2012 (7) TMI 578 - AT - Income Tax

Addition on account of suppressed sales sale of plots valuation Held that - There are certain fixed norms for determining the market value of a particular plot, no such steps were taken either by the Assessing Officer or by the Inspector - assessee has sold the plot at a rate of Rs.1441 per sq. yd. The circle rate at that point of time was Rs.1338 per sq. yd. therefore, no addition is to be made for the sale of plots - appeals as well as cross objection of the assessee deserve to be allowed partly, whereas appeals of the revenue are de void of any merit - Assessing Officer directed to estimate the sale value of the plots for Rajinder Nagar Industrial Area only and he will adopt a rate of Rs.2500 per sq. yd. instead of Rs.1,000 per sq. yd. disclosed by the assessee, while quantifying the sale proceeds - assessee are partly allowed

Summary

Issues Involved:
1. Validity of the revenue's appeal against the rectification order under section 154.
2. Determination of the sale price of land at Radhey Shyam Park and Rajinder Nagar Industrial Area.
3. Whether the Assessing Officer (AO) was justified in estimating the sale proceeds higher than those disclosed by the assessee.
4. Reliability of the Inspector's report used by the AO for estimating market rates.
5. Whether the CIT(Appeals) was correct in modifying the AO's estimated sale rates.

Issue-wise Detailed Analysis:

1. Validity of the revenue's appeal against the rectification order under section 154:
The revenue filed an appeal (ITA No. 3324/Del/2011) against the order dated 1st April 2011 passed under section 250 read with section 154 of the Income-tax Act, 1961. The grounds of appeal were identical to those in ITA No. 4917/Del/2010. Since the revenue did not express its grievance against the rectification order, this appeal was deemed not maintainable and was rejected.

2. Determination of the sale price of land at Radhey Shyam Park and Rajinder Nagar Industrial Area:
The assessee sold land at Radhey Shyam Park and Rajinder Nagar Industrial Area but did not deduct stock in trade in the balance sheet. The AO issued a notice under section 148 and subsequently estimated the sale proceeds based on market rates reported by an inspector. The ITAT had previously set aside this issue for re-adjudication, directing the AO to consider sale instances and allow the assessee to cross-examine the inspector.

3. Whether the Assessing Officer (AO) was justified in estimating the sale proceeds higher than those disclosed by the assessee:
The AO estimated the sale price of the plots at Rs. 6,000 per sq. yd., based on the inspector's report. The CIT(Appeals) partially upheld the AO's order but reduced the estimated rates to Rs. 2,500 per sq. yd. for Rajinder Nagar and Rs. 2,900 per sq. yd. for Radhey Shyam Park. The assessee argued that the sale deeds should not be substituted on an estimate basis without concrete evidence of suppressed sales.

4. Reliability of the Inspector's report used by the AO for estimating market rates:
The ITAT found that the inspector's report, which suggested market rates between Rs. 6,000 to Rs. 7,000 per sq. yd., was not confronted to the assessee initially. The ITAT directed the AO to provide the inspector's report to the assessee and allow cross-examination. Upon re-examination, the ITAT concluded that the inspector's report, being a weak type of evidence without corroboration, could not solely determine the sale value.

5. Whether the CIT(Appeals) was correct in modifying the AO's estimated sale rates:
The CIT(Appeals) modified the AO's estimated rates, suggesting Rs. 2,500 per sq. yd. for Rajinder Nagar and Rs. 2,900 per sq. yd. for Radhey Shyam Park. The ITAT reviewed the evidence, including circle rates for stamp duty purposes, and found that the rates disclosed by the assessee for Radhey Shyam Park were consistent with market rates. However, for Rajinder Nagar, the ITAT upheld the CIT(Appeals)'s estimation of Rs. 2,500 per sq. yd. as reasonable.

Conclusion:
The ITAT concluded that the revenue's appeals lacked merit and were dismissed. The assessee's appeal and cross-objection were partly allowed. The AO was directed to adopt a rate of Rs. 2,500 per sq. yd. for Rajinder Nagar Industrial Area plots while quantifying the sale proceeds, instead of the Rs. 1,000 per sq. yd. disclosed by the assessee. The decision was pronounced in the open court on 25.05.2012.