ORDER
Shamim Yahya, Accountant Member
1. This appeal by the assessee is directed against the order of CIT(A) dated 17.08.05 and pertains to assessment year 2001-02.
2. The issue raised in this appeal is that the CIT(A) erred in sustaining the additions to the extent of Rs. 15,80,289/- by rejecting the sale price of flats claimed to have been received by assessee (and as evidenced by the registered sale deeds) and substituting the same by an estimated sale price.
3. The facts of the case are stratified as under:
The assessee firm is engaged in the business of purchasing land and building and developing rights therein, to develop the property either as owner or as joint venture with the land/property owner and sell the same. At times, the assessee only developed the property for the property owner.
During the year under consideration, development work was going on in respect of three properties. However, there was sale of residential flats in two of the buildings only during the previous year relevant to the assessment year under consideration. One of the two buildings was in South Tank Square Street, Triplicane area of Chennai (hereinafter referred to as Plot No. 13) which was a plot of land measuring 1718 sq. ft. and the other building, though in Triplicane area of Chennai was more than 1 km. away from the Plot No. 13 (which is referred to as Plot No. 171 hereafter in this order). This plot No. 171 measured 4010 sq. ft. Whereas assessee had acquired the complete rights in the first plot (Plot No. 13), in the case of second plot, the assessee did not own the plot of land, nor held any interest in the land, which meant that the assessee did not receive (nor was entitled to receive) any consideration in respect of any right in the plot of land, and was received by the owner of the land only. The assessee constructed residential building consisting of flats on the ground, first, second and third floors on the said plots, even though it was allowed to construct the flats on the ground and first floors only. The Assessing Officer noted that in letters to some of the prospective buyers the rate has been mentioned at Rs. 1,250/- per sq. ft. One of the buyers Shri Srinivas Gopalan of the ground floor flat of the Plot No. 13 was found by the AO to have mentioned to bank for obtaining loan that, amount paid was at the rate of Rs. 1,250/- per sq. ft. to the assessee and as per AO, because the assessee did not cooperate in the enquiry at the time of original assessment, the AO adopted the aforesaid rate of Rs. 1,250/- per sq. ft. for all the flats sold during the year, in both the buildings. The AO calculated the sale receipts of the year and determined the unaccounted receipts at Rs. 39,30,448/-.
4. Upon assessee’s appeal, the learned CIT(A) noted that before considering as to whether there was any unaccounted consideration in respect of flats other than the one sold to Shri Srinivas Gopalan, it will be better to examine the mattery in respect of Shri Gopalan. First of all, it was claimed by the assessee that the working of the selling rate to Shri Gopalan, the AO has relied on a document (for Rs. 3,40,000/-) which was never executed by the assessee or any of their representative. This was a document executed by Shri Gopalan himself alone, and was only a unilateral document executed for the purpose of availing higher loan from the SBI Home Finance. It has further been stated by the assessee that Shri Gopalan had requested the assessee to give an agreement for higher value to enable him to get an enhanced amount of loan. Since assessee declined to oblige him, he chose to get the loan on the basis of an unilaterally executed agreement for a higher amount. In all the written submissions, the assessee has scrupulously avoided explaining the existence of letter dated 12/11/98 (addressed to SBI Home Finance Ltd.) by them stating that they have agreed to sell the flat in question to Shri Gopalan at the rate of Rs. 1,250/- per sq. ft. However, during the course of hearing, the assessee has stated that in an anxiety to sell the flat, they had to yield to request for such a letter.
5. The learned CIT(A) further noted that nothing concrete has been brought on record by the assessee to prove that the selling rate indicated by the assessee in the letter given to SBI Home Finance was not at all acted upon and it was only an accommodation letter issued by the assessee to enable the prospective buyer to get an enhanced credit. The truthfulness of this documentary evidence is attempted to be rebutted only by his words of mouth, which is neither admissible in view of provisions of the Evidence Act, nor sufficient.
6. Thereafter, the learned CIT(A) observed that in the background of above facts, we have to see as to what better evidence the AO could have produced or should have brought on record. Passing of extra consideration is almost always in cash for which no records are kept. Return of income is taken up for scrutiny much after the end of the accounting period and therefore we cannot expect the Assessing Officer to produce any facts evidencing physical movement of cash / extra consideration. He can only produce circumstantial evidence. To expect anything more would amount to putting an impossible burden of proof on the AO, which is not in accordance with any rules of evidence or jurisprudence.
7. Subsequently, the learned CIT(A) considered the assessee’s plea that flats on first, second and third floor would fetch a lower price than a flat on ground floor in view of commercial potential of the ground floor flats and also the nonavailability of the facility of lift in the building, could not be countered by the Assessing Officer. To strengthen the argument of upper floor flats fetching lower sale consideration, it was argued by the Authorised Representative that the second and third floor flats of the building were unapproved constructions. Since those flats were unapproved constructions, it involved the risk of demolition by the municipal authorities and in any case they were liable to pay penalty / compounding fees to municipal authorities if they wanted to compound the violation of bye-laws. It was stated by the assessee that in all a total penalty of Rs. 3,25,000/- had to be paid for the unapproved construction by the purchasers.
8. In this regard, the learned Commissioner of Income Tax (Appeals) held that,
After considering all facts of the case, I am of the view that if discount of Rs. 100 per square feet per floor is allowed in calculating the actual consideration of the flats, it will meet the ends of justice. It means that the sale consideration held to have been realized by the assessee would be as under:
1) Rs. 1150 per sq. ft. for flats at First floor
2) Rs. 1050 per sq. ft. for flats at Second floor
3) Rs. 950 per sq. ft. for flats at Third floor
The Assessing Officer has made an addition of Rs. 21,64,431/- in respect of those flats (other than the flat sold to Shri Gopalan). The relief on account of discount calculated in respect of 6 flats at the rate of 100, 200 and 300 rupees per square feet of built-up area comes to Rs. 8,31,300/-. No relief, of course, is allowable in respect of flat sold to Shri Gopalan.
9. The learned Commissioner of Income Tax (Appeals) further considered sale of flats at site No. 171. In this, sale of five flats were considered by the Assessing Officer at the rate of Rs. 1250/- per sq. ft. as that adopted for site No. 13. In this regard, the learned Commissioner of Income Tax (Appeals) noted that the assessment order of the Assessing Officer was very cryptic. No meaningful reason whatsoever was assigned by the Assessing Officer as to why he has adopted the rate of Rs. 1250/- per square feet when the assessee was not the owner of the land.
10. Finally, he held that, “it was found that the lowest price realised was Rs. 568 per sq. ft. and the highest was Rs. 716/- per sq. ft. The rates charged for five flats were Rs. 568/-, 614/-, 612/-, 655, 617 respectively. It may be clarified here that while working out the aforesaid rates, recoveries made for additional work done have been excluded. Thus, it is seen that assessee has shown more than 20% mark up on the cost of construction, which to my mind is imminently reasonable. Therefore, assessee cannot be accused of having concealed any sales/revenue in respect of 5 flats shown to have been built and sold during the previous year under consideration. Accordingly, I have no hesitation whatsoever in holding that the addition made by the Assessing Officer in respect of 5 flats at : site No. 171 (listed in the Annexure to the assessment orer on serial Nos. 8-12) was unwarranted and unjustified. The addition was made without collecting the relevant material. For example, it was not ascertained as to whether assessee was the owner of the land or not and the addition was made presuming that assessee sold the flats at the same rate at which he sold the flat where it was owner of the land.
11. We have heard the rival contentions and perused the relevant records. We find that except for some letters, the revenue has no evidence whatsoever to support the contention that flats were sold @ 1250/- per sq. ft. It is also noted that this is a case of assessment Under Section 143 (3) and not a block assessment. The basic edifice of Revenue’s addition in this regard consist of letters of the assessee to prospective buyers and letter given by one of the customers to the bank. As regards the amount of Rs. 1,250/- per sq. ft. mentioned in the letter, we find that the final agreement for sale was executed at a different amount duly signed by both the parties. The explanation for this is that these letters were prior to finalization and execution of written agreement and it is the finally executed sale deed which should prevail in this regard. As regards the letter and the agreement given by the customer to the bank, it is noted that the agreement attached with this letter is also not signed by the assessee. Though the letter given by the assessee to the bank dated 12.11.98 does mention about the amount calculated at the rate of Rs. 1,250/- per sq. ft., the final agreement of sale made between the assessee and the customer is not at this rate. In our opinion, In the presence of some conflict in this regard and in absence of any further supporting evidence, it should be the final written sale agreement executed by both the parties which should be taken into account.
12. Hence, in our opinion, the learned Commissioner of Income Tax (Appeals) has grossly erred in observing that,
No better evidence the Assessing Officer could have produced and the passing of extra consideration is almost always in cash for which no records are kept. Return of income is taken up for scrutiny much after the end of the accounting period and therefore we cannot expect the Assessing Officer to produce any facts evidencing physical movement of cash/extra consideration. He can only produce circumstantial evidence. To expect anything more would amount to putting an impossible burden of proof on the Assessing Officer, which is not in accordance with any rules of evidence or jurisprudence.
13. In this regard, we draw support from Hon’ble Jurisdictional High Court decision in CIT v. P.V. Kalyana Sundaram 282 ITR 259. In this case, the Hon’ble High Court had affirmed this Tribunal’s decision in the case in IT (SS) A 118/Mds/01 to which one of us, the Accountant Member, was a party. In that case, the assessment was regarding undisclosed income for on-money transacted in property purchased by the assessee. The assessment was based upon conflicting statement of the seller. The Hon’ble High Court affirmed the following findings:
We find that it is the uniform view of the courts and also held by the apex court as reported in K.P. Varghese v. ITO the burden of proving actual consideration in such transaction is that of the Revenue. Considering the entire gamut of the case, we find that the Revenue has failed to discharge its duties and as held by the learned Commissioner of Income Tax (Appeals) instead made up a case on surmises and conjectures which cannot be allowed. Under the circumstances, we do not find any infirmity in the order of the learned Commissioner of Income Tax (Appeals) and we uphold the appellate order in this regard.” ]
The Hon’ble High Court further added that,
We also found that the Assessing Officer did not conduct any independent enquiry relating to the value of the property purchased. He merely relied on the statement given by the seller. If he would have taken independent enquiry by referring the matter with the Valuation Officer, the controversy could have been avoided. Failing to refer the matter was a fatal one.
14. Considering the present case through the prism of aforesaid, we find that except making estimates on the basis of that letter, the Revenue has not done anything cogent enough to buttress the claim that sale was actually made at Rs. 1250/- per sq. ft. The Assessing Officer has neither brought about the comparative figures in the locality nor had the matter been referred to the Valuation Cell to arrive at the value thereof.
15. As regards the relevance of the letter to bank, we find that Hon’ble jurisdictional High court in the case of CIT v. N. Swamy 241 ITR 363 has held that,
The burden of showing that the assessee had undisclosed income is on the Revenue. That burden cannot be said to be discharged by merely referring to the statement given by the assessee to a third party in connection with a transaction which was not directly related to the assessment and making that the sole foundation for a finding that the assessee had deliberately suppressed his income.
16. Similarly, the Hon’ble Punjab & Haryana High Court in the case of CIT v. Sidhu Rice and General Mills 281 ITR 428 has held as under:
Held, dismissing the appeal, that the concurrent findings showed that except for the photo copy of the stock statement furnished to the bank, the Assessing Officer had not brought any material on record to show that the assessee possessed stocks as reflected in the said statement as against the stocks depicted in the balance-sheet. It was also found that the books of account were regularly maintained by the assessee and had been accepted by the Department. On the basis of the material on record, the Commissioner (Appeals) and the Tribunal took a possible view which had not been shown to be perverse. Thus, there was to be no interference with the concurrent findings.
Thus, it is clear from the above exposition that Revenue cannot be discharged of the onus of proving that the actual consideration was more than that recorded by merely referring to letters given to banks or for that matter to others.
17. We further find that there has been no rejection of books by the Revenue. It has been mentioned that cash expenses had been incurred and occasionally the cash balance was negative. Making cash payments under I.T. law is not regarded as reason to reject books. The existence of negative cash balances has actually not been identified nor correlated with overall book keeping. The Revenue authorities have to categorically state that books of account are not reliable. No inference in this regard can be made by such tongue-in-cheek statements regarding the veracity of the books. Moreover, with regard to the second project, the Commissioner of Income Tax (Appeals) has accepted the figures in books as produced by the assessee.
18. Thus, we conclude that in this case the Revenue has not cogently proved that estimated sale price is the actual sale consideration. Reliance has been placed by the lower authorities on letters which are contradicted by the actual sale deed executed. The books and records have not been rejected; rather for one project, the amount recorded in the books has been made by the Commissioner of Income Tax (Appeals) as the basis to delete the same estimated addition by the Assessing Officer. The Revenue has neither taken assistance of its Valuation Cell nor brought about comparative figures. Thus, the Revenue has failed in proving that the actual consideration is the one as estimated by the lower authorities. In fact, the remark by the Commissioner of Income Tax (Appeals) in deleting the similar addition on site No. 171 would apply to this case also that the addition is unwarranted, unjustified and has been made without collecting the relevant material. Hence, we quash the order of the learned Commissioner of Income Tax (Appeals) and decide the issue in favour of the assessee.
19. In the result, the assessee’s appeal is allowed.