2013 (3) TMI 124 - HC - Income Tax

Court rules on rental income assessment and sale consideration, emphasizing evidence requirement for profit additions.

CIT. Versus Discovery Estates Pvt. Ltd.

CIT. Versus Discovery Estates Pvt. Ltd. - [2013] 356 ITR 159 Issues Involved:1. Whether the rental income should be assessed under the head 'income from business' or 'income from house property.'2. Whether the sale consideration disclosed by the assessee on the sale of shops should be accepted.3. Whether the findings recorded by the Income Tax Appellate Tribunal in respect of the sale consideration are perverse.Issue-wise Detailed Analysis:1. Rental Income Assessment:The court addressed whether the rental income should be assessed under 'income from business' or 'income from house property.' It was agreed that the first substantial question of law should be answered in the negative, in favor of the Revenue, and against the assessee, based on the precedent set by CIT Vs. M/s Ansal Housing Finance and Leasing Co. Ltd. & Ors.2. Acceptance of Sale Consideration:The court examined whether the sale consideration disclosed by the assessee should be accepted. The assessee, engaged in constructing commercial complexes, sold shops at varying rates. The Assessing Officer (AO) observed discrepancies in the sale prices, noting that some shops were sold below the cost price, leading to a disallowance of the loss claimed by the assessee.The assessee argued that sale prices vary due to factors like location, demand, and urgency of buyers. The CIT (Appeals) accepted these explanations, finding no justification for disallowing the loss, which was upheld by the Tribunal. The Tribunal noted that the AO did not find defects in the assessee's books and failed to provide evidence of higher actual sale prices. It emphasized that market conditions alone cannot justify doubting the declared prices without concrete evidence.3. Perverse Findings by the Tribunal:The court considered whether the Tribunal's findings were perverse. The Revenue contended that the CIT (Appeals) and Tribunal did not properly examine the assessment orders and overlooked the absence of registered sale documents and sales to sister concerns at low prices. The assessee countered that such features are starting points for inquiry but not evidence of suppression of sale prices. The court agreed with the assessee, stating that the AO must provide evidence of suppression to justify additions to the sale price or profits.The court highlighted that the AO's power to enhance profits is limited to specific situations under Sections 145, 50C, and 92BA of the Income Tax Act. Section 50C applies only to capital gains, and Section 92BA, effective from the assessment year 2012-13, pertains to specified domestic transactions exceeding Rs. 5 crores. The court noted that the AO did not invoke Section 145(3), which allows for best judgment assessment if the accounts are found incomplete or incorrect.The court cited precedents where the absence of evidence of sham transactions or market prices paid by purchasers meant that concessional sales prices could not be taxed. It also referenced a case where mechanical addition based on fair market value was disapproved.The court concluded that the Tribunal's findings were not perverse, as they were based on proper principles and did not ignore relevant material. The Tribunal's order was upheld, and the second substantial question of law was answered in the affirmative, favoring the assessee. The third question was answered in the negative, also favoring the assessee.Conclusion:The appeals filed by the Revenue were partly allowed, with the court ruling in favor of the Revenue on the first issue and in favor of the assessee on the second and third issues.