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TMI Blog2016 (1) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... rice agreed to by the original owners. Neither the AO nor the CIT(A) brought any materials on records to show that the assessee received more than what had been shown in the sale deeds. The Ld CIT(A) also failed to bring any cogent materials on records for enhancing the assessement. No defects were pointed out in the records maintained by the assessee and therefore the invoking the provisions of section 145(3) of the Act to estimate the income is wrong and the decisions relied on by the CIT(A) are not applicable to the assessee’s case as the guess work in estimation can only be made when there defects in the records maintained by the assessee and it is not possible to arrive at the correct income by the AO on the basis of the said records. Further ,we also find force in the arguments of the ld authorized representative that the provision of section 50C are not applicable for ascertaining the full value of consideration in respect of business assets i.e inventories as the said provisions deals with ascertaining the full value of consideration in case of capital assets for the purpose of capital gain. Further our attention was drawn to the newly inserted section 43CA of the act which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon do not reflect true rates at which the appellant sold 12 flats in the project Joanna Villa. 5. Holding that the appellant has not correctly declared or disclosed the consideration received by it on sale of 12 flats in the Joanna Villa Apartment project completed during the year. 6. Holding and alleging that the entire activity of the appellant was pre-meditated with the only object of understating the profits from the project. 7. Holding and alleging that the contracts on 28th May 2001 with the four purchasers before the development of the project undertaken by the appellant in or around 14th July 2001 were pre-mediated and ill conceived only for understating the income of the project completed during the year. 8. Confirming that there was suppression of sales value in six out of eight flats sold by the appellant. 9. Holding that the appellant understated the sales value of all the 12 flats. 10. Holding that the accounts of the appellant are not correct or complete and true profits of the project cannot be determined based on them. 11. Invoking provision of sec.145(3) and estimating income of the project of Joanna Villa applying bes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year noticed that out of twelve flats constructed in the said project, eight flats were booked in the F.Y. 2003-04 and full sale considerations in respect of seven flats were received during the year. AO further observed on the basis of WIP at the year end vis- -vis previous year that 89% of the project was completed at the end of the F.Y. 2003-04 and, therefore, came to conclusion that Goanna Villa project was completed in assessment year 2004-05 and not in assessment year 2005-06 as claimed by the assessee. The Ld. AO reopened the assessment proceedings for the A.Y. 2004-05 and framed the assessment by making various additions in that year on account of suppression of sales by the assessee and also completed the assessment of the current year on the protective basis by adding a sum of ₹ 15,000/- to the total income of the assessee. 5. Being aggrieved by the order of AO, assessee preferred appeals before CIT(A) for both assessment year i.e. 2004-05 and 2005-06. Ld. CIT(A) deleted the addition made by the AO in the assessment year 2004-05 and agreed with the contention of the assessee that the project was completed during the year and the income from the said project was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The Ld. Counsel further submitted that MOI was approved by appropriate authority vide order dated 05.10.2001. Thereafter the assessee got the building plans amended and obtained sanction vide order dated 9.11.2001 to construct five additional floors in place of second floor above the old structure as got approved by the original owners. The Ld. Counsel argued that the CIT(A) has grossly erred in ignoring the fact that the assessee under MOI had undertaken to honour the commitment of original owners made to four persons with whom they had entered into agreements to sell. The counsel further submitted that the assessee entered into separate modificatory agreements for sale with four purchasers. Agreement with Harilal Sabji Patel was entered into on 24.07.2003 and with other three purchasers, namely, Shri Ambalal Premji Patel, Harilal Kanji Dharamsi Patel HUF and Nanji Patel were made 23.03.2004 whereby the assessee agreed to sell the area to these buyers at the rates committed by the original owners of the project and also agreed that additional areas as mentioned in the respective agreements would be sold at the rate of ₹ 6,000 per sq. ft. The Ld. Counsel submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plan sanctioned by BMC vide order dt.21-03-2001 permitting them to construct an additional floor, i.e., 2nd Floor comprising 4 flats bearing nos.201, 202, 203 and 204 and renamed the existing building as the 'Joanna Apartments'. The original owners entered into 4 separate agreements for sale on 28-05-2001 with original buyers of the proposed 4 flats which were registered with the Sub-Registrar of Assurances, Bandra, in terms of which the 4 flats were proposed to be sold as under: TABLE -A Flat No. Purchaser Area (carpet) (sq. ft.) Rate (per sq.ft) Consideration 201 Ambalal Premji Patel 752.87 (500) Rs.3,000 Rs.22,58,610 202 Harilal Shivaji Patel 417.13 (600) ₹ 3,000 Rs.12,51,390 203 Kanji Dharamshi 447.75 (600) ₹ 3,000 Rs.13,43,250 204 Bharat Nanji Patel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and also entitled to receive and appropriate the sale proceeds thereof. The appellant, therefore, entered into separate Modificatory Agreements for Sale with the 4 original purchasers. The agreement with Shri Harila Savji Patel was entered on 24-07-2003 and with other three, namely Shri Ambalal Premji Patel, Kanji Dharamshi Patel and Bharat Nanji Patel, on 23-03-2004. In terms of the Modificatory Agreements all the four purchasers opted for change of accommodation and additional space in the new construction. Accordingly the following flats, additional space and the agreed rates were provided for in the modified agreements: TABLE-B *represents open terrace at 7th floor, value which was valued for only 40% of the terrace area (e.g., for Flat 601 terrace area of 473.23 sq. ft. , the same for valuation was taken at 40%, i.e., 189.30 sq.ft. X ₹ 6, 000 = ₹ 11,35,800) 10. On completion of the project the appellant accounted for the sales of all the 12 flats constructed in the financial year 2004-05 and furnished the flat wise statement of sales which is summarized as under: TABLE-C 11. The appellant credited ₹ 7,71.46,062 to the P L A/C as sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 49,89,840 accounted for by the appellant, he added the difference of ₹ 1,37,23,455 as suppressed sales value for these two flats. Thus the AO made total addition of ₹ 2,50,85,904 (1,13,62,449 + 1,37,23,455) on account of suppressed sales. We note that the CIT(A) held that the AO was right in forming an opinion that that there was suppression of sales value but he was wrong in calculating the suppression only to 6 flats and not for all the 12 flats. In other words, the accounts of the appellant were not correct or complete and the true profits of the project could not be determined based on them. Accordingly, CIT(A) invoked the power given under section 145(3) and proceeded to estimate income from the project on the basis of best of my judgment by relying in case of CIT v. McMillan and Co 33 ITR 182 (SC) and CIT vs A. Krishnaswami Mudaliar 53 ITR 122 (SC) and Kachwala Gems vs.JCIT 288 ITR 10 (SC)] and estimated sale value as per Table C below and enhanced the asseassment by ₹ 5,30,80,200/- by holding that the market value of the flats sold by the appellant during the period from 30-10- 2002 and 29-03-2004 ranged between ₹ 8,583.65 per sq. ft and ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) overlooked the fact that the assessee as per the terms of MOI dated 14.07.2001 took over the liabilities and commitments of the original owners towards the 4 original purchasers to whom the sale of flats were to be made at ₹ 3,000/- per Sq. fts as referred to in table A. The assessee was under contractual obligation to sell the flats to the original purchasers at the price agreed to by the original owners. Neither the AO nor the CIT(A) brought any materials on records to show that the assessee received more than what had been shown in the sale deeds. The Ld CIT(A) also failed to bring any cogent materials on records for enhancing the assessement. No defects were pointed out in the records maintained by the assessee and therefore the invoking the provisions of section 145(3) of the Act to estimate the income is wrong and the decisions relied on by the CIT(A) are not applicable to the assessee s case as the guess work in estimation can only be made when there defects in the records maintained by the assessee and it is not possible to arrive at the correct income by the AO on the basis of the said records. Further ,we also find force in the arguments of the ld authorized ..... X X X X Extracts X X X X X X X X Extracts X X X X
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