NATH DEVELOPERS, HYDERABAD,HYDERABAD vs. ITO, WARD-4(2), HYDERABAD, HYDERABAD

Brief facts of the case are that the assessee firm, engaged in the business of construction of flats, filed its return of income for the A.Y 2009-10 on 10.09.2009 declaring total income of Rs.13,470/-. During the assessment proceedings u/s 143(3) of the Act, the AO called for certain information which was filed by the assessee from time to time and the books of account also were produced for verification. After going through the information available on record, the AO found that during the relevant financial year, the assessee firm had sold 7 flats that have fallen to the share of the assessee the details of which are as under: S.No Flat No. Name of Area Value Rate per Purchaser (sft) (in sft.(Rs.) lakhs) 1 201 A.Prabhu 1140 15.00 1315.79 2 202 H.Rajesh Kumar 1255 18.00 1434.26 3 203 A.Sanjeeva 1140 15.00 1315.79 4 204 A.Prabhu 1140 15.00 1315.79 5 205 Sushil 1225 20.00 1593.63 Gidadhubli 6 GF Anita, Shobha & 2100 30.00 1428.57 Vanita Deshmukh 7 401 Dinkar Rao.J 1140 20.00 1754.39

He observed that another flat No.FF consisting of 2100 sft was converted from work in progress to current asset at a

To verify the cost of construction of the above flats, the AO issued a letter to the assessee on 20.12.2011 to state reasons as to why, the sft rate of Rs.1761.9 which was adopted while transferring the flat No.FF measuring 2100 sft, valued at Rs.37.00 lakhs while converting it from work in progress to current asset, should not be adopted for working out the cost of construction. In response to the same, the assessee, vide letter dated 24.12.2011, explained that the first flat was sold on 5.7.2006 @ Rs.1434/- per sft, 2nd flat on 30.12.2006, @ Rs.1315/sft, and two flats in the middle of 2007, one flat @ Rs.1428 and the other @ Rs.1593/sft, and the last flat was sold on 3.11.2009 @ Rs.1761/sft. It was submitted that since the flats was sold over a period of 3 years on different dates and that the market prices were fluctuating and that the rate of Rs.1761 per sq.feet relates to commercial property which cannot be adopted for residential apartments and that all the information, vouchers, bills etc., were produced and no discrepancies were found, the value declared by the assessee should not be disturbed.

The AO, however, observed that the construction work started only after the supplementary development agreement was entered into by the Partners on 21.04.2007 and that the assessee

The AO observed that the assessee had furnished the details of cost of construction which was Rs.1648 per sq.ft and that the assessee had stated that the commercial flat of 2100 sft was constructed from work-in-progress to current asset that the cost of construction per sft was taken at Rs.1762/- and that the assessee has offered a gross profit rate of 271 per sft. Therefore, he worked out the cost of construction at Rs.1491 i.e. (Rs.1762- 271) and applied the same rate for the entire area fallen to the shares of the assessee and worked out the difference between the receipts declared by the assessee and the receipts estimated by the AO at Rs.12,70,670 and treated it as unexplained investment and brought it to tax.

Further, he also observed that out of the flats sold by the assessee, 5 flats are on the same floor but are sold for different prices. Observing that one of the flats on the same floor has been sold at Rs.1593.63 per sq.ft and that he adopted the same rate for the other flats also and arrived at the difference in the sale value at Rs.11,50,223 and added to the returned income of the assessee and brought it to tax.

Aggrieved, the assessee preferred an appeal before the CIT (A), who partly allowed the same by deleting the additions made on account of unexplained investment. As regards the

The learned Counsel for the assessee reiterated the submissions made before the authorities below while the learned DR supported the orders of the AO and the CIT (A).

Having regard to the rival contentions and the material on record, we find that the enhancement of assessed income is due to the CIT(A) adopting the highest price of sale consideration of the flat sold during the same year as the price of all the flats on second floor and by adopting the price of the flat in the ground floor. He adopted the highest price booked for Flat No.202 in 2006 for the flat in the ground floor also to be the price for the flat No.205 on the 2nd floor, which was sold in 2007. Thus, while the AO substituted the highest price of all the flats, the CIT (A) has taken the highest price of the flats to all the flats on the same floor and sold in the same period. This, in our opinion is not correct. As rightly pointed out by the learned Counsel, the flats 201, 203 & 204 were sold on the same day i.e. 30.12.2006 and were of lesser area of 1140 sft as against the flat No.202 which was sold a little earlier on 5.7.2006 consisted of a larger area of

In the result, assessee’s appeal is allowed.