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Facts
The assessee, a builder and developer, filed its return of income declaring Nil income. The Assessing Officer (AO) made additions on account of unexplained credit from sales of flats and bogus purchases. The CIT(A) deleted the additions on account of sales and bogus purchases, but confirmed the addition on account of income from other sources.
Held
The Tribunal held that the addition made by the AO on account of sale of flats was arbitrary and based on conjecture without cogent evidence, and thus deleted it. Similarly, the addition for bogus purchases was deleted as the AO failed to provide independent evidence to substantiate the purchases were bogus. The addition on account of income from other sources was upheld with a direction for verification.
Key Issues
1. Whether the addition on account of alleged unaccounted sale proceeds from flats, made on the basis of price variation, is sustainable. 2. Whether the addition on account of bogus purchases is justified without independent corroborative evidence.
Sections Cited
143(1), 142(1), 145, 271(1)(c), 250
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Income Tax Appellate Tribunal, “E” BENCH MUMBAI
ITO 28(3)(1) Vs. Triveni and C. J. R. No. 316, 3rd floor, Vashi Group, Railway Station, Vashi Shop No. 1, Bhoomi Navi Mumbai-400 703 Tower, Sector-4, Kharghar, Navi Mumbai-400 709 PAN/GIR No. AAFFT1041B (Applicant) (Respondent) Assessee by Shri Ritika Agarwal, Ld. AR Revenue by Shri Hemanshu Joshi, Sr. DR Date of Hearing 07.05.2025 Date of Pronouncement 14.07.2025 आदेश / ORDER PER RAJ KUMAR CHAUHAN, JM:
This appeal is directed against the order dated 14.06.2024 passed by the National Faceless Appeal Centre, Delhi (herein after referred as “Ld. CIT(A)” u/s 250 of the Income-tax Act, 1961 (herein after referred as “the Act”), wherein the appeal of the assessee is partly allowed and um / 2024 Triveni and C. J. Group the addition of Rs. 1,87,87,186/- on account of unexplained credit and addition of Rs. 17,34,392/- on account of bogus purchase was deleted.
The brief facts as culled out from the proceeding before the lower authorities are that the assessee is a builder and developer and has constructed and developed a project „Bhoomi Symphony‟ at plot No. 16, Sector-20, Koperkhairne, Navi-Mumbai. This project had 55 flats and 4 shops. The total built up area of the project is 1968.903 Sq. meter i.e. 21185.39 Sq. ft. The cost of construction of the project arrived at Rs. 25,28,53,317/- i.e. Rs. 11,935 per Sq. ft. The assessee filed its return of income on 30.09.2011 declaring total income at Rs. Nil. The return was processed under section 143(1) of the Act. The statutory notice u/s 142(1) of the Act was also issued which were responded and details were filed by the assessee. A show cause notice dated 28.01.2014 was also issued to the assessee stating that the assessee received a substantial sale proceeds in cash on sale of large number of flats. The assessee submitted a reply on 21.03.2014 justifying the variation in the sale price of the flats which according to AO was against the prevailing trend in the area in the year concerned.
In the assessment order, the AO recorded that in the period 15.04.2008 to 10.11.2012, the total 55 flats are booked wherein price varied from Rs. 4,634/- to Rs. um / 2024 Triveni and C. J. Group 11,122/- per Sq. ft. According to AO, these variations do not follow any pattern or logic and this points to the fact that only a fraction of actual sale proceeds is accounted in the books of account and the assessee did not give any specific reason for variation in the price of each flat. It was observed that the price variation is highly illogical and without any basis which indicates that a portion of sale proceeds in unaccounted form i.e. in cash. These books of account were rejected by the Ld. AO and relied on the decision of Hon‟ble ITAT, Mumbai Bench in the case of M/s Diamond Investments & Properties (ITA No. 5537/Mum/2009) for AY 2005-06 wherein it was held that the addition is justified on comparable case basis on account of sale proceeds of flats even when there was no evidence of receipt of on money.
According to the calculation made by the AO in para 5.2 of its order, the amount of unaccounted sale receipts was calculated at Rs. 1,87,87,186/-. The said amount was considered as unaccounted income of the assessee from sale of the flats. So the said amount i.e. Rs. 1,87,87,186/- was included in the assessed income and penalty proceedings u/s 271(1)(c) of the Act was initiated. The AO has also added as sum of Rs. 26,06,719/- to the total income of the assessee which according to assessee was earned as indirect income and was adjusted against the capital WIP of Rs. 6,55,54,826/- and shown closing WIP of um / 2024 Triveni and C. J. Group Rs. 24,68,18,115/-. The explanation given by the assessee vide letter dated 25.03.2013 to the show cause notice dated 18.03.2013 was not considered. It was concluded by the AO that the assessee earned indirect income being discount, interest on bank deposit and interest received on loan given which are an ancillary income of the assessee and is different from the regular business object of the assessee. Hence, the income earned to the extent of Rs. 26,06,719/- was added to the total income of the assessee.
Third addition was made on account of bogus purchase to the tune of Rs. 17,34,792/- on the ground that the assessee has allegedly made purchased goods from M/s Shubh Enterprises and M/s. Paras Enterprises and both these dealers have been shown as suspicious dealers on the MVAT website. Accordingly, Ld. AO concluded that the said purchase were bogus purchase, hence the amount was added to the total income of the assessee.
Aggrieved by the order of AO, the assessee filed the appeal before the Ld. CIT(A) who has deleted the addition made on account of variation in sale of price of the flats as well as addition on account of bogus purchases. Ld. CIT(A) confirmed the order of AO with respect to addition of Rs. 26,06,719/- on account of income from other sources. The assessee has not challenged the said addition, however the revenue has filed the appeal against the above two deletion made by the Ld. CIT(A).
(1) "Whether on the facts and in the circumstances of the case in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 1,87,87,186/-made by the Assessing Officer (AO) on account of unaccounted sales of the assessee by duly rejecting the books of account of the assessee u/s 145 based on evidence and facts gathered by the assessing officer.
(ii) Whether on the facts and in the circumstances of the case in law, the Ld. CIT(A) was right in deleting addition of Rs 17,34,792 on account of bogus purchase made by the assessee from the two parties i.e. Shubh Enterprises & M/s Paras Enterprises of Rs. 17,34,392/- which were proved bogus by State Government VAT department and thereby ignoring the reliability/convincement of the official website of state government agency without any supporting documents.
(iii) The appellant craves leave to add, alter, amend or modify any or all grounds till the disposal of the Appeal.".
We have heard the Ld. DR and the Ld. AR and 8. examined the record. The Ld. DR at the very outset submitted that the AO has made dexterous and practicable calculation of variation in the sale of flats and the details observed by the AO are apt and accurate which is legally justified in making the addition on all count in the assessment order. Ld. DR argued that the Ld. CIT(A) deleted the addition made by the AO without any legally um / 2024 Triveni and C. J. Group justified reason and finding of the Ld. CIT(A) is perverse because the Ld. CIT(A) has not given any reason to differ with the observation of the Ld. AO who has calculated the variation in the sale price of the flats in a more pragmatic and justified manner in reaching the conclusion that assessee in all probability has received on money and therefore the Ld. AO has rejected the books of account. With regard to addition made on account of bogus purchase, Ld. DR argued that the AO has rightly made the addition because the purchases made from 2 parties which were involved in fictious entries and were declared as suspicious dealers on the MVAT site of State Govt. Therefore, the Ld. DR argued that the ground of appeal needs to be allowed and the order of AO be upheld.
9. On the other hand Ld. AR argued that the order passed by the Ld. CIT(A) is perfectly correct and legally sound and the AO has computed wrongly wherein he has taken 4 years as lump-sum period for comparison of sale price of the flats, whereas the comparison should have been made from the sale price of the same assessment year. Ld. AR further argued that the comparison made by the AO is arbitrary as the few flats were not considered by the AO despite the sale price was higher vis-à-vis the sale price study done by the AO. It is further argued that the real estate business is least predicted industry and all the necessary documents were submitted before the AO, but the AO has not considered the same in an objective manner and the finding rendered by the AO was subjective in nature which has been rightly set aside by the Ld. CIT(A). In support of his arguments, Ld. AR relied on various case laws which are extracted as under:-
Sr. Citation Held No. 1 K.P. Varghese v. ITO The burden of proving an (1981) 131 ITR 597 (SC) understatement or concealment of income is on the Revenue. It cannot be done on presumption 2 CIT v. Shivakami Co.(P) The burden is on the revenue to Ltd. (1986) 159 ITR 71 prove the understatement of the (SC) and CIT v. Godavari consideration Corporation Ltd. (1993) 200 ITR 567 (SC) 3 CIT V. M/s. Metro In the Absence of any evidence, Construction Co. ITA merely on the basis of no.2339 of 2013(Bom.) suspicion, it is not open to add any amount as income 4 CIT v. Dophin Builders (P.) No on money addition without Ltd. (2013) 356 ITR 420 evidence (MP) 5 Neelkamal Realtor & When the assessee offered an Erectors India (P) Ltd. v. explanation for charging a lower DCIT (2013) 38 price in respect of some of the taxmann.com 195 (MUM) flats sold by it, the AO, without and ACTT v. Rustom Soil controverting such explanation, Sethna ITA cannot make an addition to the 5086/MUM/2014 income of the assessee by applying the rate of another flat sold by it 6 M/s. Shah Realtors v. Addition for "on money" cannot ACIT bearing made in the hands of 2656/MUM/2016, order builders merely on a dated 25/05/2018 presumption, without bringing on record any evidence of actual on money earned 7 State of kerala v. C. Guesswork should not be wild Velukutty (1966) 60 ITR but have a reasonable nexus 239 (SC) with available material and circumstances, capriciously without regard for the material available 8 State of Orissa v. The mere fact that the material Maharaja Shri B.P. Singh placed by the assessee was Deo (1970) 76 ITR 696 (SC) unreliable did not empower the AO to make an arbitrary order of enhancement. Power of best judgment, not arbitrary but to be based on relevant material 9 Dhakeshwari Cotton Mills The powers of best judgment, Ltd. v. CIT (1954) 26 ITR through wide, do not entitle the 775 (SC) AO to make assessment on pure guesswork without reference to any evidence or material. Disregard of material produced by the assessee constitutes a violation of fundamental rules of justice. 10 CIT v. Woodland Governor The method is followed India Pvt. Ltd. (2009) 312 continuously by the assessee ITR 254 (SC) and is binding on the AO unless the system does not reflect true profits. 11 Shyam Lata Kaushik v. Best judgment assessment to be ACIT (2008) 306 ITR (AT) made considering history, other 117 (Del.) relevant materials and circumstances
In order to appreciate the arguments rendered by both the parties, we deem it fit to extract the relevant findings of the Ld. CIT(A) on both the issues in para no. 6 to 9 as under:- “6. I have examined the facts of the case and have perused both the assessment order passed by the Assessing Officer and also the detailed submissions of the appellant. In brief, the assessee is a builder and a developer and was engaged in constructing and developing a project 'Bhoomi Symphony' at Plot No. 16, Sector 20, Koparkhairane, Navi Mumbai. The case was selected for scrutiny and during the course of the assessment proceedings the assessee was asked to give the name and address of the customers, flat number, area of the flat and advances received on different dates. On the basis of the submissions of the assessee, the Assessing Officer drew up a chart in which he carried out an analysis of the date of booking of the flats and the rate of sale of the flat in Rs. per square feet. As a result of this analysis, the Assessing Officer made the following observations: (i) The price variation is extreme and also uneven. (ii) Within a gap of a few days or weeks, the price variation is very high. On the basis of the above analysis, the Assessing Officer reached a conclusion that the assessee had received a substantial portion of the sale proceeds of flats in cash and that the same was unaccounted. Accordingly, a show cause notice was issued to the assessee asking him to explain the wide variation in the prices. The assessee submitted a reply dated 21.03.2014 wherein he listed several reasons which could account for the variation in the prices of flats on different dates. These included the following: (i) Size of the flats/ shops (ii) Location of the flats/shops (iii) Completion status of flats/ shops (iv) Outside view of flats (v) Financial status of customer (vi) Additional fittings/ amenities asked by the customer (vii) Various market conditions relating to the real estate industry
(viii) Funding restrictions declared by various regulatory authorities However, the Assessing Officer did not accept the reply of the assessee and noted that the assessee the assessee was not able to give specific reasons for the large variation in the prices of flats which were booked in the period 15.04.2008 to 10.11.2012. The Assessing Officer accordingly rejected the books of account of the assessee under section 145 and estimated the income of the assessee by calculating the difference between the per square feet price of the flat as recorded by the appellant and the per square feet price of the flat which the Assessing Officer felt was the correct figure. The difference, according to the Assessing Officer, had been received by the assessee in cash. In this way an addition of Rs.1,87,87,186/- was made to the assessee's income.
On considering the facts of the case, I am of the opinion that the addition made by the Assessing Officer is completely arbitrary and not based on any evidence. Merely on the basis of the fact that prices of flats have varied over a four year period the Assessing Officer has concluded that such variation is not genuine and that the appellant has received a substantial amount in cash on the sales of flats. The Assessing Officer has replaced the actual per square feet value of the flats with his own hypothetical figure and has then stated that the difference between these two figures has accrued to the applicant in the form of cash. Without there being a single piece of documentary evidence to substantiate his claim, the Assessing Officer has proceeded to reject the books of account of the assessee under section 145. The period covered by the Assessing Officer's show cause letter is a four year period i.e. 15.04.2008 to 10.11.2012 and given the volatile nature of the real estate market, a certain movement and variation in the prices of shares is to be expected. The assessee gave sound reasons vide letter dated 21.03.2014 accounting for the variation in prices but the same was not considered by the Assessing Officer. Moreover, on reading the Assessing Officer's order it is not clear as to how unaccounted sale proceeds in cash have accrued to the assessee. The order of the Assessing Officer is illogical and arbitrary and is based entirely on guess work. The addition made by the Assessing Officer of Rs. 1,87,87,186/- is hereby deleted by holding that the Assessing Officer was incorrect in rejecting the books of account of the assessee without any basis and in then estimating income at a hypothetical figure of Rs.1,87,87,186/-. The assessee's appeal is allowed.
The next ground of appeal relates to an addition of Rs.26,06,719/- under the head 'Income from Other Sources'. This income had accrued to the assessee from discounts received on payments to creditors, interest income as bank deposits and interest income on unsecured loans given by the assessee. The assessee treated those as business receipts and reduced the Work in Progress (WIP) by this amount.
However, on considering the facts this income is in the nature of ancillary income and cannot be said to attributable to the business of the assessee. Hence, the Assessing Officer'sorder is upheld with the direction to verify if this amount of Rs.26,06,719/- has been reduced from WIP. If the answer is in the affirmative then the WIP should be increased by the same amount.
The last ground of appeal relates to an addition of Rs.17,34,792/- on the ground of bogus purchases as the assessee had made purchases from two parties viz M/s Shubh Enterprises and M/s Paras Enterprises which had been declared by the Maharashtra Government to be 'suspicious dealers' on its website www.Mahavat.gov.in. In the assessment proceedings, the assessee produced complete proof of payment made and also of VAT paid but its contention was not accepted by the Assessing Officer, On considering the facts, it is seen that the Assessing Officer did not carry out any independent exercise to verify if the purchases were genuine. The addition was made solely because these parties had been labelled as 'Suspicious operators on the State Government's VAT website. As the Assessing Officer has not been able to adduce any independent evidence to establish that the purchases were bogus, the addition of Rs.17,34,392 is deleted. The assessee's appeal is allowed.
In the result, appeal is fully allowed.”
We have considered the findings of Ld. CIT(A) as well as order of Ld. AO, arguments of both the parties and the cases relied by Ld. AR. We have noticed that the Ld. CIT(A) has meticulously examined the matter and has rightly concluded that the AO has done guess work on the basis of presumption and surmises and has not considered any evidence while concluding that assessee has received on money and the books of account has been rejected without any cogent reason. The Ld. CIT(A) has rightly held that um / 2024 Triveni and C. J. Group without any cogent reason, the books of account should not have been rejected by the AO. We have also noticed that assessee has produced all the necessary documents in support of its case and has reflected the sale price of the flats in his books of accounts. The said books of account have been rejected by the AO on his guess work bereft of any cogent evidence. The case relied and referred by Ld. AR is also supporting the findings rendered by Ld. CIT(A). Since the sale price of the flats was reflected in the books of account and duly examined and audited by the auditors, the onus was upon the AO to bring on record the cogent reason which may falsify the books of account of the assessee. We are convinced that the AO has reached to the conclusion that assessee has received on money to the extent of Rs. 1,87,87,186/- on the basis of conjecture and surmises and we have no hesitation in rejecting the said conclusion of the AO and the Ld. CIT(A) has rightly set aside the addition made by the AO on that count.
Similarly, we are convinced with the findings of Ld. CIT(A) with respect to setting aside of the alleged addition made on account of bogus purchase made by the AO because the assessee has submitted all the necessary documents with respect to purchase of the goods and material from M/s Shubh Enterprise and M/s. Paras Enterprises which are placed on record. We are also convinced by the order of Ld CIT(A) that the addition was um / 2024 Triveni and C. J. Group made solely because these parties had been shown as „suspicious dealer‟ on the State Government‟s VAT website and the AO has not adduced any independent evidence to establish that the said purchases were bogus. Therefore, we are of the considered opinion that the findings of Ld. CIT(A) is justified and we find no illegality or perversity in the order passed by the Ld. CIT(A).
Resultantly, both the grounds raised by the revenue are dismissed.
In the result, the appeal filed by revenue is accordingly dismissed in the above terms.
Order pronounced in the open court on 14.07.2025.