Case Law Details
Arihant Moti Developers Vs ITO (ITAT Pune)
ITAT Pune held that as the assessee failed to establish why the shops were sold at loss to the partners and interest persons, principle of fraud squarely gets applicable. Accordingly, disallowance of loss duly justified.
Facts- The assessee firm is engaged in the business of builders and developers. On verification of the P & L account, it was seen that the assessee had shown total sales of Rs. 10,16,24,773/- and has shown net loss of Rs. 8,50,05,404/-. It was observed that the loss was mainly due to sales made below the cost price.
On verification of the details submitted by the assessee, it was seen by the A.O that the assessee had sold total 25 shops/offices during the year under consideration. Out of these 25 shops, 6 shops were sold to the Eklavya Builders Pvt. Ld., and another six shops were sold to Shri Arun Agrawal who are partners of the assessee. Thus, out of 22 shops 12 shops have been sold to the partners. Another 7 shops have been sold to the persons from whom the assessee has taken loan. All these 19 shops sold to the partners and persons having interest in the business were sold below the cost price. It is seen that 6 shops were sold to the third parties.
It was further observed from the above that the average price of sale per sq.ft. to the third party is around Rs. 8472/- per sq.ft. whereas the average price of 19 shops sold to the partners and interested parties is Rs. 5,025/- per sq.ft. This fact clearly shows that these shops are sold to the partners at a price much below the price charged to the third parties and also below the cost price. In view of the above, vide letter dated 10-12-2018 the assessee was asked to explain why the shops were sold to the partners below the market price and why the sale price should not be estimated as per the sale price charged to the third parties.
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