Different flats sold by builders to different persons at different rates: Whether AO can apply a higher rate to all the flats?
The remarkable observations were made by the Rajasthan HC in the case of Commissioner Of Income Tax Vs. Khandelwal Shringi & Co.
Though the judgment was rendered in the context of provision prior to insertion of section 56(2)(vii) & 56(2)(x), still the ratio could be applied in various cases of addition U/s 69. In this case, the law related to presumption was discussed and the court held as under:
“Aforesaid citations make it clear that in absence of evidence on record, higher price for sale of land cannot be presumed from the consideration shown in registered sale deeds and rates of property fixed by Stamp Valuation Authority for registration purposes cannot be taken to be the price for which property might have been sold. Thus, there was no justification for the Assessing Officer to estimate selling price of land at Rs. 40 per sq.ft. instead of Rs. 20 per sq.ft. and for CIT(A) to presume selling price at 22 per sq.ft, and thus learned ITAT has not committed any error in allowing the appeal of the respondent assessee and hence question No. 1 is answered against Revenue.”
More particularly, there are cases wherein the builder, though selling the flats at a value higher than the stamp duty valuation, still there is a vast difference between various flats sold in the same building or in the vicinity. The AO cannot presume that the flat sold for higher value could be presumed to be the market value and cannot apply the same to the other flats.
The copy of the order is as under:
COMMISSIONER OF INCOME TAX vs. KHANDELWAL SHRINGI & CO.
HIGH COURT OF RAJASTHAN
- S. JHAVERI & INDERJEET SINGH, JJ.
D.B. Income Tax Appeal No. 322/2011
Aug 21, 2017
(2017) 99 CCH 0351 RajHC
(2017) 159 DTR 0059 (Raj), (2017) 299 CTR 0437 (Raj), (2017) 398 ITR 0420 (Raj)
Legislation Referred to
Section 158BB, 133
Case pertains to
Asst. Year-
Decision in favour of:
Assessee
In favour of
Assessee
Cases Referred to
K.P. Varghese v/s ITO & Anr. (1981) 131 ITR 597 (SC)
CIT vs. Shivakamini Co. (P) Ltd. (1986) 159 ITR 171 (SC)
CIT vs. Raja Narendra (1994) 210 ITR 250 (Raj.)
CIT vs/ Bhanwarlal Murwatiya (2008) 215 CTR 489
CIT vs. K.K. Enterprises reported in (2008) 13 DTR 289 (Raj.)
Counsel appeared:
Parinitoo Jain with Shiva Goyal for the Petitioner.: Mahendra Gargeiya for the Respondent
ORDER
- By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal preferred by the department.
- This Court while admitting the matter framed the following question of law:-
“Whether on the facts and circumstances of the case and in law the ITAT was justified in deleting the addition of Rs. 5.13 crore made by the AO on account of unexplained investment in purchase of agricultural land on the basis of sale agreement and other documents found and impounded during the course of survey u/s 133 in which the sale consideration was Rs. 7.00 crores.?”
- Counsel for the appellant has taken us to the order of AO and contended that the AO after considering the evidence on record has come to the conclusion as under:-
“Hence, it is established that the sellers were agreed to sale his land of 4.47 + 5.74 hqtrs. for Rs. 7.00 crores because of the market value of land was Rs. 7.00 crores in that case. It is also stated that no prudent businessman or seller would like to sale the land costing of Rs.7.00 crores or more in only Rs. 1.87 crore. It is also not believable looking to the circumstances of the case. Sequence of events clearly establishes that the sellers have back out from earlier agreement because new purchasers might have been offered consideration over Rs. 7.00 crores for the impugned land. Consequently, the sellers changed the attitude due to greediness. It is well known fact that no body ready to sell his property less than the market value. But in the instant case, it is surprised to note that sellers have agreed to sell their property in 1.87 crores only instead of Rs. 7.00 crores. This mean that sellers have to bear the loss of Rs. 5.13 crores (7.00-1.87 crore).”
In the light of facts and circumstances of the case, I am of the opinion that it is not possible that a person who has sold his land in Rs. 7.00 crores and after breaking the contract sold to another persons in a very lower cost i.e. 1.87 crores only. The contention of the assessee firm is not acceptable that it has made a further agreement to share the profit earned from developing/plotting/selling of plots/constructing and selling of row house and buildings etc.
I therefore, reject the plea treating as an afterthought story of the firm to evade the tax and make the addition to the total income of the assessee firm which comes at Rs. 5.13 crores and assume that the assessee firm invested the same from its undisclosed sources/income during the year under consideration which has not been shown by the assessee firm in its return of total income. Therefore, penalty proceedings u/s 274 r.w.s.271(1)(c) are also being initiated separately for furnishing of inaccurate particulars of income/concealing particulars of income on this account.
- Counsel for the respondent has taken us to the order of CIT(A) wherein it has been held as under:-
“To sum up, I do not agree with decision of the assessing officer to use the agreement to sell 13.25 hectares of land at Rs. 8.25 crores that was never executed, and the offer to purchase 10.21 hectares, a part of the same 13.25 hectares, for Rs. 7.00 crores that was not accepted and taken to a logical conclusion, as evidence of fair market value of the land in question. Besides these two the assessing officer did not bring any other evidence to show that market value of impugned 10.21 hectares was Rs. 7.00 crores. Further, I hold that the comparison by the assessing officer between qualitatively different agreements with completely different terms and conditions was not appropriate. The assessing officer did not bring on record any evidence to show that the appellant had indeed paid Rs. 7.00 crores to Satya Narain Kanchhal and Rukmani Devi Kanchhal for land admeasuring 10.21 hectares.
In given facts and circumstances, the decision of the assessing officer to add Rs. 5.13 crores is not confirmed. Grounds 2 and 3 are accepted.”
- In view of the concurrent finding of the Tribunal and following decisions in case of K.P. Varghese v/s ITO & Anr. (1981) 131 ITR 597 (SC), CIT vs. Shivakamini Co. (P) Ltd. (1986) 159 ITR 171 (SC), CIT vs. Raja Narendra (1994) 210 ITR 250 (Raj.), CIT vs/ Bhanwarlal Murwatiya (2008) 215 CTR 489, he contended that no interference is called for.
- He relied on the decision of Rajasthan High Court in the case of CIT vs. K.K. Enterprises reported in (2008) 13 DTR 289 (Raj.) wherein it has been held as under:-
“6. So far as question No. 1 is concerned, Assessee sold his plots at an average rate of Rs. 18.66 per sq.ft. The Assessing Officer mainly relied on the statement of Shri S.L. Dak and the rates taken by the Sub Registrar, and adopted value of the plots at Rs. 40 per sq.ft. Learned ITAT has mentioned in its order that one of the purchasers of two plots, viz. Shri B.S. Bomb, was also examined by Assessing Officer, who had purchased two plots worth Rs. 36,000 each, and on same consideration sale-deeds were registered. Assessing Officer has not discussed the statement of Mr. Bomb. Apparently, there was no other reliable material on record before the Assessing Authority to assume sale of plots at Rs. 40 per sq.ft. Learned Counsel for the —appellant relied on 226 ITR 344 (Smt. Amar Kumari Surana v. Commissioner of Income Tax), in which on account of sufficient material on record and in absence of explanation by the assessee, an inference was drawn that property was sold for more amount than shown in the sale deeds. This case does not help to the revenue as in the case in hand, apparently, there was no material before the Assessing Officer to come to a conclusion that property was sold at the rate of Rs. 40 per sq.ft. Learned Counsel for the respondent placed reliance on MANU/SC/0300/1981 : [1981]131ITR597(SC) (K.P. Verghese v. ITO), in which it was held that assessee must be shown to have received more than what is declared or disclosed by him as consideration. Difference in market value and consideration declared in sale-deed is not sufficient for assumption of higher consideration. He also placed reliance on MANU/SC/0248/1986 : [1986]159ITR71(SC) (CIT v. Shivakami Co. Pvt. Ltd.), in which it was held that unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains. It was further held that capital gains tax is intended to tax the gains of the assessee, not what an assessee might have gained, and what is not gained cannot be computed as gained. He also placed reliance on two judgments of this Court. In the case reported in (2008) 3 DTR (Raj) 115 (CIT v. Bhanwarlal Murwatiya), it was held that the question whether any higher consideration than the one mentioned in the sale deed did pass from the assessee to the seller is a pure question of fact and the department having failed to show that any relevant material has been ignored or misread by the CIT(A) or the Tribunal while deleting the addition made by AO, such questions, in any case, are required to be answered against the Revenue and in favour of the assessee. In other case reported in (2008) 3 [ITA-322/2011] DTR 142 (CIT v. Kishan Kumar and Ors.), it was held that while computing undisclosed income under Section 158BB, the rates of property fixed by Stamp Valuation Authority for the purposes of registration of sale deeds, cannot be taken to be the price for which the property was purchased.
- Aforesaid citations make it clear that in absence of evidence on record, higher price for sale of land cannot be presumed from the consideration shown in registered sale deeds and rates of property fixed by Stamp Valuation Authority for registration purposes cannot be taken to be the price for which property might have been sold. Thus, there was no justification for the Assessing Officer to estimate selling price of land at Rs. 40 per sq.ft. instead of Rs. 20 per sq.ft. and for CIT(A) to presume selling price at 22 per sq.ft, and thus learned ITAT has not committed any error in allowing the appeal of the respondent assessee and hence question No. 1 is answered against Revenue.”
- We have heard counsel for both the sides.
- Taking into consideration, the contention raised by counsel for the respondent that the issue is now covered by the decision and observations made by the CIT(A), we have gone through the complete documents which were earlier executed and we are in complete agreement with the finding given by CIT(A.
- In that view of the matter, we see no reason to interfere with the matter.
- The issue is answered in favour of the assessee against the department.
- Hence, the appeal stands dismissed.
