By K. B. Bhujle
Advocate
CIT vs. Damac Holdings Pvt. Ltd. 401 ITR 495 (Ker); Date of Order: 12/12/2017:
A. Ys. 2007-08 and 2008-09:
Sections 37, 132 and 132(4A)
The two
assessee companies, D and R, were involved in the business of real estate,
purchased landed property and developed and sold it. D purchased a piece of
land for about Rs. 5 crore which he sold for about Rs. 13 crore and R purchased
property for about Rs. 4 crores and sold it for about Rs. 9 crore. Both
incurred certain expenditure on developing the land in order to make it fit for
selling. D’s transactions took place in the A. Ys. 2007-08 and 2008-09 and R’s
in A. Y. 2008-09. Assessments were initiated on the basis of searches conducted
u/s. 132 of the Income-tax Act, 1961, in the residence of the directors of both
the assessee-companies. The assessee’s claimed the deduction of the expenditure
incurred on developing the properties in order to make them fit for selling.
The claims were supported by the various documents seized from the assesses
during the searches conducted. The assesses claimed the benefit of presumption
u/s. 132(4A) of the Act. The Assessing Officer worked out the total expenditure
and apportioned it to the total area and computed the cost expended. However,
he disallowed the claim for deduction. He was of the view that the vendors of
the property had incurred and claimed expenditure for leveling the property and
hence, there was no requirement for the assesses to make the expenditure to the
extent claimed.
The
Commissioner (Appeals) allowed the claims of both assesses to the extent of the
cheque payments as disclosed from the documents seized from the premises and
disallowed the balance. The Tribunal allowed the entire expenses as claimed by
the assessee.
On appeal
by the Revenue, the Kerala High Court held as under:
“i) Section 132(4A) of the Income-tax Act, 1961
provides for presumption, inter alia, of contents of the books of
account and other documents found in the possession and control of any person
in the course of a search, u/s. 132, to be true, and the presumption applies
both in the case of the Department and the assessee and could be rebutted by
either.
ii) The presumption u/s. 132(4A) applied in
favour of the assessee in so far as the expenditure being supported by the documents
seized at the time of search was concerned. There was no need for further proof
u/s. 37, since the Assessing Officer did not endeavour to carry out an enquiry
and investigation into the source of investment or the genuineness of the
expenditure made. However, the presumption could have effect only to the extent
of the documents seized and nothing further.
iii) There was no basis for the Assessing
Officer’s computation of the leveling expenditure. His finding that the vendors
of the property had spent for leveling the property and hence, there was no
requirement for the assessee to make the expenditure to the extent claimed,
could not be sustained. He had proceeded on mere conjectures and had ignored
the seized documents which contained the evidence of cheque payments and
vouchers of cash payments effected for the development of the lands. He also
did not verify the source of income for such expenditure. The fact that the
sale price was astronomical as against the purchase price raised a valid
presumption in favour of the contention of the assesses that, but for the
development of the property to a considerable extent that would not have been
possible, especially when there is no unusual spurt in the land prices during that short period.
iv) The Commissioner (Appeals) had considered the
documents produced and had allowed the claim to the extent that there were cheque
payments, as was discernible from the documents seized. Therefore, in the teeth
of the presumption as to the truth of the documents seized, no further proof
was required u/s. 37, the Department having failed to rebut such presumption.
v) The allowance of expenditure for leveling the
land was to be confined to the documents revealed from the seized documents,
whether it was cash or cheque payments.”
