2006 (4) TMI 232 - AT - Income Tax

Addition To Income - rejection of sale price of flats claimed to have been received by assessee (and as evidenced by the registered sale deeds) and substituting the same by an estimated sale price - HELD THAT - The basic edifice of revenue's addition in this regard consist of letters of the assessee to prospective buyers and letter given by one of the customers to the bank. As regards the amount of Rs. 1,250 per sq. ft. mentioned in the letter, we find that the final agreement for sale was executed at a different amount duly signed by both the parties. The explanation for this is that these letters were prior to finalization and execution of written agreement and it is the finally executed sale deed which should prevail in this regard. As regards the letter and the agreement given by the customer to the bank, it is noted that the agreement attached with this letter is also not signed by the assessee. Though the letter given by the assessee to the bank dated 12-11-1998 does mention about the amount calculated at the rate of Rs. 1,250 per sq. ft., the final agreement of sale made between the assessee and the customer is not at this rate. In the presence of some conflict in this regard and in absence of any further supporting evidence, it should be the final written sale agreement executed by both the parties which should be taken into account - except making estimates on the basis of that letter, the revenue has not done anything cogent enough to buttress the claim that sale was actually made at Rs. 1,250 per sq. ft. The Assessing Officer has neither brought about the comparative figures in the locality nor had the matter been referred to the Valuation Cell to arrive at the value thereof. It is concluded that in this case the revenue has not cogently proved that estimated sale price is the actual sale consideration. Reliance has been placed by the lower authorities on letters which are contradicted by the actual sale deed executed. The books and records have not been rejected; rather for one project, the amount recorded in the books has been made by the Commissioner of Income-tax (Appeals) as the basis to delete the same estimated addition by the Assessing Officer. The revenue has neither taken assistance of its Valuation Cell nor brought about comparative figures. Thus, the revenue has failed in proving that the actual consideration is the one as estimated by the lower authorities. The remark by the Commissioner of Income-tax (Appeals) in deleting the similar addition on site No. 171 would apply to this case also that the addition is unwarranted, unjustified and has been made without collecting the relevant material - the assessee's appeal is allowed.

Issues Involved:
1. Sustaining the additions by rejecting the sale price of flats claimed by the assessee.
2. Determining the actual sale consideration for the flats sold.
3. Evaluating the evidence provided by the assessee and the revenue.
4. Assessing the reliability of the books of account maintained by the assessee.

Issue-wise Detailed Analysis:

1. Sustaining the Additions by Rejecting the Sale Price of Flats Claimed by the Assessee:
The primary issue in this appeal is whether the CIT(A) erred in sustaining the additions by rejecting the sale price of flats claimed by the assessee. The assessee-firm, engaged in the business of developing and selling properties, had its sale prices challenged by the Assessing Officer (AO), who substituted the claimed sale prices with an estimated sale price of Rs. 1,250 per sq. ft. This estimation was based on letters to prospective buyers and a unilateral document executed by a buyer, Shri Srinivas Gopalan, for obtaining a higher loan from SBI Home Finance. The AO determined unaccounted receipts of Rs. 39,30,448 based on this rate.

2. Determining the Actual Sale Consideration for the Flats Sold:
The CIT(A) examined the matter, particularly focusing on the flat sold to Shri Gopalan. The assessee argued that the document relied upon by the AO was unilaterally executed by Shri Gopalan to secure a higher loan and was not an agreement executed by the assessee. The CIT(A) noted that the assessee failed to provide concrete evidence to prove that the selling rate indicated in the letter to SBI Home Finance was not acted upon. The CIT(A) allowed a discount of Rs. 100 per sq. ft. per floor for flats on upper floors, considering factors like the commercial potential of ground floor flats and the risk associated with unapproved constructions. The sale consideration was adjusted accordingly, resulting in a relief of Rs. 8,31,300 for six flats, but no relief was granted for the flat sold to Shri Gopalan.

3. Evaluating the Evidence Provided by the Assessee and the Revenue:
The CIT(A) also considered the sale of flats at site No. 171, where the AO adopted the same rate of Rs. 1,250 per sq. ft. without meaningful reasoning. The CIT(A) found that the actual rates charged for five flats at this site ranged from Rs. 568 to Rs. 716 per sq. ft., which was reasonable and did not indicate any concealment of sales/revenue. The Tribunal noted that the revenue's addition was primarily based on letters and a unilateral document, without any further supporting evidence. The Tribunal emphasized that the final written sale agreement, executed at a different rate, should prevail over preliminary letters.

4. Assessing the Reliability of the Books of Account Maintained by the Assessee:
The Tribunal observed that the revenue did not reject the books of account maintained by the assessee. The existence of negative cash balances and cash payments under Income-tax Law were not sufficient reasons to reject the books. The Tribunal cited the Hon'ble Jurisdictional High Court decision in CIT v. P. V. Kalyansundaram and other relevant cases, highlighting that the burden of proving actual consideration lies with the revenue. The Tribunal concluded that the revenue failed to prove that the estimated sale price was the actual sale consideration. The lower authorities relied on letters contradicted by the actual sale deed, and the revenue did not utilize its Valuation Cell or provide comparative figures.

Conclusion:
The Tribunal quashed the order of the CIT(A) and decided the issue in favor of the assessee, concluding that the revenue failed to cogently prove that the estimated sale price was the actual sale consideration. The assessee's appeal was allowed.

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