DCIT, Mumbai Vs M/s Sumer Ville Investments (ITAT Mumbai)– Whether the notional interest on interest-free deposit from tenants is to be considered while determining the correct ALV u/s 23(1)(a)- Whether when no independent enquiry is made by the AO from the purchasers of the property, the sale consideration of property cannot be rejected merely on the basis that in past the sales were made at higher price and particularly when the sale price was accepted by the stamp duty authorities for the purpose of stamp duty valuation. Assessee’s appeal partly allowed
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH’ E’
BEFORE SHRI R.S.PADVEKAR, JUDICIAL MEMBER AND
SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER.
ITA Nos. 367 & 2657/Mum/07
(Assessment Years: 2003- 04 & 2004- 05)
|Dy. Commissioner of Income Tribunal Tax 12(3), Aayakar Bhavan, Mumbai- 20.||
M/s. Sumer Ville Investments, 201, Commerce House, 140, Nagindas Master Road, Fort, Mumbai-400 023
ITA No. 3882/Mum/08
|Asst. Commissioner of Income Tax 12(3),Aayakar Bhavan, Mumbai-20.||
|M/s. Sumer Ville Investments, Mumbai-400 023PAN AAAFS2828G|
Appellant By: Shri B. Jayakumar.
Respondent By: Shri Vipul B. Joshi.
PER SHRI R. S. PADVEKAR:
These batch of three appeals are filed by the revenue challenging the respective impugned orders of the Ld. Commissioner of Income Tax (Appeals)-12, Mumbai for the Assessment Years 2003-04, 2004-05 and 2005-06. The issues and the facts are identical in all these appeals, hence these appeals are disposed of by this common order.
2. The first ground is in respect of determination of annual letting value (in short ALV) u/s.23(1)(a) of the Income Tax Act, 1961 (the Act). The facts in brief on record are as under:
5. We have also heard the Ld. Departmental Representative. As per the provisions of section 23(1)(a), the Assessing Officer has to determine the ALV by considering the sum for which, the property might reasonably be expected to let from year to year. In the case of Moni Kumar Subba (supra), the Hon‘ble Delhi High Court held that notional interest on security deposit cannot be considered for the purpose of determining the ALV u/s.23(1)(a) of the Act. The full bench has laid down the following guidelines for the purpose of determining the ALV u/s.23(1)(a) of the Act as under:
“20. The above discussion leads to the following conclusions:
(i) Annual letting value would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances.
(ii) An inflated or deflated rent based on extraneous consideration may take it out of the bounds of reasonableness.
(iii) Actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated/ deflated by reason of extraneous consideration.
(iv) Such annual letting value, however, cannot exceed the standard rent as per the rent control legislation applicable to the property.
(v) If standard rent has not been fixed by the rent controller, then it is the duty of the AO to determine the standard rent as per the provisions of rent contract enactment.
(vi) The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as annual letting value and not the standard rent.”
We, therefore, consider it fit to restore this issue to the file of Assessing 0fficer to decide the same in the light of the guidelines/ principles laid down in the case of Moni Kumar Subba (supra). The Ld. counsel submits that the rent declared by the assessee u/s.23(1)(a) of the Act is higher than the principle rental value. In our opinion, if the Maharashtra Rent Control Act, 1999 is applicable to the said property, then the standard rent determined under the Act should be adopted as ALV u/s.23(1)(a) of the Act. If the standard rent is not applicable, then the ALV should be determined in the light of the guidelines given by their Lordship in the case of Moni Kumar Subba (supra). Needless to say, A. 0. should give reasonable opportunity of being heard to the assessee.
8. The assessee-firm is engaged in the business of construction and development of property. The assessee had undertaken a construction project known as Corporate Park at Chembur in Mumbai. The assessee was following the project completion method in respect of the said project and was declaring the profit. It was noticed by the Assessing Officer that in the previous year relevant to the Asst. Year 2005-06, the assessee has sold 5 units to various parties. It was further noticed by the Assessing Officer that the assessee has charged the sale price as per the super built up area Rs. 3340 – Rs.4729 per sq. ft. The Assessing Officer has also noted that the assessee has entered into agreement in respect of the sale of units with various parties in the year 1995. Most of the parties were multi-national companies. The assessee has sold units at Rs. 10,150 per sq. ft. of the super built up area and Rs.3383 per sq. ft. in some other cases. In case of some of the companies, the assessee ;charged Rs.8, 100 per sq. ft. of super built up area and also Rs. 8,000 per sq. ft. in respect of some of the other parties. The Assessing Officer has attached the statement the assessment order, showing the sale price at which the assessee sold the units to different companies in the year 1995 as well as the price is declared by the assessee in respect of commercial units sold in the same project in the F. Y. 2004- 05 relevant to the Asst. Year 2005- 06. The Assessing Officer therefore noted that even if there is a gap of almost ten years i.e. between 1995- 96 to 2004- 05, the assessee had shown the difference in sale price by 40 to 50% which was not acceptable. The assessee contended that the sale prices of the transactions was at par with the market price prevailing during the period which is supported by value adopted by the Registrar of Stamps for determination of stamp duty under the Bombay Stamp Act. The Assessing Officer also noted that in the year 1995 that the stamp duty received was very low but the assessee sold the commercial units at very high price which was almost five times of the stamp duty rate. In the assessement year under consideration, the Assessing Officer has made more emphasis in respect of the rates adopted for the purpose of stamp duty in the year 1995 as well as in the F. Y. 2004-05. The Assessing Officer was not satisfied with the correctness of the accounts of the assessee and he rejected the books of accounts u/s. 145. The Assessing Officer adopted the average sale rate for the Asst. Year 1995 which worked out at Rs. 8050 per sq. ft. for 16,915 sq. ft. super built up area sold during the year, the assessee has received a total consideration of Rs. 13,61,65,750. The assessee had accounted for Rs.7,53,00,000 in its books of accounts. Such price of the said area, the Assessing Officer made the addition of Rs.6,08,65,750.
9. The assessee challenged the addition before the Ld. CIT(A). The Ld. CIT(A) sustained the addition to the extent of Rs.6,59,000 and balance addition made of Rs.6,02,06,750 was deleted. The finding of the Ld. CIT(A) is as under:
2.20- In view of the above discussion, the following picture emerged according to the appellant :-
1. The AO heavily relied on a few sale instances wherein the appellant could sell his office units at much higher prices than the other office units. However, because the appellant was successful in getting much higher sale prices, does not mean that it would be able to sell all other units at the same price. Similarly while selling at a low price, there may be an urgent need of funds to the appellant firm compelling it to sell the units at lower prices to the purchasers who were ready to make down payments. It is also a well settled law that there is no obligation on every tax payer to make maximum profits.
2. The same AO accepted the rates of sales of other units in the same building at lower considerations in the immediately earlier assessment year ie. 2004-05.
3. The 9 comparable cases on which the AO relied upon, were not matching that can be compared with the office units of the appellant for two reasons: the first being that the attributes/ characteristics of the property sold were different- i.e. the shops cannot be compared with offices and areas of all those instances were different than the area in which the appellant project ‘Corporate Park’ was located.
4. The AO did not conduct any independent enquiry and gather independent evidences except relying on the comparable cases as above receipt of extra sale consideration by the appellant firm.
5. The AO rejected the book results only on the ground of the reasons of sales of the office units below the market price. It was not established that the sales made below the market prices were sham transactions or that the market prices in fact were paid by the purchasers. The mere fact the goods were sold at concessional rates would not entitle the Assessing Officer to assess the difference between the market price and the price paid by the purchaser, as profit of the appellant. There is plethora of court decisions on this point. The first is CIT Vs. Raman and Co. (1968) 67 ITR 11, 17 (SC) and Smt. Nandini Nopany (1998)230 ITR 679, 682 (Cal).
6. The AO had not brought on record any cogent evidence to show the receipt of sale consideration being more than that recorded in the sale agreements.
7. The sale agreements have duly been registered with the Stamp Authorities on payment of appropriate stamp duty which implied that the sale consideration declared in the sale agreements was accepted by the State Revenue Authority.
8. The sales had duly been approved by the then prevailing Competent Authority under Chapter XX-C of the Income Tax Act, 1961. This clearly proved the said transactions were above board.
2.21 However on a careful examination of the documents filed during the course of the appellate proceedings it is noticed that there is difference in following one case because the valuation adopted by the State Stamp Authorities is higher. In view of these findings, I hold that there is suppression of income to this extent on this count :-
2.22 The addition of Rs. 6,59,000 made on this count as per the details in the above table is upheld.
2.23 In view of above findings these grounds are treated as partly allowed. Accordingly the action of rejecting the books of account u/s. 145 by the Assessing Officer is declared to be invalid and balance addition made of Rs. 6,02,06, 750 on account of suppressed sale consideration is deleted. The addition to the extent of Rs.6,59,000 is confirmed.”
Now the revenue is in appeal before us.
10. We have heard the rival submissions of the parties and also perused the records. We find that the assessee had sold the commercial units in the same project in the year 1995 at very higher rate between Rs. 8,000 to Rs. 11,000 per sq. ft. but some units sold in the year 2004-05 at much more of lesser rate. As per the argument of the Ld. counsel is that in the year 1995 there was a boom in the real estate market and most of the buyers were international companies. He further submits that the Assessing Officer had conveniently discarded some sale transactions of 1995 in which the assessee has charged between Rs.2,450 to Rs.4,50 per sq. ft. super built up area. He further argued that except the presumption and assumption nothing has been brought on record by the Assessing Officer that the assessee had received higher sale price than declared in the agreement and recorded in the books of accounts. The Ld. counsel strongly supported the order of the Ld. CIT(A). Per contra, the Ld. Departmental Representative submits that it is the same project of the assessee and part of the commercial units are sold in the year 1995 and balance units are sold in the year 2004-05, there is variation of sale prices of units and have come down. Though there is some logic in the argument of the Ld. CIT, D.R, at the same time the Assessing Officer has not taken any pain to bring on record at least few independent sale transactions to support his conclusion and findings. It is well settled principle by different judicial pronouncements that the burden is on the Assessing Officer to prove that the assessee has received more than what is recorded in the books of accounts. In our opinion, the Assessing Officer could have taken some pain and made some enquiry to prove that the assessee had charged more price but lesser amount is recorded. Moreover, the Ld. counsel submits that the sale price declared by the assessee is higher than valuation adopted for the purpose of stamp duty and hence the same also cannot be discarded. In this case, even the Assessing Officer has not made reference to the Departmental Valuation Officer u/s. 142A of the Act. After giving utmost consideration and keeping in view of the totality of the facts, we find no reason to interfere with the order of the Ld. CIT(A). Accordingly, the Ground No.3 in the Asst. Year 2005-06 is dismissed.
11. Other grounds in all the appeals are general in nature.
12. In the result the appeal for Asst. Years 2003-04 and 2004-05 are allowed for statistical purpose and appeal for Asst. Year 2005- 06 is partly allowed for statistical purpose.
Order pronounced in the open Court on 17th June, 2011.