2016 (1) TMI 305 - AT - Income Tax

Addition as unrecorded profit on sale of flats - AO made the addition on the ground that assessee had sold flats to different parties at different rates - CIT(A) deleted the addition - Held that - CIT (A) has rightly observed that as per contents of sale document, there was reference to sale of fully furnished flat to Dr. Rajnish Juneja, but in the case of other parties, there was specific reference to sale of flat in semi-finished condition and as such, the flat in the case of Dr. Rajnish Juneja and other parties are not comparable. We find that the ld. CIT (A) further observed that the AO has not made any verification or enquiry with the parties to whom flats were sold from ₹ 7,50,000/- to ₹ 9,00,000/- and no information has been brought on record that the assessee has taken any extra sale considerations from these parties which was not recorded in the books of the assessee. We further take note of the fact that the ld. CIT (A) has recorded a finding of fact that there was no material in the possession of AO to support the allegation of unrecorded profit in the hands of the assessee and the Ld. DR could not controvert the said fact before us which is material to decide this issue. Further, the ld. CIT (A) has recorded a finding of fact that as per the sale deed, the assessee has disclosed full value of sale consideration and the said fact also could not be controverted by the Ld. DR before us, as such, we agree with the Ld. CIT(A) that there was no factual or legal basis to contemplate any notional or hypothetical sale consideration in the absence of any specific evidence or material in the possession of the AO to counter the stand of the assessee. Thus the addition is based only on presumption and surmises and so the addition made by the AO was rightly deleted by the Ld. CIT(A) - Decided against revenue.

Issues Involved:
1. Discrepancy in the sale prices of flats.
2. Addition of Rs. 41,50,000 as unrecorded profit.
3. Compliance with Tribunal's directions.
4. Admission of fresh evidence under Rule 46A.
5. Verification and enquiry by the Assessing Officer (AO).

Detailed Analysis:

1. Discrepancy in the Sale Prices of Flats:
The assessee company, engaged in building construction, declared a turnover of Rs. 46.50 lakhs and a net profit of Rs. 1.46 lakhs for the assessment year 2006-07. The AO questioned the variation in the sale prices of similar flats in the same building. The assessee explained that the higher price for the flat sold to Dr. Rajnish Juneja was due to its front-side location, additional alterations, and premium fittings. However, the AO rejected these explanations and adopted the highest sale price of Rs. 22 lakhs for all flats, leading to an addition of Rs. 41,50,000 as unreported profits.

2. Addition of Rs. 41,50,000 as Unrecorded Profit:
The AO added Rs. 41,50,000 to the assessee's income, assuming the sale prices of all flats should match the highest price of Rs. 22 lakhs. The AO's decision was based on the absence of substantial evidence to justify the price differences. The CIT(A) later deleted this addition, noting that the AO failed to appreciate the facts and legal documents, which indicated that the flat sold to Dr. Juneja included additional work and fittings.

3. Compliance with Tribunal's Directions:
In the first round of appeal, the Tribunal directed the AO to verify the cost incurred for each flat and any additional work undertaken. In the second round, the AO reconfirmed the addition without proper verification, citing non-compliance by the assessee. The CIT(A) observed that the AO did not undertake the exercise as directed by the Tribunal and passed the order mechanically.

4. Admission of Fresh Evidence under Rule 46A:
The revenue argued that the CIT(A) admitted fresh evidence without giving the AO an opportunity to comment, violating Rule 46A. However, the CIT(A) noted that the documents were already on record during the original assessment and were not new evidence. The Tribunal upheld this view, stating that the AO had the documents but did not consider them properly.

5. Verification and Enquiry by the AO:
The CIT(A) found that the AO did not verify or enquire with the parties who bought the flats at lower prices. There was no evidence of unrecorded profit or underhand consideration. The sale deeds disclosed the full value of consideration, and the AO's addition was based on presumption without specific evidence. The Tribunal agreed with the CIT(A), noting the lack of material evidence to support the AO's allegations and the failure to follow the Tribunal's directions for verification.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order to delete the addition of Rs. 41,50,000. The Tribunal found no merit in the AO's addition based on presumptions and surmises and confirmed that the CIT(A) properly considered the evidence and followed legal procedures. The appeal was dismissed, and the order was pronounced in open court on November 10, 2015.

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