NARAYANAN SUNDARAMAHALINGAM RAJKUMAR,CHENNAI vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI

The brief facts of the case are that the assessee is an individual engaged in the business of real estate development and construction under the name and style of M/s.Guru Builders. For the A.Y 2017-18, the assessee filed the return of income declaring total income of Rs.93,19,310/-. A survey u/s.133A of the Act was conducted at the business premises of the assessee on 24.01.2018. During the course of survey, a statement u/s.131 of the Act was recorded from the assessee. Subsequently, the case was selected for scrutiny assessment and assessment was completed u/s.143(3) of the Act determining the total income at Rs.4,60,84,661/- after making various additions.

In appeal, the Ld.CIT(A) granted partial relief to the assessee in respect of addition relating to registration charges collected from flat purchasers, but sustained the addition relating to difference in construction cost, disallowance of payment made to M/s.Vetri Reals and addition made u/s.43CA of the Act.

At the time of hearing before us, the Ld.AR submitted that the assessee is confining his challenge only to the following additions sustained by the Ld.CIT(A):-

During assessment proceedings, the assessee explained that the variation in construction cost was attributable to fluctuations in market conditions, increase in labour and material costs and negotiations with individual customers. The AO rejected the explanation on the ground that no supporting evidence was produced and accordingly made the addition.

The Ld.CIT(A), while agreeing with the AO on merits, noticed that the actual difference worked out only to Rs.39,79,756/- and not Rs.40,09,756/- and accordingly sustained the addition only to the extent of Rs.39,79,756/-.

We have given our thoughtful consideration to the rival submissions and examined the material available on record. The fundamental basis adopted by the Revenue for making the addition is the variation in construction consideration reflected in certain agreements executed with different customers. The entire addition rests upon the assumption that such variation necessarily represents unaccounted receipts. In our considered opinion, such an assumption is not legally sustainable in the absence of corroborative evidence. The Revenue has not brought on record any material whatsoever demonstrating that the assessee actually received any amount over and above

The AO has not conducted any enquiry with the purchasers nor gathered any evidence to establish that the assessee received any amount in cash over and above the consideration recorded in the agreements. The addition has been sustained merely because the assessee had made an admission during the survey proceedings. It is well settled that an admission, though relevant, is not conclusive and must be supported by independent material before an addition can be sustained. A statement recorded during survey cannot by itself form the sole basis for taxation in the absence of corroborative evidence.

We further notice that the explanation offered by the assessee regarding fluctuations in construction cost and customer-specific negotiations has not been disproved by the Revenue through any objective material. The rejection of the explanation is based merely on suspicion and not on evidence. It is trite law that suspicion, however strong, cannot take the place of proof.

Considering the totality of the facts and circumstances of the case, we are of the view that the Revenue has failed to discharge the burden of

The AO, however, held that no documentary evidence was produced to establish the nature of services rendered by M/s.Vetri Reals and consequently disallowed the amount of Rs.24,44,375/-. The Ld.CIT(A) confirmed the disallowance on the ground that the assessee failed to furnish sufficient proof regarding the marketing and development activities allegedly undertaken by M/s.Vetri Reals.

After carefully examining the material available on record, we find that there is no dispute regarding the factum of payment. The payment has been reflected in the sale documents and admittedly moved through identifiable banking channels. The identity of the recipient is also not in dispute. The only reason assigned by the lower authorities for disallowing the expenditure is that the assessee could not produce adequate evidence regarding the precise nature of services rendered by M/s.Vetri Reals. In our view, such reasoning cannot justify complete disallowance of the expenditure.

We find that the Revenue has not established that the payment was bogus, fictitious or sham. No enquiry has been conducted with the recipient concern. There is no finding that the amount paid to M/s.Vetri Reals had returned to the assessee or that the transaction lacked commercial substance. Once the payment is demonstrated to have been actually made and the recipient is identifiable, the onus shifts upon the Revenue to bring positive material on record to show that the expenditure is not genuine.

The sale documents themselves indicate participation of M/s.Vetri Reals in the transaction. The payments have been made through banking channels and stand duly recorded. In such circumstances, disallowance of the entire expenditure merely because the assessee could not furnish additional evidence regarding the exact nature of services rendered would amount to substituting suspicion for proof.

The settled principle of law is that commercial expediency of a business expenditure must be examined from the standpoint of the businessman and not from the viewpoint of the Revenue authorities. Unless the expenditure is shown to be bogus or not incurred for business purposes, the same cannot be disallowed merely because the AO is not fully satisfied about the manner in which the services were rendered. In the present case, no adverse material has been brought on record to discredit the genuineness of the payment. The disallowance has thus been made on conjectures and surmises. We therefore hold that the Ld.CIT(A) was not justified in sustaining the addition. Accordingly, the addition of Rs.24,44,375/- is directed to be deleted. This ground of appeal is allowed.

The assessee explained that the real estate market was undergoing recession and therefore the plots had to be sold below guideline value. The explanation was rejected by the AO. The Ld.CIT(A), after examining the provisions of section 43CA, confirmed the addition.

We have considered the submissions advanced on behalf of the assessee and perused the provisions of section 43CA of the Act. The said provision creates a deeming fiction whereby the value adopted by the stamp valuation authority is required to be substituted as the full value of consideration whenever the actual consideration disclosed by the assessee is lower than the stamp duty value in respect of land or building held as stock-in-trade.

In the present case, the assessee has not disputed the factual finding that the consideration disclosed in the sale deeds was lower than the value adopted for stamp duty purposes. The assessee has also not produced any material to establish that the stamp duty value was excessive or that any statutory exception available u/s.43CA of the Act was applicable.

The only explanation advanced by the assessee is that there was recession in the real estate sector. Such a contention, though commercially plausible, cannot override the specific statutory mandate contained in section 43CA. Once the conditions prescribed in the section stand fulfilled, the AO is bound to adopt the stamp duty value as the deemed consideration unless the assessee demonstrates circumstances warranting departure from the statutory prescription.

The assessee has neither challenged the stamp duty valuation before the competent authority 3nor sought any valuation exercise contemplated under the Act. No evidence has been produced to demonstrate that the guideline value adopted by the stamp authority did not reflect the fair value contemplated under the statutory provisions. We therefore find ourselves in complete agreement with the reasoning adopted by the Ld.CIT(A). The addition made by the AO is strictly in accordance with the provisions of section 43CA of the Act and does not warrant any interference. Accordingly, the addition of Rs.12,61,220/- u/s.43CA of the Act is confirmed and this ground of appeal is dismissed.

In the result, the appeal of the assessee is partly allowed.