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2004 Supreme(Mad) 1276
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE P.D.DINAKARAN & THE HONOURABLE MR. JUSTICE S.R.SINGHARAVELU
The Assistant Commissioner of Income-tax - Appellant
Versus
C.Subba Reddy (Individual/HUF) - Respondents
Tax Case (Appeals) No.31, 44 and 45 of 2000
Decided On : 07 October 2004
The main legal point established in the judgment is the importance of maintaining credible books of accounts and the need for material evidence to disbelieve the same.
Headnote:
Undisclosed Income - Income Tax - Income Tax Act, 1961, Section 132 - Section 132 of the Income Tax Act, 1961 - The judgment discusses the addition of undisclosed income with reference to advance received for the sale of commercial space, concession availed for the purchase of commercial plots, and the difference in cost of construction. The court analyzed the materials seized during the search, the treatment of various sums as undisclosed income, and the contentions of the assessees. The court referred to legal provisions and case law to support its decision, emphasizing the importance of maintaining credible books of accounts and the need for material evidence to disbelieve the same.
Fact of the Case:
The case involved appeals by the revenue against the order of the Income Tax Appellate Tribunal allowing the appeals of the respondents-assessees. The respondents were shareholders of a construction company, and the appeals concerned the addition of undisclosed income with reference to various financial transactions and the treatment of agricultural income.
Finding of the Court:
The court analyzed the materials seized during the search, the treatment of various sums as undisclosed income, and the contentions of the assessees. The court found in favor of the assessees, emphasizing the credibility of the books of accounts and the need for material evidence to disbelieve the same.
Issues: The issues included the addition of undisclosed income related to advance received for the sale of commercial space, concession availed for the purchase of commercial plots, and the difference in cost of construction. The court also addressed the treatment of agricultural income.
Ratio Decidendi: The court emphasized the importance of maintaining credible books of accounts and the need for material evidence to disbelieve the same. It referred to legal provisions and case law to support its decision.
Final Decision: The court dismissed the appeals, ruling in favor of the assessees and against the revenue.
P.D.Dinakaran, J.
The revenue is the appellant in all these appeals which were preferred against the order of the Income Tax Appellate Tribunal dated 26.05.1999 allowing the appeals preferred by the respondents-assessees in each of the appeals.
2. In precise, the facts of the case is that the respondents-assessees are shareholders of Kencess Enclave Project, which commenced its business in the year 1992 and was engaged in the business of construction and selling of residential and commercial buildings. K.Narasa Reddy designated as the Managing Director of the assessee company held 50% of the shares and the remaining 50% of the shares was shared by Subba Reddy (Individual) designated as the Director of the Company, Subba Reddy (HUF) and Rajini Reddy, wife of Subba Reddy.
3. There was a search under Section 132 of the Income Tax Act, 1961 on 23.02.1996 in the premises of the Kences Enclave Project in which the respondents/assessees were holding 100,900 shares. In the course of the search the following documents were seized:
i.statement of accounts prepared by one V.C.Gupta, Executive Director (Finance) of the company, relating to the settlement of accounts to the outgoing Director Subba Reddy and his group;
ii. work Sheet prepared by Chartered Accountants Giri and Prabhakar, which was taken into consideration for settling the accounts of the outgoing Director Subba Reddy and his Group,
iii. paper showing negotiation with buyers for purchase of flats.
4.1. As per the statement of accounts prepared by the Executive Director (Finance) and the work-sheet prepared by the Chartered Accountant of the Company for the purpose of settling of accounts of the respondents-assessees who intended to retire from the Company, a sum of Rs.3,40,00,000/- were settled to them.
4.2. Out of Rs.3,40,00,000/- the department took into consideration a total sum of Rs.1,84,64,700/- towards the shares of the respective assessees at the rate of Rs.183 per share as follows:
Name of the shareholder No. of shares held Sale consideration received @ 183 per share Date of payment Amount paid
4.3. The balance of Rs.160.00 lakhs (approximately), according to the revenue, was apportioned as follows :
i.construction advance of Rs.120 lakhs paid by the said company to the respondents-assessees for purchase of building space in Alexander Square, constructed by the assessees (Subba Reddy and Group) was included as amount paid for settlement of the value of shares held by the assessees towards their retirement from the company and was treated as undisclosed income; and
ii. since the respondents-assessees, concededly purchased 14500 sq. ft in Kences Enclave for a sum of Rs.1,88,44,146/- as against the actual consideration of Rs.2,30,00,000/-, the difference of Rs.40 lakhs was treated as an undisclosed income.
4.4. The respondents-assessees in their objections explained that assuming that the assessees accepted the materials seized from the premises of Kences Enclave Foundation, to be correct, there was no reason to disbelieve the case of the respondents that the advance of Rs.120 lakhs received by them for the sale of commercial space at Alexander Square was returned to the said company by way of cheques and therefore the said amount should not be treated as amount paid to the respondents-assessees towards the settlement of accounts of the share for the retirement as shareholders from the said company.
4.5 The further case of the respondents-assessees was that the concession availed by the respondents/assessees for the purchase of 14500 sq. ft. in Kences Enclave for a sum of Rs.188.00 lakhs as against Rs.230.00 lakhs, the actual value to be paid, in view of the down payment made by the respondents-assessees and the said concession of Rs.40.00 lakhs which worked out to the tune of 17.5% is permissible in the real estate business in normal practice.
5.1 That apart, the revenue also treated a further sum of Rs.10,16,640/- as undisclosed income which is claimed to be the diff
