2013 (12) TMI 605 - HC - Income Tax

Court Clarifies Circle Rate Not Sole Basis for Understatement, Burden Shifts to Assessee;

The court clarified that the circle rate alone cannot establish understatement of sale consideration under Section 50C. Once revenue proves ... Understatement of sale consideration - Held that:- The Tribunal has referred to the material produced by the assessee before the Assessing Officer, which included other contemporaneous sale deeds, copy of valuation certificate issued by the registered valuer etc - The said evidence was rejected by the Assessing Officer observing that “the value determined by the government authorities is more acceptable than the value determined by the registered valuer - The Assessing Officer has recorded the date of purchase and the value declared at the time of purchase, which was not disturbed - Decided against Revenue. Issues:1. Interpretation of Section 50C regarding circle rate as the starting point of inquiry.2. Burden of proof on revenue in cases of understatement of consideration.3. Application of Section 50C and safeguard for the assessee.4. Rejection of evidence by Assessing Officer based on government authorities' valuation.5. Taxability of income from the sale of a plot as business income or capital gains.6. Disallowance of set off of brought forward losses.Analysis:1. The judgment dealt with the interpretation of Section 50C, emphasizing that the circle rate can be the starting point of an inquiry but cannot solely establish understatement of sale consideration. Referring to a previous case, it was held that necessary inquiries and reliance on objective facts are essential for such conclusions, beyond just the circle rate.2. The judgment discussed the burden of proof on the revenue in cases of understatement of consideration. It highlighted that once the revenue establishes understatement of consideration, the burden shifts to the assessee. Section 50C provides a statutory measure for determining the consideration actually received by the assessee, relieving the revenue of proving the exact extent of understatement.3. Section 50C and the safeguard for the assessee were analyzed, citing a case where if the value adopted by stamp duty authorities exceeds fair market value, the Assessing Officer can refer the valuation to the Departmental Valuation Officer. This provision ensures a foolproof safeguard for the assessee to establish the real value before authorities.4. The judgment addressed the rejection of evidence by the Assessing Officer based on government authorities' valuation. It noted that the Assessing Officer favored government authorities' valuation over the registered valuer's valuation, despite evidence presented by the assessee, including contemporaneous sale deeds and a valuation certificate.5. The issue of taxability of income from the sale of a plot as business income or capital gains was discussed. The judgment highlighted that even if the gain was taxable as capital gains, the revenue could not succeed as the Assessing Officer did not disturb the value declared at the time of purchase.6. Lastly, the judgment mentioned the disallowance of set off of brought forward losses by the Assessing Officer. It noted that the appellate orders did not unsettle this finding, and the declared income/gain remained the same, irrespective of the head under which it was taxable. Consequently, the appeal was dismissed due to lack of merit.