The judgment of the court was delivered by
By way of this appeal, the appellant has challenged the judgment and order passed by the Tribunal whereby the Tribunal has allowed the appeal of the assessee and dismissed the appeal of the Department modifying the order of AO as well as the CIT(A).
2. This Court while admitting the matter has framed following questions of law :
"Whether on the facts and in law the Tribunal was justified in deleting the trading addition made on account of suppression of sale by the AO after rejecting books of accounts under s. 145(3) and assigning detailed reasons for the same ?"
3. counsel for the appellant has taken us to the order passed by the AO and contended that the AO after considering the evidence on record as well as considering the transactions has observed as under:
Thus the AO rejected the books of account as aforestated and held at internal p. 11 of her order that the total area of the plots sold by the assessee works out to Rs. 1,23,274.92 sq. yards and applied the rate of Rs. 635 per sq. yard on the aforesaid square yards. On the other hand, the assessee has shown the value of Rs. 4,40,72,870 received against the selling of aforesaid land. The difference of the same i.e. Rs. 3,42,06,704 was added to the total income of the assessee on account of addition of suppression of sales.
4. He contended that there are group of persons who purchased the plot and the price was at a higher side whereas in the individual case, it should have been at a lower side. The calculations are as under :
(i) Following facts with respect to purchase of land were reflected in records as :
Date of Purchase |
Area Purchased |
Amount (Rs.) |
Salable land (sq. yds) |
Cost of purchase of salable land Rs./sq. Yds |
04-08-03 |
43 Bigha =1,41,900 sq, yds. |
3,29,23,000 |
90,438 |
364 |
From the above table it was seen that the cost of purchase of land was Rs. 364 per sq. yard while the plots were sold for Rs. 400 per sq. yard which included a sum of Rs. 165 per sq. yard as development charges as told by learned Authorized Representative during the course of proceedings. Therefore, in effect the selling price of the land was only Rs. 235 sq. yard (400-165) which denoted that the assessee was selling the plots at loss. This position did not reflect true and correct picture of books of account of the assessee because selling the plots at loss in Real Estate is absurd and not acceptable.
(ii) In so far as sale of plots for shops were concerned, the same were sold for Rs. 232.60 sq. yard (excluding development charges) whereas plots meant for residential purposes were sold for Rs. 235 sq. yard as mentioned above (excluding development charges). This position is again absurd and unacceptable because plots sold for commercial activity are any day costlier than for plots earmarked for residential purposes. This fact is also supported by DLC rates wherein it is categorically mentioned that the rate of plots for commercial area will be three times for that of residential area.
(iii) A copy of DLC rates obtained from the Dy. Registrar, Sanganer, reflected that the rate of land for the above area i.e. Shrikishanpura ranged between Rs. 360 sq, yard to Rs. 660 sq. yard for the width of the road ranging between 30 feet to 100 feet, respectively. On the contrary, the assessee has sold the plots at much lower rate @ Rs. 265 sq. yard, without taking into account any criteria including the width of the road.
(iv) As observed in the details submitted by learned Authorized Representative there was no basis of fixing the sale price of the land sold to different persons, e.g. Rs. 635 per sq. yards and for others it was Rs. 400 per sq. yards (In the above rates, development charges @ Rs. 165 sq. yard were included). On examining the layout plan of the plot scheme, it was noted that irrespective of the location of the plot i.e. close to the main road, corner plot or deep inside the scheme, rates were uniform for all persons i.e. Rs. 400 per sq. yards, except for members of RTS as mentioned above to whom the plots were sold @ Rs. 635 sq. yard.
(v) The assessee another scheme at Bindayaka for which the land of 32.80 Bighas (1,08,240 sq. yards) was purchased on 24th Sept., 2002. The cost of purchAse per sq. yard for the salable land i.e. 64,944 sq. yards which is around 60 per cent of the total land (60 per cent X 1,08,240 sq. yards) worked out to be Rs. 148.40/ sq. yard whereas as per the agreement with members of Rajasthan Financial Corporation (RFC), the same were proposed to be sold at Rs. 755 per sq. yard. This fact is brought into light to establish that the plot of land which was bough earlier by the assessee was being sold at a higher rate (755/ sq. yard) whereas the plots out of land brought later were sold at much lower rate (400/ sq. yard).
(vi) As mentioned above, plots were sold @ Rs. 635 per sq. yards to members of RTS, and proposed to be sold at 755/ sq. yard to the members of RFC whereas it was sold merely @ Rs. 400/ sq. yard to other individual persons. The rates for the above two organisations should have been much less because plots were sold in bulk to them and they were in a better position to negotiate on the price of the land than the individuals. In fact, they were as many as 200 plots (100 plots of 300 sq. yards and 100 plots of 500 sq. yards) sold to members of RTS.
5. However, the CIT(A) in para 3 has observed as under :
"3.3 (III) On perusal of all the evidences and material on record. I find merit in the contentions raised by the Learned Authorised Reprsentative for the reasons discussed as under:
(a) It is observed that the appellant purchased agricultural land measuring 8.22 hectares on 24th Sept., 2002 for Rs. 96.38 lakhs. Thereafter, the appellant purchased another piece of agricultural and measuring 14.16 hectares on 4.8.03 for Rs. 329.32 lakhs, which was contiguous to the land purchased earlier and both these lands were located in the same village i.e. Srikishanpura. The appellant got the land converted from agricultural to residential, divided the same into plots of land, as per the relevant rules of the JDA and sold 307 plots measuring 123274 sq. yards for Rs. 440.72 lakhs, during the financial year relevant to this assessment year. As mentioned above, the total rea of both the chunks of land was 22.38 hectares, equivalent to 2,66,935 sq. yards. Out of the total land, after leaving the land for common facilities such as roads, parks, public utility etc., the saleable land remaining was 159697.56 sq. yards as per the Map approved by the JDA placed on record (PB-pg.27). The total cost paid by the appellant amounted to Rs. 42561 lakhs. Therefore, the average cost of saleable land works, out to 266.51 per sq. yard as claimed by the appellant assessee. Hence, I find that the contention of the learned Authorised Representative is correct that the average cost of purchase of saleable land is Rs. 266.51 per sq. yard and not Rs. 364 per sq. yard. As observed by the AO in the assessment order.
(b) further, it is seen that the appellant negotiated for sale of 200 plots with the members of the Rajasthan Tehsildars Service (RTS) @ Rs. 635 per sq. yd. which included the development charges @ 165/ per sq. yd. which were to be paid to the Jaipur Development Authority (JDA). However ultimately, the members of the RTS purchased 181 plots of land as against the above mentioned negotation of 200 plots of land. The plots purchased by the members of RTS were purchased at the effective rate of Rs. 470 per sq. yards, and regarding these facts there is no dispute. There for, the contention of the appellant, that a large number of plots were sold above the average cost of purchase of Rs. 266.51 per sq. yard, is also found to be correct because, undisputedly, 181 plots out of the total 307 plots were sold at Rs. 470 per sq. yard to the members of the RTS. Here it is also relevant to note that there is no dispute regarding the fact that the appellant got an average sale price of Rs. 357/ per sq. yard (after taking into account the plot sold at a price lower than average cost price) and earned an overall Gross profit of Rs. 366.66 lacs on total sales of plots at Ts.440.72 lacs i.e. G.P. rate of over 8 per cent .
(c) I also find merit in the argumetns of learned Authorised Reprsentative the persons examined by the AO had confirmed the purchase made from the appellant. In that regard, I have perused the statements of Shri Ramswarup Gurjar and Shri Roop Narain Sharma (PB pp. 52-53, 55-57) recorded by the AO on 13th Dec., 2006, wherein both these persons had confirmed the purchased of plots for shops at the same price as recorded by the appellant in its books of account.
(d) It is further observed that the books of account of the appellant assessee were duly audited by authorized Auditors and were produced before the AO for verification. However, the AO has not brought any evidence on record to indicate that the appellant had charged any money over and above the price recorded in the books for sale of any of the plots, including those of land, which were sold below the average cost of purchase, from any of the persons who purchased those plots. Therefore, I find merit in the contentions of the learned Authorised Reprsentative that no specific defect has been pointed out by the AO in the books of account particularly in relation to the amounts recorded in the books of account for sale of plots to persons, other than members of RTS.
(e) Further, I find substance in the contentions of learned Authorised Reprsentative that some of the plots were in dispute, out of those plots which were sold at a lower cost, because one of the owners of the agricultural land has separately sold those plots to another society i.e. Rajpura Grah Nirman Sahkari Samiti Ltd.. The appellant had produced the evidences regarding the dispute before the AO and which are placed on pp. 28 to 35 of plots of land were only about 30, however, they were placed at roads etc., and therefore had a bearing on the sale value of other nearby plots of land. Hence there is some substance in the argument of learned Authorised Reprsentative that the value of some of the plots was less as compared to those other plots, which were not affected by the dispute and accordingly, the appelalnt received less price for such plots of land.
3.3 (iv) On consideration of the entire facts and circumstances, discussed above, it is observed that there is no material or evidence on record to indicate that any of the entries recorded in the books of account of the appellant assessee, pertaining to the sale of residential plots/plots for the shops, was incorrect. Therefore, pertaining to the sale of residential plots/plots for shops, was incorrect. Therefore, the main contention of the learned Authorised Reprsentative against the rejection of books of account that account cannot be rejected under s. 145(3) of the IT Act, was found to be having substantial merit. Hence, in accordance with the foregoing observations, it is held that the AO was not justified in rejecting the books of account under s. 145(3) of the IT. Act in the case of the appellant assessee. Consequently, the ground of appeal against the rejection of books of account is decided in favour of the appellant assessee.
3.3(v) The second issue involved in this ground of appeal is against the estimation of sales by applying rate of 635 per sq. yard on the total area of plots sold at 123274.92 sq. yards leading to estimation of sales at Rs. 78279574, which resulted into addition of Rs. 34206704 on account of suppression of sale. In this regard, it is observed that the AO has made the said estimation after rejecting the books of account of the appellant assessee. However, as discussed in the preceding paras, I have held that the AO was not justified in rejecting the books of account of the appellant assessee. Therefore, as the books of account of the appellant assessee were not found to be liable to be rejected under s. 145(3) of the IT. Act, consequently, the estimation of sales made thereafter by the AO, leading to addition of Rs. 3,42,06,704, is also not sustainable. Accordingly, the AO is directed to delect that addition. Consequently, the appellant succeeds on this ground of appeal."
6. The Tribunal in Para 7 of the order has observed as under:
"7. We have heard the rival contentions and perused the facts of the case. We find that the main plank of rejection of books of account by the AO as borne out from her order was that since the average cost of purchase of saleable land comes to Rs. 364 per square yards and whereas the assessee has sold the plots for Rs. 400 sq. yards which included a sum of Rs. 165 per sq. yards as development charges, therefore, in effect the selling price of the land was only Rs. 235 per sq. yards. Thus the AO held that this position did not reflect true and correct picture of books of accounts as selling of plot at loss in Real Estate is absurd and not acceptable. As noticed by us in para 6 that the AO proceeded on a erroneous assumption of fact as she calculated the average cost of saleable land by taking into consideration only one part of land i.e.43 bighas only and whereas the other part which is 32.55 bighas was not at all considered by AO. The aforesaid fact was even considered by learned CIT(A) and therefore the learned CIT(A) was justified in holding that the actual average cost of saleable produce works out to Rs. 266.51 per sq. yard and not Rs. 364 per sq. yard as noted by the AO. To come to this conclusion, there was enough material on record as both the piece of lands were adjacent to one another and were at the same place in the village Srikishanpura but is at place called Bindayaka as held at internal p. 10 of her order. We have seen the land agreement of 43 bigha of land which is submitted in paper book at p. No.40 to 44 and also the land agreement of 32.55 bigha which is enclosed in paper book at p. no.45 to 51. Thus the totalj land area comes of 75.55 bigha and the saleable area comes of 159697.51 sq. yards. The said saleable area is as per JDA norms as a demand notice for deposition of development charges has been sent by JDA to the assessee which has been submitted at paper book p. 61. Thus the learned CIT(A) was justified as the average purchase rate comes to 266.51 sq. yards. We also noticed that the aforesaid fact was submitted to the AO vide letter dt. 15th Dec., 2006 which has been submitted at paper book p. 4 to 26. However, the said fact does not borne out in the order of the AO. Another striking feature which is borne out from the record is that the AO has examined two persons who purchased the plots and such persons have confirmed having paid the same price. We have perused the statement of Shri Ram Swaroop Gurjar and Shri Ram Narain Sharma which is submitted at paper book p. 55 to 59. Thus there was no material before the AO to hold that the assessee has suppressed the sale of plots, but on the contrary, we find that the AO has erroneously assumed wrong facts as aforestated in rejecting the books of accounts and thereby proceedings to estimate the income of the assessee on account of suppression of sale of plot. We concur with the findings of the CIT(A) and hold that the AO was not justified in rejecting the books of account and estimating the income of the assessee. Even otherwise, the AO was not justified in invoking the provisions of s. 145(3) of the IT Act."
7. counsel for the respondent contended that Tribunal while considering the objection of s. 145(3) of the IT Act has rightly observed as under:
"(3) Where the AO is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-s. (1) or accounting standards as notified under sub-s. (2), have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in s. 144."
8. Taking into considerations, the overall facts and circumstances of the case, we are of the opinion that the Tribunal while confirming the order passed by the CIT(A) has not committed any error, therefore, the issue is answered in favour of the assessee and against the Department.
9. The appeal stands dismissed.