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TMI Blog2013 (5) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not have any tax implication, being only undertaken in the normal course of business and in its interest. The caveat in the foregoing proposition, however, is extremely important, and it is this which remains to be satisfied in the facts and circumstances of the case. The transaction is between related parties, being only to the directors and principal share-holders of the assessee-company, and the difference in values is significant. Under the circumstances, therefore, it is fit and proper to, while setting aside the impugned order, restore the assessment back to the file of the AO to make a fresh assessment of the profit qua the three flats constructed from 2001 to 2005, and sold during the relevant previous year, by taking all the relevant facts and circumstances of the case into account, per a speaking order, and after allowing the assessee a proper opportunity of hearing. The assessed sale consideration for the flats on the first five floors, though, stands confirmed. Revenue's appeal is partly allowed and partly allowed for statistical purposes. - ITA No. 8341/Mum/2010 - - - Dated:- 15-5-2013 - Shri Sanjay Arora, A. M. And Shri Sanjay Garg, J. M.,JJ. For the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessing Officer (A.O.) vide his office letter dated 06.08.2009, requiring the complete details of the transactions, including the physical details, viz. the number of flats; their area; cost of construction; etc., some of which were submitted. With regard to the sale consideration, it was stated that the total sale consideration for the entire building consisting of stilt plus 8 floors, with a carpet area of 740 sq. ft. each, along with the additional facilities and amenities, was at Rs.1.78 crores, which was booked by passing a journal entry in the accounts. The copy of the project account for the period 01.04.1998 to 31.03.2008 was also submitted along with the entries pertaining to the current year, being as under: 01.12.06 Opening balance 1,90,07,970 19.12.06 By Sales being amt of sales considered 1,78,00,000 31.03.07 To surplus 92,029 By Vedwanti N. Murpana 13,00,000 1,91,00,000 1,91,00,000 Being not satisfied with the explanation with regard to the sales, a separate enquiry was caused by the A.O. through his Ward Inspector. Copies of some o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erline the non-furnishing of the requisite details or the supporting evidences by the assessee during the course of the assessment proceedings, compelling the A.O. to adopt the recourse as made by him, i.e., assume the stamp valuation as the sale consideration, the ld. AR would submit that the transaction had in fact been carried out at the market value, i.e., as per the rates prevailing in the neighbourhood at the relevant time for similar properties. The A.O. has not brought any material to exhibit under-statement of consideration with reference to the obtaining market rate. In any case, there is no provision in law whereby even a lower consideration could be inflated and the difference brought to tax. 5. We have heard the parties, and perused the material on record, as also the case law cited. 5.1 The primary facts of the case are clear. The issue, therefore, centres around the legal competence of the assessing authority to disturb the sale consideration as reflected in the assessee's regular books of account maintained in respect of the transactions of the business carried on by him during the relevant year. The second aspect of the matter concerns this issue in the circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll value of the consideration declared in its respect, but also that the consideration had been understated, and that it had in fact received more than that declared by him. The facts as brought on record do not show either any mala fides having been alleged or of the assessee having received any consideration beyond the apparent consideration. The addition was, accordingly, deleted. 5.3 The respective cases of the parties are abundantly clear. While the Revenue insists that the assessee had not declared true profits, understating the sale consideration, imputing the same with reference to FMV, the assessee's case, relying on the decision in the case of K.P.Varghese (supra), is that the concept of FMV has no place in law. As long as the assessee has not actually received anything beyond the stated consideration, the burden to show which is squarely on the Revenue, the charge of understatement of consideration - made with reference to FMV- fails. In fact, not so doing would amount to casting an impossible obligation on the assessee, i.e., to establish that he did not receive any thing over and above that declared. Section 50C has no application in the facts of the case, citing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, the assessee has a reasonable economic explanation/s for his actions or decisions, the Revenue cannot interfere therewith or sit in judgement thereon. This emanates from a holistic consideration of the various provisions of the Act, which must be read as a whole. Sec. 37(1), which is the residuary provision for the claim of any expenditure, prescribes the condition of the same having been expended 'wholly' and 'exclusively' for the purposes of business/profession. The word 'wholly', as explained by the hon'ble courts, extends to the quantum of the expenditure, so that implicit therein is the consideration of the reasonableness of the expenditure stated to have been incurred (and being claimed as a deduction in the computation of the business income), with reference to the value of the corresponding goods/services for which the same stands incurred. Section 40A(2)(a) brings the expenditure involving related persons in special focus, so that these transactions are required to meet the test of commercial and business prudence. No doubt, the initial onus in respect thereof is on the Revenue, but once that is met, so that a prima facie case is made out, as where the goods ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise obtains, no longer holds in such a case. To capsule, income-tax is a tax on real and not on notional income, so that the income actually earned and not which though could have been, or ought to have been, could be subject to tax. At the same time, the transaction should not be a managed, but an arm's length transaction. When the assessee as a trader or as a businessman charges less than what he could possibly have, keeping his business interest in view, there is no occasion to infer or impose a higher consideration; it being also well settled that the tax man cannot sit in the shoes of the businessman, and in any case, the matters have always to be looked at from the view point of the businessman or the tax payer. The foregoing, to our mind, does not contradict, rather proceeds on the basis of the law as explained by the apex court in, inter alia, A. Raman and Co. (supra); K.P.Varghese (supra); and ALA Firm (supra), keeping of course the provisions of law in view. This, we believe, also answers the question listed supra as the legal issue arising in this case. Factual Analysis Decision. 5.5 Having deliberated on the law in the matter, we may next examine the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being the stated consideration for the flat on the fifth floor, and at approximately one-fourth their ostensible FMV, as not unreasonable. We therefore confirm the same. Coming, next, to the flats on the sixth to the eighth floor. The AO has adopted the FMV as evidenced by the stamp valuation. The same is relevant, particularly considering that the same (stamp valuation) has not been contested by the parties, and the conveyance stands executed paying stamp duty on that value. The AO, it may be appreciated, has not applied sec. 50C, but has only taken cue of the market value from the stamp valuation. In fact, we have found the stamp valuation as relevant only for that reason. Further, we have also clarified that a value far removed from the market value, could be explained as reasonable under the facts and circumstances; the AO himself adopting a value of Rs. 22 lacs for the flats on the first five floors, and which has found our approval. As regards the three flats under reference (numbering 601,701 801), the construction cost has again been financed by the directors/promoters by extending, as it appears, interest-free deposits. The construction also has not been carried out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned, so that it cannot find our acceptance, yet cannot, in the absence of complete details, also accede to the AO's estimation thereof, and the matter in our view is indeterminate and requires a composite review. Decision 6. True, genuine and bona fide transactions, even if made below par, the fair market valuation would not have any tax implication, being only undertaken in the normal course of business and in its interest. The caveat in the foregoing proposition, however, is extremely important, and it is this which remains to be satisfied in the facts and circumstances of the case. The transaction is between related parties, being only to the directors and principal share-holders of the assessee-company, and the difference in values is significant. Under the circumstances, therefore, we only consider it fit and proper to, while setting aside the impugned order, restore the assessment back to the file of the AO to make a fresh assessment of the profit qua the three flats constructed from 2001 to (as it appears) 2005, and sold during the relevant previous year, by taking all the relevant facts and circumstances of the case into account, per a speaking order, and after allowing ..... 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