Enarc Builders (P) Ltd. V. The Commissioner of Income Tax, Central Revenue Buildings, I.S. Press Road, Cochin-682 018

ITA/6/1999

AI Insights

The case involves M/s. Enarc Builders (P) Ltd., which appealed against a block assessment made by the Income Tax Department for the period from April 1, 1992, to August 2, 1995. The assessment followed a search under Section 132 of the Income Tax Act, during which documents indicating discrepancies in property transactions and unaccounted sales were seized. The Tribunal initially deleted some additions made by the department but limited others. Both the assessee and the department appealed to the High Court, which addressed issues of suppressed purchase price and unaccounted sale price of flats.

• Counselvise Citation: [2008] 140 COUNSELVISE.COM (IT) 793836 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 16-01-2008
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: P K R MENON; GEORGE K GEORGE
• Assessee Lawyers: P BALACHANDRAN; K KITTU
• Keywords: Block assessment; Property Purchase; Unexplained investment; Suppressed income; Sale price suppression
• Section: 132

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR WEDNESDAY, THE 16TH JANUARY 2008 / 26TH POUSHA 1929 ITA.No. 6 of 1999() ------------------- I.T.(S&S).A.45/COCH.1997 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT: ----------------- M/S.ENARC BUILDERS (P) LTD., REP. BY MG.DIRECTOR SRI.K.RAMAKRISHNAN, MARRAR ROAD, TRICHUR. BY ADV. SRI.P.BALACHANDRAN SRI.K.KITTU RESPONDENTS: ------------- THE COMMISSIONER OF INCOME TAX, CENTRAL REVENUE BUILDINGS, I.S. PRESS ROAD, COCHIN-682 018. BY ADV. SRI.P.K.R.MENON(SR.),SC FOR IT SRI.GEORGE K. GEORGE, SC FOR IT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 16/01/2008, ALONG WITH ITA NO.18 OF 1999, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & T.R.RAMACHANDRAN NAIR, JJ. .................................................................... I.T.A. Nos.6 and 18 of 1999 .................................................................... Dated this the 16th day of January, 2008. JUDGMENT C.N.Ramachandran Nair, J. These two appeals, one filed by the assessee and the other by the department, arise from common appellate order of the Tribunal disposing of appeal against block assessment made in the case of the assessee for the period from 1.4.1992 to 2.8.1995. The assessee was engaged in the business of construction and sale of flats. The business premises of the assessee, where a sister concern of the assessee by name M/s.Enarc Consultants also was functioning, was searched by the Income Tax Department under Section 132 of the Income Tax Act on 20.7.1995 and on 2.8.1995. In the course of the search, certain documents were seized which include an agreement for sale of 23 cents of land in Trichur Town entered into between one Smt.Chandra Balakrishnan, the owner of the land and another person by name Mr.Gangadharan. Besides this, during the course of search, the department also seized certain papers from the handbag of one Smt.Girija Rajagopal who was then an employee of the assessee's sister concern and later found to be a shareholder in the assessee company for 2 Rs.1 lakh. Copy of the agreement seized was for sale of Smt.Chandra Balakrishnan's 23 cents of land, later purchased by the assessee for a consideration of Rs.32.5 lakhs, to one Mr.Gangadharan. Admittedly, the sale in terms of the agreement between Smt.Chandra Balakrishnan and Mr.Gangadharan did not take place. On the other hand, sale deed was executed for sale of the property in favour of the assessee for Rs.18 lakhs. In the course of block assessment in the case of the assessee, the department found that the agreement entered into between the owner and Mr.Gangadharan was for sale of property to the assessee and the actual consideration for the sale was the consideration mentioned in the sale agreement between the owner and Mr.Gangadharan and not the sale price as shown in the sale deed. Accordingly, the unexplained investment in the purchase of property was treated as suppressed income of the assessee. Besides this, based on the documents seized from the bag of Smt.Girija Rajagopal and based on the statement furnished by her, the department found that the assessee was engaged in suppression of sale price of each flat at the rate of Rs.75,000/-. Income estimated on this account at the rate of Rs.75,000/- per flat was for the 42 flats booked for sale. In appeal filed by the assessee against the block assessment, the Tribunal deleted the addition made representing alleged suppression of purchase price. So far as 3 addition on unaccounted receipt of sale consideration for the flats is concerned, the Tribunal limited addition to Rs.12 lakhs because according to them by the time the search was made, sale had taken place only in respect of 16 flats. It is against this order of the Tribunal that both the assessee as well as the department have filed these connected appeals challenging the findings on both the issues decided by the Tribunal. We have heard Senior counsel Sri.P.K.R.Menon, appearing for the Income Tax Department and Senior counsel Sri.P.Balachandran, appearing for the assessee. 2. The first issue raised in the appeal filed by the department is against the deletion of addition representing purchase price paid for purchase of property by the assessee over the value declared in the sale deed. The differential amount added in the assessment is Rs.14.5 lakhs. Senior counsel appearing for the department referred to the copy of the agreement seized from the assessee's office which shows that the property was agreed to be sold between it's owner Smt.Chandra Balakrishnan and one Mr.Gangadharan for Rs.32.5 lakhs. According to him, it is pursuant to this agreement the sale deed was executed in favour of the assessee company which was a nominee of Mr.Gangadharan. Even though counsel for the assessee denied the allegation, it is conceded that there was no 4 agreement for sale between the owner of the property and the assessee company. We are unable to accept the argument of the assessee and uphold the order of the Tribunal in favour of the assessee for more than one reason. In the first place, Mr.Gangadharan is not a total stranger to the sale deed between the owner of the property and the assessee company because along with the husband of Mrs.Chandra Balakrishnan, the managing director of the assessee company was a witness to the agreement executed between owner of the property and Mr.Gangadharan. Besides this, Mr.Gangadharan himself instructed the director of the assessee company to deposit Rs.1 lakh, the amount advanced by him to the owner of the property, in his Bank account. The assessee has no explanation as to how the sale deed was executed between the assessee company and the owner of the land for a substantial consideration of Rs.18 lakhs without prior agreement. In order to execute a sale deed even for Rs.18 lakhs, the company has to spend substantial amount for purchase of stamp paper and raise the sale consideration for the purpose of execution of sale deed. No company can be expected to make all these arrangements without entering into an agreement for purchase of property with it's owner. The assessee has no explanation as to how the sale was agreed upon in an informal manner without execution of a sale agreement. Apart from all these, the assessee or 5 the owner of the land did not deny the sale agreement between Smt.Chandra Balakrishnan and Mr.Gangadharan for sale of the property for Rs.32.5 lakhs. The amount shown in the sale agreement should naturally represent the market value of the property. It is very strange that the very same property was in fact purchased by the assessee company almost contemporaneously at almost half the price i.e. for Rs.18 lakhs. Even though counsel for the assessee contended that Mr.Gangadharan is a non- resident and he offered a fancy price for the property, we are unable to accept this argument because reason if any for Gangadharan's backing out from the sale deed is not proved. Even though counsel for the assessee submitted that the property was subject to mortgage to Dhanalakshmi Bank and it was got valued at around Rs.14.5 lakhs by approved valuers, we do not think that the valuation can represent the market value at which it was purchased by the assessee. The only inference reasonably possible from all these facts is that the sale agreement between the owner of the property and Mr.Gangadharan reflect the actual terms of sale including the sale price and the sale pursuant to said agreement was the one executed in favour of the assessee company. Therefore, there was suppression in the purchase price disclosed by the assessee and so much so, the addition of Rs.14.5 lakhs is perfectly justified. We, therefore, reverse the order of the Tribunal and 6 allow the department's appeal on this issue. 3. The next issue raised which is common in the appeals filed by the department as well as the assessee is against the addition of Rs.12 lakhs sustained by the Tribunal representing unaccounted sale price collected by the assessee for sale of the flats. The evidence collected in this regard is the account slips recovered from the bag of Smt.Girija Rajagopal who was admittedly an employee of the assessee's sister concern and later a shareholder of the assessee company. In fact, Smt.Girija Rajagopal confirmed the correctness of the entries through her own statement. The evidence is accepted by the Tribunal as sufficient proof of unaccounted collection of sale price for each flat by the assessee at the rate of Rs.75,000/- per flat. We do not find any ground to interfere with the findings of fact based on convincing evidence. The assessee's appeal on this issue is therefore dismissed. 4. The department's appeal is against the partial relief granted by the Tribunal by limiting the addition to Rs.12 lakhs on the ground that sale of only 16 flats had taken place at the time of search. Senior Standing Counsel submitted that assessee had contracted for sale of 42 flats. Even though we find logic in this argument, we feel it was premature to make addition on account of suppression in sale price before sale of flats. The 7 assessment is for the block period ending upto the date of search and therefore, it was open to the department to consider what sale price was disclosed by the assessee for the later period and if there is suppression, it is open to the department to make addition for the subsequent year when the sale takes place. In this view of the matter, we are of the view that the Tribunal was justified in limiting the addition pertaining to the flats sold as on the date of search. We, therefore, dismiss the department's appeal on this issue. Both the appeals are disposed of as above. C.N.RAMACHANDRAN NAIR Judge T.R.RAMACHANDRAN NAIR Judge pms "