2017 (11) TMI 1082 - HC - Income Tax

Addition made on account of suppression of sale after rejecting books of account u/s 145(3) - since the average cost of purchase of saleable land comes to ₹ 364 per square yard and whereas the assessee has sold the plots for ₹ 400 per sq. yard which included a sum of ₹ 165 per sq. yard as development charges, therefore, in effect the selling price of the land was only ₹ 235 per sq. yard. and this position did not reflect true and correct picture of the books of account as selling of plot at a loss in real estate is absurd and not acceptable Held that - We are of the opinion that the Tribunal while confirming the order passed by the Commissioner of Income-tax (Appeals) has not committed any error as held Assessing Officer has examined two persons who purchased the plots and such persons have confirmed having paid the same price. We have perused the statement of Shri Ram Swaroop Gurjar and Shri Ram Narain Sharma which is submitted at paper book pages 55 to 59. Thus there was no material before the Assessing Officer to hold that the assessee has suppressed the sale of plots, but on the contrary, we find that the Assessing Officer has erroneously assumed wrong facts as aforestated in rejecting the books of account and thereby proceeding to estimate the income of the asses see on account of suppression of sale of plot. We concur with the findings of the Commissioner of Income-tax (Appeals) and hold that the Assessing Officer was not justified in rejecting the books of account and estimating the income of the assessee. Even otherwise, the Assessing Officer was not justified in invoking the provisions of section 145(3) of the Income-tax Act. - Decided in favour of the assessee

Issues Involved:
1. Justification of the Income-tax Appellate Tribunal in deleting the trading addition made on account of suppression of sale by the Assessing Officer after rejecting books of account under section 145(3).

Detailed Analysis:

Issue 1: Justification of the Income-tax Appellate Tribunal in Deleting the Trading Addition

Assessing Officer's Findings:
The Assessing Officer (AO) rejected the books of account, noting discrepancies in the sale prices of plots. The AO observed that the total area of plots sold by the assessee was 1,23,274.92 sq. yards, and applied a rate of ?635 per sq. yard. The assessee had shown the value received as ?4,40,72,870, resulting in a difference of ?3,42,06,704, which was added to the total income on account of suppression of sales. The AO highlighted that the cost of purchase was ?364 per sq. yard while plots were sold for ?400 per sq. yard, including ?165 per sq. yard as development charges, effectively making the selling price ?235 per sq. yard. This indicated that the assessee was selling plots at a loss, which was deemed absurd and unacceptable.

Commissioner of Income-tax (Appeals) Observations:
The Commissioner of Income-tax (Appeals) (CIT(A)) found merit in the assessee's contentions, noting that the average cost of saleable land was ?266.51 per sq. yard, not ?364 per sq. yard as calculated by the AO. The CIT(A) observed that the appellant sold 307 plots for ?440.72 lakhs, with an average sale price of ?357 per sq. yard, earning an overall gross profit of ?366.66 lakhs. The CIT(A) also noted that the books of account were duly audited and no specific defects were pointed out by the AO. It was also highlighted that some plots were in dispute, affecting their sale value. Consequently, the CIT(A) held that the AO was not justified in rejecting the books of account under section 145(3) and directed the deletion of the addition of ?3,42,06,704.

Tribunal's Findings:
The Tribunal concurred with the CIT(A), noting that the AO's calculation of the average cost of saleable land was erroneous as it considered only one part of the land. The Tribunal found that the actual average cost of saleable land was ?266.51 per sq. yard. The Tribunal also noted that the AO examined two purchasers who confirmed the prices recorded by the assessee. Therefore, the Tribunal held that there was no material to support the suppression of sales and that the AO was not justified in rejecting the books of account and estimating the income.

Legal Basis:
The Tribunal and CIT(A) relied on section 145(3) of the Income-tax Act, which allows the AO to reject the books of account if not satisfied with their correctness or completeness. However, in this case, the AO's rejection was found to be based on erroneous assumptions and without substantial evidence.

Conclusion:
The Tribunal, confirming the CIT(A)'s order, held that the AO was not justified in rejecting the books of account and making an addition for suppression of sales. The Tribunal's decision was based on the correct calculation of the average cost of saleable land and the lack of evidence for any suppression of sales. The issue was thus answered in favor of the assessee and against the Department.

Final Judgment:
The appeal was dismissed, upholding the Tribunal's decision in favor of the assessee.

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