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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 ..... us 5 upper floors, with one flat each on each floor with a carpet area of 740 sq. ft. The completion of the project stood signified by the completion certificate dated 24.11.2994, i.e., during the year relevant to the A.Y. 1995-96. No profit was declared on the said building, which was let to the directors at an extremely low rent of Rs.1.44 lakhs p. a. The reason for the same was stated to be the heavy deposits by the directors/shareholders, who had financed the project. This continued up to A.Y. 2002-03. In April, 2001, development rights (TDRs) were purchased vide an agreement dated 04.04.2001, and the contract for construction of the three additional floors as well as alteration to the existing building (at a cost of Rs.21 lakhs) was given to one, M/s. Shree Viraj Construction Pvt. Ltd. The dates of commencement and the completion of construction as per the agreement are 01.03.2001 and 31.03.2002. However, the construction was completed much later, with the company obtaining the occupancy certificate (issued by BMC) on 16.01.2006, i.e., during the relevant assessment year. Each of the three flats was with a carpet area of 740 sq. ft. Besides, additional facilities like car park ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,64,478/-, in the absence of any details with regard to the administration or other expenses, i.e., as against the returned income of Rs.86,813/-. 3.2 In appeal, the assessee found favour with the first appellate authority on the basis that there was no material on record to show that any excess consideration had passed, i.e., over and above the declared sale consideration, placing reliance on the decision on the apex court in the case of K. P. Varghese vs. ITO (1981) 131 ITR 597 (SC). It stands clarified by the hon'ble apex court that not only is the A.O. obliged to show that the fair market value of any asset as on the date of its transfer exceeded the full value of the consideration declared by the appellant, but also that the said consideration has been understated, and that the appellant had actually received more than what was declared by it. This is as despite being lower than the fair market value, the transaction might be a perfectly bona fide one, and there may be no understatement of consideration. The onus to establish under-statement had not been discharged by the A.O. in any manner, who had merely proceeded by adopting the stamp duty valuation for the sale considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 Rs. 20,00,000 401 Rs. 21,00,000 Rs. 22,00,000 Rs. 21,00,000 501 Rs. 22,00,000 Rs. 22,00,000 Rs. 22,00,000 601 Rs. 25,00,000 Rs. 78,90,816 Rs. 78,90,816 701 Rs. 26,00,000 Rs. 78,90,816 Rs. 78,90,816 801 Rs. 27,00,000 Rs. 78,90,816 Rs. 78,90,816 Total Rs. 1,78,00,000 Rs. 3,46,72,448 Rs. 3,36,72,448 [(?) The figure of market value is as per the listed table, though the basis thereof is not clear; the stamp value of all the flats being at Rs. 78.91 lacs.] In the view of ld. CIT(A), there is nothing on record to show of the assessee having actually transferred the flats at an amount/s higher than that recorded in their respect by it. The apex court in the case of K P Varghese vs. ITO (supra), has clarified that the burden to show that there is no understatement of consideration would be putting an impossible burden on the assessee, i.e., to establish a negative, namely, that he did not receive any consideration beyond that declared by him. The assessing authority is required to show not only that the fair market value (FMV) of any asset as on the date of its transfer exceeds the full value of the consideration declared in its respect, but also that the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. CIT [1993] 200 ITR 710 (Bom). Clearly, therefore, neither is the assessee required to show that he has made the maximum profit out of a commercial transaction, nor to show that he had not earned anything beyond that stated and declared by him. In fact, on both counts, it would amount to placing a burden incapable of being discharged, on either practical or even theoretical considerations. This also agrees with the jurisprudence on evidence, that the onus to establish that the apparent is not real is on the person who so alleges. Further, where a device is adopted by the assessee, it must fall within the four corners of law, i.e., has to have its sanction. Speaking in the context of business, no doubt it is only the real income qua which the liability to tax under the Act inures. However, at the same time, it cannot be said that the law sanctions an artificial depression or deflation or in fact even inflation of profit or income. That is, the concept of real income is circumscribed and hedged by the consideration of it being truly so, and not as a result of a manipulation or an artifice. As long as, therefore, the assessee has a reasonable economic explanation/s for his actions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot following the dictum of fair price, as evidenced or signified by the FMV. The apex court, as far back as in the case of ALA Firm v. CIT [1991] 189 ITR 285 (SC), approved the same, ruling that it saw no reason as to why businessmen, being commercial men, would not value the assets only on a real basis but at cost or some other value appearing in the books. The real rights of the partners could not be mutually adjusted on any other basis. Putting it in more broad terms, i.e., on business and commercial considerations, validating the arm's length principle. We may, again, reiterate that the businessman could, taking market value as the guide, state his reason/s for having not adopted the same in the facts and circumstances of his case. The qualification is that the reason/s, to be accepted, must be qua business and not extraneous or irrelevant thereto. Though the nature of the obligation on the assessee would remain essentially the same, it would get more accentuated where the transaction/s is with a related party. This is for the simple reason that the premise of an arm's length transaction, that otherwise obtains, no longer holds in such a case. To capsule, income-tax is a tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nced by them by way of interest-free deposits, which continue to outstand. As such, the sale price realizable for these flats, though having the same carpet area as of the flats constructed subsequently, cannot be compared with that of the latter, which has been reckoned by the AO on the basis of their valuation under the Stamp Act inasmuch as the same is based on FMV. The AO has, as apparent from the Table, adopted a uniform value of Rs. 22 lacs for these flats, as against a variable rate, beginning Rs. 18 lacs to Rs. 22 lacs, increasing by Rs.1 lac per floor, by the assessee. The AO has himself not adopted the stamp valuation, but a value far lower, in tune with that by the assessee. In fact, the flats being sold to persons already in possession thereof, with no correspondence with the market value thereof, the marginal difference of Rs. 1 lac per floor is not understood, and neither any explanation in its respect stands furnished by the assessee. All the other facts and circumstances, as we see it, for these flats, are the same. We, therefore, find the AO's estimation of the sale consideration, being the stated consideration for the flat on the fifth floor, and at approximately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous amenities, also contracted along with, and which would be also either sold or retained by the assessee as at the year-end. The assessee has not furnished any data on the sales values obtaining during the period in the neighbourhood, i.e., toward the second limb of its case, which in fact does not appear to have been also made before the authorities below, and in any case, is not of little value in the absence of any substantiation. In fact, the FSI for the additional construction - and on the basis and utilisation of which the construction of the three upper floors came into being, arose to the assessee-company only. All it needed to do was to sell the FSI to any builder or, if the construction was proposed as an extension to the existing building, and if otherwise permissible, even to the directors themselves. This by itself would ensure it some (reasonable) business profit, even if the assessee was not to engage in any other activity in relation to the said project. As such, though in agreement in principle with the AO that the assessee's declared sale rate is artificial and totally unexplained, so that it cannot find our acceptance, yet cannot, in the absence of complete det ..... X X X X Extracts X X X X X X X X Extracts X X X X
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