Commissioner Of Income Tax Chennai v. M/S.appasamy Real Estates Limited

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA TAX CASE (APPEAL) NO.304 OF 2008 Commissioner of Income TaxChennai. .. Appellant Vs.M/s.Appasamy Real Estates Limited3, Mangesh StreetT.Nagar, Chennai – 600 017... Respondent TAX CASE (APPEAL) filed under Section 260A of the Income Tax Actagainst the order of the Income Tax Appellate Tribunal Madras 'A'Bench dated 19.1.2007 in I.T.A.No.1612/Mds/2002 for the assessmentyear 1995-96 against the order of the commissioner of Income Tax(Appeals) III, Chennai - 34 and made in ITA No.TR.76/2001-02/A-IIIdated 17.06.2002 for the Amenment year 1995-96 against the order ofthe Joint Commissioner of Income Tax Special Range X, Chennai is GIRNo:36 A date of order 30.3.2001 for the assessment year 1995-96. (Judgment of the Court was delivered by P.P.S.JANARTHANA RAJA,J) This appeal is filed by the revenue against the order of theIncome Tax Appellate Tribunal Madras 'A' Bench dated 19.1.2007 inI.T.A.No.1612/Mds/2002 raising the following substantial question oflaw. "Whether in the facts and circumstances of the case,the Tribunal was right in deleting the addition made bythe assessing officer on the income of the 3 flatcomplexes promoted by the assessee? https://hcservices.ecourts.gov.in/hcservices/ corresponding accounting year ended on 31.03.1995. The originalassessment was completed on 23.02.1998 on the total income ofRs.2,45,80,050/-. On appeal, the Commissioner of Income-tax(Appeals) has set aside the order of assessment with a direction tore-do the assessment. After giving an opportunity to the assessee,the Asssessing Officer has passed an Assessment order under Section143(3) of the Income Tax Act and determined the totalincome at Rs.75,99,585/-. While completing the assessment, theAssessing Officer has made an addition of Rs.31,53,887/- in respectof Lloyds Road Project, Dwaraka Colony, Mylapore, and Burkit Road,T.Nagar project on the ground that there was difference in theprofits of the projects, by comparing with the other promoter viz.,Alacrity Housing Limited. Aggrieved by that order, the assessee hasfiled an appeal to the Commissioner of Income Tax (Appeals)-III,Chennai. On consideration, the said authority has accepted thecontention of the assessee and allowed the appeal, setting aside theorder of assessment. Aggrieved by that order, the revenue has filedan appeal in ITA.No.1612(MDS)/2002. The Appellate Tribunal hasdismissed the appeal and confirmed the order of the CIT(Appeals).Hence, the Revenue has filed the above appeal. 3. Learned Senior Standing counsel appearing for the revenuevehemently contended that the Tribunal is wrong in deleting theaddition made by the assessing officer to the income from three flatcomplexes promoted by the assessee and also contended that theTribunal has failed to see that the assessee had admitted certaindiscrepancies in the sale price. He further contended that theTribunal has failed to see that the assessing officer has madeaddition of projects to the extent of Rs.31,53,887/- by comparing theother promoter and hence, the order passed by the Tribunal is not inaccordance with law and the same has to be set aside. 4. Heard the learned counsel for the revenue. During therelevant period, the assessee has completed three housing projectsviz., (1) 224, Lloyds Road, (2) 20/21, Dwaraka Colony, RoyapettahHigh Road, Mylapore, and (3) 65, Burket Road, T.Nagar and theAssessing Officer made additions in respect of the above projects andheld as follows: "LLOYDS ROAD PROJECT: Alacrity Housing Limited had done a project in No.199, 200Lloyds Road. The project commenced in February 1993/March1993 and was delivered in May 1994 to June 1994. Theaverage rate of sale was Rs.885 per sq.ft. 4. Heard the learned counsel for the revenue. During therelevant period, the assessee has completed three housing projectsviz., (1) 224, Lloyds Road, (2) 20/21, Dwaraka Colony, RoyapettahHigh Road, Mylapore, and (3) 65, Burket Road, T.Nagar and theAssessing Officer made additions in respect of the above projects andheld as follows: "LLOYDS ROAD PROJECT: Alacrity Housing Limited had done a project in No.199, 200Lloyds Road. The project commenced in February 1993/March1993 and was delivered in May 1994 to June 1994. Theaverage rate of sale was Rs.885 per sq.ft. In the same area (ie)224 Lloyds Road, the assessee hassold around the same time at an average rate of Rs.812/-sq.ft. As already explained there is no reason for theassessee to sell lower than the market rate. Therefore, https://hcservices.ecourts.gov.in/hcservices/ the rate of Rs.885/- sq.ft. is applied as the average rateof sale to arrive at the correct sale proceeds. Here forcomparison only the construction cost and land cost persq.ft of built up area has been taken. Registration costhas not been included. Total area sold as shown in thebooks. Rs.Sale value of 885 sq.ft 78,17,205/- 8833 sq.ft.Cost of area sold as per booksbooks of the assessee 57,60,063/- --------------- 20,57,142/-Gross profit as admitted by 14,42,132/-the assessee --------------- Difference added to return of 6,15,010/-income as correct sale proceeds --------------- DWARAKA COLONY, MYLAPORE. Alacrity Housing Ltd has sold a project in No.45, IMain Road, No.11, IIICrossStreet,CITColony,Mylapore, this project was done between the period August1992 to March 1994. The sale value per sq.ft in the aboveproject, after excluding the cost of registration, wasRs.822/- per sq.ft whereas the assessee company also hassold the Dwaraka Colony Project, Mylapore in the periodNovember 1992 to September 1994 and the average rate ofsale per sq.ft was Rs.727/-. Again as explained beforethere is no reason why the assessee should sell less thanthe market rate. Therefore, correct sale proceeds arearrived at by applying sale rate of Rs.822/- per sq.ft. In this project the land cost has been directly borneby the buyers. The assessee company has charged them onlyconstruction cost. The project has been sold between theperiod June 1992 to July 1994. The average rate of saleper sq.ft was Rs.389/- per sq.ft. This has been compared https://hcservices.ecourts.gov.in/hcservices/ with the project of Alacrity Housing Ltd in Venkat NarayanaRoad done during the same period (ie) June 1993 to January1995. The Alacrity Housing Ltd has split the sale valueinto land cost, construction cost and registration charges.As the assessee has not incurred land cost, onlyconstruction value has been compared which was Rs.493 sq.ftfor Alacrity Housing Ltd. The same has been applied tothe total area sold by the assessee during this year. This total difference in sale proceeds added to the incomeof the assessee. The assessing officer has fixed the rate of average value bycomparing with Alacrity. The said addition was made by comparingwith M/s Alacrity Housing Limited. The reason for making thisaddition is that the contractors of Alacrity Housing Limited hasadmitted the sale of flats for more consideration and such practiceshould also prevail invariably with all the other promoters. Basedon the estimation, the assessing officer has made the additionabove. In this case, there is no proof to show that the assesseehas received on money and the revenue also has not even examined theflat buyers to verify the same. The Commissioner of Income Tax(Appeals) considering the details submitted by the assessee held asfollows:- The assessing officer has fixed the rate of average value bycomparing with Alacrity. The said addition was made by comparingwith M/s Alacrity Housing Limited. The reason for making thisaddition is that the contractors of Alacrity Housing Limited hasadmitted the sale of flats for more consideration and such practiceshould also prevail invariably with all the other promoters. Basedon the estimation, the assessing officer has made the additionabove. In this case, there is no proof to show that the assesseehas received on money and the revenue also has not even examined theflat buyers to verify the same. The Commissioner of Income Tax(Appeals) considering the details submitted by the assessee held asfollows:- ".... Coming to the factual position I am of theconsidered opinion that the appellant's representative hasmade out a strong case, that how they were forced to sellthe flats at a lower rate than that of the flats promotedby M/s.Alacrity Housing Ltd. The location of the propertyenvironment availability of amenities. Of the decidingfactors for the sale price of the flats. The appellant hasestablished is in respect of 3 property promoted that theywere located in a disadvantageous position than those https://hcservices.ecourts.gov.in/hcservices/ projects promoted by Alacrity Housing Ltd. These facts hadnot been controverted by the assessing officer. The appellant's quality of construction design andexecution is no comparison to M/s. Alacrity Housing Ltd.Perhaps the latter company is No.1 in the field in Chennai.Further even payment made to the executives and staff areperhaps highest in Chennai. The appellant has rightly saidthat he caters only to the middle class whereas M/s.Alacrity caters to the mostly to the non resident Indiansand upper class of the society. This is common knowledge inthe business. Hence I am convinced that these two are notcomparable cases and hence the adoption of the sale rate ofAlacrity Housing Ltd was erroneous.... The above decision still holds the field and unlessthe assessing officer had established that unaccountedconsideration for the flats has passed to the appellant thequestion of addition does not arise. It is settled lawthat an assessment or addition cannot be made on surmisesand conjectures but only on proven facts and evidence.That on money could have been received just like 'Alacrityis obviously a surmise. The assessing officer has notrecorded a statement from any flat buyers that they havepaid on money. No other evidence has been gathered fromany other source not there is any proof that the appellanthad made unaccounted investment or credits etc." 5. From a reading of the above it is clear that no evidencewas gathered by the revenue to show that the assessee has receivedhigher value and the additions were made only on presumption. TheAppellate Tribunal has also considered the factual position and heldas follows:- "The Commissioner (Appeals) also discussed the factualdetails. The assessee explained as to under whatcircumstances they proposed to sell the flats at a lowerrate than that of the flats promoted by M/s AlacrityHousing Limited. He also considered the location of theproperty, environment and amenities. It was found thatthe properties promoted by the assessee were located atdifferent places and comparing to the projects promotedby M/s Alacrity Housing Limited the location wasdisadvantageous. The quality of construction, design andexecution were also beyond comparison. The assesseeconstructed the flats to cater the needs of middle class,whereas it was noted that M/s Alacrity Housing Limitedcaters the needs mainly of non resident Indians and upperclass of the society. Before making the addition theAssessing Officer did not consider all these aspects. Comparison is possible within equals and not betweenunequals. Since the addition was based purely on surmiseand conjectures, the Commissioner(Appeals) deleted thesame. We have perused the impugned order. Even beforeus the department could not produce any evidencejustifying the addition. As such we find no reason tointerfere with the order of the Commissioner (Appeals).We, therefore, uphold the same." 6. Both the authorities have given concurrent finding thatadditions were made only by comparing with the project of M/sAlacrity Housing Limited and that assessment could not be made onsurmises and conjectures. The findings given by both theauthorities are that the revenue did not prove that the assesseehas collected on money on the sale of flats and also there is noproof that the assessee had made unaccounted investments or creditsetc. Therefore, it is clear that the concurrent findings are basedon valid material and evidence. It is a question of fact and not aperverse order. The learned counsel appearing for the revenue isalso unable to produce any material evidence to take a contrary view.Hence, we do not find any error or infirmity in the order of theTribunal warranting interference and the order of the Tribunal is inaccordance with law and the same is confirmed. In thesecircumstances, no substantial question of law arises out of the orderof the Tribunal and the Tax Case (Appeal) is liable to be dismissedand accordingly it is dismissed.Sd/-Assistant Registrar/true copy/ raa To 1.Assistant Registrar, Income-Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Madras 90 (with records five copies). https://hcservices.ecourts.gov.in/hcservices/