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DCIT, Central Circle, Rajahmundry Versus M/s. Rajendra Constructions, Kakinada

2016 (4) TMI 697 - ITAT VISAKHAPATNAM

Estimation of sale price - valuation report issued by the registered valuer relied upon for sale estimation - Held that:- On perusal of facts, we notice that the assessee entered into Joint Development Agreement with land owners. As per the said Joint Development Agreement, separate sale deeds are executed by respective parties for undivided interest in land and construction cost. The assessee is entitled for construction cost and accordingly, recognized revenue from construction cost of apartme .....

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pointed out any errors or mistakes in the books of accounts and more particularly when the sales is supported by valid sale deeds. The CIT(A) has elaborately discussed the issue. We do not see any reasons to interfere with the order passed by the CIT(A). Hence, we inclined to uphold the order passed by the CIT(A) and direct the A.O. to delete the additions. - Decided in favour of assessee. - I.T.A.No.628/Vizag/2013, C.O. No.140/Vizag/2013 - Dated:- 25-2-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER .....

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r, for the sake of convenience. 2. The brief facts of the case are that the assessee is a partnership firm which is engaged in the business of development of apartments & flats. A search and seizure operation was carried out in the group cases of the assessee on 3.2.2009. Consequent to search, the case was centralized to Central Circle, Rajahmundry vide notification FNo.62/Juris/CIT/RJY/2009-10 dated 29.6.2009 and accordingly, a notice u/s 153C of the Income Tax Act, 1961 (hereinafter called .....

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for. 3. The assessee partnership firm which is engaged in the business of real estate development has ventured into first real estate project in the year 2007 in the name and style of M/s. Rajendra Towers , at Kakinada. This residential project consist of 25 flats of which 10 are 3 bed room flats and remaining 15 flats are 2 bed room flats. The land on which the said building was constructed belongs to 5 members of the family of the partners including some of the partners themselves. The assess .....

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of the building with the buyers. 4. During the course of search, certain incriminating documents found and seized vide annexure A/RJM/3, indicate that the actual valuation of the flats sold by the assessee is at ₹ 1,200/- per sq.ft. As per these seized documents, it was noticed that Shri Badam Sundara Rao, Kakinada, Approved Valuer for banks and financial institutions have valued 3 flats in the name of Smt. Lalitha, Shri Bhawarlal & Shri Rajendra Kumar and arrived at a fair market valu .....

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response to show cause notice, the assessee filed a reply and stated that the valuation report obtained by the prospective buyers from the registered valuer cannot be the basis for ascertaining the sale value of the flats. The assessee further submitted that these valuation reports are not obtained by the assessee. The valuation report obtained by the buyers and the value assessed by the valuer is a fair market value and not cost of construction or sale price of the apartment. 5. The A.O., howe .....

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opted sale price of ₹ 1200/- per sq. feet. Further, the A.O. has estimated cost of construction of ₹ 850/- per sq.ft. and arrived profit of ₹ 350/- per sq. ft . During the year under consideration, the assessee has sold 21302 sq.ft. Therefore, by taking into account total area sold and the net profit margin of ₹ 350/- per sq.ft., arrived at a net profit of ₹ 74,55,700/-. Finally, the A.O. has made additions of ₹ 71,87,590/-, after deducting net profit of ͅ .....

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f obtaining bank loan is valued by taking into fair market value of the project which is not the real construction cost or the sale price of the project. The assessee further submitted that it has maintained regular books of accounts, wherein recorded the complete sales which is supported by sale deeds registered in the office of Sub-Registrar. The books of accounts were audited by a Chartered Accountant and found that there are no irregularities in the books of accounts. Under these circumstanc .....

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is in line with the valuation report issued by the registered valuer. The valuer has arrived at a fair market value of the flat at ₹ 1200/- per sq.ft., wherein he determined cost of undivided land at ₹ 700/- per sq.ft. and cost of construction at ₹ 500/- per sq.ft. On verification of the books of accounts, it is seen that the price of the undivided area of land is at ₹ 889/- per sq.ft., which is higher than the amount estimated by the registered valuer. Similarly, the as .....

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was seized by the department and arrived at a difference of ₹ 8,65,000/- in respect of 3 flats. With these observations, the CIT(A) directed the A.O. to sustain the addition to the extent of ₹ 8,65,000/- and delete the balance amount of ₹ 65,84,620/-. Aggrieved by the CIT(A) order, the revenue as well as assessee are in appeal before us. 8. The Ld. D.R. submitted that the CIT(A) was erred in deleting the additions made by the A.O., as the addition was based on a seized document .....

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valuation report found during the course of search cannot be basis for estimation of sale price of the apartments. The Ld. A.R. further submitted that the valuation report obtained by the prospective buyers for the purpose of obtaining bank loan is not a valid document to arrive at the sale price. The assessee has maintained books of accounts, wherein it has recorded the sale receipts from the project which is supported by registered sale deeds. In the absence of any mistakes in the books of ac .....

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nion that the book results of the assessee are not reliable, therefore, he has estimated the net profit from the project by taking into account the total built up area sold multiplied by value arrived by the registered valuer. It was the contention of the assessee that the registered valuer s report cannot be taken as basis to arrive at a sale price of the project. The assessee further contended that it has maintained regular books of accounts and bills & vouchers in support of the expenditu .....

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and orders of the authorities below. The CIT(A) discussed the issue in detail. The CIT(A) has categorically given his findings that the valuation report is not the basis for estimation of the sale price. The CIT(A) further held that the book results declared by the assessee are in line with the value arrived by the registered valuer. Though, valuation done by the registered valuer cannot be treated as evidence for determining the sale price, the CIT(A) has compared the sales reported by the asse .....

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ssessee has not substantiated the expenditure claimed with any bills & vouchers and another side agreed that assessee has produced some bills & vouchers. There is a contradictory statement from the A.O. on the facts. Though, assessee could not produced bills & vouchers to support the expenditure claimed, the A.O. cannot estimate the sales based on the valuation report. The sales declared in the books of accounts are supported by sale deeds registered in the office of the Sub-Registra .....

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