M/s. Shreenathji Builders, JUNAGADH V. The Income Tax Officer, Ward-1(1), JUNAGADH

CO 7/RJT/2013

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3488 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 10 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 16-09-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 15-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DM RINDANI
• Assessee Lawyers: C P BHATIA
• Section: 143(3)

Judgement Text

ITA NO. 47/RJT/2013 & CO 07/RJT/2013 ITO VS.SHREENATHJI BUILDERS ASSESSMENT YEAR: 2009-10 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [CORAM: PRAMOD KUMAR AM AND RAJPAL YADAV JM] ITA NO. 47/RJT/2013 & CO NO. 07/RJT/2013 ASSESSMENT YEAR: 2009-10 INCOME-TAX OFFICER ..................APPELL ANT WARD 1(1), JUNAGADH VS. SHREENATHJI BUILDERS ........................ RESPONDENT & 5, DARPAN, JAYSHREE NAGAR SOCIETY, CROSS OBJECTOR BUS STAND ROAD, JUNAGADH [PAN : AAHFS 7348 M] APPEARANCES BY: CP BHATIA FOR THE APPELLANT DM RINDANI FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 03.11.2017 DATE OF PRONOUNCING THE ORDER : 30.01.2018 O R D E R PER PRAMOD KUMAR AM: 1. BY WAY OF THIS APPEAL AND THE CROSS-OBJECTION, T HE ASSESSING OFFICER, AS ALSO THE ASSESSEE, HAVE CHALLENGED LEARNED CIT(A)S ORDE R DATED 27.11.2012, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE IN COME-TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2009-10. 2. IN GROUND NOS. 1 & 2, WHICH WE WILL TAKE UP TOGE THER, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCES:- 1. THE LD. CIT(A) HAS DELETING THE ADDITION OF RS .40,00,000/- MADE ON ACCOUNT OF ON MONEY RECEIVED BY ON SALE OF LANDS. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN NOT APPLYING THE RATIO OF THE HONBLE SC GIVEN IN THE CASE OF SUMATI DAYAL 214 ITR 801 (SC) 3. THE GRIEVANCES RAISED BY THE ASSESSEE ARE ALSO C ONNECTED WITH THE ABOVE GRIEVANCES RAISED BY THE ASSESSING OFFICER, AND ARE , THEREFORE, REQUIRED TO BE TAKEN UP TOGETHER. THESE GRIEVANCES ARE AS FOLLOWS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S)-IV, RAJKOT ERRED ON FACTS AND IN LAW IN CONFIRMING ADDITION TO THE EXTE NT OF RS.4,00,000/- OUT OF ADDITION OF RS.44,00,000/- MADE BY THE ASSESSING OF FICER BY THE WAY OF UNACCOUNTED SALE CONSIDERATION. ITA NO. 47/RJT/2013 & CO 07/RJT/2013 ITO VS.SHREENATHJI BUILDERS ASSESSMENT YEAR: 2009-10 PAGE 2 OF 5 2. WITHOUT PREJUDICE TO OBJECTION NO.1, THE LEARNE D COMMISSIONER OF INCOME- TAX (APPEALS)-IV ERRED IN UPHOLDING UNACCOUNTED SAL E CONSIDERATION ON GROSS AMOUNT AND ERRED IN NOT RESTRICTING THE SAME TO PRO FIT PORTION ONLY. 4. THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE IS ENGAGED IN THE CONSTRUCTION BUSINESS. DURING THE RELEVANT PREVIOU S YEAR, THE ASSESSEE WAS ENGAGED IN DEVELOPING THREE RESIDENTIAL APARTMENT B UILDINGS AT JUNAGADH NAMELY CHITRAKUT 1, CHITRAKUT 2 AND CHITRAKUT 3. THE ASSE SSEE HAD SOLD 22 FLATS DURING THE RELEVANT PREVIOUS YEAR, IN THESE THREE PROJECTS, AN D DISCLOSED SALE REVENUE OF RS.217.26 LAKHS. HOWEVER, TWO BUYERS NAMELY C.R. JAVIA (FLAT NO. 501 IN CHITRAKUT 1) AND D.J. GODHANI (FLAT NO.704, CHITRAK UT-2) CONFIRMED HAVING PAID RS.2 LAKHS EACH IN CASH WHICH WAS NOT ACCOUNTED FOR IN T HE BOOKS. THE ASSESSING OFFICER MADE FURTHER ENQUIRIES BUT NO OTHER BUYER CONFIRMED HAVING PAID ANYTHING OTHER THAN STATED AND ACCOUNTED CONSIDERATION. THE ASSESSEE TH OUGH OFFERED OPPORTUNITY TO CROSS-EXAMINE THESE TWO BUYERS, DID NOT CROSS EXAMI NE THESE BUYERS. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER PROCEEDED TO AD D RS.44 LAKHS, BEING ESTIMATED CASH UNACCOUNTED RECEIPTS ON SALE FOR 22 FLATS. WH ILE DOING SO, THE ASSESSING OFFICER OBSERVED AS FOLLOWS:- CONSIDERING THE ALL THE ABOVE FACTS, THE ASSESSMEN T IS FINALIZED AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORDS AND A LSO CONSIDERING THE FACT THAT THE ASSESSEE HAS RECEIVED THE ON MONEY AGAINST THE SALE CONSIDERATION IN THE CHITRAKUT PROJECT AND FOR 22 UNITS, IT IS WORKED OU T AS UNDER :- 22 UNITS X RS.2 LACS FOR EACH UNIT = RS.44,00,000 THOUGH, THE TWO BUYERS OF THE ASSESSEE SHRI HIMANSH U H. LADANI AND SMT. BHAVNABEN B. JASANI HAVE DENIED TO HAVE MADE THE PA YMENT OF ON MONEY OUT OF FOUR BUYERS WHOSE WERE RECORDED ON OATH. HOW EVER, IT IS FACT THAT TWO BUYERS SMT. DIVYABEN J. GODHANI AND SHRI CHHANBHAI RAGHAVJI JAVIA WHOSE STATEMENT RECORDED ON OATH AFTER THE PERIOD MORE TH AN THREE MONTHS OF RECORDING THE STATEMENT OF SMT. DIVYABEN J. GOD HANI AND SHRI CHHAGANBHAI R. JAVIA, WHO HAVE STATED THAT THEY HAVE PAID ON MO NEY TO THE BUILDER. IN THIS REGARD, I HAVE DRAWN ONLY CONCLUSION THAT SUBSEQUEN T STATEMENT RECORDED ON OATH 13.12.2011 WHO HAVE DENIED TO HAVE MADE ON MON EY WAS WORD TUTORED REPLY AND DELIBERATELY DENIED WITH THE CONSULTATION OF THE BUILDER. THEREFORE, COGNIZANCE OF DENIAL IS NOT TAKEN AT THIS STAGE AND IT IS CONSIDERED THAT THE ASSESSEE HAS ACCEPTED ON MONEY OF RS. 2 LAKH IN EAC H FLAT ON THE SALE CONSIDERATION FROM THE BUYERS AND ACCORDINGLY THE R ECEIPT OF ON MONEY / UNACCOUNTED MONEY IS WORKED OUT AT RS. 44,00,000/- (22 FLAT SOLD X 2,00,000/-) AND THE SAME IS ADDED IN THE HANDS OF THE ASSESSEE FIRM U/S.69A OF THE I.T.ACT,1961 FOR TAXATION OVER AND ABOVE OF REGULAR INCOME DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME AT RS. 2,92,800/-. 5. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) WHO RESTRICTED THE ADDITION TO RS.4,00,000/- BY OBSERVI NG AS FOLLOWS:- 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF APPELLANT. APPELLANT HAD CONSTRUCTED THREE BUILDING PROJECTS I .E. CHITRAKUT-1, 2 AND 3 FOR THE YEAR UNDER APPEAL CHITRAKUT 1 AND 3 WERE 4BHK P ROJECTS AND CHITRAKUT-2 WAS 3BHK PROJECT. DURING THE FINANCIAL YEAR RELEVAN T TO THE ASSESSMENT YEAR ITA NO. 47/RJT/2013 & CO 07/RJT/2013 ITO VS.SHREENATHJI BUILDERS ASSESSMENT YEAR: 2009-10 PAGE 3 OF 5 UNDER APPEAL, APPELLANT COULD SELL 8 CONSTRUCTED FL ATS OUT OF CHITRAKUT-2 (I.E. 3BHK FLATS) AND 22 FLATS OUT OF CHITRAKUT-1 (I.E. 4 BHK FLATS). NONE OF THE FLATS OF CHITRAKUT-3 (I.E. 4BHK, MORE LUXURIOUS) WERE SOLD I N THE RELEVANT FINANCIAL YEAR ASSESSING OFFICER MADE ENQUIRIES FROM THE BUYERS OF FLATS IN CHITRAKUL-2 AND CHITRAKUL-3 DURING THE ASSESSMENT PROCEEDINGS. ONE BUYER OF CHITRAKUT-3, DR HIMANSHU G LADANI, DENIED PAYING ANY 'ON MONEY' OVE R AND ABOVE THE CONSIDERATION AS PER SALE DEED. TWO BUYERS OF CHITR AKUT-2 , SHRI CHHAGANBHAI R JAVIA AND SMT DIVYABEN J GODHANI, CONFIRMED PAYIN G RS 2 LAKH AS 'ON MONEY' OVER AND ABOVE THE CONSIDERATION MENTIONED I N THE SALE DEED. ONE BUYER OF CHITRAFCUT-2 , SMT BHAVNABEN B JASANI DENI ED PAYING ANY 'ON MONEY' OVER AND ABOVE THE CONSIDERATION AS PER SALE DEED. NO OTHER BUYER WAS EXAMINED BY THE ASSESSING OFFICER. IN RESPECT OF TH E BUYERS SHRI CHHAGANBHAI R JAVIA AND SMT DIVYABEN J GODHANI OF CHITRAKUT-2, ASSESSING OFFICER HAD GIVEN AN OPPORTUNITY TO THE APPELLANT TO CROSS EXAM INE THE BUYERS BUT APPELLANT DID NOT AVAIL THIS OPPORTUNITY. IN APPELLATE PROCEE DINGS ALSO, APPELLANT NEVER DEMANDED THE OPPORTUNITY TO CROSS EXAMINE SHRI CHHA GANBHAI R JAVIA AND SMT DIVYABEN J GODHANI. THEREFORE IT MAY BE CONCLUD ED THAT APPELLANT HAS RECEIVED ON MONEY OF RS 4,00,000/- FROM SHRI CHHAGA NBHAI R JAVIA AND SMT DIVYABEN J GODHANI FOR SALE OF TWO FLATS IN THE BUI LDING CHITRAKUT-2. HOWEVER, I FIND IT DIFFICULT TO EXTEND THIS LOGIC TO THE SALES OF ALL THE REMAINING FLATS WHEN TWO OTHER BUYERS EXAMINED BY THE ASSESSING OFFICER HAVE CATEGORICALLY DENIED PAYING ANY ON MONEY FOR PURCHASE OF THEIR FLATS AND REMAINING BUYERS WERE NOT EXAMINED AT ALL. A BUYER MAY PAY EXTRA CONSIDERATIO N FOR THE FLAT PURCHASED BY HIM FROM THE APPELLANT AS PER HIS OWN NEED AND AVAI LABILITY OF FUNDS WHEREAS THE OTHER BUYER MAY NOT AGREE TO PAY ANY EXTRA CONS IDERATION OVER AND ABOVE THE PRICE AGREED IN THE SALE DEED. THEREFORE, THE E VIDENCES GATHERED BY THE ASSESSING OFFICER IN THE FORM OF STATEMENTS OF FOUR BUYERS DO NOT ALLOW SUCH PRESUMPTION THAT FOR ALL THE FLATS WERE SOLD BY THE APPELLANT DURING THE YEAR, RS 2 LAKH PER FLAT WAS PAID AS ON MONEY. IN RESPECT OF THE TWO FLATS OF CHITRAKUT-2, SOLD TO SHRI CHHAGANBHAI R JAVIA AND SMT DIVYABEN J GODHANI, THE BOOKING OF FLAT HAS BEEN NARRATED BY THE BUYERS AS 2007 OR THE YEAR WHEN THE CONSTRUCTION OF THIS BUILDING HAD JUST BEGUN. APPELLANT HAS SUBM ITTED THE DATE OF SALE TO THESE BUYERS IN APRIL / MAY 2009. THE DATE OF PAYME NT OF 'ON MONEY' IS NOT APPARENT FROM THE STATEMENTS OF THESE TWO BUYERS. H OWEVER, CONSIDERING THE FACT THAT SUCH PAYMENTS ARE GENERALLY MADE BEFORE T HE FINAL SALE IS MADE, I FIND THAT RS 4 LAKH OF 'ON MONEY' WAS RECEIVED BY APPELL ANT IN FINANCIAL YEAR 2008- 09 BEFORE THE FINALIZATION OF SALE TO THESE TWO BUY ERS. I THEREFORE RESTRICT THE ADDITION TO RS 4 LAKH INSTEAD OF RS 44 LAKH MADE BY THE ASSESSING OFFICER. 6. NONE OF THE PARTIES IS SATISFIED. WHILE THE ASS ESSING OFFICER IS AGGRIEVED OF LEARNED CIT(A)S DELETING THE ADDITION OF RS.40 LAK HS, THE ASSESSEE IS AGGRIEVED OF THE CIT(A)S CONFIRMING THE ADDITION OF RS.4 LAKHS. BOTH THE PARTIES ARE IN APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 8. WE FIND THAT LEARNED CIT(A)S WELL REASONED ORDE R DESERVES TO BE CONFIRMED ON THESE POINTS. WE ADOPT AND APPROVE HIS SOUND REASON ING. JUST BECAUSE TWO BUYERS HAVE PAID ON MONEY OF RS.2 LAKHS EACH, IT CANNOT BE INFERRED THAT THE ON MONEY OF RS.2 LAKHS WAS CHARGED ON EACH SALE PARTICULARLY AS BUYERS HAVE CATEGORICALLY ITA NO. 47/RJT/2013 & CO 07/RJT/2013 ITO VS.SHREENATHJI BUILDERS ASSESSMENT YEAR: 2009-10 PAGE 4 OF 5 DENIED THE SAME IN THE COURSE OF RECORDING OF THEIR STATEMENTS. THE CONCLUSIONS ARRIVED AT BY THE ASSESSING OFFICER AND THE CIT(A) RIGHTLY DISAPPROVED THE SAME. HOWEVER, WHEN ASSESSEE DOES NOT EVEN CROSS-EXAMINE THE TWO PERSONS WHO HAVE DEPOSED AGAINST HIM FOR PAYMENT OF ON MONEY OF RS.2 LAKHS EACH, TO THAT EXTENT, STAND OF THE ASSESSING OFFICER WAS RIGHTLY CONFIRME D BY THE CIT(A). WE APPROVE THE ORDER OF THE CIT(A), ADOPT HIS REASONING AND DECLIN E TO INTERFERE IN THE MATTER. 9. GROUND NOS. 1 & 2 OF ASSESSING OFFICERS APPEAL AND GROUND NOS. 1 & 2 OF ASSESSEES CROSS-OBJECTIONS ARE DISMISSED. 10. IN GROUND NO.3, THE ASSESSING OFFICER HAS RAISE D THE FOLLOWING GRIEVANCE:- THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CA SE IN DELETING THE ADDITION OF RS.2,39,827/- MADE U/S 40A(2) OF THE I.T. ACT 11. SO FAR AS THIS GRIEVANCE IS CONCERNED, RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID INTEREST @ 15% P.A., ON DEPOSITS BY THE SPECIFIED PERSONS, BUT THE NORMAL INTEREST RATE WAS 12% P.A. ON THIS BASIS, AND NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE FOR PAYMENT OF INTEREST @ 15% P.A., THE ASSESSING OFFICER DISALLOWED INTEREST TO THE EXTENT OF 3% P.A. ACCORDINGLY, A DISALLOWANCE OF RS.2,39,827/- WAS MADE BY THE ASSES SING OFFICER. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A) WHO REVERSED THE ACTION OF THE ASSESSING OFFICER ON THE BASIS OF FOLLOWING REA SONING:- 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND S UBMISSIONS OF APPELLANT. THE APPELLANT HAS PAID INTEREST AT THE RATE OF 15% TO ITS RELATED PERSONS U/S 40A(2)(B) OF THE I.T. ACT. ASSESSING OFFICER HAS RE FERRED TO THE PROVISIONS OF SECTION 40(B) WHERE INTEREST PAID TO PARTNERS IN EX CESS OF THE RATE OF 12% IS REQUIRED TO BE DISALLOWED. HOWEVER, THE INTEREST RA TE OF 12% MENTIONED IN SECTION 40(B) IS NOT THE FAIR MARKET RATE OF INTERE ST. THE FAIR MARKET RATE OF INTEREST IS DETERMINED ON THE BASIS OF INTEREST BEI NG CHARGED BY BANKS, VARIOUS FINANCIAL INSTITUTIONS ETC OR THE FINANCE MARKET IN GENERAL. THE RATE OF INTEREST FOR UNSECURED LOANS WOULD BE HIGHER THAN THE RATE OF IN TEREST FOR SECURED LOANS BECAUSE THE COST OF SECURITY OR HYPOTHECATION IS NO T THERE. THE RATE OF INTEREST MAY INCREASE IF THE LOAN IS GIVEN IN A MORE RISKY B USINESS. ASSESSING OFFICER HAS NOT FOUND OUT THE FAIR MARKET RATE OF INTEREST APPLICABLE TO UNSECURED LOAN. THEREFORE CONSIDERING THE FACT THAT THE COOPERATIVE BANKS WERE CHARGING INTEREST IN THE RAGE OF 13% TO 15% DURING THE PERIO D UNDER CONSIDERATION WITH REQUISITE SECURITY, THE INTEREST RATE OF 15% CHARGE D BY THE RELATIVES OF APPELLANT ON UNSECURED LOANS IS NOT EXCESSIVE. I THEREFORE DI RECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF INTEREST OF RS.2,39,827/- AN D REDUCE THE TOTAL INCOME OF APPELLANT ACCORDINGLY 12. AGGRIEVED BY THE RELIEF SO GRANTED BY THE CIT(A ), THE ASSESSING OFFICER IS IN APPEAL BEFORE US. 13. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. ITA NO. 47/RJT/2013 & CO 07/RJT/2013 ITO VS.SHREENATHJI BUILDERS ASSESSMENT YEAR: 2009-10 PAGE 5 OF 5 14. WE HAVE NOTED THAT THERE IS NO MATERIAL WHATSOE VER, BEFORE US, TO JUSTIFY THE STAND OF THE ASSESSING OFFICER THAT INTEREST PAYMEN T @ 15% P.A. WAS EXCESSIVE OR UNREASONABLE. AS LEARNED CIT(A) HAS OBSERVED, EVEN CO-OPERATIVE BANKS WERE CHARGING 13% TO 15% P.A. INTEREST AT THE RELEVANT P OINT OF TIME WHICH SHOWS THAT INTEREST PAID BY THE ASSESSEE WAS NEITHER EXCESSIVE NOR UNREASONABLE. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO DISLODGE THESE FINDIN GS. UNLESS THE ASSESSING OFFICER ESTABLISHES THAT THE PAYMENT MADE BY THE ASSESSEE T O THE SPECIFIED PERSONS IS EXCESSIVE OR UNREASONABLE, THERE IS NO QUESTION OF DISALLOWANCE UNDER SECTION 40A(2). IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARI NG IN MIND ENTIRETY OF THE CASE, WE APPROVE THE STAND OF THE CIT(A) ON THIS POINT AS WE LL, AND DECLINE TO INTERFERE IN THE MATTER. 15. GROUND NO.3 IS ALSO DISMISSED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSING OFFI CER IS DISMISSED, AND SO IS THE CROSS-OBJECTION FILED BY THE ASSESSEE. PRONOUNCED I N THE OPEN COURT TODAY ON THE 30 TH DAY OF JANUARY, 2018. SD/- SD/- RAJPAL YADAV PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 30 TH DAY OF JANUARY, 2018 *BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT 1. DATE OF DICTATION: ..ORDER PREPARED AS PER 9 PA GES MANUSCRIPT OF HONBLE AM, WHICH IS ATTACHED HEREWITH THE FILE... PREPARED ON 29.01.201 8 ... 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: ....30.1.2018....... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: 30.01.2018....... . 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 30.01.2018.. 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : 30.01.2018.. 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: ..