Ita/6/1999 Of M/S.enarc Builders (P) Ltd.,Tsr v. The Commr. Of Income Tax,Cochin

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR WEDNESDAY, THE 16TH JANUARY 2008 / 26TH POUSHA 1929 ITA.No. 6 of 1999() ------------------- I.T.(S&S).A.45/COCH.1997 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT: ----------------- M/S.ENARC BUILDERS (P) LTD.,REP. BY MG.DIRECTOR SRI.K.RAMAKRISHNAN,MARRAR ROAD,TRICHUR. BY ADV. SRI.P.BALACHANDRAN SRI.K.KITTU RESPONDENTS: ------------- THE COMMISSIONER OF INCOME TAX,CENTRAL REVENUE BUILDINGS,I.S. PRESS ROAD,COCHIN-682 018. BY ADV. SRI.P.K.R.MENON(SR.),SC FOR IT SRI.GEORGE K. GEORGE, SC FOR IT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 16/01/2008, ALONG WITH ITA NO.18 OF 1999, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &T.R.RAMACHANDRAN NAIR, JJ. .................................................................... ....................................................................Dated this the 16th day of January, 2008. JUDGMENT C.N.Ramachandran Nair, J. These two appeals, one filed by the assessee and the other by thedepartment, arise from common appellate order of the Tribunal disposing ofappeal against block assessment made in the case of the assessee for theperiod from 1.4.1992 to 2.8.1995. The assessee was engaged in thebusiness of construction and sale of flats. The business premises of theassessee, where a sister concern of the assessee by name M/s.EnarcConsultants also was functioning, was searched by the Income TaxDepartment under Section 132 of the Income Tax Act on 20.7.1995 and on2.8.1995. In the course of the search, certain documents were seized whichinclude an agreement for sale of 23 cents of land in Trichur Town enteredinto between one Smt.Chandra Balakrishnan, the owner of the land andanother person by name Mr.Gangadharan. Besides this, during the courseof search, the department also seized certain papers from the handbag of oneSmt.Girija Rajagopal who was then an employee of the assessee's sisterconcern and later found to be a shareholder in the assessee company for Rs.1 lakh. Copy of the agreement seized was for sale of Smt.ChandraBalakrishnan's 23 cents of land, later purchased by the assessee for aconsideration of Rs.32.5 lakhs, to one Mr.Gangadharan. Admittedly, thesale in terms of the agreement between Smt.Chandra Balakrishnan andMr.Gangadharan did not take place. On the other hand, sale deed wasexecuted for sale of the property in favour of the assessee for Rs.18 lakhs.In the course of block assessment in the case of the assessee, thedepartment found that the agreement entered into between the owner andMr.Gangadharan was for sale of property to the assessee and the actualconsideration for the sale was the consideration mentioned in the saleagreement between the owner and Mr.Gangadharan and not the sale price asshown in the sale deed. Accordingly, the unexplained investment in thepurchase of property was treated as suppressed income of the assessee.Besides this, based on the documents seized from the bag of Smt.GirijaRajagopal and based on the statement furnished by her, the departmentfound that the assessee was engaged in suppression of sale price of each flatat the rate of Rs.75,000/-. Income estimated on this account at the rate ofRs.75,000/- per flat was for the 42 flats booked for sale. In appeal filed bythe assessee against the block assessment, the Tribunal deleted the additionmade representing alleged suppression of purchase price. So far as addition on unaccounted receipt of sale consideration for the flats isconcerned, the Tribunal limited addition to Rs.12 lakhs because accordingto them by the time the search was made, sale had taken place only inrespect of 16 flats. It is against this order of the Tribunal that both theassessee as well as the department have filed these connected appealschallenging the findings on both the issues decided by the Tribunal. Wehave heard Senior counsel Sri.P.K.R.Menon, appearing for the Income TaxDepartment and Senior counsel Sri.P.Balachandran, appearing for theassessee. 2. The first issue raised in the appeal filed by the department isagainst the deletion of addition representing purchase price paid forpurchase of property by the assessee over the value declared in the saledeed. The differential amount added in the assessment is Rs.14.5 lakhs.Senior counsel appearing for the department referred to the copy of theagreement seized from the assessee's office which shows that the propertywas agreed to be sold between it's owner Smt.Chandra Balakrishnan andone Mr.Gangadharan for Rs.32.5 lakhs. According to him, it is pursuant tothis agreement the sale deed was executed in favour of the assesseecompany which was a nominee of Mr.Gangadharan. Even though counselfor the assessee denied the allegation, it is conceded that there was no agreement for sale between the owner of the property and the assesseecompany. We are unable to accept the argument of the assessee anduphold the order of the Tribunal in favour of the assessee for more than onereason. In the first place, Mr.Gangadharan is not a total stranger to the saledeed between the owner of the property and the assessee company becausealong with the husband of Mrs.Chandra Balakrishnan, the managingdirector of the assessee company was a witness to the agreement executedbetween owner of the property and Mr.Gangadharan. Besides this,Mr.Gangadharan himself instructed the director of the assessee company todeposit Rs.1 lakh, the amount advanced by him to the owner of the property,in his Bank account. The assessee has no explanation as to how the saledeed was executed between the assessee company and the owner of the landfor a substantial consideration of Rs.18 lakhs without prior agreement. Inorder to execute a sale deed even for Rs.18 lakhs, the company has to spendsubstantial amount for purchase of stamp paper and raise the saleconsideration for the purpose of execution of sale deed. No company canbe expected to make all these arrangements without entering into anagreement for purchase of property with it's owner. The assessee has noexplanation as to how the sale was agreed upon in an informal mannerwithout execution of a sale agreement. Apart from all these, the assessee or the owner of the land did not deny the sale agreement between Smt.ChandraBalakrishnan and Mr.Gangadharan for sale of the property for Rs.32.5lakhs. The amount shown in the sale agreement should naturally representthe market value of the property. It is very strange that the very sameproperty was in fact purchased by the assessee company almostcontemporaneously at almost half the price i.e. for Rs.18 lakhs. Eventhough counsel for the assessee contended that Mr.Gangadharan is a non-resident and he offered a fancy price for the property, we are unable toaccept this argument because reason if any for Gangadharan's backing outfrom the sale deed is not proved. Even though counsel for the assesseesubmitted that the property was subject to mortgage to Dhanalakshmi Bankand it was got valued at around Rs.14.5 lakhs by approved valuers, we donot think that the valuation can represent the market value at which it waspurchased by the assessee. The only inference reasonably possible from allthese facts is that the sale agreement between the owner of the property andMr.Gangadharan reflect the actual terms of sale including the sale price andthe sale pursuant to said agreement was the one executed in favour of theassessee company. Therefore, there was suppression in the purchase pricedisclosed by the assessee and so much so, the addition of Rs.14.5 lakhs isperfectly justified. We, therefore, reverse the order of the Tribunal and allow the department's appeal on this issue. 3. The next issue raised which is common in the appeals filed by thedepartment as well as the assessee is against the addition of Rs.12 lakhssustained by the Tribunal representing unaccounted sale price collected bythe assessee for sale of the flats. The evidence collected in this regard is theaccount slips recovered from the bag of Smt.Girija Rajagopal who wasadmittedly an employee of the assessee's sister concern and later ashareholder of the assessee company. In fact, Smt.Girija Rajagopalconfirmed the correctness of the entries through her own statement. Theevidence is accepted by the Tribunal as sufficient proof of unaccountedcollection of sale price for each flat by the assessee at the rate ofRs.75,000/- per flat. We do not find any ground to interfere with thefindings of fact based on convincing evidence. The assessee's appeal onthis issue is therefore dismissed. 4. The department's appeal is against the partial relief granted by theTribunal by limiting the addition to Rs.12 lakhs on the ground that sale ofonly 16 flats had taken place at the time of search. Senior StandingCounsel submitted that assessee had contracted for sale of 42 flats. Eventhough we find logic in this argument, we feel it was premature to makeaddition on account of suppression in sale price before sale of flats. The assessment is for the block period ending upto the date of search andtherefore, it was open to the department to consider what sale price wasdisclosed by the assessee for the later period and if there is suppression, it isopen to the department to make addition for the subsequent year when thesale takes place. In this view of the matter, we are of the view that theTribunal was justified in limiting the addition pertaining to the flats sold ason the date of search. We, therefore, dismiss the department's appeal on thisissue. Both the appeals are disposed of as above. C.N.RAMACHANDRAN NAIRJudge pms T.R.RAMACHANDRAN NAIRJudge