2016 (3) TMI 119 - AT - Income Tax

Undisclosed sales - gap between the stamp value and the actual sales consideration - buyer of the property categorically denied having paid any such amount to the appellant - addition on bases of loose papers - Held that - It is difficult to accept the case of the AO that for a property whose sale deed has already been duly registered with the concerned authorities on 23.9.2005, the cash component, if involved any, would be paid as late as on 15.5.2006. It is further noted by us that the stamp value assessed by the stamp valuation authority for the adjoining flats has been varying between ₹ 38.5 lakhs to ₹ 42.20 lakhs during the period when the impugned sale deed was registered, whereas these properties were sold between ₹ 15 lakhs to ₹ 19 lakhs. Thus, there was clearly a gap between the stamp value and the actual sales consideration. Thus, no conclusive inference could be drawn that merely because the stamp value was more, there was exchange of cash between the parties, unless some more cogent contrary material is brought on record. Lastly, we find force in another argument of the ld. Counsel that even if, although denied by the assessee, it is assumed that cash was received by the assessee, the same could not have been brought to tax in the year under consideration since the entire sales consideration of impugned property sold by the assessee has been received and booked by the assessee in its books of accounts in F.Y 2005-06. On the basis of perusal of the profit and loss account it is noted that the sale value of the entire project has been booked in F.Y 2005-06. It is also an admitted case that the assessee is following project completion method . Thus, if at all some addition is required to be made, that could have been made only during F.Y 2005-06, although we have already held on the basis of evidences brought before us that it could not be concluded that the assessee had received any cash amount. Thus we find that the addition made by the AO is not sustainable as per law and facts, and therefore, the same is directed to be deleted. - Decided in favour of assessee

Summary

Issues Involved:
1. Legality of the addition of Rs. 40,00,000/- by the Assessing Officer (AO) based on a diary entry.
2. Justifiability of the addition considering the stamp authority's market value confirmation.

Issue-wise Detailed Analysis:

1. Legality of the addition of Rs. 40,00,000/- by the AO based on a diary entry:

The assessee, a real estate developer, filed a return declaring an income of Rs. 5,76,607/-. During a search and seizure operation, documents were impounded, including a diary with an entry indicating a cash transaction of Rs. 40,00,000/-. The AO added this amount to the assessee's income, alleging it was unaccounted cash from the sale of a flat.

The assessee contested this, arguing that the diary entry was a mere 'noting' in the accountant's personal diary and lacked corroborative evidence. The assessee also pointed out that the AO did not invoke any specific sections (68, 69, 69A, 69B, 69C) of the I.T. Act to justify the addition. Furthermore, the sale deed of the property was registered on 23.9.2005, while the alleged cash transaction was dated 15.5.2006, making it inconceivable that cash would be paid after the sale deed registration.

During remand proceedings, the AO examined the accountant, Mukesh Prajapati, and the buyer, Humayun Rangila. Both denied any knowledge or involvement in the cash transaction. The CIT(A) upheld the AO's addition, but the Tribunal found that the diary entry was unclear and lacked corroborative evidence. The Tribunal noted discrepancies, such as the sale deed being registered in the preceding financial year and no addition being made in the purchaser's hands. Consequently, the Tribunal concluded that the addition was unsustainable.

2. Justifiability of the addition considering the stamp authority's market value confirmation:

The assessee argued that the stamp authority confirmed the market value of the property at Rs. 17.64 lakhs, which was the sale price. The Tribunal observed that the stamp value of adjoining flats varied significantly, and properties were sold below the stamp value. Therefore, the higher stamp value alone could not justify the addition without concrete evidence of cash exchange.

Conclusion:

The Tribunal found that the addition of Rs. 40,00,000/- was not justified due to the lack of corroborative evidence and discrepancies in the AO's allegations. The Tribunal also noted that even if cash was received, it should be taxed in the year the sale was booked, i.e., F.Y 2005-06, as the assessee followed the 'project completion method'. Thus, the addition was directed to be deleted, and the appeal was allowed.

Order Pronounced:

The appeal of the assessee was allowed, and the order was pronounced in the open court on 12th February 2016.