C.S. CONSTRUCTIONS, MUMBAI V. ASST CIT 20(1), MUMBAI

ITA 5552/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93225 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 133A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I .T.A. NO. 5552 / MUM/20 1 1 ( / ASSESSMENT YEAR : 200 7 - 08 ) M/S C S CONSTRUCTIO NS, 3 RD FLOOR, SWAROOP ARCADE, OPP GODFREY PHILIPS FACTORY, CHAKALA, SAHAR ROAD, ANDHERI (E), MUMBAI - 400099 / VS. ASSTT. COMMISSIONER OF INCOME TAX 2 0 (1), PIRAMAL CHAMBERS, PAREL, MUMBAI - 400012. ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAACW3952A / APPELLANT BY S/SHRI R C JAIN AND AJAY DAGA / RSPONDENT BY /SHRI PREMANAND J / DATE OF HEARING : 2 5 .6 . 201 5 / DATE OF PRONOUNCEMENT : 17. 7.2015 / O R D E R PER B.R. BASKARAN (AM) THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 30.5.2011 PASSED BY LD. CIT(A) - 31 , MUMBAI AND IT RELATE S TO ASSESSMENT YEAR 2007 - 0 8. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDERED BY LD.CIT(A) ON THE FOLLOWING ISSUES : A) CONFIRMING THE ESTIMATION OF NET PROFIT TO THE EXTENT O F RS.2 , 38 , 103/ - AND; B) CO NFIRMING THE ADDITION OF RS.30,8 1,250/ - RELATING THE SALE OF FLATS TO PARTNERS. ITA NO. 5552/ MUM/20 1 1 2 3 . FACTS RELATING TO ABOVE SAID ISSUES ARE STATED IN BRIEF. THE ASSESSEE FIRM IS IN THE BUSINESS OF BUILD ING CONSTRUCTION AND DEVELOPMENT . SURVEY OPERATION WAS CONDUCTED BY THE REVENUE UNDER SECTION 133A OF THE INCOME TAX ACT, 1961 (THE ACT) IN THE HANDS OF ASSESSEE ON 19.2.2007. DURING THE COURSE OF SURVEY OPERATION S, THE ASSESSEE AGREED TO OFFER AN ADDITIONAL INCOME OF RS.50,30,000 / - ON ACCOUNT OF RECEIPT OF CASH ON SALE OF FLATS , APPARENTLY OUTSIDE THE BOOKS . TH OUGH TH E ASSESSEE HAD STATED THAT IT HAD RECEIVED AN AMOUNT OF RS.15.00 LAKHS AND RS.35.30 LAKHS BY WAY OF CASH IN THE FINANCIAL YEARS 2005 - 06 AND 2006 - 07 RESPECTIVELY , YET IT OFFERED TH E ENTIRE AMOUNT OF RS.50.30 LAKHS AS ITS INCOME IN ASSESSMENT YEAR 2007 - 08. 4 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHED A WORKING TO ARRIVE AT THE ACTUAL SALES FIGURE, WHEREIN THE ASSESSEE HAS ADDED THE ON MONEY COMPONENT OF RS. 50.30 LAKHS TO THE SALES AMOUNT SHOWN IN THE AGREEMENTS AND DEDUCTED A SUM OF RS.66.42 LAKHS TOWARDS ESTIMATED VALUE OF IN - COMPLETE WORKS. HENCE THE AO ASKED THE ASSESSEE T O FURNISH THE DETAILS RELATING TO INCOMPLETE WORK , BUT THE ASSESSEE COULD NOT FURNI SH THE RELEVANT DETAILS. FURTHER THE AO NOTICED THAT THE ASSESSEE HAD DECLARED NET PROFIT AT THE RATE OF 10.31 % IN THE IMMEDIATELY PRECEDING YEAR , WHEREAS DURING THE YEAR UNDER CONSIDERATION IT WAS SHOWN AT 2.35% ONLY . HENCE, THE AO TOOK THE VIEW THAT TH E BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT RELIABLE AND ACCORDINGLY, REJECTED THE SAME. ACCORDINGLY T HE AO PROCEED E D TO ESTIMATE THE PROFIT OF THE ASSESSEE AT 10% ON THE SALES FIGURES SHOWN IN THE SALE AGREEMENT. 5. IN THE APPELLATE PROCEEDIN GS , THE LD. CIT(A), UPHELD THE REJECTION OF BOOKS OF ACCOUNT. WITH REGARD TO THE ESTIMATION OF PROFIT, THE LD.CIT(A) NOTICED THAT THE SALES FIGURES ARRIVED AT BY THE AO WAS WRONG. ITA NO. 5552/ MUM/20 1 1 3 ACCORDINGLY , THE LD. CIT(A) ESTIMATED THE PROFIT AT 5% OF CORRECT SALES FI GURES , WHICH RESULTED IN AN ADDITION OF RS.2,38,103/ - OVER AND ABOVE THE NET PROFIT DISCLOSED BY THE ASSESSEE. 6 . THE AO ALSO NOTICED THAT THE TWO PARTNERS OF THE ASSESSEE HAVE PURCHASED ONE FLAT EACH AT THE RATE OF RS.4,000 / - AND RS.3894/ - PER SQ.FT ON 1 0.7.2006. DURING THE SAME PERIOD , THE ASSESSEE HAD SOLD SOME O THE R FLAT TO OUTSIDERS @ RS.6 , 250/ - PER SQ.FT. AND ALSO AT HIGHER RATES . WITH REGARD TO THE SALE OF FLATS TO PARTNERS AT LOWER PRICE, T HE ASSESSEE SUBMITTED THAT THE AGREEMENT TO S E L L THE PROP ERTY TO THE P ARTNERS WAS ENTERED IN THE YEAR 2005 I.E. ONE YEAR BEFORE THE DA T E OF SALE OF AGREEMENT AND HENCE IT WAS LOWER THAN THE PRICE AT WHICH FLATS WERE SOLD IN 2006 . T HE AO DID NOT ACCEPT THE SAID EXPLANATION S ON THE GROUND THAT THE PARTNERS ARE RE LATED PARTIES AND HENCE THE ALLEGED SALE AGREEMENT COULD BE PREPARED BY THEM TO SERVE THEIR OWN PURPOSE . A CCORDINGLY , THE AO ESTIMATED THE SALES RATE OF FLAT S SOLD THE PARTNERS @ RS.6 , 000/ - PER SQ. FT. AND ACCORDINGLY ASSESSED THE DIFFERENCE AMOUNT OF RS. 27,50,000/ - AS INCOME OF THE ASSESSEE. THE LD. CIT(A), HOWEVER, ADOPTED THE SALE S RATE OF FLAT AT RS.6 , 250/ - AND ACCORDINGLY ENHANCED THE DI SALLOWAN CE TO RS.30,81,250/ - . 7. AGGRIEVED BY THE DE C ISION OF LD. CIT(A) RENDERED ON BOTH THE ISSUES REFER RED ABOVE , THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 8. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE FIRST ISSUE RELATES TO THE ESTIMATION OF NET PROFIT OF THE ASSESSEE BY REJECTING THE BOOK RESULTS. WE HAVE EARLIER NOTICED THAT THE ASS ESSEE HAS ADMITTED TO HAVE RECEIVED CASH ON SALE OF FLATS OUTSIDE THE BOOKS OF ACCOUNT, WHICH FACT ITSELF SHOWS THAT THE BOOK RESULTS ARE NOT RELIABLE. HENCE, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE ACTION OF REJECTION ITA NO. 5552/ MUM/20 1 1 4 OF BOO K RESULTS. FURTHER, WE NOTICE THAT THE ASSESSEE HAD TO GIVE DIFFERENT TYPE S OF WORKINGS IN ORDER TO SHOW THAT IT WAS SHOWING PROFITS AT A CONSISTENT RATE AND IT WAS SUBMITTED THAT THE NET PROFIT RATE WAS 4.90% FOR THE YEAR UNDER CONSIDERATION. WE NOTICE THAT THE LD CIT(A) HAS ESTIMATED THE NET PROFIT @ 5%, WHICH IS SLIGHTLY HIGHER THAN THE NET PROFIT RATE SHOWN IN THE BOOKS OF ACCOUNT. SINCE THE BOOKS OF ACCOUNT HAS BEEN REJECTED, THE TAX AUTHORITIES CANNOT ADOPT THE RATE OF 4.90% SHOWN IN THE BOOKS OF ACCOUNT. IN ANY CASE, THE RATE OF 5% ADOPTED BY THE LD CIT(A) IS REASONABLE AND HENCE WE DO NOT FIND ANY REASON TO INTERFERE WITH THAT ESTIMATE. ACCORDINGLY, WE CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. 9. THE NEXT ISSUE RELATES TO THE ADDITION M ADE BY ENHANCING THE SELLING PRICE OF FLATS PURCHASED BY THE PARTNERS. WE NOTICE THAT THE ASSESSEE HAS SOLD FLATS TO THE OUTSIDERS AT THE FOLLOWING RATES: - (A) FOR ABOUT RS.3,800/ - PER SQ. FT. IN DECEMBER, 2005 (B) FOR ABOUT RS.6,100/ - PER SQ. FT. IN FE BRUARY, 2006 (C) FOR ABOUT RS.6,250/ - PER SQ. FT. IN JULY 2006 (D) FOR ABOUT RS.7,200/ - PER SQ. FT. IN AUGUST, 2006. THE PARTNERS OF THE ASSESSEE HAVE PURCHASED THE FLAT ON 10 - 07 - 2006 @ RS. 4,000/ - AND RS.3,894/ - . PER SQ. FT. WE NOTICE THAT THERE WAS SU DDEN INCREASE IN THE SELLING RATE WITHIN A PERIOD OF 2 MONTHS, I.E., THE SALES RATE HAS INCREASED FROM RS.3,800/ - PER SQ.FT. TO RS.6,100/ - PER SQ. FT. HOWEVER, THE PARTNERS HAVE TAKEN THE PLEA THAT THEY HAD AGREED TO PURCHASE THE FLAT IN 2005 ITSELF @ RS. 4,000/ - AND RS.3,894/ - PER SQ.FT. AND ACCORDINGLY THE SALE AGREEMENT WAS REGISTE RE D IN JULY, 2006 AT THE AGREED PRICE. IT WAS SUBMITTED THAT THE ASSESSEE DID NOT RECEIVE ANY ADVANCE AMOUNT IN THE YEAR 2005, SINCE THE EXISTING CAPITAL BALANCE AVAILABLE IN THE NAME OF THE PARTNERS WERE SUFFICIENT TO COVER THE ADVANCE. EVEN THOUGH THE ASSESSEE FURNISHED COPIES OF ALLOTMENT LETTERS, T HE SAID DOCUMENT AND THE ITA NO. 5552/ MUM/20 1 1 5 EXPLANATIONS WERE REJECTED BY THE TAX AUTHORITIES ON THE REASONING THAT THEY ARE SELF SERVING IN NATUR E. 10. SINCE THE IMPUGNED TWO FLATS HAVE BEEN SOLD TO THE PARTNERS, THE SAID TRANSACTIONS FALL IN THE CATEGORY OF TRANSACTIONS WITH RELATED PARTIES. HENCE, THE RESPONSIBILITY TO SHOW THAT THE TRANSACTIONS WERE ENTERED WITH THE PARTNE R S AT THE MARKET RA TES LIES UPON THE ASSESSEE. THE ASSESSEE HAS FURNISHED COPIES OF ALLOTMENT LETTERS GIVEN TO THE PARTNERS AND IT HAS RECEIVED THE SALE CONSIDERATION ONLY AT THE TIME OF REGISTERING THE SALE AGREEMENTS. SINCE THE ADVANCE AMOUNT WAS NOT RECEIVED AT THE TIME OF ISSUING ALLOTMENT LETTERS IN THE YEAR 2005, THE TAX AUTHORITIES HAVE NOT ACCEPTED THE SAID CLAIM. THERE IS NO DISPUTE THAT THE SALE PRICE OF THE FLATS GIVEN TO THE PARTNERS IS COMPARABLE WITH THE SELLING RATE PREVAILING IN THE YEAR 2005. SINCE THE PA RTNERS HAVE PURCHASED THE FLATS, THE AO HAS REJECTED THE DOCUMENTS /EXPLANATIONS FURNISHED BY THE ASSESSEE. HOWEVER, WE NOTICE THAT THE ASSESSING OFFICER, EXCEPT SUSPECTING THE GENUINENESS OF DOCUMENTS, HAS NOT BROUGHT ANY OTHER MATERIAL TO CONTRADICT THE EXPLANATIONS GIVEN BY THE ASSESSEE. AT THE SAME TIME, IT CANNOT BE SAID THAT THE DOCUMENTS/EXPLANATIONS FURNISHED BY THE ASSESSEE ARE FULLY RELIABLE. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THIS ISSUE CAN BE RESOLVED BY ESTIMATING THE SALE PRI CE. HENCE, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT THIS ISSUE CAN BE PUT AT REST, IF THE SALE PRICE OF THE TWO FLATS SOLD TO THE PARTNERS IS ESTIMATED AT RS.5,000/ - PER SQ. FT. WE ORDER ACCORDINGLY. ACCORDINGLY, WE SET ASIDE THE ORDER OF L D CIT(A) ON THIS ISSUE AND DIRECT THE AO TO COMPUTE THE ADDITION BY ADOPTING THE SALE PRICE OF THE TWO FLATS SOLD TO THE PARTNERS AT RS.5,000/ - PER SQ.FT. ITA NO. 5552/ MUM/20 1 1 6 11. THE ASSESSEE HAS TAKEN A GROUND THAT THE ABOVE SAID ADDITIONS SHOULD BE TELESCOPED AGAINST TH E OFFER OF R.50.30 LAKHS MADE BY THE ASSESSEE IN THE SURVEY PROCEEDINGS. WE NOTICE THAT THE I SSUES RELATING TO THE TWO ISSUES CONSIDERED SUPRA AND THE REASON ON WHICH THE SURRENDER OF RS.50.30 LAKHS MADE BY THE ASSESSEE ARE TOTALLY DIFFERENT AND HENCE WE ARE OF THE VIEW THAT THE TELESCOPING BENEFIT CANNOT BE EXTENDED UNDER THESE FACTS. 1 2 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 17TH JULY , 2015. 17 TH JULY , 20 15 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI: 17T H JULY ,2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT . REGISTRAR) , /ITAT, MUMBAI