NEELKAMAL REALTORS AND ERECTORS INDIA P.LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 1143/MUM/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70768 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 08-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: B V JHAVERI
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Fair market value
• Section: 43CA; 50C; 5(2); 56(2); 6; 154

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI .. , ! ' # $$, % ', & BEFORE SHRI R.S.SYAL, AM AND SHRI SANJAY GARG, JM ITA NO.1143/MUM/2013 : ASST.YEAR 2009-2010 M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PRIVATE LIMITED GROUND FLOOR, 265-E BELLASIS ROAD MUMBAI CENTRAL, MUMBAI 400 008 PAN : AABCN9254D. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 5(2) MUMBAI. ( '( / // / APPELLANT) * * * * / VS. ( +,'(/ RESPONDENT) '( - -- - . . . . / APPELLANT BY : SHRI B.V.JHAVERI +,'( - . - . - . - . / RESPONDENT BY : SHRI S.D.SRIVASTAVA * - /! / / / / DATE OF HEARING : 12.08.2013 012 - /! / DATE OF PRONOUNCEMENT : 16.08.2013 ' 3 ' 3 ' 3 ' 3 / / / / O R D E R PER R.S.SYAL (AM) : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 11.12.2012 IN RELATION TO THE ASSESSMENT YEAR 2009-2010. 2. FIRST GROUND OF THE APPEAL ABOUT THE MAKING OF E NHANCEMENT BY THE LEARNED CIT(A) WITHOUT ISSUING ANY SHOW CAUSE N OTICE, WAS NOT PRESSED BY THE LEARNED AR. THE SAME, THEREFORE, STA NDS DISMISSED. 3. THE GROUND NO.2 IS AGAINST THE CONFIRMATION OF A DDITION BY TREATING THE DIFFERENCE BETWEEN THE ACTUAL SALE PRI CE AND THE FAIR ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 2 MARKET VALUE DETERMINED BY STAMP DUTY AUTHORITIES O F ALL THE FLATS SOLD, AS SUPPRESSED SALE PROCEEDS. 4. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE IS A BUILDER AND DEVELOPER. IT OFFERED PROFIT ON THE COM PLETION OF BUILDING PROJECT CALLED `ORCHID TOWERS IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. SALES AMOUNTIN G TO ` 90.84 CRORE WERE CREDITED TO THE PROFIT AND LOSS ACCOUNT GIVING NET PROFIT OF ` 3.63 CRORE. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSEE WAS ASKED TO FURNISH PARTY-WISE DETAILS OF FLATS SOLD WITH DETAILS OF NAME AND ADDRESSES OF THE BUYERS, AREA O F FLAT SOLD, TOTAL SALE CONSIDERATION, DATE OF AGREEMENT, DATE OF FIRS T PAYMENT RECEIVED ETC. ON THE PERUSAL OF SUCH DETAILS, THE ASSESSING OFFICER OBSERVED THAT THERE WERE VARIATIONS IN PRICE CHARGED BY THE ASSESSEE FROM VARIOUS CUSTOMERS TO WHOM THE FLATS WERE SOLD. ON B EING CALLED UPON TO JUSTIFY SUCH VARIATION IN THE RATE AT WHICH THE FLATS WERE SOLD, THE ASSESSEE GAVE DETAILS AND REASONS FOR SUCH VARIATIO N IN SALE RATES. A FLAT-WISE CHART RUNNING INTO TWO PAGES HAS BEEN DRA WN AFTER PAGE NO. 2 OF THE ASSESSMENT ORDER, GIVING BREAK UP OF PRICE REALIZED BY THE ASSESSEE FROM SALE OF FLATS; REASONS GIVEN BY THE ASSESSEE FOR CHARGING LOWER PRICE IN CERTAIN CASES; COMMENTS OF THE ASSESSING OFFICER FOR NOT ACCEPTING THE ASSESSEES REASONING; AND MAKING OF ADDITION ON THE BASIS OF DIFFERENCE BETWEEN THE RAT ES CHARGED. RESULTANTLY, SUCH A DIFFERENCE OF ` 15.22 CRORE WAS ADDED BY THE ASSESSING OFFICER. IT IS A MATTER OF RECORD THAT TH E ASSESSEE MOVED RECTIFICATION APPLICATION U/S 154 SHOWING CALCULATI ON MISTAKE IN THE ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 3 ASSESSMENT ORDER. SUCH RECTIFICATION APPLICATION WA S DISPOSED OFF BY THE A.O. VIDE HIS ORDER DATED 06.06.2012 REDUCING T HE ABOVE ADDITION TO ` 4.45 CRORE. WHEN THE MATTER CAME UP BEFORE THE LEAR NED CIT(A), HE SUSTAINED THE ADDITION AT ` 8,53,79,819 BY HOLDING THAT MARKET VALUE OF FLATS OUGHT TO HAVE BEEN CONSIDERED INSTE AD OF THE ACTUAL SALE CONSIDERATION. IN REACHING THIS CONCLUSION, HE RELI ED ON THE PROVISIONS OF SECTION 50C AND ALSO SECTION 56(2)(VII)(B)(II). THE ASSESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF ADDITION AT ` 8.53 CRORE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. IT IS AN UNDISPUTED POSITION TH AT THE ASSESSEE IS A BUILDER AND DEVELOPER. IT FOLLOWED THE PROJECT COMP LETION METHOD TO DECLARE INCOME. THE PROJECT IN QUESTION WAS COMPLET ED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WHICH WAS SOLD AND INCOME WAS OFFERED FROM SALE OF 131 FLATS. THE FIRST QUESTION FOR OUR CONSIDERATION IS AS TO WHETH ER THE PROVISIONS OF SECTION 50C ARE APPLICABLE TO THE FACTS AND CIRCUMS TANCES OF THE INSTANT CASE. IN THIS REGARD, IT WOULD BE RELEVANT TO CONSIDER THE PRESCRIPTION OF SECTION 50C WHICH IS A SPECIAL PROV ISION FOR FULL VALUE OF CONSIDERATION IN CERTAIN CASES. SUB-SECTION (1) OF SECTION 50C PROVIDES AS UNDER:- SEC. 50C(1) 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 L ESS THAN THE VALUE ADOPTED OR ASSESSED OR ASSESSABLE] BY ANY AUTHORITY OF A STATE GOVERNMENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE 'STAMP VALUATION AUTHORITY') FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 4 TRANSFER, THE VALUE SO ADOPTED OR ASSESSED OR ASSES SABLE SHALL, FOR THE PURPOSES OF SECTION 48, BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF SUCH TRANSFER. 6. A BARE PERUSAL OF THIS PROVISION INDICATES THAT WHERE THE CONSIDERATION RECEIVED ON TRANSFER OF A CAPITAL ASS ET, BEING LAND OR BUILDING OR BOTH, IS LESS THAN THE STAMP VALUE, THE N FOR THE PURPOSES OF SECTION 48, THE STAMP VALUE SHALL BE CONSIDERED AS FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF S UCH TRANSFER. SECTION 48 WITH THE CAPTION : MODE OF COMPUTATION, DEALS WITH THE COMPUTATION OF THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAINS. A CURSORY LOOK AT THE ABOVE PROVISION FAIRL Y INDICATES THAT SECTION 50C IS APPLICABLE ONLY IN RESPECT OF INCOME COMPUTED UNDER CHAPTER IV-E I.E. THE HEAD CAPITAL GAINS. SINCE T HE ASSESSEE UNDER CONSIDERATION IS A DEVELOPER AND INCOME FROM THE SA LE OF FLATS HAS BEEN COMPUTED UNDER CHAPTER IV-D I.E. UNDER THE HEA D PROFITS AND GAINS OF BUSINESS OR PROFESSION, OBVIOUSLY THE PRO VISIONS OF SECTION 50C CAN HAVE NO APPLICATION. 7. AT THIS JUNCTURE, WE WANT TO ACCENTUATE TH AT THE FINANCE ACT, 2013 HAS INSERTED SECTION 43CA WITH EFFECT FROM 01. 04.2014 WHICH IS AGAIN A SPECIAL PROVISION FOR FULL VALUE OF CONSIDE RATION FOR TRANSFER OF ASSETS OTHER THAN CAPITAL ASSET IN CERTAIN CASES. S UB-SECTION (1) OF THIS SECTION PROVIDES THAT WHERE THE CONSIDERATION RECEI VED OR ACCRUING AS A RESULT OF THE TRANSFER BY AN ASSESSEE OF AN ASSET ( OTHER THAN A CAPITAL ASSET ) BEING LAND, BUILDING OR BOTH, IS LESS THAN THE VA LUE ADOPTED OR ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 5 ASSESSED OR ASSESSABLE BY ANY AUTHORITY OF A STATE GOVERNMENT FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT OF SUCH TRANSFER, THE VALUE SO ADOPTED OR ASSESSED OR ASSESSABLE SHALL, F OR THE PURPOSE OF COMPUTING PROFITS AND GAINS FROM TRANSFER OF SUCH A SSETS, BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. SUB-SECTION (2) MAKES IT C LEAR THAT THE PROVISIONS OF SUB-SECTIONS (2) AND (3) OF SECTION 5 0C SHALL BE APPLIED IN RELATION TO THE DETERMINATION OF THE VALUE ADOPT ED OR ASSESSED OR ASSESSABLE UNDER SUB-SECTION (1). ON A CIRCUMSPECTI ON OF SUB-SECTION (1) OF SECTION 43CA, IT BECOMES MANIFEST THAT THE P ROVISIONS FOR SUBSTITUTING STAMP VALUE FOR THE ACTUAL SALE CONSID ERATION ON TRANSFER OF THE LAND, BUILDING OR BOTH, WHICH WERE EARLIER R ESTRICTED TO THE `CAPITAL ASSET UNDER HEAD CAPITAL GAINS HAVE NOW BEEN EXTENDED TO `OTHER THAN A CAPITAL ASSETS UNDER THE HEAD PROFI TS AND GAINS OF BUSINESS OR PROFESSION AS WELL. THE REFERENCE TO T HE WORDS OTHER THAN A CAPITAL ASSET AND THE PLACEMENT OF SECTION 43CA IN CHAPTER IV-D INDICATE THAT THE STAMP VALUE IN RESPECT OF BU ILDING OR LAND OR BOTH SOLD BY A PERSON ENGAGED IN SUCH BUSINESS SHAL L BE SUBSTITUTED WITH THE ACTUAL CONSIDERATION RECEIVED AS A RESULT OF TRANSFER, IF THE LATTER IS LOWER THAN THE FORMER. THE INSERTION OF T HIS PROVISION BY THE FINANCE ACT, 2013 WITH EFFECT FROM 01.04.2014 MAKES IT ABUNDANTLY CLEAR THAT THE MANDATE OF SECTION 43CA SHALL APPLY ONLY WITH EFFECT FROM ASSESSMENT YEAR 2014-2015 AND NOT BEFORE THAT. AS THE ASSESSEE IN THE PRESENT CASE IS ENGAGED IN THE BUSINESS OF S ELLING OF FLATS AFTER CONSTRUCTION, THE INCOME FROM WHICH IS CHARGEABLE U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, THE PROVISIONS OF ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 6 SECTION 43CA CANNOT APPLY TO SUBSTITUTE THE ACTUAL SALE CONSIDERATION WITH THE STAMP VALUE IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2009-2010 UNDER CONSIDERATION. WE, THEREFORE, HOLD T HAT THE CONCLUSION DRAWN BY THE LEARNED CIT(A) IN INVOKING THE PROVISIONS OF SECTION 50C FOR SUSTAINING THE ADDITION, HAS NO LEGAL LEGS TO STAND ON. 8. THE LEARNED CIT(A) HAS ALSO PRESSED SECTION 56(2 )(VII)(B)(II) INTO SERVICE FOR SUSTAINING THE ADDITION ON THE BAS IS OF FAIR MARKET PRICE DETERMINED BY THE STAMP DUTY OFFICER. BEFORE PROCEEDING FURTHER, IT WOULD BE APT TO NOTE THE MANDATE OF THE RELEVANT PART OF ABOVE PROVISION, WHICH IS AS UNDER:- 56 (1).. (2).. (VII) WHERE AN INDIVIDUAL OR A HINDU UNDIVIDED FAMI LY RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON OR PERSONS ON OR AFTER THE 1 ST DAY OF OCTOBER, 2009, - (A).. (B) ANY IMMOVABLE PROPERTY, (I) WITHOUT CONSIDERATION, THE STAMP DUTY VALUE O F WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE STAMP DUTY VALUE OF SUCH PROPERTY; (II) FOR A CONSIDERATION WHICH IS LESS THAN THE ST AMP DUTY VALUE OF THE PROPERTY BY AN AMOUNT EXCEEDING FIFTY THOUSAND RUPEES, THE STAMP DUTY VALUE OF SUCH PROPE RTY AS EXCEEDS SUCH CONSIDERATION. ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 7 9. SECTION 56 LIES IN THE RESIDUAL HEAD OF INCOME, THAT IS, INCOME FROM OTHER SOURCES. SUB-SECTION (1) WHICH IS A GEN ERAL PROVISION, PROVIDES THAT INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME TAX UNDER THIS HEAD, IF IT IS NOT CHARGEABLE TO INCOME- TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A TO E. SUB-SE CTION (2) OF SECTION 56 DEALS WITH CERTAIN TYPES OF SPECIFIC INCOMES WHI CH ARE CHARGEABLE UNDER THIS RESIDUAL HEAD. CLAUSE (VII), AS REPRODUC ED ABOVE, PROVIDES THAT WHERE AN INDIVIDUAL OR HINDU UNDIVIDED FAMILY RECEIVES ANY IMMOVABLE PROPERTY FOR NO CONSIDERATION OR A CONSID ERATION WHICH IS LESS THAN THE STAMP DUTY VALUE OF THE PROPERTY BY A N AMOUNT EXCEEDING RUPEES FIFTY THOUSAND, THE STAMP DUTY VAL UE OF SUCH PROPERTY (IN CASE OF RECEIPT OF PROPERTY WITHOUT CO NSIDERATION) OR THE STAMP DUTY VALUE AS EXCEEDS SUCH CONSIDERATION (IN CASE OF RECEIPT OF PROPERTY AT LOWER CONSIDERATION) SHALL BE CONSIDERE D AS INCOME UNDER THIS HEAD. WHEN WE ADVERT TO THE FACTS OF THE EXTANT CASE, WE FIND THAT THIS PROVISION HAS NO APPLICATION FOR THE FOLLOWING REASONS:- (I) IT PROVIDES THAT WHERE AN IMMOVABLE PROPERTY I S ACQUIRED WITHOUT CONSIDERATION OR FOR A CONSIDERATION WHICH IS LESS THAN THE STAMP DUTY VALUE, THEN THE STAMP DUTY VALUE OR EXCESS OF SUCH VALUE OVER CONSIDERATION SHALL BE CONSIDERED A S INCOME UNDER THIS PROVISION. THUS, IT IS CLEAR THAT IT HAS APPLICATION ONLY TO THE TRANSFEREE OR THE ACQUIRER OF PROPERTY FOR N O CONSIDERATION OR CONSIDERATION LESS THAN THE STAMP DUTY VALUE. AS THE ASSESSEE ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 8 IN QUESTION IS A TRANSFEROR OR SELLER OF FLATS AND NOT AN ACQUIRER OR TRANSFEREE, THIS PROVISION CAN HAVE NO APPLICATION. (II) CLAUSE (VII) OF SECTION 56(2) WAS INSERTED BY THE FINANCE (NO.2) ACT, 2009 WITH EFFECT FROM 01.10.2009. THE A SSESSMENT YEAR UNDER CONSIDERATION IS 2009-2010 WHICH IS RELE VANT FOR THE PREVIOUS YEAR ENDING 31.03.2009. AS THIS PROVISION IS APPLICABLE IN RESPECT OF AN IMMOVABLE PROPERTY ACQUIRED ON OR AFTER THE 1 ST DAY OF OCTOBER, 2009, IT CAN NATURALLY HAVE NO APPL ICATION IN RELATION TO THE TRANSACTIONS HAVING TAKEN PLACE PRI OR TO THAT DATE IN THE ASSESSMENT YEAR 2009-2010 UNDER CONSIDERATIO N. (III) THIS PROVISION APPLIES ONLY TO AN INDIVIDUA L OR A HINDU UNDIVIDED FAMILY. AS THE ASSESSEE UNDER CONSIDERAT ION IS A PRIVATE LIMITED COMPANY, IT CAN HAVE NO RELEVANCE H ERE. 10. IN VIEW OF THE FOREGOING REASONS, WE ARE OF THE CONSIDERED OPINION THAT SECTION 56(2)(VII)(B)(II) CANNOT BE AP PLIED TO THE FACTS IN QUESTION. 11. IT IS OBSERVED THAT THE LEARNED CIT(A) SUSTAINE D THE ADDITION TO THE EXTENT OF ` 8.53 CRORE BY APPLYING SECTIONS 50C AND 56(2)(VII)(B)(II). BOTH THE ABOVE PROVISIONS HAVE B EEN FOUND TO BE INAPPLICABLE ON THE FACTS AND CIRCUMSTANCES PREVAIL ING IN THE PRESENT APPEAL. WE, THEREFORE, HOLD THAT THE SUSTENANCE OF ADDITION OF ` 8.53 CRORE IS NOT APPROPRIATE. HOWEVER, IT IS PERTINENT TO NOTE THAT THE ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 9 ASSESSING OFFICER INITIALLY MADE ADDITION OF ` 15.22 CRORE BY APPLYING RATES OF DIFFERENT FLATS WHICH WAS EVENTUALLY REDUC ED TO ` 4.45 CRORE IN THE ORDER PASSED U/S 154. OUR DISPOSAL OF THIS GROU ND IN THE ABOVE TERMS HAS LED TO THE REVERSAL OF THE FINDINGS OF TH E LEARNED CIT(A) BUT THE ADDITION TO THE TUNE OF ` 4.45 CRORE STILL STANDS. THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ENTIRE ADDITION BEIN G : THE DIFFERENCE BETWEEN THE SALE VALUE AND THE FAIR MARKET VALUE DE TERMINED BY STAMP DUTY AUTHORITIES OF ALL THE FLATS SOLD . AS SUCH WE ARE REQUIRED TO ADJUDICATE UPON THE SUSTENANCE OF ADDITION TO THE E XTENT OF ` 4.45 CRORE AS WELL. 12. IT CAN BE OBSERVED FROM THE CHART MADE BY THE A.O. AFTER PAGE NO. 2 OF THE ASSESSMENT ORDER THAT HE MADE ADDITION BY CONSIDERING THE RATE OF ANOTHER FLAT SOLD BY THE ASSESSEE VIS--VIS THE RATE AT WHICH FLAT UNDER VIEW WAS SOLD. FOR EXAMPLE, FIRST ITEM IN THE TABLE IS FLAT NO.2501 WITH AREA OF 2645 SQ. FEET AND SALE CONSID ERATION AT ` 65.24 LAKH. FIRST PAYMENT FOR THIS FLAT WAS RECEIVED BY T HE ASSESSEE ON 21.10.2004 AND THE SALE RATE IS ` 2467 PER SQ.FT. THE ASSESSING OFFICER HAS COMPARED THIS RATE WITH THE RATE CHARGED FOR FL AT NO.2702 SOLD BY THE ASSESSEE AT A PRICE HIGHER BY ` 649 PER SQ.FT. THE ASSESSEE GAVE REASON FOR CHARGING LOW PRICE IN THE TERMS THAT THE BUYER OF FLAT NO.2501 ASSISTED IN PROMOTING BUSINESS AND HENCE DI SCOUNT WAS OFFERED TO HIM. SIMILAR IS THE POSITION REGARDING O THER FLATS SOLD BY THE ASSESSEE IN RESPECT OF WHICH THE ASSESSING OFFICER HAS MADE ADDITION BY COMPARING THE RATE CHARGED WITH THE HIGHER RATE CHARGED IN RESPECT OF OTHER SALE TRANSACTIONS. THE ASSESSEE GAVE JUST IFICATION FOR LOWER ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 10 RATE IN RESPECT OF EACH FLAT, SUCH AS, HIGHER DOW N PAYMENT; NO HARD BARGAIN BY THE BUYER; BUYER IS AN NRI; PARTY WAS TE NANT WHO HELPED IN SETTLEMENT WITH OTHER TENANTS; DIFFERENT AMENITY VALUES; DEMAND FOR A HIGHER OR LOWER FLAT; HIGHER OR LOWER CARPET AREA ETC. THE ASSESSING OFFICER BRUSHED ASIDE THESE EXPLANATIONS GIVEN BY T HE ASSESSEE QUA EACH FLAT SOLD AT A LOWER RATE BY SIMPLY MENTIONING THAT SUCH REDUCTION WAS NOT JUSTIFIABLE OR THERE WAS NO EXPLA NATION FOR LOWER RATE OR FABRICATED REASONING ETC. SUCH REJECTION OF THE ASSESSEES EXPLANATION IN ONE STROKE IS WHOLLY IMPERMISSIBLE. IF THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ASSESSEES EXPLA NATION FOR CHARGING A LOWER RATE IN COMPARISON WITH A HIGHER RATE OF OT HER FLATS, HE WAS REQUIRED TO BRING ON RECORD CERTAIN MATERIAL TO DEM ONSTRATE THAT THE ASSESSEE, IN FACT, CHARGED SUCH HIGHER RATE. THE REJECTION OF ASSESSEES EXPLANATION FOR CHARGING A LOWER SALE PR ICE CANNOT BE JETTISONED WITHOUT POSITIVELY SHOWING THAT THE ASSE SSEE RECEIVED A HIGHER SALE PRICE. 13. THE HONBLE SUPREME COURT, IN THE CONTEX T OF SECTION 52, IN K.P. VERGHESE VS ITO (1981) 131 ITR 597 (SC) , HAS HELD THAT :` SUB- S. (2) OF S. 52 CAN BE INVOKED ONLY WHERE THE CONSI DERATION FOR THE TRANSFER HAS BEEN UNDERSTATED BY THE ASSESSEE OR, I N OTHER WORDS, THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAN IS DECLARED OR DISCLOSED BY HIM AND THE BURDEN OF PROV ING SUCH AN UNDERSTATEMENT OR CONCEALMENT IS ON THE REVENUE. SUB-S. (2) HAS NO APPLICATION IN THE CASE OF AN HONEST AND BONA FIDE TRANSACTION WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN CORRECTLY DECLARED ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 11 OR DISCLOSED BY HIM, AND THERE IS NO CONCEALMENT OR SUPPRESSION OF THE CONSIDERATION.. IDENTICAL VIEW WAS SUBSEQUENT LY REITERATED IN CIT VS. SHIVAKAMI CO. P. LTD. (1986) 159 ITR 71 (SC) . SIMILAR VIEW HAS BEEN EXPRESSED BY THE HONBLE SUPREME COURT IN CIT VS. GODAVARI CORP LTD. (1993) 200 ITR 567 (SC) BY HOLDING THAT THE BURDEN IS ON THE REVENUE TO PROVE UNDER-STATEMENT OF THE CONSIDE RATION. THE FOLLOWING OBSERVATIONS OF THE HONBLE SUPREME COURT FROM THIS CASE MERIT MENTION :` SECTION 52(2) OF THE IT ACT, 1961 CAN BE INVOKED ONLY WHERE THE CONSIDERATION FOR THE TRANSFER OF A CAPITAL ASSET HAS BEEN UNDERSTATED BY THE ASSESSEE OR IN OTHER WORDS THE FULL VALUE OF THE CONSIDERATION IN RESPECT OF THE TRANSFER IN SHO WN AT A LESSER FIGURE THAN THAT ACTUALLY RECEIVED BY THE ASSESSEE AND THE BURDEN OF PROVING UNDERSTATEMENT OR CONCEALMENT IS ON THE REVENUE; AND THE SUB- SECTION HAS NO APPLICATION IN THE CASE OF BONA FIDE TRANSACTION WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN CORRECTLY DECLARED.. THE HONBLE KERALA HIGH COURT IN COMMISSIONER OF AGRICULTURAL IT VS M.J. CHERIAN (1979) 117 ITR 371 (KER) HAS HELD THAT THE ITO CAN NOT FIX HIGHER SALES PRICE WITHOUT ANY EVIDENCE. THE MERE PRESUMPTION THAT THE EXCESS PRICE COULD HAVE B EEN CHARGED HAS BEEN HELD TO BE NOT A GROUND FOR COMING TO THE CONC LUSION THAT THE ASSESSEE DID CHARGE A HIGHER PRICE. A SURVEY OF AF OREMENTIONED JUDGMENTS MANIFESTS THAT THERE IS NO LAW WHICH OBLI GES A TRADER TO MAKE THE MAXIMUM PROFIT ON SALES. 14. IT IS TRITE THAT THE ONUS TO CLAIM THAT THE APPARENT IS NOT REAL IS ONE WHO SO CLAIMS. WHERE THE REVENUE REQUIRES THE A SSESSEE TO SHOW ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 12 AS TO WHY THERE IS A DIFFERENCE IN THE PRICE CHARGE D FROM TWO CUSTOMERS AND THE ASSESSEE OFFERS SOME PLAUSIBLE EX PLANATION, NO ADDITION CAN BE MADE SIMPLY BY HOLDING THAT THIS EX PLANATION IS FANCIFUL. THERE MUST BE SOME THING CONCRETE TO SHOW THAT THE VERSION GIVEN BY THE ASSESSEE IS INCORRECT. THE AO CANNOT SIMPLY MAKE ADDITION ON HYPOTHETICAL BASIS BY PRESUMING A HIGHE R SALE PRICE BY SIMPLY REJECTING THE ASSESSEES EXPLANATION WITHOUT COGENT REASONS. IF THIS PROCEDURE IS RESORTED, THEN IT WOULD AMOUNT TO TAXING HYPOTHETICAL INCOME INSTEAD OF REAL INCOME, WHICH I S OBVIOUSLY IMPERMISSIBLE UNLESS AN EXPRESS PROVISION IS ENSHRI NED IN THIS REGARD. 15. COMING BACK TO THE FACTS OF THE INSTANT C ASE, WE FIND THAT THE ASSESSEE TENDERED EXPLANATION IN SUPPORT OF CHARGIN G LOWER PRICE IN RESPECT OF SOME OF THE FLATS SOLD BY IT. THE AO NO T ONLY SIMPLY REFUSED TO ACCEPT SUCH EXPLANATION WITHOUT ANY CONV INCING REASON BUT ALSO DID NOT BRING ANY MATERIAL ON RECORD TO SHOW T HAT THE ASSESSEE IN FACT RECEIVED HIGHER PRICE THAN DECLARED. UNDER SUC H CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE ACTION OF THE AUTHORITIES BELOW IN THIS REGARD CANNOT BE JUSTIFIED. AT THE C OST OF REPETITION, WE MENTION THAT THE PROVISIONS OF SECTION 43CA HAVE BE EN INSERTED WITH EFFECT FROM 2014-2015 IN RESPECT OF TRANSFER OF LAN D OR BUILDING OR BOTH WHICH IS NOT A CAPITAL ASSET. IT IS ONLY DURIN G THE PREVALENCE OF THIS PROVISION THAT THE REVENUE HAS BEEN DISCHARGED FROM THE BURDEN OF PROVING THAT THE SALE PRICE OF LAND, OR BUILDING OR BOTH IS UNDERSTATED. STRAIGHT WAY, THE DECLARED SALE CONSID ERATION CAN BE SUBSTITUTED WITH THE STAMP DUTY VALUE, IF IT LESS. IN THE PERIOD ANTERIOR ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 13 TO THE APPLICATION OF THIS PROVISION, THE BURDEN IS SQUARELY ON THE REVENUE TO POSITIVELY SHOW THAT THE SALE PRICE CHAR GED WAS ACTUALLY MORE THAN THAT DECLARED. WE ARE CONFRONTED WITH A SI TUATION IN WHICH THE ASSESSEE GAVE REASONS FOR CHARGING LOWER PRICE IN RESPECT OF SOME OF THE FLATS SOLD, WHICH THE AO FAILED TO CONTROVER T. IN SUCH A SITUATION, THERE CAN BE NO REASON TO MAKE OR SUSTAI N ANY SUCH ADDITION. WE, THEREFORE, ORDER FOR THE DELETION OF THIS ADDIT ION IN ENTIRETY. THIS GROUND IS ALLOWED. 16. THE ONLY OTHER GROUND WHICH SURVIVES FOR OUR CO NSIDERATION IS ABOUT THE CONFIRMATION OF ADDITION OF ` 13,44,81,944 ON ACCOUNT OF LOWER VALUATION OF CLOSING STOCK. BRIEFLY STATED TH E FACTS OF THIS GROUND ARE THAT THE ASSESSING OFFICER FOUND TOTAL A REA OF UNSOLD FLATS AT 31,414 SQ.FT., THE VALUE OF WHICH WAS SHOWN IN T HE BALANCE SHEET AT ` 2.03 CRORE. THIS GAVE RATE OF ` 647 PER SQ.FT. ON THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT, THE ASSESSING OFFICER OBSE RVED THAT THE COST OF CONSTRUCTION WAS AT ` 4928 PER SQ.FT. THE ASSESSEE WAS CALLED UPON TO JUSTIFY AS TO WHY THE CLOSING STOCK SHOULD NOT B E VALUED AT THE RATE OF ` 4,928 PER SQ.FT., BEING THE COST OF CONSTRUCTION. I T WAS SUBMITTED THAT A PART OF THE CONSTRUCTED AREA WAS REQUIRED T O BE HANDED OVER TO MHADA AS PER THE APPROVED PLAN. A COPY OF LETTER DA TED 06.02.2007 FROM MHADA WAS FILED IN SUPPORT OF THE CONTENTION T HAT THE ASSESSEE WAS REQUIRED TO HAND OVER SURPLUS AREA OF 1797 SQ.M TR. (19335.72 SQ.FT.). THE ASSESSEE EXPLAINED THAT THE COST INCUR RED TOWARDS THE FLATS TO BE SURRENDERED TO MHADA COULD NOT BE CONSIDERED IN THE VALUATION OF CLOSING STOCK AS THE REDEVELOPMENT OF PROPERTY WAS ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 14 GIVEN TO THE ASSESSEE SUBJECT TO SUCH TERMS AND CON DITIONS INCLUDING THE HANDING OVER OF THIS MUCH BUILT UP AREA. IT WAS EXPLAINED THAT THE POSSESSION OF FLATS COULD NOT BE GIVEN TO MHADA AS THEY WERE DEMANDING FLATS WITH SIZE OF 225 SQ.FT. ONLY. THE A SSESSEE EXPLAINED THAT IT GAVE A SEPARATE PROPOSAL FOR CONSTRUCTING A BUILDING WHICH WAS LATER ON ACCEPTED BY MHADA. THE ASSESSING OFFICER O PINED THAT MHADA HAD NO CLAIM IN THE BUILDING CONSTRUCTED BY T HE ASSESSEE AS IT HAD REQUESTED TO CONSTRUCT THE TENEMENTS OF 225 SQ.FT., WHEREAS THE ASSESSEE FAILED TO CONSTRUCT SUCH TENEMENTS. THIS L ED TO THE ADDITION OF ` 13.44 CRORE ( ` 15.48 CRORE [31414 SQ FEET * ` 4928] - ` 2.03 CRORE [VALUE OF THE DECLARED CLOSING STOCK]). NO RELIEF W AS ALLOWED IN FIRST APPEAL. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS CLEAR THAT THE ASSESSEE R EDEVELOPED PROPERTY BEARING C.S. NO.241/242 OF TARDEO DIVISION BUILDING NO.22/26B, SHUKLAJI STREET, 263 AND 273 BELASIS ROAD, CESS NO. D-4958/1 AND D- 494746 ON MHADA ISSUING NOC DATED 31.12.1993. THE ASSESSEE WAS REQUIRED TO HANDOVER TENEMENTS HAVING AREA OF 2 25 SQ.FT. EACH AGGREGATING TO 1797 SQ.MTRS IN THE PROJECT. FOR CE RTAIN REASONS, THE ASSESSEE COULD NOT DELIVER FLATS OF THE SIZE OF 225 SQ.FT. EACH. THE MATTER WENT INTO LITIGATION AS THE ASSESSEES PRAYE R FOR GIVING ALTERNATIVE ACCOMMODATION WAS TURNED DOWN BY MHADA. THE HONBLE BOMBAY HIGH COURT, VIDE ITS JUDGMENT DATED 22.11.2011, A COPY PLACED AT PAGE 82 OF THE PAPER BOOK, DIRECTED MHADA TO CONSIDER THE ASSESSEES PROPOSAL AND TAKE APPROPRIA TE DECISION. VIDE ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 15 LETTER DATED 24.12.2012, MHADA DIRECTED THE ASSESSE E TO SURRENDER THE SURPLUS `BUILT UP AREA ADMEASURING 1797.25 SQ.M TR. EITHER IN SAME BUILDING OR IN ANY OTHER BUILDING IN SAME WARD ONLY. A COPY OF THIS LETTER IS PLACED AT PAGE 103 OF THE PAPER BOOK . FROM THE ABOVE DISCUSSION IT IS CLEAR THAT THE ASSESSEE GOT NO OBJ ECTION FROM MHADA FOR UNDERTAKING THE PROJECT ONLY SUBJECT TO THE CON DITION THAT FLATS ADMEASURING 1797 SQ.MTRS. WOULD BE HANDED OVER TO M HADA. TO THAT EXTENT THE ASSESSEE COULD NEVER CLAIM THAT TH E FLATS BELONGED TO IT OR WERE ITS CLOSING STOCK. IT IS AN ALTOGETHER DIFF ERENT MATTER THAT THE ASSESSEE MADE TENEMENTS OF THE SIZES DIFFERENT FROM THOSE REQUIRED BY MHADA. BUT THE FACT REMAINS THAT THE ASSESSEE WAS U NDER OBLIGATION TO HAND OVER 1797 SQ.MTRS. OF BUILT UP AREA TO MHAD A AS CAN BE SEEN FROM THAT LETTER FOLLOWING INTERFERENCE BY THE HON BLE BOMBAY HIGH COURT THAT BOTH THE ASSESSEE AND MHADA AGREED THAT THE ASSESSEE WOULD SURRENDER THE SURPLUS BUILT UP AREA ADMEASUR ING 1797.25 M2 . IT IS THUS VIVID THAT THE OBLIGATION TO HANDOVER TH E BUILT UP AREA ADMEASURING 1797.25 SQ.MTR. WAS ON THE ASSESSEE FRO M THE VERY BEGINNING. AT THE END OF THE YEAR, THE BUILT UP A REA TO SUCH AN EXTENT COULD NOT HAVE BEEN CONSIDERED AS THE ASSESSEES ST OCK IN TRADE. 18. THE CONTENTION OF THE LEARNED DEPARTMENT AL REPRESENTATIVE THAT AT THE MOST THE LIABILITY TO HAND OVER SUCH AN AREA TO MHADA COULD BE CONSIDERED AS CONTINGENT LIABILITY, IS WHO LLY DEVOID OF MERIT. IT IS OBVIOUS THAT THE OBLIGATION TO HANDOVER BUILT UP AREA ADMEASURING 1797 SQ.MTR. DID EXIST AT THE END OF T HE RELEVANT YEAR. THE ASSESSEE COULD, UNDER NO CIRCUMSTANCE, CLAIM ITSELF AS AN OWNER ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 16 OF THIS MUCH BUILT UP AREA. THE FACT THAT IT WAS DE CIDED IN 2012 THAT THE ASSESSEE WOULD HANDOVER SO MUCH AREA TO MHADA I N THE SAME BUILDING OR IN ANY OTHER BUILDING IN THE SAME WARD, CANNOT OBLITERATE THE LIABILITY WHICH CAME TO BE RECOGNIZED SINCE LON G AND WAS EXISTING AT THE YEAR END. 19. ANOTHER CONTENTION WAS PUT FORTH BY THE LD. DR THAT THERE CAN BE NO REDUCTION IN THE VALUE OF CLOSING STOCK B ECAUSE EVEN AS PER THE ASSESSEES CONTENTION, IT ACCEPTED TO ALLOT 17 53 SQ. METER OF THE BUILT UP AREA IN ANOTHER PROJECT. HE STATED THAT IN SO FAR AS THIS PROJECT IS CONCERNED, THE ENTIRE UNSOLD AREA INCLUDING 1753 SQ. METERS WAS STOCK OF THE ASSESSEE AT THE YEAR END. WE FIND THIS CONTENTION OF THE LD. DR AS BEREFT OF ANY FORCE. THE OBVIOUS REASON I S THAT THE TAXABLE ENTITY IS THE ASSESSEE AND NOT THIS PARTICULAR PROJ ECT. ONCE THE ASSESSEE AGREED TO ALLOT 1753 SQ. METERS AREA TO MH ADA IN LIEU OF PERMISSION TO REDEVELOP THE PROPERTY, IT BECAME OBL IGED TO ALLOT THIS MUCH OF THE BUILT UP AREA. IT MEANS THAT THE COSTS INCURRED IN MAKING THIS MUCH BUILT UP AREA HAD THE EFFECT OF REDUCING THE OVERALL PROFIT OF THE ASSESSEE TO THAT EXTENT FROM THIS PROJECT. IN O THER WORDS, THE BUILT UP AREA TO THIS EXTENT IN THE PROJECT DID NEVER BEL ONG TO THE ASSESSEE AND HENCE COULD NOT CONSTITUTE ITS STOCK IN TRADE. IF THE ASSESSEE IS TO ALLOT EQUAL BUILT UP AREA IN SOME OTHER PROJECT, AN D IT IS PRESUMED THAT THE BUILD UP AREA IN THE INSTANT PROJECT CONSTITUTE S ITS STOCK IN TRADE, THEN THE COST OF SUCH BUILT UP AREA WILL SLICE AWAY THE PROFIT REALIZED FROM THIS PROJECT BECAUSE OF SUCH EXISTING LIABILIT Y ATTACHING TO THIS PROJECT. WHICHEVER WAY WE MAY SEE, THE RESULT IS SA ME. IF THIS MUCH ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 17 AREA IS NOT TREATED AS STOCK IN TRADE OF THIS PROJE CT BECAUSE OF THE OBLIGATION, IT WOULD REDUCE THE PROFIT TO THIS EXTE NT AS A RESULT OF THE REDUCTION IN THE VALUATION OF THE CLOSING STOCK ; A ND IF IT IS TREATED AS STOCK IN TRADE OF THE ASSESSEE BECAUSE OF THE AGREE MENT TO ALLOT AREA IN ANY OTHER PROJECT, THEN THE PROFIT OF THIS PROJECT WOULD AGAIN BE SLICED AWAY WITH THE COST OF THIS MUCH BUILT UP AREA WHICH THE ASSESSEE WAS OBLIGED TO GIVE TO MHADA IN LIEU OF THE PERMISSION TO UNDERTAKE THIS PROJECT. IN BOTH THE SITUATIONS, THE COST OF BUILT UP AREA OF 1753 SQ. METERS CANNOT BE TREATED AS PROFIT FROM THIS PROJEC T. 20. IN PRINCIPLE, WE HOLD THAT THE BUILT UP AREA ADMEASURING 1797.25 SQ.MTRS. CANNOT BE CONSIDERED AS ASSESSEES STOCK IN TRADE. THE LD. AR TRIED TO JUSTIFY THE DELETION OF ADDITIO N BY ARGUING THAT THE COST OF 1797 SQ. MTRS. BE TREATED AS `SUPER BUILT U P AREA AND IN THAT WAY, THE ADDITION DESERVES TO BE DELETED. HOWEVER, IT IS NOTICED FROM THE COMMUNICATION BETWEEN THE ASSESSEE AND MHADA, P URSUANT TO THE DIRECTION OF THE HONBLE BOMBAY HIGH COURT, TH AT THERE IS REFERENCE TO THE `BUILT UP AREA AND NOT `SUPER BUI LT UP AREA. AS THE AUTHORITIES HAVE NOT DEALT WITH THE CALCULATION ASP ECT OF THE MATTER, WE DEEM IT FIT TO RESTORE THE MATTER TO THE FILE OF A. O. FOR WORKING OUT THE VALUE OF THE REMAINING CLOSING STOCK. THIS GROUND I S ALLOWED FOR STATISTICAL PURPOSES. 21. 4 /5 6 73 / - #/ 89 : IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ITA NO.1143/MUM/2013. M/S.NEELKAMAL REALTORS AND ERECTORS INDIA PVT.LTD. 18 ORDER PRONOUNCED ON THIS 16 TH DAY OF AUGUST, 2013. ' 3 - 012 ;'*5 1 - $ SD/- SD/- (SANJAY GARG) (R.S.SYAL) % ' % ' % ' % ' / JUDICIAL MEMBER ! ' ! ' ! ' ! ' / ACCOUNTANT MEMBER MUMBAI ; ;'* DATED : 16 TH AUGUST, 2013. DEVDAS* ' 3 - +%/7< = <2/ ' 3 - +%/7< = <2/ ' 3 - +%/7< = <2/ ' 3 - +%/7< = <2// COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. +,'( / THE RESPONDENT. 3. > () / THE CIT, MUMBAI. 4. > / CIT(A) 9, MUMBAI. 5.