ANIL KUMAR PAIK ,KOLKATA vs. ACIT, CIR-8(1), KOL, KOLKATA

The present appeal is directed at the instance of the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter the “ld. CIT(A)”) dt. 15/03/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2017-18. 2. The assessee has raised the following grounds of appeal:- “1. FOR THAT the Ld. Commissioner, of Income Tax (Appeals)- N.F.A.C. acted unlawfully in impliedly sustaining; the purported addition of Rs. 1,67.44,907/- made the Ld. Assistant Commissioner, of Income Tax, Circle 8(1) Kolkata by invoking the mischief u/s. 43CA of the Income Tax Act, 1961 without satisfying the parameters thereof and the adverse conclusion reached on that behalf in violation of the statutory prescription is completely unfounded, unjustified, and untenable in law.

Brief facts of the case are that the assessee is an individual engaged in business carried out in various fields. Income of Rs. 1,51,05,760/- declared in the e-return for Assessment Year 2017-18 filed on 28/03/2018. Case selected for scrutiny through CASS followed by service of notice u/s 143(2) and 142(1) of the Act. The ld. Assessing Officer observed that the assessee is into the construction business. The ld. Assessing Officer noticed that during the year certain flats have been sold by the assessee. Though the assessee was asked to explain the reason for the said difference, but in absence of proper reply, the ld. Assessing Officer made addition of Rs. 1,67,44,907/- on the ground that Section 43CA of the Act which is a deeming provision is applicable on the assessee and the difference between the market value of the flats as per the stamp valuation authority over the sale consideration disclosed in the books deserves to be added. Further the Assessment Year: 2017-18 Anil Kumar Paik ld. Assessing Officer noticed that the assessee had shown less income on the declared sales and estimated the net profit from construction business at 20% as against 7.3% declared by the assessee and made addition of Rs.17,45,120/-. Similarly, the ld. Assessing Officer also estimated high net profit on the liquor sales carried out during the year and made an addition of Rs.1,20,47,747/-. Disallowance of rent deposit of Rs.2,04,000/- was made by not treating it as revenue expenditure. Further the ld. Assessing Officer noticed that the assessee is not maintaining regular books of accounts because they were not produced before the Assessing Officer in spite of granting various opportunities. During the year, subsequent to the announcement of demonetisation scheme by the Central Government, certain cash was deposited for which the assessee could not explain the source and such sum amounting to Rs.67,94,000/- was added to the income. Further the ld. Assessing Officer also estimated the net profit on the pharmaceuticals business carried out by the assessee by observing that there is undisclosed sales amounting to Rs.2,45,58,472/- and on those undisclosed sales, gross profit @ 20% is estimated thus making addition of Rs.49,11,694/-. Further the ld. Assessing Officer observed that there is liability of Rs.1.65 Crores shown in the balance sheet of sole proprietorship concern M/s. S. Paik and Co.. It was submitted by the assessee that this is a loan from M/s. Gitanjali Hotel and Inn Private Limited and transactions have been carried out through banking channels. However, from perusal of the financials of M/s. Gitanjali Hotels and Inn Private Limited, it was seen that no fixed Assessment Year: 2017-18 Anil Kumar Paik assets have been sold during the year. The ld. Assessing Officer thus, concluded that this unexplained cash credit in the books of the assessee was liable to be added u/s 68 of the Act and made addition of Rs.1,65,00,000/-. Accordingly, income assessed at Rs.7,40,53,228/-. Aggrieved the assessee preferred appeal before the ld. CIT(A) but failed to succeed.

Aggrieved, the assessee is now in appeal before this Tribunal.

The ld. Counsel for the assessee has filed detailed paper book containing 575 pages which contains various details in support of its grounds. The crux of the arguments as appearing in the written submissions are as follows:- i) No addition u/s 43CA of the Act is called for because though the sale deed of the flats have been registered during the year, but there agreement of sale were executed during FY 2011-12 and part of the consideration was received through account payee cheque and since Section 43CA of the Act has been brought into the statute from 01/04/2014, no addition is called for u/s 43CA of the Act. ii) As regards estimation of net profit of the business of development of real estate, ld. Assessing Officer has not rejected the book results u/s 145(3) of the Act and the estimation is merely based on surmises and conjectures. iii) Similar contentions have been made with regard to the estimation of net profit in liquor business where also, without rejecting the book results, the ld. Assessing Officer erred in estimating the profits.

The ld. D/R, on the other hand, vehemently argued supporting the order of both the lower authorities.

We have heard rival contentions and perused the material placed before us.

Ground No. 1 is against the addition made u/s 43CA of the Act at Rs. 1,67,44,907/-. Perusal of the paper book and the details filed before the lower authorities, proves that the flats sold during the year were originally agreed to be sold during FY 2011-12. Copies of agreement to sell have been filed. Part payment through account payee cheques were made. In support, copies of ledger accounts have been filed. It thus shows that except the registering the sale deed during the year and accounting it in the books, the flats in question have been agreed to be sold during FY 2011-12 alongwith receiving part of the sale consideration through banking channel and, therefore, the valuation as per the stamp valuation authority should be adopted as applicable on the date of agreement to sale. However, since the assets in question are business assets, provisions of Section 50C of the Act have no applicability and Section 43CA of the Act has been 8 I.T.A. No. 492/Kol/2023 Assessment Year: 2017-18 Anil Kumar Paik inserted w.e.f. 01/04/2014 and, therefore, the same are not applicable on the transactions in question during the year. Similar issue came for our consideration in assessee’s own case for Assessment Year 2016-17 and the finding of this Tribunal on this issue reads as follows:- “9. Ground No. 2 challenges the addition of Rs.1,71,18,489/- made by the Assessing Officer invoking Section 43CA of the Act. The ld. Assessing Officer while examining the records of the assessee also possessed the individual transactions statement related to the assessee pertaining to 15 flats sold during the year of which market value was reported at Rs.6,19,56,040/- but the credit in the profit and loss account was only Rs.4,48,37,551/-. In reply, the assessee furnished the information about the flats sold during the year stating that most of the flats were booked in the preceding years and agreement to sale was entered and part of the consideration was received through account payee cheques. For the sake of reference, the names of the customers, date of booking, registry date, amount of sale consideration and market value as adopted by the stamp valuation authority for calculating stamp duty:-

From perusal of the above details, we find that so far as the flats sold to customers appearing at S. No. 5 to 16, the date of booking of the flats are prior to 31/03/2013. Assessee has filed the ledger accounts, details of agreement to sale and the proof that part of the consideration have been received through banking channel at the time of booking and in some cases, the said advance or consideration through banking channel has been received prior to financial year 2013-14. We notice that similar issue came up for adjudication before us for Assessment Year 2014-15, wherein we have held that since the agreement for sale was entered prior to 01/04/2015 and the assets in question are stock-in-trade Assessment Year: 2017-18 Anil Kumar Paik and not capital asset, Section 43CA of the Act will have no application on such transactions. Before us, the ld. Counsel for the assessee has referred and relied on the decision of the Co-ordinate Bench of this Tribunal in the case of M/s. Reegal Construction vs. ITO (supra) and this Tribunal after examining the facts of the case observed as under:- “11. We have also gone through the copies of the sale agreement placed at page 97 to 322 along with copy of ledger account of the sellers. A perusal of the above chart and read with copies of the sale agreement would reveal that in almost of the cases, the booking of the flat was made in the year 2012 or in the year 2013, whereas, the sale deeds were effected in F.Y 2014-15. Further, the assessee has also placed on file the ledger account in respect of each of the party showing the receipts of payments of the parties along with date and amount. A perusal of the ledger of each of the party in the accounts of the assessee would reveal that in each case, certain payment/instalment has been paid by cheque before the execution of the sale deed in pursuance of the terms of agreement of sale affected in the FY 2012-13 and 2013- 14, as the case may be. In almost every case, the flat was booked much prior to the date of actual sale and some of the instalments were paid by cheque in pursuance to the respective agreement to sale but much before the date of execution of the sale deed. The purpose of requirement of payment by cheque vide sub-section (4) is to avoid the introduction of any bogus back-dated 'agreement to sell' to claim a lesser stamp duty value of a past date. The payment through cheque is required to ensure that the agreement to sell, if any, relied upon by the assessee has been actually executed and acted upon as back dated cheque payment cannot be claimed by an assessee. In the case in hand, though some of the parties had not made initial payment i.e. on or before the date of agreement through cheque/banking mode, however, the facts show that the some of the payments were made in each case much before the execution of the sale deed. Under the circumstances, it cannot be said that the 'agreement to sell' relied upon by the assessee are bogus, rather, the payment of consideration in this case has been settled and paid as per the terms of the agreement. Under the circumstances, in the peculiar Assessment year: 2015-16 M/s Reegal Construction facts and circumstances, it will not be justified to adopt the stamp duty value as on the date of execution of the sale deed, rather, the object and purpose of the provisions will be achieved by taking the stamp duty value as on the date of execution of the agreement in the light of the peculiar facts and circumstances of this case. Moreover, the issue is otherwise decided by the Coordinate bench of the Tribunal in the case of Disha Construction (supra), wherein, the Coordinate Bench of the Tribunal further relied upon the decision of the Bombay High Court in the case of PCIT vs. Swananda Properties (P) Ltd. [2019] 111 taxmann.com 94 (Bombay) dated 09.09.2019. The relevant part of the order of the Tribunal is reproduced as under: "5. We find that the assessee, along with its written submissions, have placed on record copy of development agreement dated 06/03/2011 entered in to by the assessee with the Society. As per Clause-12 of the agreement, the assessee has agreed to sell additional carpet area of 12350 square feet to 92 members of the society. The additional area was to be sold at Rs.15000/- per square feet and the sale consideration was to be paid by the members in various trenches as specified in sub- clause (c) of Clause-12. Thus, quite clearly the additional area has been sold by the assessee pursuant to the development agreement which has been entered into by the assessee during financial year 2010-11 which is prior to introduction of Sec.43CA. The provisions of Sec.43CA has been inserted by the legislatures only with effect from 01st April, 2014 and the same would not apply to any such agreements as entered into by the assessee in earlier years as held by Hon'ble Bombay High Court in Pr. CIT V/s Swananda Properties (P.) Ltd. {2019 111 taxmann.com 94 (Bombay)

In the case of CIT v. Neelkamal Realtors & Erectors India (P.) Ltd. [2017] 79 taxmann.com 238/246 Taxman 274, the Division Bench of this Court had an occasion to consider the value of the flat in case of sale by the Developer in the context of section 50C and section 56(2)(vii)(b)(ii) of the Act. The Division Bench observed thus: "3. Regarding question No. (i): ** ** ** (f) It is self evident from reading of section 50C of the Act it would not have any application while determining 'Profits and gains of business or profession'. This is so as its application is only limited to computation of income chargeable under the head 'Capital gains' as is evident from specific reference in sub-section (1) of section 50 of the Act to section 48 of the Act i.e. mode of computation of capital gains. In fact section 50C of the Act as observed by the impugned order is placed as part of the Chapter IV-E under the head 'capital gains', it can only govern the valuation of the property to determine capital gains and cannot govern valuation of transfer of assets (other than a capital asset) i.e. stock in trade. This view is further strengthened by the fact that section 43CA has been introduced into the Act w.e.f. 1st April, 2014 which governs taking of full value of consideration for transfer of assets other than capital assets on the basis of stamp duty valuation. This section 43CA of the Act finds a place as a part of Chapter IV-D - Profits and gains of business or profession. Therefore, with effect from 1st April 2014 the stamp duty valuation of assets sold could be taken as value of consideration. Our above view that section 50C of the Act has no application to value stock in trade is also a view taken by Allahabad High Court in Commissioner of Income Tax v. Ken Construction and Colonizers (P.) Ltd.(2012) 208 Taxman 478/20 taxman.com 381. Similarly the Madras High Court in CIT v. Thiruvengadam Investments (P.) Ltd. (2010) 320 ITR 345 has also held that section 50C of the Act cannot be invoked to arrive at full consideration of sale of business asset. We see no reason not to adopt the views of the above two High Courts to the present facts." (Emphasis Supplied)

The Division Bench of this Court in the case of Zain Constructions v. ITO [2019] 107 taxmann.com 300/265 Taxman 82 (Mag.) has conclusively decided the issue as under: "8. In our opinion, the entire approach of the Assessing Officer is wholly incorrect. As is well known, Section 50C of the Act would enable the Revenue to bring to tax by way of deemed capital gain difference between the stamp valuation and the sale price of a capital asset. For obvious reasons, this provision would not apply in case of a builder for whom such immovable property is in nature of stock in trade and not capital asset. To overcome this difficulty the legislature had inserted Section 43CA under Finance Act, 2013 w.e.f 1.4.2014. This provision would enable the Revenue to tax the income arising out of sale of stock by a deeming fiction where subject to certain conditions, stamp valuation of such stock would substitute the actual receipt thereof. In absence of any such statutory provisions, giving rise to the deeming fiction, the Revenue cannot tax any amount which has not been received by a seller of an immovable property at the time of sale." (Emphasis Supplied) No contrary decision is shown.

It is to be noted that the Revenue has not made any reference even remotely that the Respondent had received amounts in excess of that shown in the agreements in respect of twelve flats which is not being accepted. The entire case of the Revenue is merely on suspicion. It is not the case of the Revenue that the Respondent made secret profits out of sale of the twelve flats.

The Supreme Court has observed in the case of CIT v. A. Raman & Co. [1968] 67 ITR 11 that the law does not oblige a trader to make maximum profit, he can make, out of his trading activity. Income on which he can be taxed is only the income he has earned. So also recently, the Supreme Court in the case of S.A. Builders v. CIT [2007] 158 Taxman 74/288 ITR 1 has observed that no businessman can be compelled to maximize his profits. Therefore, in view of the above, this question as proposed also does not give rise to any substantial question of law. Thus not entertained.

The appeal is dismissed.

In light of the above decision and discussion made in the preceding paragraphs and the fact that flats appearing in the list from Serial No. 5 to 15, agreement to sale was prior to 01/04/2013 and part of the consideration was received through account payee cheques, therefore, Section 43CA of the Act will not be applicable and the difference between the amount of sale consideration appearing in the conveyance deed and the value adopted by the stamp valuation authority cannot be added in the hands of the assessee and the same is hereby deleted.”

Respectfully following the above and under the given facts and circumstances, impugned addition is uncalled for as provisions of Section 43CA of the Act are not applicable to the transactions in question which we have been originally agreed to sell during FY 2011- 12 and part sale consideration have also been received. Accordingly the finding of the ld. CIT(A) is set aside and Ground No. 1 raised by the assessee is allowed.

Ground No. 3 is against the addition of Rs.1,20,47,747/- made by the ld. Assessing Officer estimating the profits over and above the profits declared by the assessee in the liquor business carried out under the name and style of S.N. Roy Road, C.S. Shop. Undisputedly, the ld. Assessing Officer again failed to reject the book results u/s 145(3) of the Act before estimating the profits of the liquor business declared by the assessee. The estimation has been made by the ld. Assessing Officer mainly on surmises and conjectures without bringing any other evidence on record and such action of the Assessing Officer of assuming jurisdiction u/s 145(3) of the Act without rejecting the book results and without pinpointing the specific defects in the books of accounts regularly maintained and audited, cannot be held to be justified. Similar issue was raised for Assessment Year 2016-17 in case of the assessee for Ground No. 4, wherein the Tribunal held as under:- “13. Ground No. 4 is raised against the addition of Rs. 3,76,28,573/-. The ld. Assessing Officer firstly referred to three business concerns of the assessee, namely, M/s. Gitanjali Enterprises, M/s. Gitanjali Polyclinics & Diagnotics and M/s Gitanjali Chemist & Drugist and referred to the commission income earned from sale of medicine. Thereafter, the ld. Assessing Officer referred to the total amount of credits in the bank account which amounted to Rs.13,86,52,917/- and asked the assessee to give a breakup of the same. The assessee filed the details of the two bank accounts held with Oriental Bank of Commerce and three bank accounts held with Allahabad Bank and total of the credits in its bank accounts was Rs.12,18,31,381/-. Thereafter, the ld. Assessing Officer applied the gross profit rate of 38.22% on a figure of Rs.9,84,52,571/- observing as follows:- “6.3 It is to note here that the amount of credit claimed in the above reconciliation in respect of S. Paik &Co. is not included into total of Rs. 13,86,52,91 II- as discussed above. So total credit as per reconciliation comes to Rs.9,40,67,835/- (Rs. 12,18,31,381/- - Rs.2,77,63,546/-). Hence, total amount Assessment Year: 2017-18 Anil Kumar Paik remained un-reconciled stands at Rs.4,45,85,082/-. Moreover, the assessee has further submitted ledger account of inter-concerns transactions. It is observed from them that the amount of Rs. 1,30,30,600/- has been credited to Anil Kumar Paik account (OBC bank) from C.S. Shop. Hence the credit amount of Rs. 13,86,52,917/- is reduced to Rs.12,56,22,317/-(i.e. Rs.13,86,52,917/- - Rs. 1,30,30,600/-). The assessee credited his profit & loss account of the proprietorship concerns other than C.S. Shop and Real Estate concern by Rs. 1,61,69,800/- . Hence, the assessee has to explain the difference of Rs. 10,94,52,517/- which is considered as unaccounted sale. It is mentioned in para 2 that an amount of Rs. 1,10,00,000 /- was transferred from the Account of S. Paik & Co. to Shri. Anil Kumar Paik's Account. It is therefore the total credit amount of Rs. 10,94,52,517/- is reduced to Rs. 9,84,52,521/- i.e. [Rs. 10,94,52,517/- - Rs. 1,10,00,000/-]. Finally, Rs. 9,84,52,571/- is considered as unaccounted sale. This amount of undisclosed sale carries with it cost of purchase of goods, materials, services & other related expenses. For the interest of natural justice as well as of revenue, it would be fair to estimate income from undisclosed sale applying the average G.P. ratio as is disclosed in the respective concerns. Name of the concern G.P. ratio M/s Gitanjali Enterprises 28.75 M/s Gitanjali Polyclinics & diagnostics 52.00 M/s Gitanjali Chemist & Drugist 33.90 Total 114.65 Average GP ratio to sale % 38.22 The average GP Ratio as computed above is 38.22%. Hence the average GP ratio is applied to computed taxable income which comes to Rs.3,76,28,573/-. (38.22% of Rs.9,84,52,571/-)”

In view of the above decisions and considering the facts that the ld. Assessing Officer has not rejected the book results u/s 145(3) of the Act, nor any discrepancy has been noticed in the purchase and sales and expenses claimed and just certain figures have been jumbled up but the conclusion drawn by the Assessing Officer reaches nowhere and thus the impugned addition is purely based on a guess work and surmises and conjectures and deserves to be deleted. Thus, Ground No. 4 raised by the assessee is allowed.”