6 Section 28 – Two properties sold by a builder within a short span of time in an industrial park developed by it at different rates cannot be a ground for presuming that the assessee has received ‘on money’.

Shah Realtors
vs. ACIT

Members: B. R.
Baskaran (A M) and Pawan Singh (J M)

ITA No.:
2656/Mum/2016

A.Y.:
2012-13.  Dated: 25^th May,
2018

Counsel for
Assessee / Revenue: Dr. K. Sivaram and Sashank Dandu / Suman Kumar

Facts

The assessee is
a partnership firm, carrying on business as 
builder and developer.  During the
previous year relevant to the assessment year, the assessee sold various
buildings/ galas in the industrial park developed by it.  The AO observed variations in the selling
rates of two buildings viz., Rs. 1,948 in building No. 10 and Rs. 5,025 in
building No.3. He concluded that the assesse had taken ‘on money’. Accordingly,
he made addition of Rs.2.52 crore. On appeal, the CIT(A) confirmed the order of
the AO. 

Before the
Tribunal, the revenue justified the orders of the lower authorities and
submitted that there was about 75% difference in the rates of building No. 3
and 10 and the assessee failed to substantiate the reason when both the
buildings were sold within a short span of time.  It also relied on the decision of CIT vs.
Diamond Investments & Properties in ITA No.5537/M/2009 dated 29.07.2010
and the decision of the Supreme Court in Diamond Investment & Properties
vs. ITO [2017] 81 Taxmann.com 40.

Held

The Tribunal
noted that building No. 3, which according to the AO was sold at a higher rate,
was already in possession of the buyer (on leave and licence basis) and plant
and machinery were already fastened to earth. Besides the assessee also handed
over possession of approximately 12,000 sq. ft. of adjoining  plot for exclusive use by the said buyer.
Therefore, taking the advantage of situation, the said building was sold to
buyer at a lump-sum price of Rs. 4.25 crore. 

The Tribunal
further noted that the assessee had sold the Building No.3 & 10 at a rate
higher than the stamp value rate.  The AO
on his suspicion about the “on money” made the addition on the basis of
variation of rates between two buyers. According to the Tribunal, the onus was
upon the AO to prove that the assessee had received “on money” on sale of
building. He made the addition without any evidence in his possession.  No enquiry was made of the purchaser of
building no. 10 which was sold at a lower rate, which according to the Tribunal,
was necessary. 

The tribunal further
observed that, when the AO had required the assessee to show-cause as to why
there was a difference between two transactions and when the assessee had
offered an explanation, no addition could be made simply discarding his
explanation. There must be evidence to show that the explanation given by the
assessee was not correct. It is settled law that no addition can be made on
hypothetical basis or presuming a higher sale price by simply rejecting the
contention without cogent reason. 
According to it, the case law relied by AO in ITO vs. Diamond
Investment and Properties was not applicable, since in that case the flats
were sold to the related parties at lower price than the price charged to the
other parties.  The Tribunal also
referred to a decision of the coordinate bench of Tribunal in Neelkamal
Realtor & Erectors India Pvt. Ltd. 38 taxmann.com 195 where where the
assessee had offered an explanation for charging lower price in respect of some
of the flats sold by it and AO without controverting such explanation had made
addition to income of assessee by applying the rate at which another flat was
sold by it.  It was held that the AO was
not justified in his action.  The Tribunal
also referred to a decision of the Supreme Court in the case of K.P. Varghese
vs. ITO [1981] 131 ITR 597 where it was emphasised that the burden of
proving an understatement or concealment was on the Revenue.  In the result, the appeal of the assessee was
allowed.