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Income Tax Appellate Tribunal, DELHI BENCH “SMC-2” NEW DELHI
Before: SHRI S.V. MEHROTRA :
per the sale-deeds the circle rate on which stamp duty of Rs. 2.34 lakhs was paid was Rs. 34.90,000/-. The AO further noticed that on 17.4.2009the assessee had reported sale of first floor of plot no. Nitikhand-I/913, Indirapuram, Ghaziabad, having covered area of 110 sq. mtr. For a consideration of Rs. 34,10,000/-. As the assessee had shown the sale of ground floor for Rs. 22,50,000/- as against the first floor property being Rs. 34,10,000/-, within a period of six months, the AO show caused the assessee as to why the trading results be not rejected u/s 145 and the income be assessed at a reasonable estimate. The AO has noticed the assessee’s contention as under:
“The assessee contended that the property under sale was held as stock in trade and income there from was computed under the head "Profits & Gains from Business" and not under the head "Capital Gains". It was further contended that provisions of section 50C of I. T. Act which provides for deemed income in respect of the difference of consideration below the circle rate was applicable only to capital assets. The assessee also referred to the proposed amendment in Budget 2013 where a new section 43CA was proposed to be inserted in respect of properties held as stock in trade also w.e.f AY 2014-15. Lastly, it was contended that the books of accounts should not be rejected since only the actual sale consideration had been recorded in the books of accounts while the circle rate was only a notional price which cannot be recorded in the books.”
The AO, after considering the assessee’s reply concluded that though the addition was not made u/s 50C, but the disparity in price of same property sold by the assessee himself clearly leads to the conclusion that the property was sold below the market rate. He pointed out that circle rate merely provided a basis of reasonable estimation for value of the property in question. Taking clue from the valuation adopted by stamp valuation authorities at Rs. 34,90,000/-, the AO made addition of Rs. 12,40,000/- after rejecting the books of a/c u/s 145. Ld. CIT(A) dismissed the assessee’s appeal.
Ld. counsel for the assessee submitted that assessee is a developer and, therefore, since the ground floor could not be sold for a higher price, therefore, in order to lower the burden of bank loans and interest thereon, the assessee concluded the sale at a lesser price. In the subject period, there was a time gap of six months in which the property price had gone down. He relied on following decisions:
- & 1090/2011 in the case of CIT Vs. Discovery Estates Pvt. Ltd. – judgment dated 18.2.2013 (Delhi High Court). - CIT Vs. A. Raman & Co. 67 ITR 11 (SC) 6. With reference to above decisions, ld. counsel submitted that department cannot ask the assessee to maximize his profits.
I have considered the submissions of both the parties and have perused the record of the case. The facts are not disputed. Admittedly the assessee had sold the ground floor property after six months of the sale of the first floor property in the same building at a price which was 25% less than the price at which the first floor property was sold six months before.
Admittedly in the relevant assessment year the provisions of section 50C were not applicable in case a property was held as stock-in-trade, because section 43CA has been inserted by the Finance Act, 2013, w.e.f.
1.4.2014. The AO has not pointed out any defect in the books of account and has merely rejected the books of account on the basis of lower sale consideration being received for the ground floor property as compared to first floor property. This is not permissible in law, because there has to be some concrete evidence to come to the conclusion that assessee has not declared his full sale consideration. Reliance placed by ld. counsel for the assessee on the decision of Hon’ble Supreme Court in the case of A. Raman & Co. (supra) clearly support the assessee’s contention. The Hon’ble Delhi High Court in the case of Discovery Estates Pvt. Ltd. has noted the Tribunal’s findings in it judgment at page 4 in para 8, which are reproduced hereunder:
“(a) The assessee is maintaining proper books of accounts and the Assessing Officer has not pointed out any specific defects therein. (b) The view of the Assessing Officer that there can be no loss in real estate business and the assessee cannot sell the shops below cost price is not correct, having regard to the facts. (c) The assessee has given reasons as to why it booked sales at the initial stage at a lower price. It was found that the assessee could not book a single shop for sale in the year 2004 and during the period from May 2003 to December 2004, it could book only five shops for sale. These factors suggest that in the beginning of the business, the assessee is forced to offer some concession in the price to draw custom. (d) The Assessing Officer could have brought evidence on record to show that any purchaser had actually paid a price higher than the price shown in the books. No such evidence was forthcoming. There was not even material to doubt the sale transactions.
(e) It is not permissible for the Assessing Officer to rely on the perceived general market conditions; the price shown by an assessee cannot be doubted for the reason that in the opinion of the Assessing Officer, the real estate prices did not show any downward trend. (f) The market prices can at best be a starting point for further inquiry but they cannot be substituted for the price shown by the assessee in the books of accounts”.
In view of above discussion, the assessee’s appeal is allowed.
In the result, assessee’s appeal stands allowed. Order pronouncement in open court on _____/07/2016.