2017 (10) TMI 1339 - HC - Income Tax

Tribunal Upholds Decision on Profit Deletion & Undisclosed Sales, Requiring Re-examination

M/s. Real Forts & Resorts Pvt. Ltd. Versus Commissioner of Income Tax Calicut.

M/s. Real Forts & Resorts Pvt. Ltd. Versus Commissioner of Income Tax Calicut. - TMI Issues Involved:1. Remanding of profit on sale of pent house.2. Remanding of alleged undisclosed profit on sale of land and building.3. Addition of undisclosed sale proceeds of City Centre space.4. Evidentiary value of a statement taken on oath under Section 131.5. Applicability of the decision in Paul Mathew & Sons.6. Addition based on a statement from survey proceedings prior to the search.Detailed Analysis:1. Remanding of Profit on Sale of Pent HouseThe first issue pertains to the deletion of Rs. 21 lakhs related to the profit on the sale of a penthouse. The first appellate authority deleted this addition, citing a non-completion certificate and lack of seized material. The Tribunal remanded the issue to the Assessing Officer for fresh consideration, noting that the assessment order did not clarify whether the addition was for suppressed construction costs or sale receipts. The Tribunal also found that fresh evidence was considered by the first appellate authority without confronting the assessing authority. These reasons were deemed legally sound, and the Tribunal's decision to remit the issue was upheld.2. Remanding of Alleged Undisclosed Profit on Sale of Land and BuildingThe second issue involves the addition of Rs. 50,81,874/- as undisclosed profit on the sale of land and constructed area. The Tribunal remanded this issue, stating that the Assessing Officer failed to consider the terms of the agreement between the assessee and the landowners. The Tribunal directed the Assessing Officer to re-examine the issue in light of the seized materials and the terms of the agreement. This reasoning was also found valid, and the Tribunal's decision was upheld.3. Addition of Undisclosed Sale Proceeds of City Centre SpaceThe third issue concerns the addition of Rs. 50 lakhs related to the unaccounted receipt on the sale of commercial space to M/s Malabar Tower and Superior Decor. The first appellate authority set aside this addition, but the Tribunal restored it. The assessee argued that materials recovered during a survey conducted before the search could not form the basis for an order under Section 158BB. The court agreed, stating that the computation of undisclosed income must be based on evidence found during the search or requisition of books of account. The court cited several judgments supporting this interpretation, including Commissioner of Income Tax v. G.K.Senniappan and CIT v. S. Ajit Kumar. The Tribunal's decision to sustain the addition was deemed legally untenable.4. Evidentiary Value of a Statement Taken on Oath Under Section 131The Tribunal held that the statement taken on oath under Section 131 from Sri Muneer during survey proceedings had evidentiary value. However, the court found that materials recovered during a survey could not be relied upon for computing undisclosed income for the block period under Section 158BB. This interpretation was consistent with prior judgments, and the Tribunal's reliance on the statement was found to be incorrect.5. Applicability of the Decision in Paul Mathew & SonsThe Tribunal held that the decision in Paul Mathew & Sons was not applicable to the facts of the case. However, the court did not provide a detailed analysis of this issue in the judgment. The focus remained on the evidentiary value of materials recovered during a survey and their applicability under Section 158BB.6. Addition Based on a Statement from Survey Proceedings Prior to the SearchThe Tribunal confirmed the addition of Rs. 50 lakhs based on a statement from Mr. Muneer taken under Section 131 during survey proceedings prior to the search. The court found this approach legally flawed, as materials recovered during a survey could not be used for computing undisclosed income under Section 158BB. The court emphasized that the computation must be based on evidence found during the search or requisition of books of account.Conclusion:The appeal was disposed of with the court answering the questions of law in favor of the assessee. The Assessing Officer was directed to reconsider the matters as ordered by the Tribunal, ensuring compliance with the legal standards outlined in the judgment.