basis of thedeclaration made to the bank was not correct. This decision is also notapplicable to the facts of the present case, for the very reasons statedabove.` 13. In fine, the order of the Tribunal, for the reasons asstated above is not legally sustainable and liable to be set aside and that ofthe Assessing Officer has to be restored. For the foregoing reasons, weanswer the question in negative against the assessee and in favour of theRevenue. However, there is no order as to costs. Index:YesWebsite:Yes krr To 1. The Assistant Registrar,Income-tax Appellate Tribunal,Rajaji Bhavan, Besant Nagar,Chennai-600 090, 2. The Secretary,Central Board of Direct TaxesNew Delhi 3. The Commissioner of Income-taxTamil Nadu-I,Madras, 4. The Commissioner of Income-tax(Appeals), Coimbatore, 5. The Inspecting Assistant Commissioner,of Income-tax (Assessment), Range-II,Coimbatore.�