Income Tax Appellate Tribunal - Mumbai
Neelkamal Realtors And Erectors India ... vs Assessee on 16 August, 2013
आयकर अपील य अ धकरण, धकरण, मंुबई यायपीठ 'एफ', एफ मंब ु ई ।
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "F", MUMBAI सव ी आर.एस. याल, लेखा सद य एवं संजय गग, या यक सद य, के सम ।
Before Shri R.S.Syal, AM and Shri Sanjay Garg, JM ITA No.1143/Mum/2013 : Asst.Year 2009-2010 M/s.Neelkamal Realtors and Erectors The Dy.Commissioner of Income-tax India Private Limited बनाम/ Circle 5(2) Ground Floor, 265-E Bellasis Road Mumbai.
Mumbai Central, Mumbai - 400 008 Vs.
PAN : AABCN9254D.
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से /Appellant by : Shri B.V.Jhaveri
यथ क ओर से /Respondent by : Shri S.D.Srivastava
सनवाई
ु क तार ख / घोषणा क तार ख /
Date of Hearing : 12.08.2013 Date of Pronouncement : 16.08.2013
आदे श / O R D E R
Per R.S.Syal (AM) :
This appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals) on 11.12.2012 in relation to the assessment year 2009-2010.
2. First ground of the appeal about the making of enhancement by the learned CIT(A) without issuing any show cause notice, was not pressed by the learned AR. The same, therefore, stands dismissed.
3. The ground no.2 is against the confirmation of addition by treating the difference between the actual sale price and the fair 2 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
market value determined by stamp duty authorities of all the flats sold, as suppressed sale proceeds.
4. Briefly stated the facts of this ground are that the assessee is a builder and developer. It offered profit on the completion of building project called `Orchid Towers' in the previous year relevant to the assessment year under consideration. Sales amounting to `90.84 crore were credited to the profit and loss account giving net profit of `3.63 crore. During the course of assessment proceedings, the assessee was asked to furnish party-wise details of flats sold with details of name and addresses of the buyers, area of flat sold, total sale consideration, date of agreement, date of first payment received etc. On the perusal of such details, the Assessing Officer observed that there were variations in price charged by the assessee from various customers to whom the flats were sold. On being called upon to justify such variation in the rate at which the flats were sold, the assessee gave details and reasons for such variation in sale rates. A flat-wise chart running into two pages has been drawn after page no. 2 of the assessment order, giving break up of price realized by the assessee from sale of flats; reasons given by the assessee for charging lower price in certain cases; comments of the Assessing Officer for not accepting the assessee's reasoning; and making of addition on the basis of difference between the rates charged. Resultantly, such a difference of `15.22 crore was added by the Assessing Officer. It is a matter of record that the assessee moved rectification application u/s 154 showing calculation mistake in the 3 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
assessment order. Such rectification application was disposed off by the A.O. vide his order dated 06.06.2012 reducing the above addition to `4.45 crore. When the matter came up before the learned CIT(A), he sustained the addition at `8,53,79,819 by holding that market value of flats ought to have been considered instead of the actual sale consideration. In reaching this conclusion, he relied on the provisions of section 50C and also section 56(2)(vii)(b)(ii). The assessee is aggrieved against the sustenance of addition at `8.53 crore.
5. We have heard the rival submissions and perused the relevant material on record. It is an undisputed position that the assessee is a builder and developer. It followed the project completion method to declare income. The project in question was completed during the previous year relevant to the assessment year under consideration which was sold and income was offered from sale of 131 flats. The first question for our consideration is as to whether the provisions of section 50C are applicable to the facts and circumstances of the instant case. In this regard, it would be relevant to consider the prescription of section 50C which is a special provision for full value of consideration in certain cases. Sub-section (1) of section 50C provides as under:-
"Sec. 50C(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable] by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such 4 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer."
6. A bare perusal of this provision indicates that where the consideration received on transfer of a capital asset, being land or building or both, is less than the stamp value, then for the purposes of section 48, the stamp value shall be considered as full value of consideration received or accruing as a result of such transfer. Section 48 with the caption : "Mode of computation", deals with the computation of the income chargeable under the head "Capital gains". A cursory look at the above provision fairly indicates that section 50C is applicable only in respect of income computed under Chapter IV-E i.e. the head "Capital gains". Since the assessee under consideration is a developer and income from the sale of flats has been computed under Chapter IV-D i.e. under the head "Profits and gains of business or profession", obviously the provisions of section 50C can have no application.
7. 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 5 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
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 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
section 43CA cannot apply to substitute the actual sale consideration with the stamp value in the previous year relevant to assessment year 2009-2010 under consideration. We, therefore, hold that the conclusion drawn by the learned CIT(A) in invoking the provisions of section 50C for sustaining the addition, has no legal legs to stand on.
8. The learned CIT(A) has also pressed section 56(2)(vii)(b)(ii) into service for sustaining the addition on the basis of fair market price determined by the stamp duty officer. Before proceeding further, it would be apt to note the mandate of the relevant part of above provision, which is as under:-
"56 (1).....
(2).....
(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009, -
(a).....
(b) any immovable property,
(i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration."7 ITA No.1143/Mum/2013.
M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
9. 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 8 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
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.
(iii) This provision applies only to "an individual or a Hindu undivided family". As the assessee under consideration is a private limited company, it can have no relevance here.
10. 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.
11. 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 9 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
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.
12. 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 10 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
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.
13. 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 :`Sub- s. (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 honest and bona fide transaction where the consideration received by the assessee has been correctly declared 11 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
or disclosed by him, and there is no concealment or suppression of the consideration.'. Identical view was subsequently reiterated in CIT VS. Shivakami Co. P. Ltd. (1986) 159 ITR 71 (SC). Similar view has been expressed by the Hon'ble Supreme Court in CIT VS. Godavari Corp Ltd. (1993) 200 ITR 567 (SC) by holding that the burden is on the Revenue to prove under-statement of the consideration. The following observations of the Hon'ble Supreme Court from this case merit mention :` Section 52(2) of the IT Act, 1961 can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee or in other words the full value of the consideration in respect of the transfer in shown at a lesser figure than that actually received by the assessee and the burden of proving understatement or concealment is on the Revenue; and the sub- section has no application in the case of bona fide transaction where the consideration received by the assessee has been correctly declared.'. The Hon'ble Kerala High Court in Commissioner of Agricultural IT VS M.J. Cherian (1979) 117 ITR 371 (Ker) has held that the ITO can not fix higher sales price without any evidence. The mere presumption that the excess price could have been charged has been held to be not a ground for coming to the conclusion that the assessee did charge a higher price. A survey of aforementioned judgments manifests that there is no law which obliges a trader to make the maximum profit on sales.
14. 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 12 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
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 some thing 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.
15. 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 13 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
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.
16. The only other ground which survives for our consideration is about the confirmation of addition of `13,44,81,944 on account of lower valuation of closing stock. Briefly stated the facts of this ground are that the Assessing Officer found total area of unsold flats at 31,414 sq.ft., the value of which was shown in the balance sheet at `2.03 crore. This gave rate of `647 per sq.ft. On the perusal of the profit and loss account, the Assessing Officer observed that the cost of construction was at `4928 per sq.ft. The assessee was called upon to justify as to why the closing stock should not be valued at the rate of `4,928 per sq.ft., being the cost of construction. It was submitted that a part of the constructed area was required to be handed over to MHADA as per the approved plan. A copy of letter dated 06.02.2007 from MHADA was filed in support of the contention that the assessee was required to hand over surplus area of 1797 sq.mtr. (19335.72 sq.ft.). The assessee explained that the cost incurred towards the flats to be surrendered to MHADA could not be considered in the valuation of closing stock as the redevelopment of property was 14 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
given to the assessee subject to such terms and conditions including the handing over of this much built up area. It was explained that the possession of flats could not be given to MHADA as they were demanding flats with size of 225 sq.ft. only. The assessee explained that it gave a separate proposal for constructing a building which was later on accepted by MHADA. The Assessing Officer opined that MHADA had no claim in the building constructed by the assessee as it had requested to construct the tenements of 225 sq.ft., whereas the assessee failed to construct such tenements. This led to the addition of `13.44 crore (`15.48 crore [31414 sq feet * `4928] - `2.03 crore [value of the declared closing stock]). No relief was allowed in first appeal.
17. We have heard the rival submissions and perused the relevant material on record. It is clear that the assessee redeveloped property bearing C.S. No.241/242 of Tardeo Division Building No.22/26B, Shuklaji Street, 263 and 273 Belasis Road, Cess No.D-4958/1 and D- 494746 on MHADA issuing NOC dated 31.12.1993. The assessee was required to handover tenements having area of 225 sq.ft. each aggregating to 1797 sq.mtrs in the project. For certain reasons, the assessee could not deliver flats of the size of 225 sq.ft. each. The matter went into litigation as the assessee's prayer for giving alternative accommodation was turned down by MHADA. The Hon'ble Bombay High Court, vide its judgment dated 22.11.2011, a copy placed at page 82 of the paper book, directed MHADA to consider the assessee's proposal and take appropriate decision. Vide 15 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
letter dated 24.12.2012, MHADA directed the assessee to surrender the surplus `Built up area admeasuring 1797.25 sq.mtr.' either in same building or in any other building in same ward only. A copy of this letter is placed at page 103 of the paper book. From the above discussion it is clear that the assessee got no objection from MHADA for undertaking the project only subject to the condition that flats admeasuring 1797 sq.mtrs. would be handed over to MHADA. To that extent the assessee could never claim that the flats belonged to it or were its closing stock. It is an altogether different matter that the assessee made tenements of the sizes different from those required by MHADA. But the fact remains that the assessee was under obligation to hand over 1797 sq.mtrs. of built up area to MHADA as can be seen from that letter following interference by the Hon'ble Bombay High Court that both the assessee and MHADA agreed that the assessee would "surrender the surplus built up area admeasuring 1797.25m2". It is thus vivid that the obligation to handover the built up area admeasuring 1797.25 sq.mtr. was on the assessee from the very beginning. At the end of the year, the built up area to such an extent could not have been considered as the assessee's stock in trade.
18. The contention of the learned Departmental Representative that at the most the liability to hand over such an area to MHADA could be considered as contingent liability, is wholly devoid of merit. It is obvious that the obligation to handover built up area admeasuring 1797 sq.mtr. did exist at the end of the relevant year. The assessee could, under no circumstance, claim itself as an owner 16 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
of this much built up area. The fact that it was decided in 2012 that the assessee would handover so much area to MHADA in the same building or in any other building in the same ward, cannot obliterate the liability which came to be recognized since long and was existing at the year end.
19. Another contention was put forth by the ld. DR that there can be no reduction in the value of closing stock because even as per the assessee's contention, it accepted to allot 1753 sq. meter of the built up area in another project. He stated that in so far as this project is concerned, the entire unsold area including 1753 sq. meters was stock of the assessee at the year end. We find this contention of the ld. DR as bereft of any force. The obvious reason is that the taxable entity is the assessee and not this particular project. Once the assessee agreed to allot 1753 sq. meters area to MHADA in lieu of permission to redevelop the property, it became obliged to allot this much of the built up area. It means that the costs incurred in making this much built up area had the effect of reducing the overall profit of the assessee to that extent from this project. In other words, the built up area to this extent in the project did never belong to the assessee and hence could not constitute its stock in trade. If the assessee is to allot equal built up area in some other project, and it is presumed that the build up area in the instant project constitutes its stock in trade, then the cost of such built up area will slice away the profit realized from this project because of such existing liability attaching to this project. Whichever way we may see, the result is same. If this much 17 ITA No.1143/Mum/2013. M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
area is not treated as stock in trade of this project because of the obligation, it would reduce the profit to this extent as a result of the reduction in the valuation of the closing stock ; and if it is treated as stock in trade of the assessee because of the agreement to allot area in any other project, then the profit of this project would again be sliced away with the cost of this much built up area which the assessee was obliged to give to MHADA in lieu of the permission to undertake this project. In both the situations, the cost of built up area of 1753 sq. meters cannot be treated as profit from this project.
20. In principle, we hold that the built up area admeasuring 1797.25 sq.mtrs. cannot be considered as assessee's stock in trade. The ld. AR tried to justify the deletion of addition by arguing that the cost of 1797 sq. mtrs. be treated as `Super built up area' and in that way, the addition deserves to be deleted. However, it is noticed from the communication between the assessee and MHADA, pursuant to the direction of the Hon'ble Bombay High Court, that there is reference to the `Built up area' and not `Super built up area'. As the authorities have not dealt with the calculation aspect of the matter, we deem it fit to restore the matter to the file of A.O. for working out the value of the remaining closing stock. This ground is allowed for statistical purposes.
21. प रणामतः अपील आं शक वीकत ृ क जाती है । In the result, the appeal is partly allowed.
18 ITA No.1143/Mum/2013.M/s.Neelkamal Realtors and Erectors India Pvt.Ltd.
Order pronounced on this 16th day of August, 2013.
आदे श क घोषणा दनांकः को क गई ।
Sd/- Sd/-
(Sanjay Garg) (R.S.Syal)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मंुबई Mumbai; दनांक Dated : 16th August, 2013.
Devdas*
आदे श क त ल प अ े षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु (अपील) / The CIT, Mumbai.
4. आयकर आयु / CIT(A) - 9, Mumbai.
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई / DR, ITAT, Mumbai
6. गाड फाईल / Guard file.
ु / BY ORDER,
आदे शानसार
स या पत त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.
उप/ Registrar)
आयकर अपील य अ धकरण,
धकरण, मंुबई / ITAT, Mumbai