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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
ITA No. 47/Rjt/2013 & CO 07/Rjt/2013 ITO vs.Shreenathji Builders Assessment year: 2009-10 Page 1 of 5 IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [Coram: Pramod Kumar AM and Rajpal Yadav JM] ITA No. 47/Rjt/2013 & CO No. 07/Rjt/2013 Assessment Year: 2009-10 Income-Tax Officer .......…………...........Appellant Ward 1(1), Junagadh Vs. Shreenathji Builders ........................ Respondent & 5, “Darpan”, Jayshree Nagar Society, Cross Objector Bus Stand Road, Junagadh [PAN : AAHFS 7348 M]
Appearances by: CP Bhatia for the appellant DM Rindani for the respondent Date of concluding the hearing : 03.11.2017 Date of pronouncing the order : 30.01.2018 O R D E R Per Pramod Kumar AM: 1. By way of this appeal and the cross-objection, the Assessing Officer, as also the assessee, have challenged learned CIT(A)’s order dated 27.11.2012, in the matter of assessment under section 143(3) of the income-tax Act, 1961, for the assessment year 2009-10.
In ground nos. 1 & 2, which we will take up together, the Assessing Officer has raised the following grievances:-
“1. The Ld. CIT(A) has deleting the addition of Rs.40,00,000/- made on account of on money received by on sale of lands.
The Ld. CIT(A) erred in law and on facts of the case in not applying the ratio of the Hon’ble SC given in the case of Sumati Dayal 214 ITR 801 (SC)”
The grievances raised by the assessee are also connected with the above grievances raised by the Assessing Officer, and are, therefore, required to be taken up together. These grievances are as follows:-
“1. The learned Commissioner of Income tax (Appeals)-IV, Rajkot erred on facts and in law in confirming addition to the extent of Rs.4,00,000/- out of addition of Rs.44,00,000/- made by the Assessing Officer by the way of unaccounted sale consideration.
ITA No. 47/Rjt/2013 & CO 07/Rjt/2013 ITO vs.Shreenathji Builders Assessment year: 2009-10 Page 2 of 5 2. Without prejudice to objection no.1, the learned Commissioner of Income- Tax (Appeals)-IV erred in upholding unaccounted sale consideration on gross amount and erred in not restricting the same to profit portion only.”
The relevant material facts are as follows. The assessee is engaged in the construction business. During the relevant previous year, the assessee was engaged in developing three residential apartment buildings at Junagadh – namely Chitrakut 1, Chitrakut 2 and Chitrakut 3. The assessee had sold 22 flats during the relevant previous year, in these three projects, and disclosed sale revenue of Rs.217.26 lakhs. However, two buyers – namely C.R. Javia (Flat No. 501 in Chitrakut 1) and D.J. Godhani (Flat No.704, Chitrakut-2) confirmed having paid Rs.2 lakhs each in cash which was not accounted for in the books. The Assessing Officer made further enquiries but no other buyer confirmed having paid anything other than stated and accounted consideration. The assessee though offered opportunity to cross-examine these two buyers, did not cross examine these buyers. It was in this backdrop that the Assessing Officer proceeded to add Rs.44 lakhs, being estimated cash unaccounted receipts on sale for 22 flats. While doing so, the Assessing Officer observed as follows:-
“Considering the all the above facts, the assessment is finalized after considering the material available on records and also considering the fact that the assessee has received the on money against the sale consideration in the Chitrakut project and for 22 units, it is worked out as under :-
22 Units X Rs.2 lacs for each unit = Rs.44,00,000
Though, the two buyers of the assessee Shri Himanshu H. Ladani and Smt. Bhavnaben B. Jasani have denied to have made the payment of ON MONEY out of four buyers whose were recorded on oath. However, it is fact that two buyers Smt. Divyaben J. Godhani and Shri Chhanbhai Raghavji Javia whose statement recorded on oath after the period more than three months of recording the statement of Smt. Divyaben J. Godhani and Shri Chhaganbhai R. Javia, who have stated that they have paid ON MONEY to the builder. In this regard, I have drawn only conclusion that subsequent statement recorded on oath 13.12.2011 who have denied to have made ON MONEY was word tutored reply and deliberately denied with the consultation of the builder. Therefore, cognizance of denial is not taken at this stage and it is considered that the assessee has accepted ON MONEY of Rs. 2 lakh in each flat on the sale consideration from the buyers and accordingly the receipt of ON MONEY / unaccounted money is worked out at Rs. 44,00,000/- (22 flat sold x 2,00,000/-) and the same is added in the hands of the assessee firm u/s.69A of the I.T.Act,1961 for taxation over and above of regular income disclosed by the assessee in its return of income at Rs. 2,92,800/-.”
Aggrieved, assessee carried the matter in appeal before the CIT(A) who restricted the addition to Rs.4,00,000/- by observing as follows:-
“4. I have gone through the assessment order and submissions of appellant. Appellant had constructed three building projects i.e. Chitrakut-1, 2 and 3 for the year under appeal Chitrakut 1 and 3 were 4BHK projects and Chitrakut-2 was 3BHK project. During the Financial Year relevant to the Assessment Year
ITA No. 47/Rjt/2013 & CO 07/Rjt/2013 ITO vs.Shreenathji Builders Assessment year: 2009-10 Page 3 of 5 under appeal, appellant could sell 8 constructed flats out of Chitrakut-2 (i.e. 3BHK flats) and 22 flats out of Chitrakut-1 (i.e. 4 BHK flats). None of the flats of Chitrakut-3 (i.e. 4BHK, more luxurious) were sold in the relevant Financial Year Assessing Officer made enquiries from the buyers of flats in Chitrakul-2 and Chitrakul-3 during the assessment proceedings. One buyer of Chitrakut-3, Dr Himanshu G Ladani, denied paying any "on money" over and above the consideration as per sale deed. Two buyers of Chitrakut-2 , Shri Chhaganbhai R Javia and Smt Divyaben J Godhani, confirmed paying Rs 2 lakh as "on money" over and above the consideration mentioned in the sale deed. One buyer of Chitrafcut-2 , Smt Bhavnaben B Jasani denied paying any "on money" over and above the consideration as per sale deed. No other buyer was examined by the Assessing Officer. In respect of the buyers Shri Chhaganbhai R Javia and Smt Divyaben J Godhani of Chitrakut-2, Assessing Officer had given an opportunity to the appellant to cross examine the buyers but appellant did not avail this opportunity. In appellate proceedings also, appellant never demanded the opportunity to cross examine Shri Chhaganbhai R Javia and Smt Divyaben J Godhani. Therefore it may be concluded that appellant has received on money of Rs 4,00,000/- from Shri Chhaganbhai R Javia and Smt Divyaben J Godhani for sale of two flats in the building Chitrakut-2. However, I find it difficult to extend this logic to the sales of all the remaining flats when two other buyers examined by the Assessing Officer have categorically denied paying any on money for purchase of their flats and remaining buyers were not examined at all. A buyer may pay extra consideration for the flat purchased by him from the appellant as per his own need and availability of funds whereas the other buyer may not agree to pay any extra consideration over and above the price agreed in the sale deed. Therefore, the evidences gathered by the Assessing Officer in the form of statements of four buyers do not allow such presumption that for all the flats were sold by the appellant during the year, Rs 2 lakh per flat was paid as on money. In respect of the two flats of Chitrakut-2, sold to Shri Chhaganbhai R Javia and Smt Divyaben J Godhani, the booking of flat has been narrated by the buyers as 2007 or the year when the construction of this building had just begun. Appellant has submitted the date of sale to these buyers in April / May 2009. The date of payment of "on money" is not apparent from the statements of these two buyers. However, considering the fact that such payments are generally made before the final sale is made, I find that Rs 4 lakh of "on money" was received by appellant in Financial Year 2008- 09 before the finalization of sale to these two buyers. I therefore restrict the addition to Rs 4 lakh instead of Rs 44 lakh made by the Assessing Officer.”
None of the parties is satisfied. While the Assessing Officer is aggrieved of learned CIT(A)’s deleting the addition of Rs.40 lakhs, the assessee is aggrieved of the CIT(A)’s confirming the addition of Rs.4 lakhs. Both the parties are in appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
We find that learned CIT(A)’s well reasoned order deserves to be confirmed on these points. We adopt and approve his sound reasoning. Just because two buyers have paid on money of Rs.2 lakhs each, it cannot be inferred that the on money of Rs.2 lakhs was charged on each sale – particularly as buyers have categorically
ITA No. 47/Rjt/2013 & CO 07/Rjt/2013 ITO vs.Shreenathji Builders Assessment year: 2009-10 Page 4 of 5 denied the same in the course of recording of their statements. The conclusions arrived at by the Assessing Officer and the CIT(A) rightly disapproved the same. However, when assessee does not even cross-examine the two persons who have deposed against him for payment of on money of Rs.2 lakhs each, to that extent, stand of the Assessing Officer was rightly confirmed by the CIT(A). We approve the order of the CIT(A), adopt his reasoning and decline to interfere in the matter.
Ground nos. 1 & 2 of Assessing Officer’s appeal and ground nos. 1 & 2 of assessee’s cross-objections are dismissed.
In ground no.3, the Assessing Officer has raised the following grievance:-
“The Ld. CIT(A) erred in law and on facts of the case in deleting the addition of Rs.2,39,827/- made u/s 40A(2) of the I.T. Act”
So far as this grievance is concerned, relevant material facts are as follows. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has paid interest @ 15% p.a., on deposits by the specified persons, but the normal interest rate was 12% p.a. On this basis, and not satisfied with the explanation of the assessee for payment of interest @ 15% p.a., the Assessing Officer disallowed interest to the extent of 3% p.a. Accordingly, a disallowance of Rs.2,39,827/- was made by the Assessing Officer. Aggrieved, assessee carried the matter in appeal before the CIT(A) who reversed the action of the Assessing Officer on the basis of following reasoning:-
“4. I have gone through the assessment order and submissions of appellant. The appellant has paid interest at the rate of 15% to its related persons u/s 40A(2)(b) of the I.T. Act. Assessing Officer has referred to the provisions of section 40(b) where interest paid to partners in excess of the rate of 12% is required to be disallowed. However, the interest rate of 12% mentioned in section 40(b) is not the fair market rate of interest. The fair market rate of interest is determined on the basis of interest being charged by banks, various financial institutions etc or the finance market in general. The rate of interest for unsecured loans would be higher than the rate of interest for secured loans because the cost of security or hypothecation is not there. The rate of interest may increase if the loan is given in a more risky business. Assessing Officer has not found out the fair market rate of interest applicable to unsecured loan. Therefore considering the fact that the cooperative banks were charging interest in the rage of 13% to 15% during the period under consideration with requisite security, the interest rate of 15% charged by the relatives of appellant on unsecured loans is not excessive. I therefore direct the Assessing Officer to allow the deduction of interest of Rs.2,39,827/- and reduce the total income of appellant accordingly”
Aggrieved by the relief so granted by the CIT(A), the Assessing Officer is in appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
ITA No. 47/Rjt/2013 & CO 07/Rjt/2013 ITO vs.Shreenathji Builders Assessment year: 2009-10 Page 5 of 5 14. We have noted that there is no material whatsoever, before us, to justify the stand of the Assessing Officer that interest payment @ 15% p.a. was excessive or unreasonable. As learned CIT(A) has observed, even co-operative banks were charging 13% to 15% p.a. interest at the relevant point of time which shows that interest paid by the assessee was neither excessive nor unreasonable. No material has been brought on record to dislodge these findings. Unless the Assessing Officer establishes that the payment made by the assessee to the specified persons is excessive or unreasonable, there is no question of disallowance under section 40A(2). In view of these discussions, as also bearing in mind entirety of the case, we approve the stand of the CIT(A) on this point as well, and decline to interfere in the matter.
Ground no.3 is also dismissed.
In the result, the appeal of the Assessing Officer is dismissed, and so is the cross-objection filed by the assessee. Pronounced in the open court today on the 30th day of January, 2018.
Sd/- Sd/-
Rajpal Yadav Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, the 30th day of January, 2018 *bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPY Assistant Registrar Income Tax Appellate Tribunal Rajkot bench, Rajkot
Date of dictation: ..order prepared as per 9 pages manuscript of Hon’ble AM, which is attached herewith the file... prepared on 29.01.2018 ... 2. Date on which the typed draft is placed before the Dictating Member: ....30.1.2018....... 3. Date on which the approved draft comes to the Sr. P.S./P.S.: …30.01.2018....... . 4. Date on which the fair order is placed before the Dictating Member for Pronouncement: …30.01.2018.. 5. Date on which the file goes to the Bench Clerk : …30.01.2018.. 6. Date on which the file goes to the Head Clerk : ……………………………. 7. The date on which the file goes to the Assistant Registrar for signature on the order: ……………………..