By Ajay R. Singh, Advocate
CIT – 5 vs. M/s.
Neelkamal Realtors and Erectors India Pvt. Ltd. [Income tax Appeal no 1549 of
2014, dated: 28/02/2017 (Bombay High Court)].
[M/s. Neelkamal Realtors
and Erectors India Pvt Ltd vs. DCIT. [ITA NO. 1143/Mum/2013; Bench : F ; dated
16/08/2013; A Y:2009-10 . Mum. ITAT]
The assessee is a
builder/developer following the project completion method of accounting. During
the previous year relevant to the AY the assessee offered net profit of Rs.
3.63 crore on completion of a project called ‘Orchid Towers’. During the
assessment proceedings, the assesses was asked to furnish party-wise details of
flats sold with details of name and addresses of the buyers, area of flat sold,
total sale consideration, date of agreement, date of receipt of first payment etc.
On the perusal of details as furnished, the AO concluded that there were
variations in prices charged by the assessee to different customers. Therefore,
AO made addition of Rs.15.22 lakh on the basis of difference between the rates
charged in respect of similar flats. Thereafter as a consequence to
rectification application made by the assessee, the AO reduced the addition of
Rs.4.45 crore.
Being aggrieved the
assessee filed an appeal to the CIT (A). The CIT (A) sustained the addition to
Rs.8.53 crore. This on completely new ground, namely, value of the flats had to
be considered not on the basis of consideration received but on application of
the provisions of section 50C as well as section 56(2)(vii)(b)(ii) of the Act.
Being aggrieved, the
assessee filed a further appeal to the Tribunal. The Tribunal held that section
50C of the Act which has been invoked by the CIT (A) would have no application
in the facts of the present case. This in view of the fact that section 50C is
part of Chapter IV-E of the Act dealing with the head ‘Capital gains’. The
aforesaid provision is applicable only for purpose of computing the income
chargeable under the head ‘Capital gains’. It would have no application in
determining income under Chapter IV-D of the Act under the head ‘Profits and
gains of business or profession. Further, the impugned order holds that section
56(2)(vii)(b)(ii) of the Act would have no application as it applies to an
individual or Hindu Undivided Family (HUF). The Assessee here is neither an
individual or HUF. The Tribunal further held that section 56(2)(vii)(b)(ii) of
the Act seeks to levy tax in the hands of the transferee of the flat i.e.
purchase of flat without consideration or for consideration which is less than
stamp duty value of the property in excess of Rs.50,000/-.In this case, section
56(2)(vii)(b)(ii) of the Act is sought to be applied admittedly to a
transferor. The Tribunal further records the fact that section 56 of the Act
which refers to income from other source i.e. not chargeable under other heads
of income. In the present facts, the consideration received on sale of flats
was offered as income under the head ‘Profits and gains of business or
profession’. Further, the Tribunal also holds that the AO without giving any
reason did not accept the explanation offered by the assessee for difference in
consideration received from different customers with regard to sale of flats in
“Orchid Towers” and allowed the appeal of the assessee.
Being aggrieved, the
Revenue filed an appeal to the High Court. The High Court observed that so far
application of section 56(2)(vii)(b)(ii) of the Act is concerned, it is self
evident that it only applies to individuals and Hindu Undivided Family.
Moreover, it seeks to tax the transferee of the property for having given
consideration for which is less than the stamp value by Rs.50,000/- or more for
purchase of the property. Lastly, the finding of Tribunal that the AO did not
deal with explanation offered by the assessee justifying the difference in
prices of similar flats, is a finding of fact. This has not been shown to be
perverse. In the above view, appeal was dismissed.
