C I T JAIPUR vs. M/S TRIMURTI COLONIZERS and BUIL

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ITA/201/2011HC RajasthanRJHC02009993200909 September 20165 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the issue raised was primarily one of fact. The Tribunal had accepted the assessee's explanations regarding the different sale prices of flats. The Tribunal observed that the AO did not have direct evidence of suppressed payments and had not verified the assessee's explanations concerning the sale of specific flats. The Tribunal found that the AO rejected the assessee's explanations without bringing any material or cogent reasoning on record, relying only on opinion. Therefore, the Tribunal concluded that the AO was not justified in rejecting the books of account and making an estimation of suppressed sales. Consequently, the Tribunal directed the deletion of the addition of Rs. 66,83,980/-. The High Court agreed with the Tribunal's findings, stating that the explanation of the assessee was accepted by the Tribunal. The questions raised were answered in favour of the assessee and against the Department. The addition of Rs. 66,83,980/- was directed to be deleted.

What were the facts?

The assessee, M/s. Trimurti Colonizers & Builders Pvt. Ltd., is engaged in the business of construction and sale of immovable property. During assessment proceedings for Assessment Year 2004-05, the Assessing Officer (AO) found discrepancies in the sale receipts of flats in Trimurti Apartment and Trimurti Dave Apartments, Jaipur. The AO rejected the assessee's books of accounts under Section 145(3) of the Income Tax Act, 1961, due to alleged suppressed sales, and made an addition of Rs. 66,83,980/-. The Commissioner of Income Tax (Appeals) partly allowed the assessee's appeal. Both the Department and the assessee appealed to the Income Tax Appellate Tribunal (ITAT). The Department's appeal was dismissed, and the assessee's appeal was allowed, leading to the deletion of the addition. The Department has now appealed this ITAT order to the High Court.

What were the issues?

The High Court was asked to decide the following substantial questions of law: 1. Whether the Tribunal was justified in deleting the trading addition of Rs. 66,83,980/- made by the AO for suppressed sales, despite the rejection of the assessee's books of accounts by the AO and CIT(A)? (Section 145(3)) 2. Whether the Tribunal erred in deleting the entire addition of Rs. 66,83,980/-, including the amount confirmed by the CIT(A), ignoring the defects in the assessee's books pointed out by the AO and CIT(A)? (Section 145(3)) 3. Whether the Tribunal was justified in ignoring that the AO has the power to make a best judgment assessment and estimate income when books of accounts are rejected? (Section 145(3)) 4. Whether the Tribunal's finding is perverse, contrary to the record, and untenable in law? Contentions: Assessee: The assessee argued that the explanations provided for the different sale prices of flats were reasonable and supported by facts. The AO did not verify these explanations and rejected them based on opinion. The ITAT accepted these explanations and found no material to disprove them, thus holding that the books of account could not be rejected and no addition on account of suppressed sales was justified. Revenue: The Department contended that the AO was justified in rejecting the assessee's books of accounts and making a best judgment addition, as the assessee failed to provide proper explanations for the discrepancies in sale receipts. The AO had gathered sufficient evidence to make the addition on the preponderance of probability.

Which sections of the Income-tax Act were involved?

Section 145(3)

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR. D.B. Income Tax Appeal No.201/2011 Commissioner of Income Tax-Central, Jaipur Vs. M/s. Trimurti Colonizers & Builders Pvt.Ltd. DATE OF JUDGMENT ::: 9th September, 2016 HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE BANWARI LAL SHARMA Mr. Anil Mehta, for the appellant. ***** (1) By way of this appeal, the Department has challenged the judgment & order of the Income Tax Appellate Tribunal whereby Tribunal has dismissed the appeal preferred by the Department and allowing the appeal of the assessee, modifying the order of the CIT (Appeals). (2) Counsel for the appellant-Department has framed following substantial questions of law:- “(i) Whether the Tribunal was justified in deleting the trading addition made by the Assessing Officer of Rs. 66,83,980/- made with respect to suppressed sales on sale of flats ignoring the fact that the assessee's books of accounts were rejected by the Assessing Officer and confirmed by the CIT(A)? (ii) Whether the Tribunal has erred in not only deleting the addition of Rs. 5,52,577/- confirmed by CIT(A), but in deleting the entire addition of Rs. 66,83,980/-, ignoring the defects, pointed out by Assessing Officer and confirmed by CIT(A) in the books of accounts of assessee? (iii) Whether the Tribunal was justified in ignoring that in case of rejection of books of accounts the 2 Assessing Officer has all the powers to pass the assessment order to best of the judgment and to estimate the income according to the facts and material on record? (iv) Whether on the facts and circumstances of the case, the finding of the Tribunal is perverse, contrary to the record and untenable in the eye of law?”

3.

0 The facts in brief are that the assessee is engaged in the business of construction, purchase and sale of immovable property. During the course of assessment proceeding, it was found that assessee has sold flats, office projects, in Trimurti Apartment, Jaipur. Further, it was found that the assessee has suppressed the sale receipts, which the assessee was asked to explain. However, the assessee failed to explain the different in sale prices and other discrepancies and accordingly its books of accounts having failed to depict true picture of assessee's account, were rejected under Section 145(3) of the Act. Thus, the assessing officer proceeded to estimated the asssessee's income and resultantly estimated the suppressed sales of Rs.66,83,980/-.

3.

1 The assessing officer after considering the evidence by reasoned order has added income to the tune of Rs.66,83,980/- which was challenged by the appellant and CIT (Appeals) has partly allowed in favour of the assessee.

3.

2 Both the department and the assessee preferred the appeals before the tribunal. Following question of law

3 framed by the department in the Income Tax Appeal No.897/JP/07 (Revenue)- A.Y.2004-05 which reads as under:- Solitary Ground: The learned CIT(A) has erred in allowing relief of Rs.61,31,403/- out of the trading addition made by the AO without any proper justification whereas the AO has gathered sufficient evidences to make addition on the basis of pre-ponderence of probability.”

4.

0

We have heard the counsel for the appellant as well counsel for the respondent.

4.

1 Taking into account the observations made by the tribunal and more particularly para no.4,5, 6 and 7 reads as under:- “4.

We have heard the rival contentions and perused the facts of the case. The issue before us is as to the suppression of sales/receipts by the assessee on the sale of the flats in Trimurti Aprtments, Malviya Nagar and Trimurti Dave Apartments in Banipark at Jaipur. In the present case, the AO does not have a direct evidence that the assessee has received the payments over and above the cheque payments declared in the books of account on the sale of various flats mentioned by the AO in his order. Though the Evidence Act does not strictly apply in the income tax proceedings yet the circumstances and facts has been taken into consideration by the AO while making the assessment. As regards the sale in Trimurti Apartments, Malviya Nagar, Jaipur, the rates at which flats were sold for Rs.805/- per sq. ft except two flats sold to Dr. R.C. Andley declared to have been sold at Rs.520/- per sq. ft and Shri Ashok Narooka at Rs.550/- per sq. ft. Show cause notice was given to the assessee. The explanation of the assessee with regard to flat sold to Dr. R.C. Andley was that:-

4 i) The Flat No.D-503 is located at the top floor of the complex. ii) A lot of cracks due to thermal movement had developed in the top floor of the building (It is normal feature in the multi-storied building). iii) The Flat was located on the rear side of the building which never enjoyed the front view and therefore had a locational disadvantage. iv) Other finishing related problems were there. V) Earlier commitment of making payment in installments by a client failed which was fulfilled by the present buyer Dr. R.C. Andley by making a single payment. The AO did not point out any defect in the explanation given by the assessee. The finding of the AO that the assessee has not given any evidence in support of his explanation can not be accepted because the said explanation was a matter of fact available in the flat itself sold to Dr. R.C. Andley and other facts could be verified from Dr. R.C. Andley. The AO has not proceeded to verify the explanation given by the assessee but has rejected the same by giving his opinion in the assessment order. This approach of the AO is not acceptable and is not justified.

5.

As regards the sale of Flat No.404 to Dr. Roongta, the AO has rejected the explanation of the assessee without bringing any material or cogent reasoning on record except the opinion which is without any basis and cannot be accepted.

6.

As regards the sales of the Flats in Trimurti Dave Apartments, the assessee has submitted the explanation for charging different rates for different flats and nothing has been brought on record to disprove the explanation of the assessee.

7.

In the circumstances and facts of the case, The AO is not justified to doubt the sales declared by the assessee and in the absence of any material on record or cogent reasoning by the AO, the books of the account cannot be rejected. The AO is therefore not justified

5 to make estimation of different amount of sales as declared by the assessee and no addition on account of suppressed sale can be made. The Ld. CIT (Appeal) is also not justified in confirming the rejection of books of account and estimation of suppressed sales and addition of income. The AO is therefore directed to delete the addition of Rs.66,83,980/- made by him. Thus Ground No.1 & 4 of the assessee in ITA No.903/JP/07 and Ground No.1 to 5 of the C.O. Of the assessee are allowed and the solitary ground of the Revenue is dismissed.”

5.

0 We are of the opinion that the question which is raised moreover is of fact and explanation of the assessee is accepted by the tribunal. Therefore, we answer the question raised in the present appeal in favour of the assessee and against the Department. (Banwari Lal Sharma), J. (K.S. Jhaveri), J. Brijesh8.

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