IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 125 OF 2017 Pr.Commissioner of Income Tax-3. Appellant. V/s. M/s.Swananda Properties Pvt.Ltd. Respondent. Mr.Akhileshwar Sharma for Appellant. Mr.Hiro Rai with Mr.Subhash Shetty for Respondent. CORAM : M.S. SANKLECHA AND NITIN JAMDAR, JJ. DATE : 9 September 2019. PC : By this appeal, Appellant- Revenue challenges order passed by Income Tax Appellate Tribunal, Mumbai (Tribunal) dated 4 January 2016. present appeal relates to assessment of respondent- assessee for assessment year 2005-06. 2. Revenue has urged following question for our consideration, which according to Revenue are substantial questions of law: ::: Uploaded on - 27/09/2019 ::: Downloaded on - 28/09/2019 10:13:42 ::: skn 2 125.17-itxa.doc (a) Whether on facts and circumstances of case and in law was Tribunal justified in holding that in absence of any defect being pointed out in records, invocation of Section 145(3) of Act was not proper ? (b) Whether on facts and circumstances of case and in law, Tribunal is justified in deleting, without any valid and cogent material/ reasons against findings of suppression of Sales by CIT(A), addition of Rs.5,30,80,200/- made by CIA(A) on account of understatement of sales? 3. Respondent- assessee is engaged in business of property development. property named Joanna Villa at 28 th Road, Bandra (West), Mumbai was owned by Ms.Roze Margaret Dorothy Nazareth nee D Souza and Joseph Peter Francis D Souza, D Souzas. property had ground and upper floors. D Souzas intended to develop property by putting up additional construction above existing structure on exterior columns on all sides without demolishing existing structure. On 21 March 2001, Municipal Corporation sanctioned plans and granted permission to construct additional floors comprising of four flats. Four separate agreements were entered into by D Souzas on 28 May 2001 regarding four flats. agreements were registered with Sub-Registrar. Certain rate per square feet was fixed regarding these four flats. It was also provided that if any additional area is constructed then it would be given on same rate as fixed. ::: Uploaded on - 27/09/2019 ::: Downloaded on - 28/09/2019 10:13:42 ::: skn 3 125.17-itxa.doc 4. When construction of second floor was complete, D Souzas entered into memorandum of intended agreement with Respondent- assessee on 14 July 2001. rights to develop property were transferred to Respondent at consideration of Rs.2.7 crore. As per memorandum, Respondent was to utilize balance FSI and put up additional construction. Respondent got building plans duly amended for constructing five additional floors. Further agreement for development was signed on 21 December 2001. Respondent- assessee entered into modificatory agreements with original purchasers and certain flats were allotted. On completion of project, besides above four flats, Respondent sold two flats to its directors and six flats were sold to outsiders, new purchasers. 5. Assessing Officer in assessment order for subject assessment year held that income on sale of flats is available to tax in assessment year 2004-05 and not in assessment year 2005-06. This on basis that project was completed in previous year relevant to assessment year 2004-05 and not assessment year 2005-06. However, income offered by Respondent for assessment year 2005-06 was assessed on protective basis. 6. In order for assessment year 2004-05, Assessing Officer found there was suppression of sales value in respect of six flats. Thus Assessing Officer made addition of Rs.2,50,85,904/- because of ::: Uploaded on - 27/09/2019 ::: Downloaded on - 28/09/2019 10:13:42 ::: skn 4 125.17-itxa.doc suppressed sales value in respect of six flats while making assessment for assessment year 2004-05. 7. Being aggrieved by assessment order for assessment year 2005-06 Respondent filed appeal to Commissioner of Income Tax (Appeals) [CIT(A)]. On appeal, CIT(A) by order dated 22 November 2010 partly allowed assessee s appeal holding that project was completed in assessment year 2005-06 and not in assessment year 2004-05. However, CIT(A) rejected Books of Account under Section 145(3) of Act and completed assessment on best judgment basis. Moreover, CIT(A) in his order held that there is understatement of sales value in respect of all twelve flats as there was suppression of value in all twelve flats of project, as market rate then was Rs.8,992/- per sq.ft. for Assessment Year 2005-06. Thus, above rate of Rs.8,992/- per sq. ft. was applied to all twelve flats to enhance assessment to Rs.5,30,80,200/-. 8. In appeal filed by Respondent- Assessee before Tribunal, Tribunal set aside order passed by CIT(A). Tribunal held that neither Assessing Officer nor CIT(A) had any material on record to show that assessee, Respondent herein received more than what had been shown in sale-deeds. Moreover impugned order held that there was no occasion to apply section 145(3) of Act so as to reject books in absence of any defect in books on account of being found. Tribunal by ::: Uploaded on - 27/09/2019 ::: Downloaded on - 28/09/2019 10:13:42 ::: skn 5 125.17-itxa.doc impugned order dated 4 January 2016 allowed appeal deleting enhancement of assessment of Rs.5,30,80,200/-. 9. Mr.Sharma, learned counsel appearing for Appellant- Revenue contended that there is variance between rate and value of flats sold and stamp duty valuation. It was contended that rates on which flats were sold were lower than stamp duty valuation and ready reckoner. Thus, Revenue in absence of any satisfactory explanation by assessee had correctly enhanced assessment. Mr.Sharma relied upon decision of this Court in case of Commissioner of Income Tax v. Associated Builders1. 10. On other hand, Mr.Rai, learned counsel for Respondent submitted that Revenue, at relevant time, had no power under Act to ignore actual consideration received by Respondent on sale of its stock in trade and apply deemed consideration. Re. Question (a) 11. We note that books of accounts of Respondent were rejected by CIT(A) under section 145(3) of Act. However, Tribunal found in impugned order that invocation of section 145(3) of Act is unjustified as no defect was noted in books of 1 (2001) 115 Taxman 19 (Bom) ::: Uploaded on - 27/09/2019 ::: Downloaded on - 28/09/2019 10:13:42 ::: skn 6 125.17-itxa.doc accounts to disregard same. We note that CIT(A) in his order while rejecting Books of Account does not specify defect in record. basis of rejection appears to be best judgment of assessment done by him. rejection of books should precede best judgment assessment. On facts, Revenue has not been able to show any defect in Respondent s records which would warrant rejection of books and making Best Judgment Assessment. Thus, on facts view taken by Tribunal is possible view. Therefore, no substantial question of law arises. Thus not entertained. Re. Question (b) 12. Respondent- Assessee is Developer. He is in business of real estate development. flats sold by Respondent- assessee are stock-in-trade. CIT(A) by his order passed best judgment assessment and noted that sale consideration of twelve flats in project has been suppressed. According to him, market rate nearest to that date is Rs.8,992/- per sq.ft. and, thus, reassessed sale of each of twelve flats. This basis of nearest market rate is not found in his order. Therefore, on this basis itself assessment is bad. In any case, Mr. Sharma, learned Counsel for Revenue submits that market rate is stamp duty rate of registration. Therefore, stamp duty rate is used as means to consider proper sales value of transfer of flats. At relevant time i.e. for assessment year 2005-06, only provision for application of deemed value for consideration was ::: Uploaded on - 27/09/2019 ::: Downloaded on - 28/09/2019 10:13:42 ::: skn 7 125.17-itxa.doc found under Section 50C of Act relating to capital assets. At relevant time there was no provision in Act for deeming consideration received on sale of goods/assets other than capital assets on basis of stamp duty valuation. However, this provision in form of Section 43CA of Act has been introduced with effect from 1 April 2014. present case pertains to assessment year 2005-06. Therefore, Section 43CA of Act will have no application for subject Assessment Year. 13. In case of Commissioner of Income-Tax v. Neelkamal Realtors & Erectors India (P.) Ltd.2, Division Bench of this Court had occasion to consider value of flat in case of sale by Developer in context of section 50C and section 56(2)(vii)(b)(ii) of Act. Division Bench observed thus: 3. Regarding question No. (i): .. .. .. .. .. (f) It is self evident from reading of section 50C of Act it would not have any application while determining 'Profits and gains of business or profession'. This is so as its application is only limited to computation of income chargeable under head 'Capital gains' as is evident from specific reference in sub-section (1) of section 50 of Act to section 48 of Act i.e. mode of computation of capital gains. In fact section 50C of Act as observed by impugned order is placed as part of Chapter IV-E under head 'capital gains', it can only govern valuation of property to determine capital gains and cannot govern valuation of transfer of assets (other than capital asset) i.e. stock in trade. This view is further strengthened by fact 2 (2017) 246 TAXMAN 274 ::: Uploaded on - 27/09/2019 ::: Downloaded on - 28/09/2019 10:13:42 ::: skn 8 125.17-itxa.doc that section 43CA has been introduced into Act w.e.f. 1st April, 2014 which governs taking of full value of consideration for transfer of assets other than capital assets on basis of stamp duty valuation. This section 43CA of Act finds place as part of Chapter IV-D - Profits and gains of business or profession. Therefore, with effect from 1st April, 2014 stamp duty valuation of assets sold could be taken as value of consideration. Our above view that section 50C of Act has no application to value stock in trade is also view taken by Allahabad High Court in Commissioner of Income Tax v. Ken Construction and Colonizers (P) Ltd. (2012) 208 Taxman 478/ 20taxman.com 381. Similarly Madras High Court in CIT v. Thiruvengadam Investments (P) Ltd. (2010) 320 ITR 345 has also held that section 50C of Act cannot be invoked to arrive at full consideration of sale of business asset. We see no reason not to adopt views of above two High Courts to present facts. (emphasis supplied) Therefore, section 43CA cannot be made applicable to facts of present case. By plain language of this provision it is not retrospective. Thus, there is no statutory provision based on which stamp duty valuation could have been made basis in present case. 14. Division Bench of this Court in case of M/s.Zain Constructions v. Income Tax Officer 3 has conclusively decided issue as under: 8. In our opinion, entire approach of Assessing Officer is wholly incorrect. As is well known, Section 50C of Act would enable Revenue to bring to tax by way of 3 WP No.345/2019 decided on 29 March 2019 ::: Uploaded on - 27/09/2019 ::: Downloaded on - 28/09/2019 10:13:42 ::: skn 9 125.17-itxa.doc deemed capital gain difference between stamp valuation and sale price of capital asset. For obvious reasons, this provision would not apply in case of builder for whom such immovable property is in nature of stock in trade and not capital asset. To overcome this difficulty, legislature had inserted Section 43CA under Finance Act, 2013 w.e.f. 1.4.2014. This provision would enable Revenue to tax income arising out of sale of stock by deeming fiction where subject to certain conditions, stamp valuation of such stock would substitute actual receipt thereof. In absence of any such statutory provisions, giving rise to deeming fiction, Revenue cannot tax any amount which has not been received by seller of immovable property at time of sale. (emphasis supplied) No contrary decision is shown. 15. As regards decision in case of Associated Builders relied upon by Appellant- Revenue, it arose in context of valuation of assets including stock in trade on dissolution of partnership firm. This Court was concerned with issue whether, when asset was valued on basis of book value as provided in contract between parties, is it open to Assessing Officer to ignore it and ascertain whether valuation done does represent fair value of asset. This Court answered in affirmative by holding that contract between parties will not bind Revenue, while determining fair market value of assets of partnership firm. In present case, we are not dealing with valuation of assets on dissolution of firm. In case of dissolution, there is no sale as in case of running ::: Uploaded on - 27/09/2019 ::: Downloaded on - 28/09/2019 10:13:42 ::: skn 10 125.17-itxa.doc business. Thus, decision in case of Associated Builders is in different facts and circumstances and would have no application to present facts. 16. It is to be noted that Revenue has not made any reference even remotely that Respondent had received amounts in excess of that shown in agreements in respect of twelve flats which is not being accepted. entire case of Revenue is merely on suspicion. It is not case of Revenue that Respondent made secret profits out of sale of twelve flats. 17. Supreme Court has observed in case of Commissioner of Income Tax v. A.Raman & Company 4, that law does not oblige trader to make maximum profit, he can make, out of his trading activity. Income on which he can be taxed is only income he has earned. So also recently, Supreme Court in case of S.A.Builders v. C.I.T.5 has observed that no businessman can be compelled to maximize his profits. Therefore, in view of above, this question as proposed also does not give rise to any substantial question of law. Thus not entertained. 18. appeal is dismissed. (NITIN JAMDAR, J.) (M.S. SANKLECHA, J.) 4 67 ITR 11 5 288 ITR 1 Pr. Commissioner of Income-tax-3 v. Swananda Properties Pvt. Ltd