2013 (3) TMI 124 - HC - Income Tax

Assessment of rental income - whether be assessed under the head income from business or income from house property - Held that - Substantial question of law is to be answered in the negative in favour of the Revenue and against the assessee in view of the judgment of CIT Vs. M/s Ansal Housing Finance and Leasing Co. Ltd. & Ors. 2012 (11) TMI 323 - DELHI HIGH COURT wherein held that the rental income should not be assessed under the head income from business but under the head income from house property . Whether the sale consideration disclosed by the assessee on sale of shops should be accepted ? - assessee is engaged in the business of construction of commercial complexes - Held that - It is not correct to say that the assessee did not satisfactorily answer the queries raised by the AO on noticing the absence of registered sale documents, variations in sale prices of shops in the same floor, sale of shops to sister concerns, etc. They have all been answered by the assessees accordingly. Neither the CIT (Appeals) nor the Tribunal found anything amiss in those replies/ submissions. The power of the AO to raise valid queries on the basis of the facts or unusual features noticed by him must be conceded. The features noticed by him in the assessees business certainly constitute a starting point of inquiry. They are, however, not to be taken as evidence or material showing any suppression or understatement of the sale price. If on further probe, AO was able to unearth any evidence or material on the basis of which actual suppression of the sale price could be found, then the additions made on that basis would be valid. It is not open to AO merely on the basis of what he perceives to be the market conditions, to make additions to the sale price or the profits, without any evidence of understatement. These principles have been kept in mind by the Tribunal and, therefore, its order cannot be faulted or branded as perverse in holding that the sale consideration disclosed by the assessee on sale of shops should be accepted. Also there is no other provision in the Act permitting the AO to enhance the profits or the sale price except section 50C and section 92BA. Section 50C does not apply to the present case as it applies only to a case of capital gains. Section 92BA also does not apply as it came into force only from the assessment year 2012-13. Moreover, it applies only to such domestic transactions as may be prescribed by the competent authority. Addition on the basis of notorious practice prevailing in real estate circles that in all property transactions there is non-disclosure of the full consideration - Held that - This cannot per se constitute the basis of the addition as in Lalchand Bhagat Ambica Ram vs. CIT (1959 (5) TMI 12 - SUPREME COURT) the Supreme Court disapproved the practice of making additions in the assessment on mere suspicion and surmises or by taking note of the notorious practice prevailing in trade circles - in favour of the assessee - appeals filed by the revenue are partly allowed.

Issues Involved:
1. Whether the rental income should be assessed under the head "income from business" or "income from house property."
2. Whether the sale consideration disclosed by the assessee on the sale of shops should be accepted.
3. Whether the findings recorded by the Income Tax Appellate Tribunal in respect of the sale consideration are perverse.

Issue-wise Detailed Analysis:

1. Rental Income Assessment:
The court addressed whether the rental income should be assessed under "income from business" or "income from house property." It was agreed that the first substantial question of law should be answered in the negative, in favor of the Revenue, and against the assessee, based on the precedent set by CIT Vs. M/s Ansal Housing Finance and Leasing Co. Ltd. & Ors.

2. Acceptance of Sale Consideration:
The court examined whether the sale consideration disclosed by the assessee should be accepted. The assessee, engaged in constructing commercial complexes, sold shops at varying rates. The Assessing Officer (AO) observed discrepancies in the sale prices, noting that some shops were sold below the cost price, leading to a disallowance of the loss claimed by the assessee.

The assessee argued that sale prices vary due to factors like location, demand, and urgency of buyers. The CIT (Appeals) accepted these explanations, finding no justification for disallowing the loss, which was upheld by the Tribunal. The Tribunal noted that the AO did not find defects in the assessee's books and failed to provide evidence of higher actual sale prices. It emphasized that market conditions alone cannot justify doubting the declared prices without concrete evidence.

3. Perverse Findings by the Tribunal:
The court considered whether the Tribunal's findings were perverse. The Revenue contended that the CIT (Appeals) and Tribunal did not properly examine the assessment orders and overlooked the absence of registered sale documents and sales to sister concerns at low prices. The assessee countered that such features are starting points for inquiry but not evidence of suppression of sale prices. The court agreed with the assessee, stating that the AO must provide evidence of suppression to justify additions to the sale price or profits.

The court highlighted that the AO's power to enhance profits is limited to specific situations under Sections 145, 50C, and 92BA of the Income Tax Act. Section 50C applies only to capital gains, and Section 92BA, effective from the assessment year 2012-13, pertains to specified domestic transactions exceeding Rs. 5 crores. The court noted that the AO did not invoke Section 145(3), which allows for best judgment assessment if the accounts are found incomplete or incorrect.

The court cited precedents where the absence of evidence of sham transactions or market prices paid by purchasers meant that concessional sales prices could not be taxed. It also referenced a case where mechanical addition based on fair market value was disapproved.

The court concluded that the Tribunal's findings were not perverse, as they were based on proper principles and did not ignore relevant material. The Tribunal's order was upheld, and the second substantial question of law was answered in the affirmative, favoring the assessee. The third question was answered in the negative, also favoring the assessee.

Conclusion:
The appeals filed by the Revenue were partly allowed, with the court ruling in favor of the Revenue on the first issue and in favor of the assessee on the second and third issues.

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