Legal fiction created by section 50C is limited to purposes of section 48 alone and does not displace legal fiction created by sections 69, 69A and 69B, this is a verdict which Chandigarh ITAT has given in the following case.
The Tribunal in this case has held that a legal fiction u/s 50C cannot be so extended to create another legal fiction to effect that consideration deemed to be so received would also be deemed to generate cash/funds for making investments or meeting expenses, or otherwise displace legal fiction created by sections 69, 69A and 69B.
Facts: In this case A search was conducted at the assessee's premises in the course of which it was found that the assessee had paid a sum of Rs. 27.90 lakhs for purchase of flats/plots. The Assessing Officer called upon the assessee to explain the nature and source of the aforesaid investment/expenditure. In reply, the assessee stated that he had sold agricultural land for a sum of Rs. 8 lakhs. He further stated that the value of the said land was assessed by the Stamp Valuation Authority at Rs. 38 lakhs for the purposes of payment of stamp duty under section 50C, which was paid accordingly. According to him, the capital gain was also computed by the assessee in terms of the provisions of section 50C and income-tax was also paid accordingly. He submitted that the said sum of Rs. 38 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 lakhs was taken as his income then that money would be available for meeting entire investment amounting to Rs. 27.90 lakhs and, consequently, the nature and source thereof would stand automatically explained. The Assessing Officer, however, treated a sum of Rs. 8 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. According to him, a sum of Rs. 38 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 assessee and, therefore, the said sum of Rs. 38 lakhs was never available with the assessee for making investments. Thus, he treated the difference between Rs. 27.90 lakhs, being the payments towards purchase of residential flats/plots, and Rs. 8 lakhs, being the amount actually available with the assessee on sale of agricultural land, as unexplained investment and taxed the same. On appeal, the Commissioner (Appeals) upheld the order of Assessing Officer.
On appeal to Tribunal it was held as under:
What is a legal fiction: As verb transitive, the word 'deem' means to treat something as if (i) it is really something else, or (ii) it has qualities that it does not have. 'Deem' is a useful word when it is necessary to establish a legal fiction either positively by 'deeming' something to be something it is not or negatively by 'deeming' something not to be something which it is……….. Legal fiction is an assumption that something is true even though it may be untrue. Such an assumption is especially made in judicially reasoning to alter 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 so 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.
(iii) Outside the bounds of the legal fiction the difference between the reality and the fiction may still persist in the provisions of the same Act which creates the fiction and the difference may be ascertained by reference to the subject and context of those provisions. [Para 16]
What type of legal fiction is created by section 50C-Bare perusal of section 50C shows that the legal fiction, by which the value adopted or assessed or assessable by the Stamp Valuation Authority for payment of stamp duty is deemed to be the full value of the consideration received or accruing as a result of transfer, has been created for the limited purpose of section 48. Section 48 deals with mode of computation of income chargeable under the head 'Capital gain'. It is therefore, quite apparent that the legal fiction created by section 50C is limited to the purposes of section 48 alone and does not extend to any other purpose. In other words, its applicability is restricted to the computation of capital gain under section 48. Therefore, the legal fiction created by section 50C cannot be extended to any purpose beyond the purposes of section 48. In the matter under appeal, the assessee is not seeking applicability of the legal fiction created by section 50C for the purpose of section 48; he, in fact, seeks to extend the legal fiction created by section 50C to purposes other than those covered by section 48, which is not permissible on the principle that a legal fiction must be carried to its logical conclusion and not to an illogical length or beyond the purpose for which it is created. Therefore, the legal fiction created by section 50C cannot be extended further to mean that the assessee has actually received the consideration or that the consideration deemed to be so received under section 50C was actually available in cash with the assessee for making investments or meeting expenses. [Para 17]
Legal fiction u/s 50C cannot mean that deemed sale amount of property is actually received-Sections 69, 69A and 69B also create legal fiction by which unexplained investments, etc., are deemed to be the income of the assessee. They place the burden on the assessee to satisfactorily explain the nature and source of investments. Deemed income may be income for the purposes of assessment but that does not ipso facto mean that the deemed consideration is actually and physically available for investments. Though section 50C creates legal fiction to the effect that the value adopted/assessed by the Stamp Valuation Authority for payment 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. [Para 18]
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. [Para 19]
The consideration, which is deemed by section 50C to have been received by the transferor, is for the limited purpose of computation of capital gain under section 48 and for no other purpose. It cannot and does not mean that the said amount of consideration has been actually received by the assessee or actually paid by the transferee to him so as to be available in his hands for investments or for meeting the expenses. 'Deemed consideration' under section 50C for computation of capital gain under section 48 is quite different from actual consideration or actual availability of money for the purpose of making investments or for meeting the expenses. Deemed consideration within the meaning of section 50C cannot and does not mean that the amount of deemed consideration has actually been paid by the transferee or actually received by the transferor. [Para 20]
In the present case, the Assessing Officer has found that the assessee has paid a sum of Rs. 27,90,000 towards purchase of flat/plot and for meeting household expenses in the year under appeal. The assessee could not have paid the aforesaid amount without having the money with him. No material has been placed on record to establish that the assessee had actually been paid by the buyer any money over and above Rs. 8 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 lakhs on sale of agricultural land and, therefore, had only Rs. 8 lakhs in his pocket for making investments or for meeting expenses. The Assessing Officer has rightly given the benefit of Rs. 8 lakhs and not of Rs. 38 lakhs while considering the explanation as regards the nature and source of investment amounting to Rs. 27,90,000. [Para 21]
There is yet another angle to the case. It is the case of the assessee that he has received a sum of Rs. 8 lakhs, being the amounting actually paid by the buyer on transfer of land by the assessee to him. There is no material on record to hold that the buyer of the agricultural land has paid anything over and above Rs. 8 lakhs. Since there is no evidence on record that the buyer has paid anything over and above Rs. 8 lakhs, being the amount stated in the conveyance deed to have actually been paid by the buyer to the assessee on transfer of agricultural land, it is not possible to hold that the assessee has received a sum of Rs. 38 lakhs from the buyer. For this reason also the claim of the assessee deserves to be rejected and is accordingly, rejected. [Para 22]
The assessee wants the Tribunal to hold that the consideration deemed to be received in terms of section 50C should be treated as consideration actually received. This submission cannot be accepted for the reason that it is the assessee himself who has recited in the deed of conveyance to have received only Rs. 8 lakhs. Having so recited in the deed of conveyance, the assessee cannot turn around to say that he has received Rs. 38 lakhs instead of Rs. 8 lakhs as recited in the deed of conveyance and that too without bringing any material on record to prove that he has actually received Rs. 38 lakhs instead of Rs. 8 lakhs. Besides, conveyance deed has been signed by both the buyer as well as seller (i.e., the assessee) of the property. The assessee cannot succeed in its claim to have received Rs. 38 lakhs unless the said amount is shown to have been paid by the buyer. There is no confirmation from the buyer that he has paid Rs. 38 lakhs to the assessee and not Rs. 8 lakhs as recited in the deed of conveyance. If the buyer had actually paid and the assessee had actually received Rs. 38 lakhs from him then nothing prevented them from stating so in the deed of conveyance. The assessee has placed no evidence on record to establish that the recital in the conveyance deed that a sum of Rs. 8 lakhs has been received by the assessee from the buyer, is factually incorrect or that any money has been actually received over and above the one shown to have been paid by the buyer in the deed of conveyance. For this reason also, the explanation of the assessee has rightly been rejected by the Assessing Officer and the Commissioner(Appeals). [Para 23]
g� x 0 x p� ] bottom: 4pt; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; text-align: justify; font-size: 12pt; font-family: 'Times New Roman'; color: rgb(65, 65, 65); font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; -webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: rgb(255, 255, 255); ">In the present case, the Assessing Officer has found that the assessee has paid a sum of Rs. 27,90,000 towards purchase of flat/plot and for meeting household expenses in the year under appeal. The assessee could not have paid the aforesaid amount without having the money with him. No material has been placed on record to establish that the assessee had actually been paid by the buyer any money over and above Rs. 8 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 lakhs on sale of agricultural land and, therefore, had only Rs. 8 lakhs in his pocket for making investments or for meeting expenses. The Assessing Officer has rightly given the benefit of Rs. 8 lakhs and not of Rs. 38 lakhs while considering the explanation as regards the nature and source of investment amounting to Rs. 27,90,000. [Para 21]There is yet another angle to the case. It is the case of the assessee that he has received a sum of Rs. 8 lakhs, being the amounting actually paid by the buyer on transfer of land by the assessee to him. There is no material on record to hold that the buyer of the agricultural land has paid anything over and above Rs. 8 lakhs. Since there is no evidence on record that the buyer has paid anything over and above Rs. 8 lakhs, being the amount stated in the conveyance deed to have actually been paid by the buyer to the assessee on transfer of agricultural land, it is not possible to hold that the assessee has received a sum of Rs. 38 lakhs from the buyer. For this reason also the claim of the assessee deserves to be rejected and is accordingly, rejected. [Para 22]
The assessee wants the Tribunal to hold that the consideration deemed to be received in terms of section 50C should be treated as consideration actually received. This submission cannot be accepted for the reason that it is the assessee himself who has recited in the deed of conveyance to have received only Rs. 8 lakhs. Having so recited in the deed of conveyance, the assessee cannot turn around to say that he has received Rs. 38 lakhs instead of Rs. 8 lakhs as recited in the deed of conveyance and that too without bringing any material on record to prove that he has actually received Rs. 38 lakhs instead of Rs. 8 lakhs. Besides, conveyance deed has been signed by both the buyer as well as seller (i.e., the assessee) of the property. The assessee cannot succeed in its claim to have received Rs. 38 lakhs unless the said amount is shown to have been paid by the buyer. There is no confirmation from the buyer that he has paid Rs. 38 lakhs to the assessee and not Rs. 8 lakhs as recited in the deed of conveyance. If the buyer had actually paid and the assessee had actually received Rs. 38 lakhs from him then nothing prevented them from stating so in the deed of conveyance. The assessee has placed no evidence on record to establish that the recital in the conveyance deed that a sum of Rs. 8 lakhs has been received by the assessee from the buyer, is factually incorrect or that any money has been actually received over and above the one shown to have been paid by the buyer in the deed of conveyance. For this reason also, the explanation of the assessee has rightly been rejected by the Assessing Officer and the Commissioner(Appeals). [Para 23]
IN THE ITAT CHANDIGARH
Subash Chand
v.
Assistant Commissioner of Income-tax, Central Circle , Patiala
H.L. KARWA, VICE-PRESIDENT
AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER
IT APPEAL NOS. 571 TO 573 (CHANDI.) OF 2011
[ASSESSMENT YEARS 2005-06 TO 2007-08]
NOVEMBER 28, 2011
ORDER
D.K. Srivastava, Accountant Member - The present bunch of appeals filed by the assessee is directed against three separate orders passed by the ld. CIT(A) on 30.3.2011 for assessment year 2005-06, 2006-07 and 2007-08. Major issues in all the three appeals are common. We therefore find it convenient to dispose off the present bunch of appeals by a consolidated order.
2. The assessee belongs to Prem Bansal Group of cases, Zirakpur on which search and seizure operations u/s 132 of the Income-tax Act were carried out by the Income-tax Department on or about 6.10.2007. The premises of the assessee were also searched u/s 132. In response to notice issued and served by the AO u/s 153A requiring the assessee to file his return of income for all the assessment years under appeal, the assessee filed his return of income for assessment 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, interest is not chargeable.
6. That the appellant craves permission to elucidate, add, amend, modify, delete any ground or grounds of appeal before the disposal in the interest of substantial justice.
It is therefore prayed that the appeal may kindly be accepted as prayed above or any other relief to which the appellant maybe found entitled may kindly be granted."
4. At the time of hearing, the ld. counsel for the assessee submitted that ground nos. 1 and 6 were general in nature and therefore do not require any adjudication. Ground Nos. 1 and 6 are therefore dismissed.
5. At the time of hearing, the ld. counsel for the assessee did not press ground nos. 2 and 4. They are also dismissed as not pressed.
6. As regards ground No. 5, the ld. counsel for the assessee submitted that charging of interest u/s 234B of the Act was consequential upon assessment. Levy of interest u/s 234B of the Act is mandatory and automatic upon completion of assessment. It is required to be mandatorily charged upon assessment. In this view of the matter, Ground No. 5 is also dismissed.
7. We are now left with only one ground of appeal, i.e., ground no. 3. The facts giving rise to the issue raised in Ground No. 3 are that the assessee was found to have paid a sum of Rs. 27.00 lakhs towards purchase of residential flats (amount paid: Rs. 24.00 lakhs) and purchase of flats (amount paid: Rs. 3 lakhs) in the year under appeal. In addition, the AO added Rs. 90,000/- towards household expenses. Thus the assessee was found to have invested and incurred the expenses to the extent of Rs. 27,90,000/-. The aforesaid figures of investment are admitted by the assessee. The assessee admits to have paid a sum of Rs. 27.00 lakhs towards purchase of flats/plots in the year under appeal. He does not dispute that the AO has also added Rs. 90,000/- towards household expenses.
8. Having found that the assessee has invested/spent a sum of Rs. 27,90,000/- in the year under appeal, the AO called upon the assessee to explain the nature and source of the aforesaid investment/expenditure. In reply, it was stated by the assessee before the Assessing Officer that he has sold agricultural land measuring 6 bighas and 1 Biswa on 5.10.10 for a sum of Rs. 8.00 lakhs. He further stated that the value of the said land was assessed by the Stamp Valuation Authority at Rs. 38.00 lakhs for the purposes of 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 assessee and therefore the said sum of Rs. 38 lakhs was never available with the assessee for making investments. In this view of the matter, he treated the difference between Rs. 27,90,000/-, being the payments towards purchase of residential flats/plots/household expenses, and Rs. 8.00 lakhs, being the amount actually available with the assessee on sale of agricultural land, as unexplained investment and consequentially taxed the same.
10. Aggrieved by the aforesaid addition made by the AO, the assessee filed appeal before the ld. CIT(A) upon which the ld. CIT(A) decided the issue against the assessee with the following observations:-
"I have considered the above submissions of the AR but the same are not acceptable. In this case as noted in the asstt order though assessee has actually received sale consideration of Rs. 8 lakhs against sale of his land he has attempted to claim and explain investments made on the basis of the presumptive amount of Rs. 38 lakhs on the ground that the stamp duty has been paid on Rs. 38 lakhs. I am afraid appellant cannot be given the benefit of deemed receipt of Rs. 30 lakhs (Rs. 38 lakhs - Rs. 8 lakhs) since there is no evidence of actual receipt of above amount while admittedly the investments have actually been made as noted by the AO in the assessment order. In other words, presumptive income of Rs. 30 lakhs over and above actual sale consideration of Rs. 8 lakhs cannot be said to have been actually received by the appellant. No doubt full effect is required to be given to the deeming provisions but then same in my opinion is required to be given as far as applicability and implementation of deeming provisions is concerned. In my considered opinion deeming provisions cannot be extended to a situation which has not been visualized. The fact of the matter is that appellant has received only Rs. 8 lakhs as sale consideration of the land and therefore no benefit of further amount of Rs. 30 lakhs can be given. AO in her report has rightly distinguished the deeming provisions under section 68, 69, 69A, 69B and 69D with section 50C. In view of above contention of AR is rejected and addition of Rs. 18,54,705/- is upheld. AR in the course of hearing pointed out that addition of Rs. 36,000/- has separately been made by the AO on account of low household expenses by estimating the same at Rs. 90,000/- as against Rs. 54,000/-. But at 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. 38.00 lakhs was not the income of the assessee and therefore not available with the assessee for investments, etc. He submitted that the consideration deemed to have been received by the assessee u/s 50C should be taken as the income of the assessee and therefore available for making payment on purchase of flats/plots and for meeting other expenses. In support of his submissions, he relied upon the following decisions:-
i. CIT v. Saroop Krishan [1985] 153 ITR 1/21 Taxman 404 (Punj. & Har.)
ii. Gurupad Khandappa Magdum v. Heerabai Khandappa Magdum [1981] 129 ITR 440 (SC)
iii. CIT v. Teja Singh [1959] 35 ITR 408 (SC)
iv. CIT v. Surat
v. CIT v. Jaykrishna Harivallabhdas [1998] 231 ITR 108 (Guj.)
vi. Eastern Cold Storage (P.) Ltd. [1983] 139 ITR 664/[1981] 7 Taxman 185 (Cal
vii. Rajputanna Trading Co Ltd v. CIT [1969] 72 ITR 286 (SC)
viii. CIT v. Warangal
ix. CIT v. Surinder Pal Anand [2010] 192 Taxman 264 (Punj. & Har.)
x. Bhatia Nagar Premises Co-operative Society Ltd. v. Union of India
xi. K.R. Palanisamy v. Union of India
xii. Jindal Stainless Ltd. v. Asstt. CIT [2009] 120 ITD 301 (Delhi
xiii. Indore Indore
xiv. Suncity Alloys (P.) Ltd. v. Asstt. CIT [2009] 124 TTJ 674 (Jodh.)
xv. LMJ International Ltd. v. Dy. CIT [2008] 22 SOT 315 (Kol.)
12. In reply, the ld. DR supported the order passed by the ld. CIT(A).
13. We have heard both the parties and carefully considered their submissions including the authorities referred to by them. It is not in dispute that the assessee has paid/spent a sum of Rs. 27,90,000/- in the year under appeal towards purchase of residential flats/plots and for meeting household expenses. The assessee was therefore statutorily obliged to satisfactorily explain the nature and source of the aforesaid investment, before the AO. The case of the assessee before the AO was that a sum of Rs. 8.00 lakhs was actually received by him during the year under appeal as sale proceeds on transfer of land. The AO referred to the deed of conveyance by which the 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 continues to be his case before us also that the value of the agricultural land sold by him was adopted/assessed by the Stamp Valuation Authority was Rs. 38.00 lakhs for payment of stamp duty and therefore it is Rs. 38 lakhs which should be treated as his income and accordingly considered as the amount available for investment. His submission is that the deeming provisions of section 50C should be given full effect and resultantly the value of agricultural land assessed by the Stamp Valuation Authority at Rs. 38.00 lakhs should be taken as the funds available with the assessee for making the investments.
15. Section 50C falls under Chapter IV-D of the Income-tax Act, which deals with the income from capital gain. Section 50C contains special provision for determination of full value of consideration in certain cases. According to section 50C, where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer. Section 50C thus creates a legal fiction by which the value assessed/adopted by the Stamp Valuation Authority for payment of stamp duty is deemed to be the consideration received or accruing on transfer even if such consideration is not actually received by the transferor from the transferee. Section 50C has been enacted for the limited purpose of section 48 to facilitate computation of income from capital gain.
16. As verb transitive, the word "deem" means to treat something as if (i) it is really something else, or (ii) it has qualities that it does not have. "Deem" is a useful word when it is necessary to establish a legal fiction either positively by "deeming" something to be something it is not or negatively by "deeming" something not to be something which it is……….: G.C. Thornton, Legislative Drafting 83-84 (2nd Ed. 1979). Legal fiction is an assumption that something is true even though it may be untrue. Such an assumption is especially made in judicially reasoning to alter 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.
(iii) Outside the bounds of the legal fiction the difference between the reality and the fiction may still persist in the provisions of the same Act which creates the fiction and the difference may be ascertained by reference to the subject and context of those provisions.
17. Bare perusal of section 50C shows that the legal fiction, by which the value adopted or assessed or assessable by the Stamp Valuation Authority for payment of stamp duty is deemed to be the full value of the consideration received or accruing as a result of transfer, has been created for the limited purpose of section 48. Section 48 deals with mode of computation of income chargeable under the head "Capital gain". It is therefore quite apparent that the legal fiction created by section 50C is limited to the purposes of section 48 alone and does not extend to any other purpose. In other words, its applicability is restricted to the computation of capital gain u/s 48. And therefore the legal fiction created by section 50C cannot be extended to any purpose beyond the purposes of section 48. In the matter under appeal, the assessee is not seeking applicability of the legal fiction created by section 50C for the purpose of section 48; he, in fact, seeks to extend the legal fiction created by section 50C to purposes other than those covered by section 48, which is not permissible on the principle that a legal fiction must be carried to its logical conclusion and not to an illogical length or beyond the purpose for which it is created. Therefore the legal fiction created by section 50C cannot be extended further to mean that the assessee has actually received the consideration or that the consideration deemed to be so received u/s 50C was actually available in cash with the assessee for making investments or meeting expenses.
18. Sections 69, 69A and 69B of the Income-tax Act also create legal fiction by which unexplained investments, etc., are deemed to be the income of the assessee. They place the burden on the assessee to satisfactorily explain the nature and source of investments. Deemed income may be income for the purposes of assessment but that does not ipso-facto mean that the deemed consideration is actually and physically available for investments. Though section 50C creates legal fiction to the effect that the value adopted/assessed by the Stamp Valuation Authority for payment 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 "dividend". It does not take in dividend actually declared or received. The dividend taken note of by that provision is a deemed dividend and not a real dividend. The loan granted to a shareholder has to be returned to the company. It does not become the income of the shareholder. For certain purposes, the legislature has deemed such a loan as "dividend". Hence, section 2(6A)(e) must necessarily receive a strict construction."
20. It is quite apparent from the aforesaid judgment that the loan given by a company to a shareholder would still be a loan required to be returned by him notwithstanding the fact that it was fictionally treated as the income of the shareholder by way of dividend. The fact that the loan given by the company to the shareholder was treated as his income by way of dividend by virtue of legal fiction created by section 2(22)(e) of the Income-tax Act would not mean that the said loan given by the company had ceased to be a loan in reality on the principle that deemed dividend does not become real dividend. As a matter of fact, the loan given by the company to the shareholder remains loan notwithstanding the fact that it is fictionally treated as his income by way of dividend. Similar principle governs the case before us. The consideration, which is deemed by section 50C to have been received by the transferor, is for the limited purpose of computation of capital gain u/s 48 and for no other purpose. It cannot and does not mean that the said amount of consideration has been actually received by the assessee or actually paid by the transferee to him so as to be available in his hands for investments or for meeting the expenses. "Deemed consideration" u/s 50C for computation of capital gain u/s 48 is quite different from actual consideration or actual availability of money for the purpose of making investments or for meeting the expenses. Deemed consideration within the meaning of section 50C cannot and does not mean that the amount of deemed consideration has actually been paid by the transferee or actually received by the assessee.
21. In the present case, the AO has found that the assessee has paid a sum of Rs. 27,90,000/- towards purchase of flat/plot and for meeting household expenses in the year under appeal. The assessee could not have paid the aforesaid amount without having the money with him. No material has been placed before us to establish 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 regards the nature and source of investment amounting to Rs. 27,90,000/-.
22. There is yet another angle to the case. It is the case of the assessee that he has received a sum of Rs. 8.00 lakhs, being the amounting actually paid by the buyer on transfer of land by the assessee to him. There is no material on record to hold that the buyer of the agricultural land has paid anything over and above Rs. 8.00 lakhs. Since there is no evidence on record that the buyer has paid anything over and above Rs. 8.00 lakhs, being the amount stated in the conveyance deed to have actually been paid by the buyer to the assessee on transfer of agricultural land, it is not possible to hold that the assessee has received a sum of Rs. 38.00 lakhs from the buyer. For this reason also the claim of the assessee deserves to be rejected and is accordingly rejected.
23. The assessee wants us to hold that the consideration deemed to be received in terms of section of section 50C should be treated as consideration actually received. We are unable to hold so for the reason that it is the assessee himself who has recited in the deed of conveyance to have received only Rs. 8 lakhs. Having so recited in the deed of conveyance, the assessee cannot turn around to say that he has received Rs. 38 lakhs instead of Rs. 8 lakhs as recited in the deed of conveyance and that too without bringing any material on record to prove that he has actually received Rs. 38 lakhs instead of Rs. 8 lakhs. Besides, conveyance deed has been signed by both the buyer as well as seller (i.e., the assessee) of the property. The assessee cannot succeed in its claim to have received Rs. 38 lakhs unless the said amount is shown to have been paid by the buyer. There is no confirmation from the buyer that he has paid Rs. 38 lakhs to the assessee and not Rs. 8 lakhs as recited in the deed of conveyance. If the buyer had actually paid and the assessee had actually received Rs. 38 lakhs from him then nothing prevented them from stating so in the deed of conveyance. The assessee has placed no evidence either before the Departmental authorities or before us to establish that the recital in the conveyance deed that a sum of Rs. 8 lakhs has been received by the assessee from the buyer, is factually incorrect or that any money has been actually received over and above the one shown to have been paid by the buyer in the deed of conveyance. 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 addition of Rs. 2,50,000/- on account of investment in the purchase of land against the facts and circumstances of the case.
6. 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.
7. That without prejudice and alternatively additions made requires to be adjusted and telescoped.
8. That the ld. Appellate Authority wrongly and illegally directed to charge interest u/s 234B although on facts and circumstances of the case, interest is not chargeable.
9. That the appellant craves permission to elucidate, add, amend, modify, delete any ground or grounds of appeal before the disposal in the interest of substantial justice.
It is therefore prayed that the appeal may kindly be accepted as prayed above or any other relief to which the appellant may be found entitled may kindly be granted."
27. Ground Nos. 1 and 9 are general in nature and therefore does not require any specific adjudication.
28. Issues raised in ground nos. 2, 5 and 6 are identical with the ground taken in AY 2005-06. As in AY 2005-06, they were not pressed this year also. They are therefore dismissed as not pressed.
29. Ground No. 7 was not pressed and is therefore dismissed as not pressed.
30. The issue raised in ground No. 8 has already been considered and adjudicated upon by us in A.Y 2005-06. For similar reasons, ground No. 8 is dismissed.
31. Apropos ground No. 3, the ld. counsel for the assessee submitted that the issue raised in ground No. 3 was identical with the one in AY 2005-06 and therefore the decision taken in this behalf in AY 2005-06 should be followed this year also. We have already considered and adjudicated upon the issue in the assessee's appeal for AY 2005-06. For similar reasons as given in our Order for AY 2005-06, ground no. 3 is dismissed.
32. Apropos ground No. 4, the AO has made addition amounting to Rs. 1,50,000 with the following observations:-
"During the course of assessment proceedings, vide notice dated 21.2.2009, 19.6.2009, the assessee was required to explain the bank entries but the assessee did not explain all the entries. The assessee was engaged during the year under consideration in the business of property dealing on commission basis and he 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 at Rs. 3.00 lakhs. In this view of the matter, the addition made by the AO and confirmed by the ld. CIT(A) is deleted. Ground No. 4 taken by the assessee is allowed.
35. Appeal filed by the assessee is partly allowed.
ITA No. 573/Chd/2011: AY 2007-08
36. 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 initialed 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. 3,86,360/- on account unexplained investments in the purchase of property against the facts and circumstances of the case.
4. That the ld. Appellate Authority wrongly and illegally confirmed the addition of Rs. 21,95,364/- on account of investment of land, house, shares ad expenditure etc. against the facts and circumstances of the case.
5. That the ld. Appellate Authority wrongly and illegally confirmed the addition of Rs. 70,000/- on account of undisclosed commission against the facts and circumstances of the case.
6. That the ld. Appellate Authority wrongly and illegally rejected the ground that the additions made assessment proceedings u/s 153A are sine-qua-non the seized material and no additional cold be sustained otherwise.
7. That without prejudice and alternatively additions made requires to be adjusted and telescoped.
8. That the ld. Appellate Authority wrongly and illegally directed to charge interest u/s 234B although on facts and circumstances of the case, interest is not chargeable.
9. That the appellant craves permission to elucidate, add, amend, modify, delete any ground or grounds of appeal before the disposal in the interest of substantial justice.
It is therefore, prayed that the appeal may kindly be accepted as prayed above or any other relief to which the appellant may be found entitled may kindly be granted."
37. Ground No. 1 is general in nature and does not require any specification adjudication.
38. Ground Nos. 2, 6 and 7 were not pressed at the time of hearing; they are therefore dismissed as not pressed.
39. Ground No. 3 was not pressed at the time of hearing. It is therefore dismissed as not pressed.
40. Ground No. 8 is consequential in nature for the reasons given in the order for A.Y 2005-06. For similar reasons as given in our Order for AY 2005-06, Ground No.8 is dismissed.
41. Ground No. 9 does not require any adjudication.
42. The issue raised in ground No. 4 is identical with the issue raised in the assessee's appeal for AY 2005-06. For the reason given in the order for A.Y 2005-06, Ground No.4 is dismissed.
43. Ground No. 5 is similar to the issue raised in A.Y 2006-07. For the reasons given in our Order for AY 2006-07, the addition of Rs. 70,000 made by the AO is deleted. Ground No. 5 is allowed.
44. Appeal bearing ITA No. 573/Chd/2011 is partly allowed.
45. In view of the foregoing, appeal bearing ITA No. 571/Chd/2011 is dismissed while those bearing ITA Nos. 572 and 573/Chd/2011 are partly allowed.
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