NEELKAMAL REALTORS AND ERECTORS INDIA P.LTD,MUMBAI vs. DCIT 5(2), MUMBAI

The assessee in its appeal has raised the following grounds of appeal: "1. The ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in treating the purchases made from certain parties as bogus and confirming the disallowance to the extent of Rs. 23,64,227/- as appearing in the books of accounts of the appellant, without appreciating the documentary/supporting evidence produced by appellant to justify the genuineness of the transaction.” The Revenue in its appeal No. 3494/M/2014 has raised the following grounds of appeal: “1. Whether on the facts and circumstances of the case and in law, the Ld. (CIT(A) has erred in deleting the addition of Rs.73,88,991/- on account of wide variation in sale price?

We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. First we shall take up the ground of appeal raised by assessee in and the ground no. 3 & 4 raised by Revenue in its cross appeal. The Ld. AR of the assessee argued that during the relevant year, the assessee completed the building project known as Orchid Tower. The assessee purchased material from different parties aggregating to Rs. 54,76,467/-. During the assessment, the AO observed that the Sale Tax Department made enquiry which reveals that the parties from whom the assessee purchased the material had issued bogus bill. The assessee was asked to explain the genuineness of purchases and submitted all the details of purchases, invoices, delivery challan, delivery receipt, bank statement and ledger account of these four parties from its books of account, the assessee is specifically submitted before the AO that assessee’s total purchase from these four parities were aggregating to Rs. 23,64,227/-. The assessing officer made the disallowance without appreciating the reply and evidences filed by the assessee. The AO made the addition of Rs. 54,76,467/- to the total income of the assessee. The assessee once again before the ld. CIT(A) filed such evidences which were filed before the AO. The ld. CIT(A) without considering the all submissions made before him. Accepted the contention of the assessee that assessee purchased only of Rs. 23,64,227/- and restricted the disallowance to Rs. 23,64,227/-. It was further argued that the AO has not brought on record that purchases were not genuine. The AO relied on the information of Sale Tax Department. The assessee has adduced the complete evidence to substantiate the genuineness of purchases. In support of his submission, ld. AR of the assessee relied upon the decision of Tribunal in case of Rajeev G. Kalathil in ITA No. 6727/Mum/2012 dated 20.08.2014, DCIT v/s Shaan Lube Equipment in ITA No. 625/Mum/2015 dated 29.02.2017 and in Ratnagiri Stainless Pvt. Ltd. v/s ITO in ITA No. 4463/Mum/2016 dated 04.04.2017. On the other hand, ld. DR for the Revenue supported the order of AO. Ld. DR for the Revenue further argued that the parties from whom the assessee has made the purchases were engaged ITA Nos.2589 & 3494/M/2014- M/s. Neelkamal Realtors & Erectors India Pvt. Ltd.

We have considered the rival contention of the parties and have gone through the orders of authorities below. During the assessment the AO observed that the assessee had purchased material from four parties aggregating of RS. 54,76,467/-. The AO further observed that information was received from the DGIT(investigation), Mumbai that these parties were involved in issuing bogus bills. The information received from the DGIT(Inves) was confronted with the assessee. The assessee filed its reply. In the reply the assessee contended that from these four parties they had purchased material of Rs. 23,64,227/- only. The AO instead of discussing the reply of assessee disallowed the entire purchases of Rs.54,76,467/-. The ld CIT(A) while considering this ground of appeal observed that the assessee during the assessment could not provide documentary evidence about the delivery of the material purchased from four impugned parties. However, the ld CIT(A) observed that the assessee in its P&L has shown purchases of Rs. 23,64,227/-. Thus, the ld CIT(A) confirmed the disallowance of Rs. 23,64,227/-. We have seen that the lower authorities neither discussed the contents of the reply nor about the documentary evidences filed by assessee. The lower authority not disputed the consumption of the material nor rejected the books of account of the assessee. After considering the factual matrix of the case and the submissions of the ld representatives of the parties, we are of the view that under Income Tax Act only real income can be taxed by the Revenue. We may further conclude that even if the transaction is not verifiable, the only taxable is the taxable income component and not the entire transaction. Thus, we are of the opinion that in order to fulfill the gap of revenue leakage the disallowance of reasonable percentage of disputed purchases would meet the end of justice. We have seen the assessee throughout the proceedings before the lower authorities contended that the assessee purchased the material of Rs. 23,64,227/-. The AO has not brought on record as to how he arrived on the figure of Rs. 54,76,467/-as the cost of material purchased. The ld CIT(A) extracted the figure of Rs.23,64,227/- & 3494/M/2014- M/s. Neelkamal Realtors & Erectors India Pvt. Ltd.

In the result the assesses appeal is partly allowed.

At the outset the ld AR for the assessee argued that these grounds of appeal

At this juncture, we want to accentuate that the Finance Act, 2013 has inserted section 43CA with effect from 01.04.2014 which is again a special provision for full value of consideration for transfer of assets other than capital asset in certain cases. Sub-section (1) of this section provides that where the consideration received or accruing as a result of the transfer by an assessee of an asset (other than a capital asset) being land, building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purpose of computing profits and gains from transfer of such assets, be deemed to be the full value of the consideration received or accruing as a result of such transfer. Sub-section (2) makes it clear that the provisions of sub-sections (2) and (3) of section 50C shall be applied in relation to the determination of the value adopted or assessed or assessable under sub-section (1). On a circumspection of sub-section (1) of section 43CA, it becomes manifest that the provisions for substituting stamp value for the actual sale consideration on transfer of the land, building or both, which were earlier restricted to the `capital asset’ under head “Capital gains” have now been extended to `other than a capital assets’ under the head “Profits and gains of business or profession” as well. The reference to the words “other than a capital asset” and the placement of section 43CA in Chapter IV-D indicate that the stamp value in respect of building or land or both sold by a person engaged in such business shall be substituted with the actual consideration received as a result of transfer, if the latter is lower than the former. The insertion of this provision by the Finance Act, 2013 with effect from 01.04.2014 makes it abundantly clear that the mandate of section 43CA shall apply only with effect from assessment year 2014- 2015 and not before that. As the assessee in the present case is engaged in the business of selling of flats after construction, the income from which is chargeable under the head “Profits and gains of business or profession”, the provisions of 6 & 3494/M/2014- M/s. Neelkamal Realtors & Erectors India Pvt. Ltd.

Section 56 lies in the residual head of income, that is, “Income from other sources”. Sub-section (1) which is a general provision, provides that income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income tax under this head, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. Sub-section (2) of section 56 deals with certain types of specific incomes which are chargeable under this residual head. Clause (vii), as reproduced above, provides that where an individual or Hindu undivided family receives any immovable property for no consideration or a consideration which is less than the stamp duty value of the property by an amount exceeding rupees fifty thousand, the stamp duty value of such property (in case of receipt of property without consideration) or the stamp duty value as exceeds such consideration (in case of receipt of property at lower consideration) shall be considered as income under this head. When we advert to the facts of the extant case, we find that this provision has no application for the following reasons:- (i) It provides that where an immovable property is acquired without consideration or for a consideration which is less than the stamp duty value, then the stamp duty value or excess of such value over consideration shall be considered as income under this provision. Thus, it is clear that it has application only to the transferee or the acquirer of property for no consideration or consideration less than the stamp duty value. As the assessee in question is a transferor or seller of flats and not an acquirer or transferee, this provision can have no application. (ii) Clause (vii) of section 56(2) was inserted by the Finance (No.2) Act, 2009 with effect from 01.10.2009. The assessment year under consideration is 2009-2010 which is relevant for the previous year ending 31.03.2009. As this provision is applicable in respect of an immovable property acquired on or after the 1st day of October, 2009, it can naturally have no application in relation to the transactions having taken place prior to that date in the assessment year 2009-2010 under consideration. 7 & 3494/M/2014- M/s. Neelkamal Realtors & Erectors India Pvt. Ltd.

In view of the foregoing reasons, we are of the considered opinion that section 56(2)(vii)(b)(ii) cannot be applied to the facts in question.

It is observed that the learned CIT(A) sustained the addition to the extent of `8.53 crore by applying sections 50C and 56(2)(vii)(b)(ii). Both the above provisions have been found to be inapplicable on the facts and circumstances prevailing in the present appeal. We, therefore, hold that the sustenance of addition of `8.53 crore is not appropriate. However, it is pertinent to note that the Assessing Officer initially made addition of `15.22 crore by applying rates of different flats which was eventually reduced to `4.45 crore in the order passed u/s 154. Our disposal of this ground in the above terms has led to the reversal of the findings of the learned CIT(A) but the addition to the tune of `4.45 crore still stands. The assessee has challenged the confirmation of entire addition being : “the difference between the sale value and the fair market value determined by stamp duty authorities of all the flats sold”. As such we are required to adjudicate upon the sustenance of addition to the extent of `4.45 crore as well.

It can be observed from the chart made by the A.O. after page no. 2 of the assessment order that he made addition by considering the rate of another flat sold by the assessee vis-à-vis the rate at which flat under view was sold. For example, first item in the Table is Flat no.2501 with area of 2645 sq. feet and sale consideration at `65.24 lakh. First payment for this flat was received by the assessee on 21.10.2004 and the sale rate is `2467 per sq.ft. The Assessing Officer has compared this rate with the rate charged for flat No.2702 sold by the assessee at a price higher by `649 per sq.ft. The assessee gave reason for charging low price in the terms that the buyer of flat no.2501 assisted in promoting business and hence discount was offered to him. Similar is the position regarding other flats sold by the assessee in respect of which the Assessing Officer has made addition by comparing the rate charged with the higher rate charged in respect of other sale transactions. The assessee gave justification for lower rate in respect of each flat, such as, higher down payment; no hard bargain by the buyer; buyer is an NRI; party was tenant who helped in settlement with other tenants; different amenity values; demand for a higher or lower flat; higher or lower carpet area etc. The Assessing Officer brushed aside these explanations given by the assessee qua each flat sold at a lower rate by simply mentioning that such reduction was not justifiable or there was no explanation for lower rate or fabricated reasoning etc. Such rejection of the assessee’s explanation in one stroke is wholly impermissible. If the Assessing Officer was not satisfied with the assessee’s explanation for charging a lower rate in comparison with a higher rate of other flats, he was required to bring on record certain material to demonstrate that the assessee, in fact, charged such higher rate. The rejection of assessee’s explanation for charging a lower sale price cannot be jettisoned without positively showing that the assessee received a higher sale price.

The Hon’ble Supreme Court, in the context of section 52, in K.P. Verghese VS ITO (1981) 131 ITR 597 (SC) , has held that :`Subs. (2) of s. 52 can be invoked only where the consideration for the transfer has been understated by the assessee or, in other words, the consideration actually received by the assessee is more than is declared or disclosed by him and the burden of proving such an understatement or concealment is on the Revenue. Sub-s. (2) has no application in the case of an & 3494/M/2014- M/s. Neelkamal Realtors & Erectors India Pvt. Ltd.

It is trite that the onus to claim that the apparent is not real is one who so claims. Where the Revenue requires the assessee to show as to why there is a difference in the price charged from two customers and the assessee offers some plausible explanation, no addition can be made simply by holding that this explanation is fanciful. There must be something concrete to show that the version given by the assessee is incorrect. The AO cannot simply make addition on hypothetical basis by presuming a higher sale price by simply rejecting the assessee’s explanation without cogent reasons. If this procedure is resorted, then it would amount to taxing hypothetical income instead of real income, which is obviously impermissible unless an express provision is enshrined in this regard.

Coming back to the facts of the instant case, we find that the assessee tendered explanation in support of charging lower price in respect of some of the flats sold by it. The AO not only simply refused to accept such explanation without any convincing reason but also did not bring any material on record to show that the assessee in fact received higher price than declared. Under such circumstances, we are of the considered opinion that the action of the authorities below in this regard cannot be justified. At the cost of repetition, we mention that the provisions of section 43CA have been inserted with effect from 2014-2015 in respect of transfer of land or building or both which is not a capital asset. It is only during the prevalence of this provision that the Revenue has been discharged from the burden of proving that the sale price of land, or building or both is understated. Straight way, the declared sale consideration can be substituted with the stamp duty value, if it less. In the period anterior to the application of this provision, the burden is squarely on the Revenue to positively show that the sale price charged was actually more than that declared. We are confronted with a situation in which the assessee gave reasons for charging lower price in respect of some of the flats sold, which the AO failed to controvert. In such a situation, there can be no reason to make or sustain any such addition. We, therefore, order for the deletion of this addition in entirety. This ground is allowed”.