9911796707
TMI Blog1983 (4) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... s counsel as well as the senior departmental representative raised preliminary objections as to the formulation of the points of difference. The assessee's counsel also contended that the order of the learned Judicial Member, if given effect to would result in enhancement of income in respect of certain grounds, particularly as regards the second point of difference and that the Tribunal being not empowered to do so under section 254(1) of the Act, the order of the learned Judicial Member in that regard requires to be ignored. Being of the view that the issues raised are important and are likely to have far reaching effect, the President considered it desirable to assign the case to three members for disposal within the meaning of section 255(4). This was done and that is how the matter has eventually come up before us. 3. According to Shri Sharma, the assessee's learned counsel, the points of difference should be formulated in such a manner as to bring out the material controversy, such as, whether a particular addition or disallowance is justified so that all possible aspects touching the ground can be considered by the Third Member(s). It is stated that the points of difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in paragraph 1 hereinabove, we are not able to appreciate the grievance against the points of difference formulated by the differing Members. The points of difference, in our opinion, bring out the controversy between the Members substantially. This is quite apart from the fact that having regard to the decision of the Madras High Court in the case of CIT v. Sundaram & Co. (P.) Ltd. [1964] 52 ITR 763 and the decision of the Supreme Court in the case of Ram Kumar Agarwalla & Bros. v. CIT [1967] 63 ITR 622, we are inclined to hold that the point(s) of difference should be stated by the differing Members and/or understood in a manner that gives scope to both the parties to urge their viewpoints on all possible aspects on the point(s) of difference so that the Third Member's opinion thereon results in a majority view necessary for disposal of the appeal under section 255(4). 5. As regards Shri Sharma's further contention that the learned Judicial Member exceeded his jurisdiction and, therefore, his order regarding the second point of difference should be ignored, we find that section 254(1) places on the Tribunal powers of widest amplitude in dealing with the appeals before it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same sub-heads or heads. In other words, the submission is that if an assessee has taken ten grounds of appeal, and the Tribunal has granted substantial relief on five grounds but has enhanced the addition or disallowance on the remaining five grounds, even if the net result is substantial relief, it would be a case of an order placing the appellant in a position worse than what he would have been had he not come up in appeal. According to Shri Sharma, this would be applicable even in a case where the grounds of appeal have different parts and the additions or disallowances are enhanced in respect of one part and substantially reduced in respect of the other part. What has happened in this case is that the assessee-firm started its business of constructing a multi-storeyed building in the year 1970. The construction was completed in the year 1977. Sales of the flats have been made during all these years. However, for all these years, the assessee has been showing its income on the basis of sale price of flats by adopting a certain gross profit rate. In fact, the assessments were completed originally on that basis for the assessment years 1972-73 to 1974-75. Assessments for the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been taken by him at a figure less than what was taken by the Commissioner (Appeals). 7. No doubt, the Bombay High Court has, in the case of Pokhraj Hirachand v. CIT [1963] 49 ITR 293, held that though the powers of the Tribunal in dealing with an appeal under section 33 of the 1922 Act, corresponding to section 254 of the 1961 Act, are very wide, they are not absolute and have further held in that case that the Tribunal was in error in dealing with the further question as to the quantum of expenditure allowable. On a careful examination, however, it appears to us that the decision does not support the assessee's proposition. It is pertinent to mention that the AAC in that case, found that the assessee had paid the entire amount of Rs. 3,00,000 to Milkhiram R. Goyal and had confirmed the disallowance only or, the ground that the payment was capital in nature. In appeal, at the instance of the assessee, the Tribunal accepted the assessee's submission that the expenditure was not capital in nature. However, without the department challenging the finding of the AAC that the assessee had paid the entire amount of Rs. 3,00,000 to Milkhiram R. Goyal, the Tribunal proceeded to cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he subject-matter of an appeal should be understood not in a narrow and unrealistic manner but should be comprehended as to encompass the entire controversy between the parties which is sought to be got adjudicated upon by the Tribunal. In a case where there are inter-connected grounds of appeal and they have impact on the same subject-matter, the scope of the appeal should be broadly considered in the correct perspective. While the appellant should not be made to suffer and be deprived of the benefit given to him by the lower authority where the other side has not appealed, equally and procedural rules should not be interpreted or applied so as to confer on an appeal ant a relief to which be cannot be entitled if the points decided in his favour on the same matter by the lower court are also considered as requested by the respondent." Emphasis, it may be stated, has been laid down on the fact that if a ground on which relief is sought by the respondent is so much inter-connected with the grounds of appeal by the assessee, the said ground should be considered forming a part of the subject-matter of appeal. Respectfully following the decision of the Delhi High Court, we hold that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's building. The ITO further noticed the rates at which the assessee sold the flats as per the entries in the books of account. The ITO further obtained letters from some original allottees as well as subsequent allottees regarding the rates at which they paid for the flats. He found that there is material difference in the rates recorded by the assessee in its books of account and the rates mentioned in the pamphlet as also in the earlier statements of some of the allottees. it may be mentioned here that there were altogether 64 flats. Out of 24 original allottees, 12 have surrendered and the flats were re-transferred. There are thus two categories : one of original allottees and the other of subsequent allottees on re-transfers. The ITO having considered the evidence as mentioned above, come to the conclusion that the assessee received on-money, i. e., over and above the recorded sale price. He estimated such extra money and added the same in the hands of the assessee as income from undisclosed sources. The Commissioner (Appeals) agreed with the assessee. When the matter came up before the Tribunal, there arose a difference of opinion between the learned Judicial Member and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pposed to be sold, and lastly f. that absence of any incriminating evidence in the search, termination of lease by the President of India and the pendency of the writ petition, the fact that this is the earliest multi-storeyed building coming up in the capital and the people are not enthusiastic at the time and the further fact that the assessee had no brokers nor there was any advertisement should be taken into account in deciding a matter of this nature. 12. Having considered the matter fully and having gone through the evidence, which is placed before us, coupled with the submissions of both the parties, we are unable to subscribe to the view expressed by the learned Judicial Member. Essentially the question whether the assessee received on-money is a question of fact to be decided on the evidence on record. The evidence may be direct or indirect or circumstantial. It is not necessary in every case to record a finding only on direct evidence. It is enough if there is indirect or circumstantial evidence for supporting a finding of fact. But in relying on such evidence one must be very careful so that one may not tread the path of conjectures, suspicion and surmises. When we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes mentioned therein. There is no evidence brought on record that the pamphlet was got up by the assessee. How the pamphlet has come into the record is also not very clear. Admittedly, it has not been found during the search of the assessee's premises nor was it found in any of the residences of the partners of the assessee-firm. Secondly, this pamphlet itself does not give the correct information. 3rd floor, and 15th to 18th floors were not meant for sale and it appears that they were never offered for sale. Therefore, it is difficult to place so much reliance on the pamphlet as has been done by the revenue authorities as also the learned Judicial Member. We will also presently show that the schedule of rates given in the pamphlet may not represent the actual sale price for more than one reason. 14. If we take the pamphlet as such and assume that it has emanated from the assessee, it only shows that these flats were offered at the particular rates. They may not represent the actual sale price which ultimately the assessee was able to obtain. It is also worthwhile noticing that some of the calculations given by the revenue to prove its point that the amounts paid by some of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edule to us. It was evidently somebody from Hansalaya Properties.' This part of the statement is only relevant for the purpose of proving the authenticity of the pamphlet especially with reference to its connection with the assessee. It is evident from the above that it was not possible to hold that the assessee received over and above the amount paid by Shri Jitendra Nath for flat No. 4G. In the face of his statement that he received back the entire amount in full, then where is the question of any on-money that has passed ? 16. The next witness is Wg. Cdr. J. R. Kapoor. He booked a flat No. 13C. He paid in all Rs. 75,000 on different dates as follows : Rs. 16-4-197110,000 20-11-197110,000 10-2-197210,000 13-12-197220,000 26-12-197220,000 December, 1972 5,000 At page 1028 of paper book No. 2, at item No. 7, Shri Kapoor mentioned that flat No. 13C was booked at the rate of Rs. 125 per sq. ft. Later on1-2-1978it was mistakenly mentioned as1-1-1978. Shri Kapoor wrote to the ITO saying that he booked the flat through Shri Vishwa Mitter Bhasin of New Delhi, who had then indicated that the prevailing competitive rate was Rs. 125 per sq. ft. on16-4-1971. He had no other document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the evidence of Mr. Om Prakash Gupta so far as the rate is concerned. He has been prevaricating in his statements. At one stage he mentioned the rate as the rate given by him. Later on, he mentioned that it was only quoted rate, subject to negotiation. The very statement that he thought the rate was Rs. 137.50 per sq. ft. and the absence of any other evidence about the rate, it is difficult to accept that the rate was higher than what was mentioned in the documents. Most important factor to be considered is that he denied to have paid any on-money over and above the sum paid by cheque to the assessee. Then we have the agreement for sale of flat No. 7H after the surrender of the same flat by Shri Om Prakash Gupta, the original allottee. This agreement shows the rate at Rs. 103 per sq. ft. It was recovered in the search operations. Shri Kanwal Krishan Duggal does not appear to have been examined. 18. Mr. M. K. Bhatia who was subsequent allottee of flat No. 4F was examined and he stated that he paid at the rate of Rs. 111 per sq. ft. and he denied to have paid any on-money. The total payment had also been confirmed. Nothing very material is brought out in cross-examination by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the rate this gentleman stick to his entire statement that the deal was at the rate of Rs. 135 per sq. ft. through Malik Estate Agents as far as he remembered. Obviously, the assessee has not been named. It is also undisputed that the assessee did not appoint any brokers. Therefore, it is evident that the assessee did not quote the rate nor charged the same. It is, therefore, difficult to accept his statement with regard to any on-money said to have been received by the assessee. The position with regard to flat No. 13B is also more or less the same as in the case of flat No. 9G since both the flats were originally taken by Shri Satish Chandra, except that we may mention that when the money was paid back to Shri Satish Chandra the receipt was given for the same amount which was paid by him. Flat No. 9G was taken by Wg. Cdr. B. S. Rao at the rate of Rs. 110 per sq. ft. and this is supported by the agreement and the receipt. Flat No. 13C was taken by Shri Satish Galhota. 21. Shrimati Santosh Puri, who was the subsequent allottee of flat No. 4D and the original allottee Shri K. K. Kapoor were examined. Shri K. K. Kapoor mentioned that the flat was booked at Rs. 120 per sq. ft. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 22. One Shri Parminder Sachdeva, partner of Sachdevson & Co., has also purchased the property at Rs. 125 per sq. ft. It relates to flat No. 13F and he has categorically stated that there was no on-money paid by him. They were not the first allottees. Malik Estate Agents arranged for the transfer of the flat from the previous owner. The first instalment of Rs. 15,000 was paid. The first allottee of flat No. 13F is one Shri Gurdev Singh and his evidence does not throw any light except that he paid Rs. 10,000 and he got back Rs. 10,000 at the time of the transfer of the flat. He, however, stated that he surrendered the flat directly to the Builder and he denied any knowledge of the existence of Sachdevson & Co. to whom the flat was subsequently transferred. As already mentioned this is one of the points taken up in deciding the issue. 23. Then we have the statement of Mr. Gurnam Singh, the original allottee of flat No. 6E. He also did not say anything about the rate at which the property was sold. He testified to the payment of the instalment money and the return of the same when he surrendered the flat. To a question put to him as to whether the amount of Rs. 13,110 paid by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed. His statement was first of all recorded by the ITO on13-2-1978. He mentioned that the flat was booked at Rs. 125 per sq. ft. The ITO put a question to him as to why he was charged at Rs. 125 per sq. ft. whereas in the month of January, 1974 flat No. 6D was booked at Rs. 160 per sq. ft. His answer was that the market rate on the date of purchase of the flat by him was only Rs. 125 per sq. ft. He has also given the statement showing the payments which are not in dispute. Shri Baldev Raj Sawhney was cross-examined by the assessee. It transpires from the statement that flat No. 6G was booked for Miss Meeta Sawhney at Rs. 105 per sq. ft. but it was subsequently booked in the name of Kashyap Metal Allied Industries (P.) Ltd. at Rs. 125 per sq. ft. He has specifically denied to have paid any on-money either at the time of the original booking or at the time of subsequent allotment. He has also testified to the exact amount paid in the first instance by Miss Meeta Sawhney and subsequently by the company. The ITO in further questioning, directed him to answer as to how he originally stated on13-2-1978that the flat was booked for his daughter at Rs. 110 per sq. ft. which might vary Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the rate was mentioned and in the case of Shri Jitender Nath he seems to have supported the rates with reference to the schedule of rates. It is also relevant at this stage to mention that the quoted rates are mostly available from the pamphlet. The assessee denied the knowledge of the pamphlet, as already mentioned earlier. It may be, as suggested by the assessee, that somebody wanted to make profit by quoting the rates for the flats. That does not show that the assessee booked the flats at those rates. It is just possible that some middlemen might have got the benefit and the so-called quotation by various persons may be the rates quoted by the middlemen and not the assessee. In all cases, however, one fact which is running common is that all of them denied to have paid any on-money either at the time of original booking or in cases of transfers or at the time of re-transfer. All of them uniformly have admitted to have paid the moneys through cheques and received the same amount by cheques. They have accepted the statement of accounts shown by the assessee. All the receipts show the actual payments made by them to the assessee and the payments made by the assessee to them in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts have been sold. Nevertheless, one important thing to be noticed here is that it took considerable time for disposing of all the flats. This phenomenon does not exist now-a-days. It is common knowledge that it is very difficult to get a flat even in a multi-storeyed building inDelhi. The moment an advertisement comes most of the flats are booked. This was not the position in the earlier days. 30. The following further circumstances which according to the learned departmental representative are material have also taken into account : a. Blank agreement forms signed by the original allottees were found. We do not think anything turns on it. In fact we have already mentioned that it makes no difference as to whether the assessee itself booked the flats or they were re-booked at the instance of the original allottee. The relevant aspect has already been discussed by us. b. Only in respect of some flats there are agreements and receipts. This also is not very relevant nor it throws any remote light on the issue to be considered. Further in respect of those flats, about which the ITO discussed, almost all the agreements in respect of the same have been brought on record. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other decision referred to us is the well-known decision of the Supreme Court in the case of K. P. Varghese v. ITO [1981] 131 ITR 597. This decision really does not throw much light on the question of taking judicial note of the notorious facts. 32. We have also to view the other circumstances which are in favour of the assessee in this case. Admittedly, no cash, no investments, no jewellery were found during the search conducted by the department. All the agreements and all other papers relevant to the transactions have been seized by the department and on them only the assessee relied. In no other case of a flat owner, any assessment seems to have been made on the basis that he either paid on-money or received the same. At least nothing has been brought on record. It is also noticeable from the record that in respect of many other flats the rate at which the assessee booked or re-booked the flats was higher than what the original rate was. In other words, the assessee recorded higher price in respect of many other flats. This would show that the assessee was recording the correct rates at which the flats were being sold. In the circumstances, it is not possible to record a find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn and that is the value taken as the capital of Mr. Vadhera in the books of the assessee-firm. In fact the wealth-tax assessment was also done for the assessment year 1970-71 during his lifetime. He never thought of changing that value and increase his capital contribution accordingly. The same position continued till the year 1978. Our attention was invited to some of the observations in the GT Appeal No. 19 (Delhi) of 1978-79 decided by the Delhi Bench 'E' in its order dated 21-2-1980 (to which the President is a party). The question was whether there was a deemed gift by the late Shri H. R. Vadhera. The question sought to be canvassed on the basis of some observations in the aforesaid appellate order was that what was understood by clause 3 is the value determined in the wealth-tax proceedings. Since in the wealth-tax proceedings, the revenue determined the value at a much higher figure, which correspond to the figure now given by the assessee, the same should be taken in the income-tax proceedings. But as rightly pointed out, the observations were not in the nature of any decision on the interpretation of clause 3. In our opinion, clause 3 is unequivocal and unambiguous. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been defined to mean 'capital asset' except those which are specifically excluded. Some of the exclusions are, which are pertinent for the purpose of these appeals, 'any stock-in-trade, consumable stores or raw materials held for the purpose of his business or profession'. In the circumstances, the question to be answered is not as to what was the character of the property in the hands of the partner who brought in the property into the partnership firm but whether the partnership-firm held or could be said to have held the said property as its stock-in-trade, consumable stores or raw material for the purpose of its business. 35. In order to appreciate this aspect of the matter, it is desirable to refer to the relevant facts, in brief, once again. The deed of partnership was drawn on 8-8-1970 specifically with a view to carry on business in real estate, i. e., by constructing a multi-storeyed building on the premises, 15, Barakhamba Road, New Delhi, the property brought in by the late Vadhera, and by the sale of flats in the multi-storeyed building. In the circumstances, it is not possible to accept Shri Sharma's contention that the partnership firm held this property even for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the venture. 36. It may be observed before concluding that there is really no hardship caused to the assessee if the value of the property is taken at Rs. 2,01,000 for the purpose of computing its business profits. As already stated, the late Vadhera as the assessee and the partnership firm as an assessee are two different assessable entities. There is no suggestion that the partnership-firm has incurred any liability more than Rs. 2,01,000 in respect of the premises, 15,Barakhamba Road,New Delhi. Therefore, when that amount is taken as the cost of the property in the hands of the partnership firm for the purpose of computing its profits, there is no equity involved. What happened in the hands of the legal heirs of the late Vadhera is wholly an extraneous matter. 37. In view of the above, other contentions do not survive. ANNEXURE There has been a difference of opinion between the two members constituting the Bench on two points. The following agreed questions on which difference has arisen are accordingly referred to the President for decision by the Third Member : 1. Whether, the assessee-firm is entitled to deduction of Rs. 2,01,000 or Rs. 36,61,625 as the cost of land on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To cost of land 2,01,000.00 By amount received To amount spent on from flat owners 1,79,29,486.20 constructed and debited to constructi- By other receipts and on a/c Hansalaya 1,07,57,806.67 profits as per Annexure 'D' attached 2,70,566.67 To expenses already incurred and debited to parties account By balance receipts but yet not debited from flat owners as to construction a/c per Annexure 'E' as per Annexure 'A' attached 11,50,248.80 attached. 36,97,943.11 By closing stock of To profit and loss unsold area at cost a/c expenses as 59,811 sq. ft. @ 80.10 per Annexure 'B' sq. ft. 47,90,861.10 attached. 10,97,176.63 To estimated expenses for the completion of the project as per Annexure 'C' attached. 50,00,000.00 To net profit 33,87,236.36 ------------------------ ------------------------- 2,41,41,162.77 2,41,41,162.77" ------------------------ ------------------------- Subsequently, the assessee also filed revised consolidated profit and loss account on10-3-1978. In the revised consolidated profit and loss account, the assessee has revised the cost of land from Rs. 2,01,000 to Rs. 36,61,625. Apart from this, the assessee has also varied figures of closing stock, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj Vadhera goes to prove that it was the correct amount. It will not be out of place to mention here that Sh. Hans Raj Vadhera had shown the value of the plot in his W. T. return for the assessment year 1970-71 at figure of Rs. 2,01,000 and the same was adopted by the WTO at a figure of Rs. 2,75,000. This order was passed by the WTO as back as 1971. For all these years, assessee has not objected to the valuation of the cost of land and has never tried to vary this figure. Even in the consolidated profit and loss account submitted in September, 1977 which was prepared as on31-5-77the assessee valued the cost of land at Rs. 2,01,000 and not Rs. 36,61,625. It amply shows that for all practical purposes the assessee has taken the value at Rs. 2,01,000 as final and permanent and that is why he was given credit for Rs. 2,01,000 for all these years." 11. The IAC to whom this question was referred under section 144B of the Act, agreed with the ITO and held that the assessee's sole purpose of adopting the revised value of land is only to unwarrantedly bring down the incidence of tax and to confuse the issue. If the intention of the partners was to adopt the market value of the land then th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nath, partner of Nath Bros. have produced a schedule showing the rate per sq. ft. for various floors and the mode of payments, etc. As per the schedule booking at 4th floor was offered to be done @ Rs. 147.50. Nath Bros. made a payment of Rs. 16,077 an initial payment at the time of booking, @ Rs. 147.50 per sq. ft. This figure according to him was calculated by the builder and they were asked to pay for that amount and accordingly the payment was made. Hansalaya Properties have issued a receipt for Rs. 16,077 but no rate was mentioned by them in the receipt issued by the builder to Nath Bros. Subsequently, Nath Bros. made more payment of Rs. 16,000 each on11-1-1971and19-10-1971respectively. No agreement was concluded by them with the builder. Since during the time August, 1970 the booking was done @ Rs. 147.50, it is not understandable as to how after a lapse of 3 years in April, 1973 the flat was re-booked @ Rs. 120. It is incomprehensible as to why a prudent businessman should not take advantage of the fact that there is an appreciable increase in price of flat in multi-storeyed building in commercial area. Assessee was required to explain as to under what circumstances the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly been done by the ITO. Looking to the totality of the facts mentioned by the ITO, the preponderance of probability was in favour of taking of 'on-money' by the assessee-firm. The ITO, accordingly, computed the total income of each year firstly on the basis of the consolidated profit and loss account in the proportion of receipts in each of the years and then made the additions. The disallowance is made and discussed earlier were adjusted in the consolidated profit and loss account for working out the income in each year. 19. The assessee came in appeal before the Commissioner (Appeals) and challenged the order of the ITO for each of the years. The Commissioner (Appeals) held that the manner in which the accounts had been maintained by the assessee did not enable the ITO to arrive at the true profit in each year and, therefore, the ITO was entitled to make the assessments on the basis of the consolidated profit and loss account for the entire period, as has been done by him. The Commissioner (Appeals) first dealt with the cost of land adopted at Rs. 2,01,000 in the consolidated profit and loss account and taken at Rs. 36,61,625 in the revised consolidated profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the transfer of this property to the partnership concern. The wealth-tax assessments and the estate duty assessments which had been made on the basis of the market value were being contested by the legal heirs of Hans Raj Vadhera. It was urged on behalf of the assessee before the Commissioner (Appeals) that irrespective of the fact that Hans Raj Vadhera had declared the value of this plot of land in his wealth-tax return at Rs. 2,01,000 and that amount had been initially credited to his account during his lifetime, while determining the income of the firm, the market value of the land as on 8-8-1970 should be adopted. Reliance was placed on the decision of the Supreme Court in the case of CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 in which it was held that it is the market price of the shares prevailing on the date when the shares were converted into stock-in-trade which should be taken into account while determining the profits of the business. Reliance was also placed on the Supreme Court decision in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 for the proposition that the assessee is entitled to claim deduction for the market value of the land even if the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne : 42929 Hansalaya' (Proposed multi-storeyed office flats on ownership basis atBarakhamba Road) Rs. Per sq. ft. 3rd Floor Offices 150.00 4th Floor ,, 147.50 5th Floor ,, 145.00 6th Floor ,, 142.50 7th Floor ,, 140.00 8th Floor ,, 137.50 9th Floor ,, 135.00 10th Floor ,, 132.50 11th Floor ,, 130.00 12th Floor ,, 127.50 13th Floor ,, 125.00 14th Floor ,, 122.50 15th Floor ,, 120.00 16th Floor ,, 117.50 17th Floor ,, 115.00 18th Floor ,, 112.50 Mode of payments 1. 10% on application for booking. 2. 10% on sanction of plan. 3. 10% on completion of piling. 4. 10% after roof slab of 1st floor. 5. 10% of 3rd floor. 6. 10% of 6th floor. 7. 10% of 9th floor. 8. 10% of 12th floor. 9. 10% of 14th floor. 10. 5% of 16th floor. 11. 5% on completion. The ITO had found that these were original booking rates in respect of flats which were sold by the assessee and even in subsequent years, the rates charged were either the same or even less than the original booking rates. The ITO had examined a number of purchasers who had booked the flats and had found that the rates which were accounted for in the books of the assessee were less than what had been agreed to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f account at the correct rates but there has been suppression in the sale price of other flats also. The Commissioner (Appeals) rejected the contention that the ITO had proceeded to make the addition on the basis of conjecture and surmises. The Commissioner (Appeals), therefore, upheld the addition on account of on-money charged by the assessee-firm. These findings are to be found in the order of the Commissioner (Appeals) for the assessment year 1975-76. 29 to 64. These paras are not reproduced here as they involve minor issues. 'ON-MONEY' 65. The learned counsel for the assessee argued this particular ground very vehemently and the arguments went en for a number of days. Number of charts, statements, explanations, etc., were filed. It was pointed out that every purchaser had been examined by the ITO. The charts were filed from pages 1317 onwards giving details of sales of all the flats in the building from 4th to 14th floors. It was pointed out that on8-9-1976there was a search in the premises of the assessee in which nothing incriminating was found. The reason why the flats did not fetch the best price was given as the dispute by the daughters in respect of the property and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the consideration in the books. It was pointed out that the department had made no additions in the hands of purchasers for the on money invested by them in the purchase of flats. The cost of construction of the building had been accepted by the ITO. The conclusion regarding charging of on-money was, therefore, based on conjectures and surmises only and there was no legal evidence of it. The ITO had not cited any comparable case of prevailing market rates of the flats in multi-storeyed building in that area justifying the conclusion that the assessee had charged on-money. There was a mere presumption on which the ITO had proceeded and there was no evidence. In any event the assessee had succeeded in rebutting the presumption raised by the ITO. Reliance was placed on behalf of the assessee on the ruling of the Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 for the proposition that the assessee's explanation cannot be rejected on mere conjectures and no addition can be sustained on suspicion and surmises. In that case it appears to have been assumed that the assessee had indulged in smuggling. The Supreme Court held that the notoriety for smuggli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look to the surrounding circumstances to find out the reality in these documents. Further reliance was placed on CWT v. Rohtas Industries Ltd. [1968] 67 ITR 283, wherein the Patna High Court held that in the absence of any direct evidence a judicial or quasi-judicial, the Tribunal can base its conclusion on the basis of what are known as notorious facts bearing in mind the principles of section 114 of the Evidence Act. The learned departmental representative strongly urged that we should take judicial notice of notorious facts of the on-money in property transactions and also of the fact that prices have been rising continuously from 1971 onwards. 68. The learned departmental representative then took us through the specific instances of re-transfer of flats which are done mostly at the same price on which they were originally booked. In many of the cases no transfer fee was also charged. This further showed that the flats were surrendered to the assessee. That was also the evidence of the witnesses who had been examined by the ITO in the presence of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a exercising the right of re-entry. It was further argued that failure to take any action against the buyers for unexplained investment in the flats was immaterial. 70. In reply the learned counsel for the assessee again reiterated his original arguments and took us through the evidence. He made a complaint that the ITO did not supply copies of all the statements and offered to give copies of only those statements which he was going to use against the assessee. As against this the learned departmental representative pointed out that the assessee was asked if he wanted the copies of all statements but he replied in negative. The learned counsel for the assessee stressed the point that this was the first multi-storey building inDelhibut the publicity was only oral by the word of mouth, through the brokers. It was urged that the ITO never informed the assessee that he intended to treat 15 per cent of the entire sale proceeds as on-money and did not specifically question it. The assessee, however, appears to have stated in his evidence in reply to Question No. 21 that he did not charge any on-money and even when it was offered he declined to receive it. Thus, it was clear that the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfers bare almost invariably been registered at the same rates at which the original booking was done though the transfer/surrender was after a lapse of 1, 2 or 3 years. The allottees contend that they took their money back from the assessee, signed blank transfer deeds, etc., and gave them along with the original receipts to the assessee. They have almost invariably contended that they do not know the subsequent transferee and never requested for transfer of the flat to the transferee. The assessee's stock contention is that the original allottees brought the transferee alone and requested for the transfer and that is why the old price was charged since the transfer was at the instance of the allottees. 72. We have to find out on the facts and in the circumstances of the case where the truth lies. The assessee swears by his account books, entry of the rates in some of the receipts and in the agreements. He also strongly relies on the typed applications duly signed by the original allottees requesting for transfer of the flat to some other person. The allottees say that they had signed the blank forms and given them to the assessee and the blanks re. (sic) name of transferee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the flats booked with them was as per this pamphlet but floors Nos. 3, 15 to 18 were not offered for sale. Brokers cannot, however, publish pamphlets on their own and would publish them only at the instance of and with the consent of the builder. 76. In this pamphlet (P. B. 1015) the rate for booking 4th floor flats is Rs. 147.50 per sq. ft. This finds support from the booking of 4-A @ Rs. 147.50 per sq. ft. as per assessee's own records. Jatinder Nath paid Rs. 16,077 when he booked 1080 sq. ft. flat @ Rs. 147.50 per sq. ft. He says that the assessee worked out the sum of Rs. 16,077 as 10 per cent of the booking price and he paid it. The assessee contends that this amount is not 10 per cent @ Rs. 147.50 per sq. ft. He further says that he did not ask for Rs. 16,077 from Jatinder Nath and he paid this amount voluntarily. Indeed no purchaser would pay this odd sum, if he is not specifically asked for it. 10 per cent of the price of 1080 sq. ft. @ Rs. 147.50 seems to work out to Rs. 15,930 but the assessee appears to have made a calculating error and demanded Rs. 16,077 which Jatinder Nath paid. Jatinder Nath has no enmity with the assessee and has no axe to grind in this matter. His ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear later and the price shown is Rs. 110 per sq. ft. We may point out that flat No. 6-D was transferred on 30-1-1974 @ Rs. 160 per sq. ft. which shows that prices had considerably risen by then. It is also a fact of common knowledge that prices were steadily rising in 1971 and 1972 due to normal inflationary pressures and they rose steeply in 1973 and 1974 due to run away inflation. Would any prudent seller who sold 4 on19-10-1970@ Rs. 147.50 sell 4-B @ Rs. 110 sq. ft. on8-5-1973? The answer can only be in the negative. The rate for 4-H is heavily understated. The position is the same regarding 4-B and 4-F which are shown as booked @ Rs. 120 and @ Rs. 111 per sq. ft. after the flat 4-G was booked first of all on 25-8-1970 @ Rs. 147.50. The prices of 4-B and 4-F are also understated the rate being Rs. 147.50 per sq.ft. we held that all the flats on the 4th floor were booked @ Rs. 147.50 per sq. ft. 5TH FLOOR 80. In the pamphlet at page 1015 of the paper book, the rate is given as Rs. 145. Paper book pages 1319 and 1320 charts show the rates as follows : No. Booked on Rate (Rs.) 5A11-9-70125 5B6-10-70110 5C6-10-70110 5D6-3-71125 5E8-4-71125 5F1-5-75275 5G20-2-71126 5H26-7- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price comes to Rs. 1,42,945 and the instalments showed be Rs. 14,295 each but they were Rs. 17,000 each. At Rs. 135 per sq. ft. The price of 1,265 sq. ft. works out to Rs. 1,70,775 and the instalments would be Rs. 17,077 each. The rate Rs. 113 is, therefore, clearly bogus and unconnected with the actual price charged and settled. Flat 7-B was booked @ Rs. 140 per sq. ft. and we see no reason to hold that this price is also understated. 84. As regards 7-C the area is 1,400 sq. ft. and the first instalment is Rs. 19,600. This works out to Rs. 140 per sq. ft. The next instalment is Rs. 20,000 which is also almost equal to the first the difference being only Rs. 400. It is, thus, clear that the rate at which 7-C was sold was Rs. 140 though the rate shown is Rs. 105 per sq. ft. only. 85. 7-G area 1,080 sq. ft. was booked on 3-2-1971 @ Rs. 110 per sq. ft. by Aryan Bros. Mahendra Kumar who had booked this flat has filed an affidavit and has also given evidence that the flat was booked @ Rs. 137.50 per sq. ft. The price of 1080 x 137.50 comes to Rs. 1,48,500. 10 per cent comes to Rs. 14,850 and 20 per cent Rs. 29,700. The assessee paid Rs. 29,000 on1-1-1971and21-1-1971and Rs. 51,000 on16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were booked in 1971 and 1972 and the price shown at Rs. 98 to Rs. 115 per sq. ft. appears to be totally fictitious and is understated. The prices for 8th floor appear clearly understated for another reason also. Comparing the prices at which 9th floor flats were booked vide paper book pages 1327 and 1328, i. e., Rs. 135 on 23-1-1971 for 9-B and Rs. 135 on 12-2-1971 for 9-F, it is impossible that assessee, a prudent businessman, naturally interested in getting the best price would book 8th floor in later part of 1971 and 1972 at less than Rs. 135 per sq. ft. We held that the flats 8-B, 8-C, 8-D, 8-E, 8-G and 8-H were all sold @ Rs. 136 per sq. ft. and the prices shown by assessee are understated. 8A was sold in 1975 @ Rs. 275 per sq. ft. and there is no evidence to show that even this price is understated. 9TH FLOOR 88. For 9th floor the rate in the pamphlet was Rs. 135 per sq. ft. and that is the rate at which the assessee booked flat Nos. 9-B and 9-F on23-1-1971and12-2-1971respectively. Flats 9-A, 9-D, 9-E and 9-G were booked earlier to the booking of flats 9-D and 9-F but 9-C was booked on 23-4-1971 @ Rs. 105 per sq. ft. and 9-H on 17-3-1971 @ Rs. 115 per sq. ft. The prices of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 123.50 per sq. ft. these flats. 13TH FLOOR 92. The quoted price as per pamphlet was Rs. 125 per sq. ft. flat Nos. 13-A, 13-F, 13-G and 13-E were booked @ Rs. 125 per sq. ft. on 8-12-1970, 6-10-1970, 12-11-1970 and 12-1-1971 respectively. Flat No. 13-B is shown to have been booked @ Rs. 115 on28-12-1970, 13-C @ Rs. 100 on16-4-1971, 13-D @ Rs. 115 on7-11-1970and 13-H @ Rs. 94 on2-2-1971. Mg. Com. J. R. Kapur who had booked flat No. 13-C has stated that he had booked it Rs. 125 per sq. ft. (P. B. P. 1028-29). He says it was the prevailing competitive rate. Looked at in the light of the rate quoted in the pamphlet and the rate at which 4 flats were sold, i. e., Rs. 125 per sq. ft. the statement of Shri Kapur appears to be true that he had booked it Rs. 125 though the rate shown by the assessee is Rs. 100 per sq. ft. When it was possible to sell 4 flats @ Rs. 125 and that was the quoted price there is no reason why the assessee should sell the remaining flats from Rs. 96 to Rs. 115. The finding, therefore, is that all these flats were sold @ Rs. 125 per sq. ft. but the consideration is understated by the assessee. 14TH FLOOR 93. Flat No. 14A is shown to have been booked on 6-10-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is a charitable organisation and did not want to charge the maximum price available. On the other hand, his case is that he is a prudent businessman who negotiated the highest price available. In such circumstances, if instances come to light that assessee had transferred the flats to repurchasers at less than the prevailing market price, the invitable inference would be that the assessee received part of the consideration in 'unaccounted money' and showed lower sum in the books to evade taxation. COMING NOW TO THE CONCRETE CASES 96. Flat No. 4G was booked by Nath Bros. @ Rs. 147.50 per sq. ft. in August 1970 as held by us already though the consideration shown was Rs. 120. It was surrendered in April 1973 to the assessee. The original purchaser claims he did not know the subsequent purchaser. There is no reason to disbelieve him, the resale was, therefore, by the assessee. He would not charge Rs. 120 or even Rs. 147.50 because the prices had considerably gone up in nearly 3 years and the assessee would naturally charge the best possible market price. The trend of prices shows (vide P. S. p. 1319) that 5B booked @ Rs. 110 on 6-10-1970 was sold on 30-11-1974 @ Rs. 205 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferred at the instance of the original purchasers and, therefore, there is no evidence of charging 'on-money' by the assessee. 102. The ITO has estimated on money on a general basis on the entire booking @ 15 per cent. He has also added separately the specific instances of understatement of consideration. In our opinion, the ITO was wrong in doing so, since in case of original booking it has been possible on the evidence on record to find out at what rates the flats were booked. In that regard we have already given findings in paras 74 to 93 above, as to at what rate the assessee had booked the flats originally and to what extent the price has been understated in the assessee's books. Therefore, in respect of original booking the amount to be added shall be worked out with reference to our specific findings as to understatement. That addition shall be in substitution of the addition @ 15 per cent made by the ITO and sustained by the Commissioner (Appeals). 103 to 109. These paras are not reproduced here as they involve minor issues. COST OF LAND 110. The assessee-firm came into existence under the deed of partnership, dated8-8-1970. Clause 3 of the partnership deed reads as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The assessee's own conduct in crediting amount of Rs. 2,01,000 to the account of the deceased goes to prove that it was the correct amount. The deceased had shown the value in his wealth-tax return for the assessment year 1970-71 at Rs. 2,01,000 and the WTO had valued it at Rs. 2,75,000 vide assessment order passed in 1971. For all these years, the assessee had not objected to the valuation of the cost of land and had never tried to vary this figure, Even in the consolidated profit and loss account prepared as on 31-5-1977 and submitted in September 1977 the assessee had valued the cost of land at Rs. 2,01,000 only. As per the agreement between Hans Raj Vadhera and the assessee the cost of land was fixed so far as the firm was concerned at Rs. 2,01,000 and the fact that he agreed to take less than the market price could be a separate subject-matter to be considered under the Gift-tax Act. 112. The matter was referred under section 144 to the IAC after the ITO prepared the draft assessment order and served it on the assessee. The IAC noted that on31-5-1977the major part of the construction work had been completed when the consolidated profit and loss account was made showing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay a sum of Rs. 2,01,000 for acquisition of the land. The value of the land taken for transfer to the assessee-firm was not dependent on any action by the Income-tax Department later on for its valuation in 1978. Hans Raj Vadhera has never during his lifetime claimed that he was entitled to any thing more than Rs. 2,01,000 for the price of the land. It was well established that in a business it is actual cost which has been paid for is to be taken into account and not the market value for determining the value of the property. In fact the assessee-firm had purchased this land for Rs. 2,01,000. The Commissioner (Appeals), therefore, upheld the order of the ITO. 115. The assessee is aggrieved and has come up in appeal. We have heard the learned counsel for the assessee and the departmental representative. The counsel for the assessee referred to clause 3 of the partnership deed and urged that the intention of the partners was that the value of land should be taken as assessed in the wealth-tax proceedings and not as returned by Hansraj Vadhera. Detailed arguments were urged in this regard. It was next urged that the land came in as capital of the firm and when the firm converted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause 3 of the partnership deed. 118. The learned departmental representative further pointed out that the assessee never claimed before the ITO/IAC the right to revalue the land and, therefore, we should not allow the assessee to raise this argument which was for the first time raised before the Commissioner (Appeals). It was further contended that the firm acquired the land as its stock-in-trade and not as capital. The enhancement of liability regarding the value of land as claimed by the assessee-firm would be valid as from the date of valuation on10-3-1978. The profit and loss account and balance sheets of earlier years cannot be revised retrospectively. There was no liability in presenting in 1977. 119. Alternatively, the learned departmental representative contended that if the assessee's contention is accepted then the firm would be liable to assessment as capital gains when it converted its capital into stock-in-trade. He also pointed out that the heirs of Hans Raj Vadhera would also be liable for assessment of capital gains and wanted as to give directions in this regard under section 153(3)/(2) (Explanation 3) of the Act. 120. We have considered the rival contentions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ominal price. The property was admittedly worth much more than Rs. 2,01,000. The benefit in fact passed on after his death but in 1978, the assessee was obviously advised that it may be more beneficial to rake up this issue than to pay tax on a sum of Rs. 40 lakhs or so which was the difference between the market price of the land and the value credited to the account of the assessee. It was then that the whole controversy was raked up. On a plain reading of the terms of the clause and the conduct of the parties till the death of Hansraj Vadhera, we have no doubt whatsoever that the parties intended that the property should pass on to the firm for a sum of Rs. 2,01,000 only. 122. The learned counsel for the assessee has placed reliance on certain observations in GT Appeal No. 19 (Delhi) of 1978-79 decided by Delhi Bench 'E' in its order, dated 21-2-1980, GTO v. D. R. Vadhera, legal heir of late Hansraj Vadhera on the point at issue. In that case after holding that there was no gift involved in para 10 the Tribunal observed as follows : "Before concluding we would like to observe that the exercise in the present case is perhaps of academic interest only. Clause 3 of the deed of pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... converting the shares into her stock-in-trade of the business and subsequently sold them at a profit. The Supreme Court held that the assessee's assessable profits on the sale of the shares was the difference between the sale price of the shares and the market price of the shares prevailing on the date when the shares were converted into stock-in-trade of the business in shares, and not the difference between the sale price and the price at which the shares were originally purchased by the assessee. The question for consideration is whether this ruling has any application on the facts of the case. In Kanga and Palkhivala's Law and Practice of Income-tax, Seventh Edition, Volume I, the learned authors under the head 'Capital investments converted into stock-in-trade' comment as follows : "Where an investor converts his capital assets into stock-in-trade and starts dealing in them, the taxable profit on the sales must be determined by deducting from the sale proceeds the market value of the assets at the date of their conversion into stock-in-trade (since that is the cost to the business) and not the original cost to the investor. . . ." Thus, to get the benefit of this ruling the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the multi-storey building on this piece of land which was contributed by Hansraj Vadhera. It thus came into the firm as its stock-in-trade and question of conversion and its valuation at market price does not arise. The assessee's case, therefore, must fail even on this ground. 124. There is another aspect of the case which we may touch upon briefly, though it was not argued by either party. The assessee is entitled really to value its closing stock-in-trade either at cost or at the market value whichever is less or it can value the stock-in-trade at cost or market price. The method of accounting has to be regularly followed. In this case the assessee has valued the closing stock-in-trade, i. e., the land consistently at cost which is lower than the market value. That is clear from the profit and loss account till May 1977. If the assessee had intended at any time to value the closing stock at the market value then the value debited should have been much more than Rs. 2,01,000. The assessee, thus, never adopted the market value as the method of accounting for valuing its closing stock. Thus, in the profit and loss account which was originally filed, the assessee debited the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said land was allotted to the share of one of the partners namely Shri Hans Raj Vadhera. The lessee enjoyed the said piece of land and the residential house constructed thereon until8-8-1970. However, it appears that the lessee Shri H. R. Vadhera, decided in August 1970 to bring in the said property in the common stock of the property belonging to a partnership concern to be formed for carrying on a business as dealers of property for commercial use. Accordingly, a partnership deed was executed on8-8-1970between Shri H. R. Vadhera and his daughter-in-law Mrs. Pushpa Vadhera w/o Shri Dev Raj Vadhera. Two minor children of Mrs. Pushpa Vadhera were also admitted to the benefits of the partnership. It is relevant to extract the under-mentioned clauses of the said partnership deed : "(2) The business of the partnership shall be of erecting on the ground comprises in the bungalow No. 15, Barakhamba Road, New Delhi, a multi-storeyed commercial building and to do any other type of business or business and activities during the course of this partnership business. (3) The land situated on 15, Barakhamba Road, New Delhi shall be the property of the firm and as taken in the wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land and filed a suit in the Court for injunction. The Court stayed the demolition. However, later they withdrew the suit on compromise of being paid a sum of Rs. 1,50,000 each. Thereafter only the building project could go through and could be almost completed in 1977. 6. In the assessments of the firm for the various years under appeal, the firm claimed, through a revised consolidated profit and loss account that in working out its profits and gains from business arising out of the sale of constructed flats to the buyers, deduction should be made for a sum of Rs. 36,61,625 and not Rs. 2,01,000 represented by the right of user of the space over the said plot of land transferred in favour of the buyers of the flats. The ITO and the Commissioner (Appeals) for the reasons given in their respective orders did not admit this claim of the assessee but restricted the deduction to the amount of Rs. 2,01,000 only which was initially credited to the capital account of Shri H. R. Vadhera. The primary reason for disallowing the claim of the firm is spelt out in paras 10 and 11 of the order of the Commissioner (Appeals) which need not be reproduced here. On these broad facts, the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion of regarding the capital contribution in the form of the leasehold interest in the land as the sale of the said interest in the property by the contributing partner in the firm. The learned counsel submitted that it was well settled that when an assessee hand over the property to become the property of a newly constituted firm to which becomes a partner representing his share in the capital contributed the transaction cannot be regarded as a 'sale' of the property so made over by the partner to the firm. He cited the decision of the Supreme Court in CIT v. Hind Construction Ltd. [1972] 83 ITR 211 and urged that a partnership firm under the Indian Partnership Act was not a distinct legal entity apart from the partners constituting it and in law the firm as such has no separate rights of its own in the partnership assets and what is firm's property is really the property in which all partners have a joint or common interest. Consequently, when a partner contributes any property to a partnership concern, as his capital contribution, there is no transaction of purchase or sale between the firm and the partners. 4. It was next urged that it was fallacy to assume that the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its partners at the very point of time of its constitution. What one of the partners, Shri Hansraj Vadhera, contributed to the partnership was capital in the form of his interest in the plot of land. This capital became the property of the firm just as any cash equivalent that would have been contributed. Such property was neither stock-in-trade of Shri Vadhera before the contribution nor it became the stock-in-trade of the firm at the point of contribution to the firm. The subsequent act of the firm, or its partners, on dealing with the property or whatever rights were attached to it as stock-in-trade does not impart the character of stock-in-trade to the capital asset of the partner contributed as capital to the firm. I also find force in the submission of the learned counsel that if Shri Vadhera by himself, without forming a partnership, would have undertaken the business venture of constructing flats on the property, which was hitherto his capital asset, he would have been entitled to work out his profits and gains of such venture by substituting the market value of the capital asset for its cost. In this connection, I rely on the decisions of the Supreme Court in Bai Shirinba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business, the market value of what was once a capital asset should be adopted if the capital asset became stock-in-trade at any point of time for being dealt with as such in the business of construction to be carried on by the firm. The stand taken by the assessee is consistent with the pattern of assessments made in the case of Shri Vadhera under the allied Acts namely Wealth-tax Act, Estate Duty Act and the Gift-tax Act. In the estate duty assessment, it was clearly accepted that the capital contributed by Shri Vadhera to the partnership concern was of the order of Rs. 36,61,625 which according to the Assistant Controller was representing market value of the deceased in the land as on8-8-1970. Indeed the controversy raised further was whether he had adopted less market value than its fair market value and an attempt was made to include the said difference as 'deemed gift' to the other partners. For wealth-tax purposes, the value of the capital contributed was accepted to be in the minimum of Rs. 31,81,400 for the assessment years commencing from 1970-71. The position regarding the value of land returned for different assessment years and the value of land assessed by the Wealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his clause does not warrant such a conclusion. Clause 3 provides 'the land situated at 15, Barakhamba Road, shall be the property of the firm and as taken in the wealth-tax return and shall be credited to his capital account . . . '. Even the literal construction of the language used does not warrant the meaning that the amount to be credited to the capital account shall be what is declared in the first wealth-tax return submitted for the 1970-71 assessment year. Indeed no assessment year to which a particular return shall relate in this clause is specified. Secondly, all what the clause refers to in the first part is the land which is to become the property of the firm as 'taken' in the wealth-tax return. It is right to say that for purposes of any wealth-tax return, what is to be taken as the value of any asset is the fair market value of the asset. Then the expression 'taken' suggests as determined under the act by the competent authority. The intention to leave the value of contribution to be determined by the Wealth-tax authorities could be the natural intention, for none would ordinarily like to place lesser value on his capital asset while contributing it to a genuine partne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and still prefer to sell its flats at lower rates on the same floor in the same period and some even in later years at lower rates (as compared with pamphlet rates). (e) It has to be noted that there was a notorious practice in 1970 to 1972 of on-money transactions in the sale of multi-storeyed buildings for which the Tribunal was bound to take judicial cognizance of such a practice. (f) Although there was no direct evidence of a single transaction, supporting the receipt of 'on-money' yet there was enough circumstantial evidence from which an inference could be drawn for receipt of on-money. 15. Against the above arguments, the learned counsel of the assessee put forward the following propositions in writing for re-consideration of the Tribunal supported by the authorities cited in the margin of these propositions : "Propositions urged in support of ground Nos. 4 & 5 for the assessment year 1972-73 and identical grounds for other assessment years in appeals before the Tribunal : 1. There is absolutely no legal evidence before the IT Authorities to hold that the assessee received any 'on-money' at any time from any person(s) who booked the flats and retained it ; nor from an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise by the IT authorities, by adducing legal and relevant evidence. 6. The circumstances pointed out by the ITO for making the impugned additions are only two, the following viz : (i) that a few of the original buyers had deposed that the flats were booked at higher rates than what the assessee admitted ; and (ii) that a few of the flats were re-booked even after a lapse of some time in favour of subsequent allottees at the original rates. Even those who deposed at (i) above that the rates were higher stated categorically that everything that was paid was accounted for by the assessee firm and was returned in full to them. It was submitted that none of the above circumstances could lead to the conclusion reached by the ITO. Assuming that these circumstances could be relied upon, equally ought to be relied upon the circumstances that none of the persons who were examined by the ITO had ever stated that they paid any 'on-money' to the assessee. On the other hand, they categorically denied to have paid any such 'on-money'. 7. The learned ITO had not brought on record even a single instance where any of the buyers of the flats were interrogated as to how they had accounted for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstantial evidence may be admissible in certain cases to support such a presumption but the question is what is that circumstantial evidence on which the department relies in this case. In my view, the only circumstantial evidence on which the department seeks to rely in this case are the presumptions that have already been stated above. Presumptions by themselves are not circumstantial evidence. Circumstantial evidence must be either oral or documentary which pointedly support the validity of the inference sought to be drawn. In this case, it is common ground that there is no documentary whatsoever either in the form of any sale deed agreement of sale, or any receipt of 'on money' or any correspondence between the buyer and the seller establishing that 'on money' was paid. As respects oral evidence, it is entirely contradictory to the presumptions sought to be supported on behalf of the department. The only circumstantial evidence on which a great stress has been laid on behalf of the department is an undated and unsigned cyclostyled pamphlet which came into the hands of the department at the instance of the buyer Nath Bros. The assessee denies that the pamphlet was issued by it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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