SHIVJI AMBA GAMI,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE, PANVEL

The solitary dispute in the appeal is concerning the addition of an amount of R.6,83,500/- on account of understatement in the value of a flat sold.

Briefly, the facts are, the assessee is an individual and is engaged in the business as builder and developer. For the assessment year under dispute, assessee filed his return of income on 02-09-2014 declaring total income of Rs.32,52,505/-. In course of assessment proceedings, the assessing officer noticed that during the year under consideration, the assessee had sold eight flats. From the details furnished by the assessee, he found that in respect of flat No.202 sold to Mohammad Azmi, the declared sale consideration was shown at Rs.9,61,000/- whereas the Stamp Valuation Authorities for the purpose of stamp duty, has valued the flat at Rs.16,44,500/-. Noticing this, the assessing officer called upon the assessee to explain why the differential amount ofRs.6,83,500/- being the difference in value between declared sale consideration and value determined by the Stamp Duty Authority should not be added u/s 43CA of the Act. Though the assessee objected to the proposed addition; however, the assessing officer, rejecting the objection of the assessee, added back the amount of Rs.6,83,500/- u/s 43CA of the Act. Assessee contested aforesaid addition before the first appellate authority.

In the proceedings before the first appellate authority, the assessee urged a preliminary ground that th provisions of section 43CA having introduced into the statute by Finance Act, 2013 w.e.f. 01-04-2014, would not be applicable to the transaction relating to the sale of a flat which was concluded upon registration on 23-04-2013, i.e. much before section 43CA came into effect. Apparently, Ld.Commissioner of Income-tax (Appeals) agreed with the assessee that section 43CA would not be applicable to th transaction relating to sale of flat by the assessee. However, to ascertain whether the sale consideration declared by the assessee is correct and has not been understated, he called upon the assessee to furnish the details of sale consideration received in respect of other flats in earlier years and profit declared. After perusing the details furnished by the assessee, Ld.Commissioner of Income-tax (Appeals) found that while the assessee has declared overall net profit at Rs.47,53,707/- being 27.87% on the total sales turnover of Rs.1,70,55,000/- since the period March,2012 to March, 2014; however, for the sales turnover of Rs.36,53,000/- declared for the current year, the assessee has incurred net loss of Rs.6,03,243/-. When the assessee explained that due to completion of the project in the impugned assessment year, he had to incur a lot of expenses resulting in loss, Ld.Commissioner of Income-tax (Appeals) was not convinced and was of the view that due to the excess expenditure claimed under various heads including labour expenses, expenses of Rs.3,36,235/- the assessee has suffered loss. Further, he observed, some of the flats in the project were sold at a higher price. Thus, from the aforesaid facts, Ld.Commissioner of Income-tax (Appeals) concluded that the assessee has understated the sale consideration. Therefore, he sustained the addition of Rs.6,83,500/- made by the assessing officer.

Ld.Authorised Representative submitted that the assessee, in detail, has explained the reason of difference between the valuation of the Stamp Duty Authority and the declared sale consideration. Further, he submitted, the consideration for sale of flat was mutually agreed upon as per the market value prevailing at the time of booking of the flat, in the year 2011 whereas the sale deed was registered in 2013 and the Stamp Duty Authority has considered the market value as prevailing in 2013 which resulted in difference. Therefore, there cannot be any addition on account of alleged understatement of value of flat. Further, he submitted, once Ld.Commissioner of Income-tax (Appeals) has accepted assessee’s contention that section 43CA of the Act is not applicable to the subject sale transaction, he should have deleted the addition instead of sustaining the addition with his own reasoning of understatement of sale consideration. He submitted, by referring to the expenses incurred and the profit ratio declared, Ld.Commissioner of Income-tax (Appeals) cannot introduce a new source for disallowance which was not before the AO. In support of such contention, he relied upon number of judicial precedents, as submitted in the paper book.

I have considered rival submissions and perused materials on record. Undisputedly, the disputed addition is on account of sale of a flat being Flat No.202 sold to one Mohammad Azmi for a consideration of Rs.9,61,000/-. The assessing officer, having found that the Stamp Duty Authority has followed the flat at Rs.16,44,500/- for stamp duty purposes, added back the differential amount of Rs.6,83,500/- by invoking the provisions of section 43CA of the Act. Though Ld.Commissioner of Income-tax (Appeals) was convinced with provisions of section 43CA would not be applicable to the subject transaction, however, instead of deleting the addition, he introduced a new reasoning of his own to sustain the disallowance. As could be seen from the impugned order of Ld.Commissioner of Income-tax (Appeals), the reasons for which he sustained the disallowance made by the AO are as under:- (i) The assessee has incurred loss of Rs.6,03,243/- in respect of housing project in this year;