1983 (4) TMI 94 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of cost of land (Rs. 2,01,000 vs. Rs. 36,61,625).
2. Evidence of on-money being charged.

Detailed Analysis:

1. Deduction of Cost of Land:
- Interpretation of Clause 3 of the Partnership Agreement:
The clause states, "The land situated at 15, Barakhamba Road, New Delhi shall be the property of the firm and as taken in the wealth-tax return of Shri Hans Raj Vadhera and shall be credited to his capital account in the books of the firm." The Tribunal interpreted this clause to mean that the value should be taken as Rs. 2,01,000, which was the value declared in the wealth-tax return for the assessment year 1970-71. The Tribunal found no ambiguity in this clause and observed that it was consistently understood and applied by all partners, including late Vadhera, during his lifetime.

- Character of the Property:
The Tribunal held that the property brought in by late Vadhera was initially a capital asset. However, upon being brought into the partnership, it became the partnership property and was intended to be used as stock-in-trade for the business of constructing and selling flats. The Tribunal rejected the contention that the property remained a capital asset until the business commenced.

- Revaluation of Property:
The Tribunal concluded that the firm could not revalue the property at the market rate as on the date of conversion into stock-in-trade. The property was brought in at Rs. 2,01,000, and this value should be used for computing business profits, as there was no subsequent conversion from a capital asset to stock-in-trade.

- Consistency in Accounting:
The Tribunal emphasized that the firm consistently showed the value of the land at Rs. 2,01,000 in its accounts for successive years until 1978. This consistency indicated that the firm accepted this value as final and did not attempt to revalue the property until much later.

2. Evidence of On-Money Being Charged:
- Direct and Circumstantial Evidence:
The Tribunal examined the evidence presented by the department, which included statements from original and subsequent allottees of the flats, a pamphlet indicating higher rates, and the general trend of rising property prices. The Tribunal noted that while there was some evidence of higher rates being quoted, there was no direct evidence of on-money being paid or received.

- Statements of Witnesses:
The Tribunal analyzed the statements of various witnesses, including original allottees who denied paying any on-money and subsequent allottees who confirmed receiving the amounts they paid. The Tribunal found inconsistencies in some statements but concluded that these did not provide conclusive evidence of on-money transactions.

- Pamphlet Evidence:
The Tribunal considered the pamphlet presented by the department, which indicated higher rates for the flats. However, the Tribunal found that the pamphlet was not conclusively linked to the assessee and that it contained inaccuracies, such as listing floors that were not for sale.

- Market Trends and Business Practices:
The Tribunal acknowledged the general trend of rising property prices but noted that this alone could not justify the presumption of on-money transactions. The Tribunal emphasized that there must be concrete evidence of on-money being paid, which was lacking in this case.

- Conclusion on On-Money:
The Tribunal concluded that the department failed to provide sufficient evidence to support the addition of on-money to the assessee's income. The Tribunal agreed with the view of the learned Accountant Member that the additions were based on conjectures and surmises rather than concrete evidence.

Final Decision:
The Tribunal held that the cost of the land should be taken at Rs. 2,01,000 for computing the assessee's business profits. Additionally, the Tribunal found no merit in the department's contention regarding the addition of on-money and agreed with the learned Accountant Member that the additions should be deleted. The appeals were partly allowed, with the assessee succeeding on the major issues of cost of land and on-money.