Safeway Builders Pvt. Ltd. vs Income Tax Officer.
1995 Latest Caselaw 856 Del

ORDER

G. D. AGRAWAL, A. M :

This appeal by the assessee is directed against the order of the CIT(A)-XIV, New Delhi.

2. The only ground raised in this appeal reads as under :

"Learned AC as well as learned CIT(A) have erred on facts as well as law in making addition of Rs. 4 lakhs, i.e., profit on sale of D-200, Saket, which is earned by its owner Shri J. P. Bahl. The appellant simply carried out the construction on this property on contract basis and profit from this contract is duly disclosed by the appellant in its books of accounts."

3. At the time of hearing before us the learned counsel for the assessee argued at length. He submitted that Shri J. P. Bahl was the owner of the plot at D-200, Saket, New Delhi. The assessee carried on the construction of a flat on the above plot on behalf of Mr. Bahl. The flat was sold by Mr. Bahl and consideration was received by him. The purchaser had confirmed having purchased the flat from Mr. Bahl. Mr. Bahl sought the permission for sale of the flat from the Competent Authority under the IT Act. The assessee has entered into an agreement of construction of the flat and there was no power of attorney in favor of the assessee-company ever executed by Mr. Bahl. He referred to the copy of the agreement between the assessee and Mr. Bahl. He also referred to the copy of the bank statement in support of his contention that the sale consideration of the said flat was received Mr. Bahl and was deposited in his bank account. In respect of the statement of Mr. Bahl recorded by the Assessing Officer (AO), it was submitted that Mr. Bahl had poor memory because of his serious accident which had caused brain injury. He was hospitalised for many months and in the said accident his wife had expired. He also submitted that the statement was recorded by the AO after four years of the transaction. He also pointed out that out of the sale consideration received by the assessee and deposited in his bank the part of amount was kept in fixed deposit by Mr. Bahl and some part he advanced to Mr. Soni, director of the assessee-company. In respect of the money advanced to Mr. Soni he had received the interest and the interest was duly shown by him in his IT return filed before the assessment proceedings of the year under consideration were taken up. Finally he submitted that Mr. Bahl had shown the capital gain for the sale of the flat by him and he was subjected to capital gains tax, in respect of the same flat.

4. The learned Departmental Representative heavily relied upon the orders of the authorities below. She submitted that Mr. Bahl in his statement before the AO has duly accepted that he has entered into an agreement to sell the said plot for a sum of Rs. 3,00,000 with the assessee-company. He has also admitted that the flat was sold by the assessee-company. Therefore, the AO was fully justified in taxing the surplus arising from the sale of the flat in the case of the assessee. He further submitted that the fact that the assessee had advanced Rs. 3,00,000 to Mr. Bahl itself shows that the assessee had interest in the property. As the assessee was only to construct and hand over the flat to Mr. Bahl. Mr. Bahl should have advanced to the assessee against the construction expenses to be incurred by the assessee-company. He also submitted that the director of the assessee-company are related to the assessee. Accordingly, she submitted that the orders of the authorities below be upheld.

5. We have carefully considered the arguments of both the sides. It is undisputed that Mr. J. P. Bahl was the owner of the plot at D-200, Saket, New Delhi. The assessee-company had constructed a flat on the said plot. It paid advance of Rs. 3,00,000 to Mr. J. P. Bahl. As per agreement of construction dt. 4th June, 1986, the cost of construction was Rs. 11,00,000. The said plot along with the flat was sold by way of an agreement to sell dt. 21st Oct., 1987, to Smt. Aruna Mehta of Lajpat Nagar, New Delhi for a sum of Rs. 18,00,000. The sale consideration was received by cheque in the name of Shri J. P. Bahl and deposited in his bank account. During the course of the assessment proceedings of the assessee, the AO recorded the statement of Shri J. P. Bahl. On the basis of the said statement, he reached to the conclusion that Shri J. P. Bahl had sold the plot to the assessee for a sum of Rs. 3,00,000 and, therefore, whatever was the surplus on account of construction and on the sale of flat on the said plot was the income of the assessee. When the statement of Mr. Bahl was brought to the knowledge of the assessee-company, they denied the facts recorded in the statement of Shri J. P. Bahl. Then Shri J. P. Bahl was cross examined by the counsel of the assessee on 17th Dec., 1990, in the presence of the AO. During the course of such cross examination he clearly stated that the agreement entered into between him and M/s Safeway Builders Pvt. Ltd. (assessee) was for construction of house. He also stated that he had not executed any other agreement with the assessee. When the question was put by the AO that on 21st Nov., 1990, he has stated to have executed power of attorney, agreement to sell, will and relinquishment of right in favor of Safeway Builders Pvt. Ltd., then what are the circumstances compelling you to deny this. Then he replied he had vague recollection and when he intended to sell the plot of land he had contacted a few agents who had showed him 5-6 forms which are required to be executed before the sale deed. Those were not executed. Thus, the only evidence in favor of the Department is the statement of Mr. J. P. Bahl dt. 21st Nov., 1990, which had been retracted by himself during the cross-examination by the assessees counsel before the AO. The Revenue has not brought on record any of the so-called documents like power of attorney, sale deed, will, agreement to sell, etc., if executed by Mr. J. P. Bahl. The documentary evidence on record before us is the agreement of construction dt. 4th June, 1986, between Mr. J. P. Bahl and the assessee-company and the agreement to sell between the assessee and Smt. Aruna Mehta dt. 21st Oct., 1987. Though this agreement to sell is evidenced and ratified by the directors of the assessee-company that by itself will not substitute them in place of seller. There is a confirmation of Smt. Aruna Mehta buyer of the said flat dt. 21st Oct., 1987, confirming having taken the possession of the house No. D-200, Saket handed over by Mr. J. P. Bahl. Mr. J. P. Bahl had applied to the IT Department for obtaining the permission of the Competent Authority under s. 269UC of the IT Act in Form No. 37-I. Sale consideration of the flat was received by cheque and deposited in the account of Mr. J. P. Bahl. Out of sale proceeds of Rs. 18,00,000 he paid the sum of Rs. 14,00,000 to the assessee-company (Rs. 11 lakhs cost of construction plus Rs. 3 lakhs refund of security deposits). Out of the remaining he made fixed deposit of Rs. 1,18,000 and Rs. 20,000 was the miscellaneous expenses. The remaining of the money was advanced to various persons, part of the money was admittedly to Mr. Soni, director of the assessee-company but from whom the interest was received and the same was offered to tax. Mr. J. P. Bahl though initially had not shown the capital gain in his hands, yet he has filed the revised return and has shown the capital gain and has been subjected to capital gains tax in his hands. It is also stated by the assessees counsel that the order of the CIT(A) in his case with regard to the computation of capital gain has become final and was not subjected to further appeal by the Revenue. These documentary evidences, proved beyond doubt that Mr. J. P. Bahl was the owner of the plot and the assessee had only constructed the flat on behalf of Mr. J. P. Bahl. The plot and the flat were transferred by Mr. Bahl and the consideration was received by him. No documentary evidence has been brought on record by the Revenue to establish that the assessee-company had purchased this plot and it was the owner of the building constructed thereon. The only basis for treating the assessee as the owner of the plot and the building was the statement of Mr. J. P. Bahl which he himself has retracted during the course of the cross examination by the assessees counsel before the AO himself. In view of the totality of these facts we find no material to hold that the assessee was the owner of the plot and the flat at D-200, Saket, and, therefore, it cannot be taxed for the surplus arising out of the sale of said plot and flat. We, therefore, delete the addition of Rs. 4,00,000 made by the AO.

6. In the result, the assessees appeal is allowed.