COMMISSIONER OF INCOME TAX Vs. SUPRIYA ENTERPRISES

JUDGEMENT

(1.) THESE reference cases arise out of a common order passed by the Income-tax Appellate Tribunal, Cochin Bench, in I.TA Nos. 10 and 11/Coch of 1988, filed by the assessee and I. T. A. Nos. 141 and 142/Coch. of 1988 filed by the Revenue. The relevant assessment years are 1985-86 and 1986-87. The following question of law has been referred to this court for its opinion at the instance of the Revenue :

(2.) THE assessee, a registered firm with 20 partners, entered into an agreement with Malabar Industrial Company Ltd. on July 18, 1982, for sale of the company's Skinnerpuram Estate having an extent of 698.92 acres to the assessee or its nominee for a consideration of Rs. 210 lakhs. An amount of Rs. 5 lakhs was paid as advance.

(3.) A search under Section 132 of the Income-tax Act was conducted on January 15, 1985, at the residential permises of three partners of the firm. Simultaneously search was conducted at the office of the company and the assessee-firm. Certain files, deeds of settlement including torn copies of agreements were seized. After the search, the assessee approached the Commissioner of Income-tax to settle its income-tax by assessing a profit of Rs. 25 lakhs distributed equally among the assessment years 1985-86 to 1987-88. According to the assessee, the sale price of 699 acres was at the rate of Rs. 40,000 per acre. After deducting the cost and other overhead expenses of Rs. 2,54,60,000, the balance profit was shown as Rs. 25 lakhs. The above proposal was not accepted by the Department. The assessing authority estimated the average rate of sale consideration at Rs. 50,000 per acre and on that basis calculated the average gross profit at Rs. 12,362.37 per acre. The assessment was thus completed for the assessment years 1985-86 and 1986-87.