TaxTMI 
TaxTMI 
2011 (11) TMI 508
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....ent years 2005-06, 2006-07 and 2007-08 upon which assessments u/s 143(3) read with Section 153A of the Act were completed. The additions made by the AO in each of the aforesaid assessment years are the subject matter of appeal in the present bunch of appeals. ITA No. 571/Chd/2011: AY 2005-06 3. The assessee has taken the following grounds of appeal:- "1. That the impugned appellate order is bad both on facts and law. 2. That the ld. Appellate Authority wrongly and illegally held that the proceedings has been properly initiated u/s 153A and further erred in holding that assessment u/s 153A has been properly made. 3. That the ld. Appellate Authority wrongly and illegally confirmed the addition of Rs. 18,54,705/- against the facts and circumstances of the case. 4. That the ld. Appellate Authority wrongly and illegally rejected the ground that the additions made in assessment proceedings u/s 153A are sine-qua-non the seized material and no addition could be sustained otherwise. 5. That the ld. Appellate Authority wrongly and illegally directed to charge interest u/s 234B although on facts and circumstances of the case, ....
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.... payment of stamp duty, which was paid accordingly. According to him, the capital gain was also computed by the assessee in terms of the provisions of section 50C of the Income-tax Act and income-tax was also paid accordingly. He submitted that the said sum of Rs. 38.00 lakhs, being the value of land for the purpose of payment of stamp duty, should be taken as his income for all intent and purpose. He claimed that if the aforesaid sum of Rs. 38.00 lakhs is taken as his income then that money would be available for meeting entire investment/expenditure amounting to Rs. 27,90,000/- and consequently the nature and source thereof would stand automatically explained. 9. The AO considered the submissions of the assessee. He, however, treated a sum of Rs. 8.00 lakhs, being the amount actually received on sale of agricultural land, as available for the purpose of payment towards purchase of residential flats and plots and for meeting household expenses. According to him, a sum of Rs. 38.00 lakhs, being the value assessed by the Stamp Valuation Authority, was fictional value for computation of capital gain but the said amount was never paid by the buyer of the agricultural land to the asse....
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....the same time Rs. 90,000/- have been considered as expenses/investment and therefore same tantamount to double addition to the tune of Rs. 36,000/-. AR's contention is correct. Since AO has separately made addition of Rs. 36,000/- on account of low household expenses, addition of Rs. 18,54,705/- is reduced to that extent." 11. Aggrieved by the order passed by the ld. CIT(A), the assessee is now in appeal before this Tribunal. In support of appeal, he submitted that though the assessee had transferred the agricultural land for a sum of Rs. 8.00 lakhs but the said property was valued at Rs. 38 lakhs by the Stamp Valuation Authority for the purpose of payment of stamp duty. According to him, the aforesaid sum of Rs. 38.00 lakhs, being the value of property adopted/assessed by the Stamp Duty Authority, represented the amount of consideration received by the assessee in terms of section 50C and therefore the said sum should be treated as his income for all intent and purpose. He contended that the AO, after having assessed the income of the assessee on the basis of the value adopted by the Stamp Valuation Authority at Rs. 38.00 lakhs, cannot turn around to say that the said sum of Rs. ....
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.... aforesaid agricultural land was sold and found from the recitals contained therein that the buyer of the agricultural land had paid only Rs. 8 lakhs to the assessee and that the assessee himself had stated in the said deed of conveyance that he had received only Rs. 8 lakhs from the buyer on sale of the land. The AO therefore considered the said sum of Rs. 8.00 lakhs as actually available with the assessee for explaining the nature and source of the investments/expenses amounting to Rs. 27,90,000/-. He therefore gave benefit for a sum of Rs. 8.00 lakhs, being the amount actually available with the assessee as sale proceeds on transfer of land, and accordingly taxed the difference between the amount actually paid (Rs. 27.90 lakhs) towards purchase of flats/plots and for meeting household expenses and the amount of Rs. 8 lakhs, being actually available with the assessee. The case of the AO is that it was this sum of Rs. 8.00 lakhs which was actually paid by the buyer of agricultural land to the assessee and therefore the assessee could not be presumed to have received any sum over and above Rs. 8.00 lakhs from the buyer. 14. It was the case of the assessee before the ld. CIT(A) and....
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....ter how a legal rule operates. When the law creates a legal fiction such fiction should be carried to its logical end. There should be no hesitation in giving full effect to it. The proposition that legal fiction must be carried to its logical conclusion does not however mean that it should be carried to an illogical length. By catena of decisions, three rules are fairly well settled for interpreting a provision creating a legal fiction. They are as under: (i) The court is to ascertain the purpose for which the fiction has been created, and after ascertaining this, the court is to assume all those facts and consequences which are incidental or inevitable corollaries to giving effect to the fiction. (ii) The legal fiction cannot be interpreted in a manner that extends the effect of fiction beyond the purpose for which it is created or beyond the language of the section by which it is created. Neither can one allow himself to be so carried way by a legal fiction as to ignore the words of the very section which creates it or its context or setting in the statute which contains that section nor can one loose sight of the purpose for which the fiction is created. (i....
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....t of stamp duty would be deemed to be the consideration received yet the said legal fiction cannot be extended to create another legal fiction to the effect that the consideration deemed to be so received would also be deemed to generate cash/funds for making the investments or meeting the expenses, or otherwise displace the legal fiction created by sections 69, 69A and 69B. 19. Outside the bounds of computation of capital gain under section 48 for the purpose of which the legal fiction has been created by section 50C, the difference between the reality and the fiction would still persist. A somewhat similar situation arose in CIT v. C.P. Sarathy Mudaliar [1972] 83 ITR 170 (SC) in the context of the provisions of section 2(6A)(e) of the Income-tax Act, 1922 (corresponding to section 2(22)(e) of the Income-tax Act, 1961) by which a legal fiction was created to artificially enlarge the definition of "dividend" so as to include any payment by a company, of any sum by way of advance or loan, etc., to a shareholder. Interpreting the legal fiction creating by the aforesaid provisions, the Hon'ble Supreme Court has held as under: "Section 2(6A)(e) gives an artificial definition of "divi....
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....tablish that the assessee had actually been paid by the buyer any money over and above Rs. 8.00 lakhs or that the assessee has actually received from the buyer of the agricultural land over and above Rs. 8 lakhs. In the absence of availability of cash to pay for the investments, etc., the assessee cannot be said to have satisfactorily explained the nature and source of the investment and expenses. One cannot pay unless he has money in his pocket. There is no evidence on record to establish that he had Rs. 27,90,000/- in his pocket at the relevant point of time. Consideration, which is deemed to have been received in terms of section 50C, does not mean that the assessee has actually received that money so as to be physically available with him for making the investments. The physical availability of money needs to be proved as a matter of fact and on the basis of evidence and not on the basis of fictions. The assessee had received Rs. 8.00 lakhs on sale of agricultural land and therefore had only Rs. 8 lakhs in his pocket for making investments or for meeting expenses. The AO has rightly given the benefit of Rs. 8.00 lakhs and not of Rs. 38 lakhs while considering the explanation as....
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....onveyance. For this reason also, the explanation of the assessee has rightly been rejected by the AO ad the CIT(A). 24. In view of the foregoing, the order passed by the ld. CIT(A) is confirmed and ground No. 3 is dismissed. 25. Appeal bearing ITA No. 571/Chd/2011 is dismissed. ITA No. 572/Chd/2011: AY 2006-07 26. The assessee has taken the following grounds of appeal:- "1. That the impugned appellate order is bad both on facts and law. 2. That the ld. Appellate Authority wrongly and illegally held that the proceedings has been properly initiated u/s 153A and further erred in holding that assessment u/s 153A has been properly made. 3. That the ld. Appellate Authority wrongly and illegally confirmed the addition of Rs. 34,33,567/- on account of unexplained investments in the purchase of property/share investment against the facts and circumstances of the case. 4. That the ld. Appellate Authority wrongly and illegally confirmed the addition of Rs. 1,50,000/- on account of undisclosed commission against the facts and circumstances of the case. 5. That the ld. Appellate Authority wrongly and illegally confirmed the ad....
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....has shown income of Rs. 1,50,000/- from business of property dealing. Since the assessee has shown income from business and profession Rs. 1,50,000/- which is not reasonable and justified, therefore, estimated Rs. 3 lakhs and difference of Rs. 1,50,000 (Rs. 3,00,000 - Rs. 1,50,000) is added to the income of the assessee." 33. On appeal, the ld. CIT(A) has confirmed the impugned addition with the following observations:- "I have considered the submissions of the AR. AO has made addition of Rs. 1,50,000/- by estimating business income at Rs. 3.00 lakhs as against Rs. 1,50,000/- shown by the assessee on the ground that assessee did not explain all the entries in his bank accounts. Since the assessee has failed to explain the bank entries AO has rightly made the addition of Rs. 3 lakhs land the same is upheld." 34. We have heard both the parties and carefully considered their submissions. The AO has estimated the income from commission on account of property dealing at Rs. 3.00 lakhs as against Rs. 1.50 lakhs shown by the assessee. The AO has given no reason for estimating the income from commission at Rs. 1.50 lakhs. The ld. CIT(A) has also given no reason for confirming the income....