D.b. Income Tax Appeal v. M/S Pink City Developers, 243, Vinoba Vihar, Jagatpura, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 481 / 2009Commissioner of Income tax, Jaipur-II, Jaipur ----Appellant Versus M/S Pink City Developers, 243, Vinoba Vihar, Jagatpura, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. R.B. Mathur with Mr. K.D. Mathur For Respondent(s) : Mr. Mahendra Gargia _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHJudgment 01/08/2017 1.By way of this appeal, the appellant has challenged thejudgment and order passed by the tribunal whereby the tribunalhas allowed the appeal of the assessee and dismissed the appealof the department modifying the order of A.O. as well as the C.I.T. Appeals. 2. This court while admitting the matter has framed following questions of law:- “Whether on the facts and in law the ITAT wasjustified in deleting the trading addition madeon account of suppression of sale by theAssessing Officer after rejecting books ofaccounts u/s 145(3) and assigning detailedreasons for the same?” 3.Counsel for the appellant has taken us to the order passedby the A.O. and contended that the A.O. after considering the evidence on record as well as considering the transactions has observed as under:- Thus the AO rejected the books of account asaforestated and held at internal page 11 of herorder that the total area of the plots sold bythe assessee works out to Rs.1,23,274.92 sq.yards and applied the rate of Rs.635 per sq.yard on the aforesaid square yards. On theother hand, the assessee has shown the valueof Rs.4,40,72,870/- received against theselling of aforesaid land. The difference of thesame i.e. Rs.3,42,06,704/- was added to thetotal income of the assessee on account ofaddition of suppression of sales. 4.He contended that there are group of persons who purchased the plot and the price was at a higher side whereas in the individual case, it should have been at a lower side. The calculations are as under:- (i) Following facts with respect to purchase of landwere reflected in records as:- Date of Area Amount (Rs.) Salable land Cost of PurchasePurchased(sq. yds)purchase of salable land Rs./sq. Yds04-08-0343 Bigha = 3,29,23,00090,438 3641,41,900 sq, yds. From the above table it was seen that the cost of purchase ofland was Rs. 364 per sq. yard while the plots were sold for Rs.400 per sq. yard which included a sum of Rs. 165 per sq. yard asdevelopment charges as told by Ld. A/R during the course ofproceedings. Therefore, in effect the selling price of the land wasonly Rs. 235 sq. yard (400-165) which denoted that the assesseewas selling the plots at loss. This position did not reflect trueand correct picture of books of account of the assesseebecause selling the plots at loss in Real Estate is absurdand not acceptable. (ii) In so far as sale of plots for shops wereconcerned, the same were sold for Rs. 232.60/- sq.yard (excluding development charges) whereas plotsmeant for residential purposes were sold for Rs. 235/- sq. yard as mentioned above (excludingdevelopment charges). This position is again absurdand unacceptable because plots sold for commercialactivity are any day costlier than for plots earmarkedfor residential purposes. This fact is also supportedby DLC rates wherein it is categorically mentionedthat the rate of plots for commercial area will bethree times for that of residential area. (ii) In so far as sale of plots for shops wereconcerned, the same were sold for Rs. 232.60/- sq.yard (excluding development charges) whereas plotsmeant for residential purposes were sold for Rs. 235/- sq. yard as mentioned above (excludingdevelopment charges). This position is again absurdand unacceptable because plots sold for commercialactivity are any day costlier than for plots earmarkedfor residential purposes. This fact is also supportedby DLC rates wherein it is categorically mentionedthat the rate of plots for commercial area will bethree times for that of residential area. (iii) A copy of DLC rates obtained from the Dy.Registrar, Sanganer, reflected that the rate of land forthe above area i.e. Shrikishanpura ranged betweenRs. 360/- sq, yard to Rs. 660/- sq. yard for the widthof the road ranging between 30 feet to 100 feet,respectively. On the contrary, the assessee has soldthe plots at much lower rate @ Rs.265/- sq. yard,without taking into account any criteria including thewidth of the road. (iv) As observed in the details submitted by Ld. A/Rthere was no basis of fixing the sale price of the landsold to different persons, e.g. Rs. 635 per sq. yardsand for others it was Rs. 400 per sq. yards (In theabove rates, development charges @ Rs. 165/- sq.yard were included). On examining the layout plan ofthe plot scheme, it was noted that irrespective of thelocation of the plot i.e. close to the main road, cornerplot or deep inside the scheme, rates were uniformfor all persons i.e. Rs. 400 per sq. yards, except formembers of RTS as mentioned above to whom theplots were sold @ Rs.635/- sq. yard. (v) The assessee another scheme at Bindayaka forwhich the land of 32.80 Bighas (1,08,240 sq. yards)was purchased on 24-09-2002. The cost of purchAseper sq. yard for the salable land i.e. 64,944 sq. yardswhich is around 60% of the total land (60% X1,08,240 sq. yards) worked out to be Rs. 148.40/ sq.yard whereas as per the agreement with members ofRajasthan Financial Corporation (RFC), the samewere proposed to be sold at Rs.755/- per sq. yard.This fact is brought into light to establish that theplot of land which was bough earlier by the assesseewas being sold at a higher rate (755/ sq. yard)whereas the plots out of land brought later were soldat much lower rate (400/ sq. yard). (vi) As mentioned above, plots were sold @ Rs. 635per sq. yards to members of RTS, and proposed to besold at 755/ sq. yard to the members of RFC whereasit was sold merely @ Rs. 400/ sq. yard to otherindividual persons. The rates for the above twoorganisations should have been much lessbecause plots were sold in bulk to them andthey were in a better position to negotiate onthe price of the land than the individuals. In fact,they were as many as 200 plots (100 plots of 300 sq. In fact, 5.However, the CIT(A) in Para 3 has observed as under:- “3.3 (III) On perusal of all the evidences and material on record. I find merit in the contentions raised by the Ld. A.R. for the reasons discussed asunder:- (vi) As mentioned above, plots were sold @ Rs. 635per sq. yards to members of RTS, and proposed to besold at 755/ sq. yard to the members of RFC whereasit was sold merely @ Rs. 400/ sq. yard to otherindividual persons. The rates for the above twoorganisations should have been much lessbecause plots were sold in bulk to them andthey were in a better position to negotiate onthe price of the land than the individuals. In fact,they were as many as 200 plots (100 plots of 300 sq. In fact, 5.However, the CIT(A) in Para 3 has observed as under:- “3.3 (III) On perusal of all the evidences and material on record. I find merit in the contentions raised by the Ld. A.R. for the reasons discussed asunder:- (a) It is observed that the appellant purchasedagricultural land measuring 8.22 hectares on24/09/02 for Rs. 96.38 lakhs. Thereafter, theappellant purchased another piece of agriculturaland measuring 14.16 hectares on 4.8.03 forRs.329.32 lakhs, which was contiguous to the landpurchased earlier and both these lands werelocated in the same village i.e. Srikishanpura. Theappellant got the land converted from agriculturalto residential, divided the same into plots of land,as per the relevant rules of the JDA and sold 307plots measuring 123274 sq. yards for Rs.440.72lakhs, during the financial year relevant to thisassessment year. As mentioned above, the totalrea of both the chunks of land was 22.38 hectares,equivalent to 2,66,935 sq. yards. Out of the totalland, after leaving the land for common facilitiessuch as roads, parks, public utility etc., thesaleable land remaining was 159697.56 sq. yardsas per the Map approved by the JDA placed onrecord (PB-pg.27). The total cost paid by theappellant amounted to Rs.42561 lakhs. Therefore,the average cost of saleable land works, out to266.51 per sq. yard as claimed by the appellantassessee. Hence, I find that the contention of theLd. AR is correct that the average cost of purchaseof saleable land is Rs. 266.51 per sq. yard and notRs.364/- per sq. yard. As observed by the A.O. inthe assessment order. (b) further, it is seen that the appellant negotiatedfor sale of 200 plots with the members of theRajasthan Tehsildars Service (RTS) @ Rs. 635/-per sq. yd. which included the developmentcharges @ 165/ per sq. yd. which were to be paidto the Jaipur Development Authority (JDA).However ultimately, the members of the RTSpurchased 181 plots of land as against the abovementioned negotation of 200 plots of land. Theplots purchased by the members of RTS werepurchased at the effective rate of Rs. 470/- per sq. yards, and regarding these facts there is nodispute. Therefor, the contention of the appellant,that a large number of plots were sold above theaverage cost of purchase of Rs.266.51 per sq.yard, is also found to be correct because,undisputedly, 181 plots out of the total 307 plotswere sold at Rs. 470/- per sq. yard to themembers of the RTS. Here it is also relevant tonote that there is no dispute regarding the factthat the appellant got an average sale price ofRs.357/ per sq. yard (after taking into account theplot sold at a price lower than average cost price)and earned an overall Gross profit of Rs.366.66lacs on total sales of plots at Ts.440.72 lacs i.e.G.P. rate of over 8%. (c) I also find merit in the argumetns of Ld. A.R.the persons examined by the A.O. had confirmedthe purchase made from the appellant. In thatregard, I have perused the statements of ShriRamswarup Gurjar and Shri Roop Narain Sharma(PB pages 52-53, 55-57) recorded by the A.O. on13/12/06, wherein both these persons hadconfirmed the purchased of plots for shops at thesame price as recorded by the appellant in itsbooks of account. (c) I also find merit in the argumetns of Ld. A.R.the persons examined by the A.O. had confirmedthe purchase made from the appellant. In thatregard, I have perused the statements of ShriRamswarup Gurjar and Shri Roop Narain Sharma(PB pages 52-53, 55-57) recorded by the A.O. on13/12/06, wherein both these persons hadconfirmed the purchased of plots for shops at thesame price as recorded by the appellant in itsbooks of account. (d) It is further observed that the books of accountof the appellant assessee were duly audited byauthorized Auditors and were produced before theA.O. for verification. However, the A.O. has notbrought any evidence on record to indicate thatthe appellant had charged any money over andabove the price recorded in the books for sale ofany of the plots, including those of land, whichwere sold below the average cost of purchase,from any of the persons who purchased thoseplots. Therefore, I find merit in the contentions ofthe Ld. A.R. that no specific defect has beenpointed out by the A.O. in the books of accountparticularly in relation to the amounts recorded inthe books of account for sale of plots to persons,other than members of RTS. (e) Further, I find substance in the contentions ofLd. A.R. that some of the plots were in dispute,out of those plots which were sold at a lower cost,because one of the owners of the agricultural landhas separately sold those plots to another societyi.e. Rajpura Grah Nirman Sahkari Samiti Limited.The appellant had produced the evidencesregarding the dispute before the A.O. and whichare placed on pages 28 to 35 of plots of land wereonly about 30, however, they were placed at roads etc., and therefore had a bearing on the sale valueof other nearby plots of land. Hence there is somesubstance in the argument of Ld. A.R. that thevalue of some of the plots was less as compared tothose other plots, which were not affected by thedispute and accordingly, the appelalnt receivedless price for such plots of land. 3.3 (iv) On consideration of the entire facts andcircumstances, discussed above, it is observedthat there is no material or evidence on record toindicate that any of the entries recorded in thebooks of account of the appellant assessee,pertaining to the sale of residential plots/plots forthe shops, was incorrect. Therefore, pertaining tothe sale of residential plots/plots for shops, wasincorrect. Therefore, the main contention of theLd. A.R. against the rejection of books of accountthat account cannot be rejected u/s 145(3) of theI.T. Act, was found to be having substantial merit.Hence, in accordance with the foregoingobservations, it is held that the A.O. was notjustified in rejecting the books of account underSection 145(3) of the I.T. Act in the case of theappellant assessee. Consequently, the ground ofappeal against the rejection of books of account isdecided in favour of the appellant assessee. 3.3(v) The second issue involved in this ground ofappeal is against the estimation of sales byapplying rate of 635/- per sq. yard on the totalarea of plots sold at 123274.92 sq. yards leadingto estimation of sales at Rs.78279574/-, whichresulted into addition of Rs.34206704/- on accountof suppression of sale. In this regard, it isobserved that the A.O. has made the saidestimation after rejecting the books of account ofthe appellant assessee. However, as discussed inthe preceding paras, I have held that the A.O.was not justified in rejecting the books of accountof the appellant assessee. Therefore, as the booksof account of the appellant assessee were notfound to be liable to be rejected under Section145(3) of the I.T. Act, consequently, theestimation of sales made thereafter by the A.O.,leading to addition of Rs.3,42,06,704/-, is also notsustainable. Accordingly, the A.O. is directed todelect that addition. Consequently, the appellantsucceeds on this ground of appeal.” under:- under:- “7. We have heard the rival contentions and perusedthe facts of the case. We find that the main plank ofrejection of books of account by the AO as borne outfrom her order was that since the average cost ofpurchase of saleable land comes to Rs.364 per squareyards and whereas the assessee has sold the plots forRs.400 sq. yards which included a sum of Rs.165 persq. yards as development charges, therefore, in effectthe selling price of the land was only Rs.235/- per sq.yards. Thus the AO held that this position did notreflect true and correct picture of books of accounts asselling of plot at loss in Real Estate is absurd and notacceptable. As noticed by us in para 6 that the AOproceeded on a erroneous assumption of fact as shecalculated the average cost of saleable land by takinginto consideration only one part of land i.e.43 bighasonly and whereas the other part which is 32.55 bighaswas not at all considered by AO. The aforesaid factwas even considered by ld. CIT(A) and therefore theld. CIT(A) was justified in holding that the actualaverage cost of saleable produce works out toRs.266.51 per sq. yard and not Rs.364 per sq. yard asnoted by the Assessing Officer. To come to thisconclusion, there was enough material on record asboth the piece of lands were adjacent to one anotherand were at the same place in the villageSrikishanpura but is at place called Bindayaka as heldat internal page 10 of her order. We have seen theland agreement of 43 bigha of land which is submittedin paper book at page No.40 to 44 and also the landagreement of 32.55 bigha which is enclosed in paperbook at page no.45 to 51. Thus the totalj land areacomes of 75.55 bigha and the saleable area comes of159697.51 sq. yards. The said saleable area is as perJDA norms as a demand notice for deposition ofdevelopment charges has been sent by JDA to theassessee which has been submitted at paper bookpage 61. Thus the ld. CIT(A) was justified as theaverage purchase rate comes to 266.51 sq. yards. Wealso noticed that the aforesaid fact was submitted tothe AO vide letter dated 15.102.2006 which has beensubmitted at paper book page 4 to 26. However, thesaid fact does not borne out in the order of the AO.Another striking feature which is borne out from therecord is that the AO has examined two persons whopurchased the plots and such persons have confirmedhaving paid the same price. We have perused thestatement of Shri Ram Swaroop Gurjar and Shri RamNarain Sharma which is submitted at paper book page55 to 59. Thus there was no material before the AO tohold that the assessee has suppressed the sale ofplots, but on the contrary, we find that the AO has erroneously assumed wrong facts as aforestated inrejecting the books of accounts and therebyproceedings to estimate the income of the assessee onaccount of suppression of sale of plot. We concur withthe findings of the CIT(A) and hold that the AO wasnot justified in rejecting the books of account andestimating the income of the assessee. Evenotherwise, the AO was not justified in invoking theprovisions of Section 145(3) of the Income Tax Act.” 7.Counsel for the respondent contended that tribunal while considering the objection of Section 145(3) of the Income Tax Act has rightly observed as under:- “(3) Where the Assessing Officer is not satisfiedabout the correctness or completeness of theaccounts of the assessee, or where the methodabout the correctness or completeness of theaccounts of the assessee, or where the method of accounting provided in sub-section (1) oraccounting standards as notified under sub-Section (2), have not been regularly followed bythe assessee, the Assessing Officer may make anassessment in the manner provided in section144.”accounting standards as notified under sub-Section (2), have not been regularly followed bythe assessee, the Assessing Officer may make anassessment in the manner provided in section144.” considering the objection of Section 145(3) of the Income Tax Act has rightly observed as under:- “(3) Where the Assessing Officer is not satisfiedabout the correctness or completeness of theaccounts of the assessee, or where the methodabout the correctness or completeness of theaccounts of the assessee, or where the method of accounting provided in sub-section (1) oraccounting standards as notified under sub-Section (2), have not been regularly followed bythe assessee, the Assessing Officer may make anassessment in the manner provided in section144.”accounting standards as notified under sub-Section (2), have not been regularly followed bythe assessee, the Assessing Officer may make anassessment in the manner provided in section144.” 8.Taking into considerations, the overall facts and circumstances of the case, we are of the opinion that the tribunalwhile confirming the order passed by the CIT(A) has notcommitted any error, therefore, the issue is answered in favour ofthe assessee and against the Department. 9.The appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Jyoti Item No.36