TaxTMI 
TaxTMI 
2016 (1) TMI 1083
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....w in- 1. Determining and holding alleged under charge in case of flats sold to the following purchasers a. Harilal Shavji Patel b. Ambalal Premji Patel c. Kanji Dharamshi Patel d. Bharat Nanji Patel 2. Failing to consider relevance of time and terms of payment with reference to each of the registered agreements for sale of flats while comparing the rate of realization from the flats and replacing it by applying a uniform rate for sale at Rs. 8,990/- per sq.ft. for the entire project of 12 flats. 3. Holding that any further amount was realized/realizable from sale of flats accounted as per the registered agreement of sale and assuming a flat rate of realization at Rs. 8,990/- sq. ft. 4. Holing that agreements entered into by the appellant and relied upon do not reflect true rates at which the appellant sold 12 flats in the project Joanna Villa. 5. Holding that the appellant has not correctly declared or disclosed the consideration received by it on sale of 12 flats in the Joanna Villa Apartment project completed during the year. 6. Holding and alleging that the entire activity of the appellant was pre-meditated with the only object of understating the p....
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....then but there was hardly any activity on the said project whereas Joanna Villa project which was started in financial year 2001-02 was completed during the year. The said project comprised of twelve flats. The assessee accounted for the income from Joanna Villa project during the current year on the basis of project completion method. The work-in-progress as on 31.03.2004 and 31.03.2005 were 6,05,31,118/- and 6,73,63,991/- respectively and gross sales were Rs. 7,71,46,062/- thereby showing an income at Rs. 96,76,871/- and after setting off brought forward loss of Rs. 2,00,222/- , returned a total income of Rs. 94,76,650/-. 4. The AO during the course of assessment proceedings of the current year noticed that out of twelve flats constructed in the said project, eight flats were booked in the F.Y. 2003-04 and full sale considerations in respect of seven flats were received during the year. AO further observed on the basis of WIP at the year end vis-à-vis previous year that 89% of the project was completed at the end of the F.Y. 2003-04 and, therefore, came to conclusion that Goanna Villa project was completed in assessment year 2004-05 and not in assessment year 2005-06 as c....
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....inally a Memorandum of intended agreement for development dated 14.07.2001 was entered into with the assessee by the said original owners under which the rights to develop the said property were transferred to the said assessee for a total consideration of 2.70 crores. As per the MOI, the assessee was to use the balance FSI if any and also to use additional FSI by purchasing the TDR from outside at its own cost and put up additional construction on the existing structure as described before. All the liabilities and the responsibility of the original owners qua the said property including their commitment and liabilities qua four 'agreements to sell' were also taken over by the assessee. The Ld. Counsel further submitted that MOI was approved by appropriate authority vide order dated 05.10.2001. Thereafter the assessee got the building plans amended and obtained sanction vide order dated 9.11.2001 to construct five additional floors in place of second floor above the old structure as got approved by the original owners. The Ld. Counsel argued that the CIT(A) has grossly erred in ignoring the fact that the assessee under MOI had undertaken to honour the commitment of original owners ....
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....rused the relevant material on record. After hearing the ld authorized representative and the departmental representative we find that Mrs. Rose Margaret Dorothy Nazareth nee D'Souza and Mr. Joseph Peter Francis D'Souza (hereinafter called, 'the original owners') owned the property called 'Joanna Villa' situated at 28th Road, off Turner Road, Bandra, Mumbai having a structure on the said property comprising ground floor and an upper floor. The original owners intended to develop the property by putting up additional construction above the existing structure on exterior columns on all sides without demolishing the existing structure. They got plan sanctioned by BMC vide order dt.21-03-2001 permitting them to construct an additional floor, i.e., 2nd Floor comprising 4 flats bearing nos.201, 202, 203 and 204 and renamed the existing building as the 'Joanna Apartments'. The original owners entered into 4 separate agreements for sale on 28-05-2001 with original buyers of the proposed 4 flats which were registered with the Sub-Registrar of Assurances, Bandra, in terms of which the 4 flats were proposed to be sold as under: TABLE -A Flat No. Purchaser Area (car....
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....ration of Rs. 2.70 crores. It was stipulated that all the flats to be constructed in the said property shall belong to the appellant which shall be entitled to deal with or dispose them off in own ways and also entitled to receive and appropriate the sale proceeds thereof. The appellant, therefore, entered into separate Modificatory Agreements for Sale with the 4 original purchasers. The agreement with Shri Harila Savji Patel was entered on 24-07-2003 and with other three, namely Shri Ambalal Premji Patel, Kanji Dharamshi Patel and Bharat Nanji Patel, on 23-03-2004. In terms of the Modificatory Agreements all the four purchasers opted for change of accommodation and additional space in the new construction. Accordingly the following flats, additional space and the agreed rates were provided for in the modified agreements: TABLE-B *represents open terrace at 7th floor, value which was valued for only 40% of the terrace area (e.g., for Flat 601 terrace area of 473.23 sq. ft. , the same for valuation was taken at 40%, i.e., 189.30 sq.ft. X Rs. 6, 000 = Rs. 11,35,800) 10. On completion of the project the appellant accounted for the sales of all the 12 flats constructed in the financ....
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.... sales value of the two flats at Rs. 1,87,13,295. After adjusting the sales of Rs. 49,89,840 accounted for by the appellant, he added the difference of Rs. 1,37,23,455 as suppressed sales value for these two flats. Thus the AO made total addition of Rs. 2,50,85,904 (1,13,62,449 + 1,37,23,455) on account of suppressed sales. We note that the CIT(A) held that the AO was right in forming an opinion that that there was suppression of sales value but he was wrong in calculating the suppression only to 6 flats and not for all the 12 flats. In other words, the accounts of the appellant were not correct or complete and the true profits of the project could not be determined based on them. Accordingly, CIT(A) invoked the power given under section 145(3) and proceeded to estimate income from the project on the basis of best of my judgment by relying in case of CIT v. McMillan and Co 33 ITR 182 (SC) and CIT vs A. Krishnaswami Mudaliar 53 ITR 122 (SC) and Kachwala Gems vs.JCIT 288 ITR 10 (SC)] and estimated sale value as per Table C below and enhanced the asseassment by Rs. 5,30,80,200/- by holding that the market value of the flats sold by the appellant during the period from 30-10- 2002 and ....
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....nd the decisions relied on by the CIT(A) are not applicable to the assessee's case as the guess work in estimation can only be made when there defects in the records maintained by the assessee and it is not possible to arrive at the correct income by the AO on the basis of the said records. Further ,we also find force in the arguments of the ld authorized representative that the provision of section 50C are not applicable for ascertaining the full value of consideration in respect of business assets i.e inventories as the said provisions deals with ascertaining the full value of consideration in case of capital assets for the purpose of capital gain. Further our attention was drawn to the newly inserted section 43CA of the act which deals with ascertaining the full value of consideration in case of assets other than capital assets but the said section is applicable w.e.f. 2014-15. After taking into accounts all the facts, arguments of both the parties and records before us, we are of the considered view that the order passed by the ld.CIT(A) suffered from several infirmities and cannot be sustained. We therefore delete the enhancement of assessment of Rs. 5,30,80,200/- by the CIT(A....