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IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM)
.. , ,
./I.T.A. No.5552/Mum/2011
( / Assessment Year :2007-08)
M/s C S Constructions, / Asstt. Commissioner of Income
3rd floor, Swaroop Arcade, Vs. Tax 20(1),
Opp Godfrey Philips Factory, Piramal Chambers,
Chakala, Sahar road, Parel,
Andheri (E), Mumbai-400012.
Mumbai-400099
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. :AAACW 3952A
/ Appellant by S/Shri R C Jain and Ajay Daga
/Rspondent by /Shri Premanand J
/ Date of Hearing : 25.6.2015
/Date of Pronouncement : 17.7.2015
/ O R D E R
PER B.R. BASKARAN (AM)
The assessee has filed this appeal challenging the order dated
30.5.2011 passed by ld. CIT(A)-31, Mumbai and it relates to assessment
year 2007-08.
2. The assessee is aggrieved by the decision rendered by ld.CIT(A) on
the following issues :
a) Confirming the estimation of net profit to the extent of
Rs.2,38,103/- and;
b) Confirming the addition of Rs.30,81,250/- relating the sale of
flats to partners.
2 I T A N o . 5 5 5 2 / Mu m / 2 0 1 1
3. Facts relating to above said issues are stated in brief. The assessee
firm is in the business of Building Construction and development. Survey
operation was conducted by the revenue under section 133A of the
Income Tax Act, 1961 (the Act) in the hands of assessee on 19.2.2007.
During the course of survey operations, the assessee agreed to offer an
additional income of Rs.50,30,000/- on account of receipt of cash on sale
of flats, apparently outside the books. Though the assessee had stated
that it had received an amount of Rs.15.00 lakhs and Rs.35.30 lakhs by
way of cash in the financial years 2005-06 and 2006-07 respectively, yet it
offered the entire amount of Rs.50.30 lakhs as its income in assessment
year 2007-08.
4. During the course of assessment proceedings, the assessee
furnished a working to arrive at the actual sales figure, wherein the
assessee has added the on money component of Rs.50.30 lakhs to the
sales amount shown in the agreements and deducted a sum of Rs.66.42
lakhs towards estimated value of in-complete works. Hence the AO asked
the assessee to furnish the details relating to incomplete work, but the
assessee could not furnish the relevant details. Further the AO noticed
that the assessee had declared net profit at the rate of 10.31% in the
immediately preceding year, whereas during the year under consideration
it was shown at 2.35% only. Hence, the AO took the view that the books
of account maintained by the assessee are not reliable and accordingly,
rejected the same. Accordingly the AO proceeded to estimate the profit of
the assessee at 10% on the sales figures shown in the sale agreement.
5. In the appellate proceedings, the ld. CIT(A), upheld the rejection of
books of account. With regard to the estimation of profit, the ld.CIT(A)
noticed that the sales figures arrived at by the AO was wrong.
3 I T A N o . 5 5 5 2 / Mu m / 2 0 1 1
Accordingly, the ld. CIT(A) estimated the profit at 5% of correct sales
figures, which resulted in an addition of Rs.2,38,103/- over and above the
net profit disclosed by the assessee.
6. The AO also noticed that the two partners of the assessee have
purchased one flat each at the rate of Rs.4,000/- and Rs.3894/- per sq.ft
on 10.7.2006. During the same period, the assessee had sold some other
flat to outsiders @ Rs.6,250/- per sq.ft. and also at higher rates. With
regard to the sale of flats to partners at lower price, the assessee
submitted that the agreement to sell the property to the partners was
entered in the year 2005 i.e. one year before the date of sale of
agreement and hence it was lower than the price at which flats were sold
in 2006. The AO did not accept the said explanations on the ground that
the partners are related parties and hence the alleged sale agreement
could be prepared by them to serve their own purpose. Accordingly, the
AO estimated the sales rate of flats sold the partners @ Rs.6,000/- per sq.
ft. and accordingly assessed the difference amount of Rs.27,50,000/- as
income of the assessee. The ld. CIT(A), however, adopted the sales rate
of flat at Rs.6,250/- and accordingly enhanced the disallowance to
Rs.30,81,250/-.
7. Aggrieved by the decision of ld. CIT(A) rendered on both the issues
referred above, the assessee has filed this appeal before us.
8. We have heard the parties and perused the record. The first issue
relates to the estimation of net profit of the assessee by rejecting the book
results. We have earlier noticed that the assessee has admitted to have
received cash on sale of flats outside the books of account, which fact
itself shows that the book results are not reliable. Hence, we are of the
view that the Ld CIT(A) was justified in confirming the action of rejection
4 I T A N o . 5 5 5 2 / Mu m / 2 0 1 1
of book results. Further, we notice that the assessee had to give different
types of workings in order to show that it was showing profits at a
consistent rate and it was submitted that the net profit rate was 4.90% for
the year under consideration. We notice that the Ld CIT(A) has estimated
the net profit @ 5%, which is slightly higher than the net profit rate shown
in the books of account. Since the books of account has been rejected,
the tax authorities cannot adopt the rate of 4.90% shown in the books of
account. In any case, the rate of 5% adopted by the Ld CIT(A) is
reasonable and hence we do not find any reason to interfere with that
estimate. Accordingly, we confirm the order of Ld CIT(A) on this issue.
9. The next issue relates to the addition made by enhancing the selling
price of flats purchased by the partners. We notice that the assessee has
sold flats to the outsiders at the following rates:-
(a) for about Rs.3,800/- per sq. ft. in December, 2005
(b) for about Rs.6,100/- per sq. ft. in February, 2006
(c) for about Rs.6,250/- per sq. ft. in July 2006
(d) for about Rs.7,200/- per sq. ft. in August, 2006.
The partners of the assessee have purchased the flat on 10-07-2006 @
Rs.4,000/- and Rs.3,894/-. Per sq. ft. We notice that there was sudden
increase in the selling rate within a period of 2 months, i.e., the sales rate
has increased from Rs.3,800/- per sq.ft. to Rs.6,100/- per sq. ft. However,
the partners have taken the plea that they had agreed to purchase the flat
in 2005 itself @ Rs.4,000/- and Rs.3,894/- per sq.ft. and accordingly the
sale agreement was registered in July, 2006 at the agreed price. It was
submitted that the assessee did not receive any advance amount in the
year 2005, since the existing capital balance available in the name of the
partners were sufficient to cover the advance. Even though the assessee
furnished copies of allotment letters, the said document and the
5 I T A N o . 5 5 5 2 / Mu m / 2 0 1 1
explanations were rejected by the tax authorities on the reasoning that
they are self serving in nature.
10. Since the impugned two flats have been sold to the partners, the said
transactions fall in the category of transactions with related parties.
Hence, the responsibility to show that the transactions were entered with
the partners at the market rates lies upon the assessee. The assessee has
furnished copies of allotment letters given to the partners and it has
received the sale consideration only at the time of registering the sale
agreements. Since the advance amount was not received at the time of
issuing allotment letters in the year 2005, the tax authorities have not
accepted the said claim. There is no dispute that the sale price of the flats
given to the partners is comparable with the selling rate prevailing in the
year 2005. Since the partners have purchased the flats, the AO has
rejected the documents /explanations furnished by the assessee.
However, we notice that the assessing officer, except suspecting the
genuineness of documents, has not brought any other material to
contradict the explanations given by the assessee. At the same time, it
cannot be said that the documents/explanations furnished by the assessee
are fully reliable. Under these set of facts, we are of the view that this
issue can be resolved by estimating the sale price. Hence, on a
conspectus of the matter, we are of the view that this issue can be put at
rest, if the sale price of the two flats sold to the partners is estimated at
Rs.5,000/- per sq. ft. We order accordingly. Accordingly, we set aside the
order of ld CIT(A) on this issue and direct the AO to compute the addition
by adopting the sale price of the two flats sold to the partners at
Rs.5,000/- per sq.ft.
6 I T A N o . 5 5 5 2 / Mu m / 2 0 1 1
11. The assessee has taken a ground that the above said additions
should be telescoped against the offer of R.50.30 lakhs made by the
assessee in the survey proceedings. We notice that the issues relating to
the two issues considered supra and the reason on which the surrender of
Rs.50.30 lakhs made by the assessee are totally different and hence we
are of the view that the telescoping benefit cannot be extended under
these facts.
12. In the result, the appeal filed by the assessee is partly allowed.
Pronounced accordingly on 17th July, 2015.
th
17 July, 2015
Sd sd
( / AMIT SHUKLA) (.. / B.R. BASKARAN)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai: 17th July,2015.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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