2017 (6) TMI 1283 - AT - Income Tax

ITAT confirms deletion of addition for lack of proof

ACIT – 19 (3), Mumbai Versus Shri Rustom Soli Sethna

The ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 3,71,19,888, as the Revenue failed to prove suppressed sale consideration. The ITAT ... Addition of suppressed sale consideration - 4 flats sold by the assessee at a lower rate than the other flats in the same building - assessee failed to justify before the AO as to why the aforesaid flats were sold at a lower price - HELD THAT:- CIT(A) observed that sales price declined by the assessee was not below price declared by the State Government of Maharashtra or below the market price. AO has simply applied deferential in the rates of booking of flat No.701 and other flats for arriving at the actual booking rate for all the flats other than falt No.701. Decision of the Tribunal in case of Diamond Investment and Properties [2010 (7) TMI 1037 - ITAT MUMBAI] relied on by the AO was on different facts in so far as in the case of Diamond Investment Flats were sold by the assessee to the related parties, however, in the case of above all the flats were sold by the assessee to the parties not related to the assessee. After giving detailed justification, the CIT(A) has applied the proposition laid down in case of Neelkamal Realtors & Erectors India (P) Ltd [2013 (8) TMI 557 - ITAT MUMBAI]. The facts of the case were very much similar to the assessee's case. The issues before the Tribunal in the above case was whether since assessee tendered explanation in support of charging lower price in respect of some of the flats sold by it, which AO failed to controvert, addition is sustainable. ITAT held that addition in entirety is liable to be deleted - No reason to interfere in the order of CIT(A) for deleting the addition made on account of estimated sales price by disregarding the actual sale price shown by the assessee. - Decided against revenue Issues Involved:1. Deletion of addition on account of suppressed sale consideration.2. Application of comparable method for determining sale price.3. Justification of lower sale prices for certain flats.4. Relevance of previous ITAT and High Court decisions.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Suppressed Sale Consideration:The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 3,71,19,888, which was made by the Assessing Officer (AO) due to the sale of four flats at prices lower than other flats in the same building. The AO argued that the sale price of flat no. 701 should be used to compute the sale price of all flats, as it was sold at a higher rate during a market boom. The assessee explained that the lower prices were due to a market downturn and liquidity issues in 2009, which forced a reduction in prices to encourage sales. The CIT(A) accepted the assessee's explanation, noting that the sales were to unrelated parties and were financed by banks after due diligence, and thus deleted the addition.2. Application of Comparable Method for Determining Sale Price:The AO applied the comparable method used in transfer pricing to determine the sale price of the flats, using the higher rate of flat no. 701 as a benchmark. The CIT(A) found this method inappropriate for transactions between unrelated parties. The CIT(A) emphasized that the comparable method is relevant for international transactions and related party transactions, not for unrelated parties without evidence of income suppression. The CIT(A) also noted that the AO did not dispute the affidavits provided by the estate agent and buyers, which supported the lower sale prices due to market conditions.3. Justification of Lower Sale Prices for Certain Flats:The assessee justified the lower sale prices by citing market conditions and the need to encourage sales during a downturn. The CIT(A) accepted these reasons, supported by affidavits from buyers and the estate agent. The CIT(A) also noted that the sale prices were higher than the market rates computed by the Maharashtra government. The ITAT upheld the CIT(A)'s decision, referencing a similar case (Neelkamal Realtors & Erectors India (P) Ltd) where the ITAT held that the AO must provide concrete evidence to reject the assessee's explanation for lower prices. The ITAT emphasized that hypothetical income cannot be taxed without express provisions.4. Relevance of Previous ITAT and High Court Decisions:The AO relied on a previous ITAT decision in the case of Diamond Investment & Properties, where additions were upheld due to sales to related parties at lower prices. The CIT(A) distinguished this case, noting that all sales in the present case were to unrelated parties. The CIT(A) also referenced the Supreme Court's rulings in K.P. Varghese v. ITO and CIT v. Shivakami Co. (P) Ltd, which held that the burden of proving understatement of consideration lies with the Revenue. The ITAT agreed with the CIT(A) that the AO did not provide sufficient evidence to prove that the assessee received higher prices than declared.Conclusion:The ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 3,71,19,888, agreeing that the AO did not provide sufficient evidence to justify the addition. The ITAT emphasized that the burden of proof lies with the Revenue to show that the sale prices were understated. The appeal of the Revenue was dismissed.