2021 (6) TMI 653 - AT - Income Tax

Addition of sales of flats - suppression of sale price of the flats in order to evade the tax - HELD THAT - Except drawing inferences on the basis of the documents, AO did not refer to the prevailing market prices in the vicinity so as to conclude that there is an attempt to reduce the sale consideration for the sole purpose of evading the tax. No material was produced before the CIT(A) to reach a conclusion as to the actual cost of the plot in competition with the prevailing market value. In respect of this flat also, AO requires to make enquiry as to the prevailing market value of the plot vis- -vis the figures mentioned in the documents. Now coming to the omnibus additions made by the learned AO for all the 3 years, basing on these documents relating to 2 flats, AO while stating that there was understatement of the cost of the flats by 36% and 26.5% respectively the average of which comes to 24.5%, extrapolated the same in respect of all the sales of plots that took place between the assessment year 2009-10 and 2011-12. It remains an admitted fact that insofar as the other flats are concerned no material whatsoever, much less incriminating material is forthcoming. It is only the imagination of the AO that merely because there appears to be understatement in respect of one or 2 flats the same must have occurred in respect of all. Absolutely there is no material to support such an extrapolation of the inferences drawn by the learned Assessing Officer basing on the documents relating to two flats, to all the sales that took place for long three years. The maxim Falsus in uno and falsus in omnibus has an obligation in India and it has not received any acceptance or approval by the higher courts. It is therefore clear that the action of the AO in calculating the so-called understatement of the cost of the flats for all the 3 years and making addition is accordingly cannot be justified. Additions made by the AO in respect of all the sales that took place in all the 3 years cannot be sustained. While setting aside the impugned orders, we restore the issue for verification of the actual cost of the flats Nos. A-601 and A-802 with reference to the prevailing market value vis- -vis the figures mentioned in the seized documents. Assessee is free to put forth their contentions on these documents before the learned AO and the learned AO will take a fresh view in respect of those two flats alone. - Appeals of the Revenue are allowed for statistical purpose.

Summary

Issues:
- Discrepancy in sale consideration for flats leading to additions by Assessing Officer
- Appeal against deletion of additions by CIT(A)
- Validity of documents found during search operation
- Allegation of suppression of sale price to evade tax
- Application of section 292C presumption to documents
- Justification of extrapolation of findings to all sales made over 3 years

Analysis:
1. Discrepancy in Sale Consideration: The case involved a construction company where a search operation revealed documents indicating discrepancies in the sale consideration of certain flats. The Assessing Officer made additions to the income based on his calculations of understated sale prices for the flats over three assessment years.

2. Appeal Against Deletion of Additions: The company appealed the additions before the CIT(A), arguing that the discrepancies were due to negotiations in sale prices, down payments, and possession delays. The CIT(A) accepted these contentions, leading to the deletion of the additions.

3. Validity of Documents: The Revenue contended that the documents found during the search operation were evidence of suppressed sale prices to avoid tax. The argument was that the documents should be relied upon as per section 292C presumption, and the CIT(A)'s order was criticized as a non-speaking order.

4. Allegation of Suppression: The Revenue alleged that the CIT(A) ignored the suppression of sale prices, leading to tax evasion. The argument was that the documents clearly indicated understatements that were not properly considered by the CIT(A).

5. Application of Section 292C: The Revenue highlighted the presumption under section 292C regarding the validity of documents found during the search operation. It was argued that in the absence of contrary evidence, these documents should be considered as true.

6. Extrapolation of Findings: The Assessing Officer's extrapolation of discrepancies found in a few flats to all sales made over three years was challenged. The Tribunal noted that there was no substantial material to support such extrapolation and emphasized the need for verification of actual costs against prevailing market values.

In the final judgment, the Tribunal allowed the Revenue's appeals for statistical purposes, setting aside the earlier orders. The issue was restored for verification of the actual costs of specific flats mentioned in the documents, emphasizing the importance of considering prevailing market values and the need for a fresh assessment based on concrete evidence.