IT-Reassessment can be made on the basis of info supplied by investigation wing of department
IT : Action under section 147 read with section 148 can be taken on basis of report from Investigation Wing of department
IT : Where assessee filed evidences before Assessing Officer and Commissioner (Appeals), showing identity of shareholders, creditworthiness of such parties and genuineness of transactions in respect of share application, addition on account of share capital money was to be deleted
■■■
[2013] 34 taxmann.com 37 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH 'B'
Assistant Commissioner of Income-tax, Circle, Khanna
v.
Kisco Casting (P.) Ltd.*
Ms. Sushma Chowla, JUDICIAL MEMBER
AND MEHAR SINGH, ACCOUNTANT MEMBER
AND MEHAR SINGH, ACCOUNTANT MEMBER
IT Appeal No. 685 (Chd.) of 2011
C.O. No. 63 (Chd.) of 2011
[ASSESSMENT YEAR 2006-07]
C.O. No. 63 (Chd.) of 2011
[ASSESSMENT YEAR 2006-07]
JUNE 22, 2012
I. Section 147, read with section 148, of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [Report of Investigation Wing of Department] - Assessment year 2006-07 - Whether action can be taken under section 147 read with section 148, on basis of report from investigation wing of department - Held, yes – Whether, therefore, where Assessing Officer had been supplied with information by Investigation Wing and he applied his mind to such information, there was no infirmity or illegality in issuance of notice under section 148 - Held, yes [Paras 9 and 11] [In favour of revenue]
II. Section 68 of the Income-tax Act, 1961 - Cash credits [Share application money] - Assessment year 2006-07 - Assessee-company shown receipt of certain sum on account of share application money - In assessment proceedings, assessee had filed affidavit, confirmation indicating number of shares, amount invested, mode of investment as cheque, bank account number, source of funds etc., to prove identity and existence of subscribers as also evidence of investment in shares through banking channels - Assessing Officer made addition of said share capital money, as undisclosed income of assessee, on ground that persons who subscribed to share capital were not produced before him - Whether since Assessing Officer had failed to bring on record any relevant and credible material to neutralize documentary evidences filed by assessee, impugned addition was to be deleted - Held, yes [Para 19] [In favour of assessee]
CASE REVIEW-II
Aggarwal Coal Corpn (P.) Ltd. v. Addl. CIT [2012] 135 ITD 270/19 taxmann.com 209 (Indore) and Power Drugs Ltd. v. CIT [2011] 201 Taxman 194 (Punj. & Har.) (Mag.)/13 taxmann.com 56 (Punj. & Har.) (para 18) distinguished.
CIT v. First Point Finance Ltd. [2006] 286 ITR 477 (Raj.) (para 19) followed.
CASES REFERRED TO
CIT v. Smt. Paramjit Kaur [2009] 311 ITR 38/[2008] 168 Taxman 39 (Punj. & Har.) (para 4), Asstt. CIT v. IBM World Trade Corpn. [1995] 210 ITR 811 (Bom.) (para 4), Asstt CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 4), ITO v. Lakhmani Mewat Das [1976] 103 ITR 437 (SC) (para 4), Sarthak Securities (P.) Ltd. v. ITO [2010] 329 ITR 110/195 Taxman 262 (Delhi) (para 4), Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 322/137 Taxman 479 (Bom.) (para 4), CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Delhi) (para 4), GKN Driveshaft (India) Ltd. v. ITO [2003] 259 ITR 19/ [2002] 125 Taxman 963 (SC) (para 6), CIT v. P.V.S. Beedies (P.) Ltd. [1999] 237 ITR 13/103 Taxman 294 (SC) (para 11), AGR Investment Ltd. v. Addl. CIT [2011] 333 ITR 146/197 Taxman 177/9 taxmann.com 62 (Delhi) (para 11), Midland Fruit & Vegetable Products (India) Ltd. v. CIT [1994] 208 ITR 266/73 Taxman 30 (Delhi)(para 11), Rajat Export Import India (P.) Ltd. v. ITO [2012] 341 ITR 135/206 Taxman 50/18 taxmann.com 11 (Delhi.) (para 11), Aggarwal Coal Corpn. (P.) Ltd. v. Addl. CIT [2012] 135 ITD 270/ 19 taxmann.com 209 (Indore) (para 14), Power Drugs Ltd. v. CIT [2011]201 Taxman 194 (Punj. & Har.) (Mag.)/13 taxmann.com 56 (Punj. & Har.) (para 14), CIT v. Steller Investments (P.) Ltd. [2001] 251 ITR 263/115 Taxman 99 (SC) (para 15), CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008] (para 15), CIT v. G.P. International Ltd. [2010] 325 ITR 25/186 Taxman 229 (Punj. & Har.) (para 15), Prakash Chand Nahta v. CIT [2008] 301 ITR 134/170 Taxman 520 (MP) (para 15), CIT v. Kamdhenu Vyapar Co. Ltd. [2003] 263 ITR 692/130 Taxman 147 (Cal.) (para 15), Anil Kumar Midha (HUF) v. ITO [2006] 153 Taxman 65 (Jodh.)(Mag.) (para 15), APS Associates (P.) Ltd. v. Asstt. CIT [2006] 101 ITD 215 (ASR.) (para 15), Golden Remedies (P.) Ltd. v. ITO [2007] 18 SOT 260 (Delhi) (para 15) and CIT v. First Point Finance Ltd. [2006] 286 ITR 477 (Raj.) (para 19).
Smt. Jaishree Sharma for the Appellant. Sudhir Sehgal for the Respondent.
ORDER
Mehar Singh, Accountant Member - The present appeal filed by the Revenue and the Cross Objections filed by the assessee, are directed against the order dated 13.04.2011 passed by the ld. CIT(A) u/s 250(6) of the Income-tax Act,1961 (in short 'the Act').
2. In this appeal, the Revenue has raised the following Grounds of Appeal:
| "1. | That the ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.1,95,00,000/- made by the AO on account of disallowance on the issue of new share capital. | |
| 2. | That the order of the CIT(A)-II be set aside and that of the AO be restored. | |
| 3. | That the appellant craves leave to add or amend any ground of appeal before it is finally disposed." |
3. In the Cross Objection, the assessee has raised the following grounds:
| "1. | That on the facts and circumstances, the ld. CIT(A) erred in upholding the re-opening of assessment u/s 148 which was framed u/s 143(3) vide order dated 24.12.2008 as there was neither any fresh material nor any application mind by the AO. | |
| 2. | That the appellant craves leave to add or amend any of the grounds of cross objection before the same is finally heard and disposed off." |
4. In the course of present appellate proceedings, ld. 'AR' contended that notice issued by the AO, is not based on any fresh material nor on application of mind, at his level. He, further, stated that the assessment in this case, was framed u/s 143(3) of the Act, vide order dated 24.12.2008. He referred to para 6 of the CIT(A)'s order, whereby, the addition made by the AO has been deleted by the CIT(A). Ld. 'AR', further, referred to para 3.3 of the order of the CIT(A), wherein decision in the case of CIT v. Smt. Paramjit Kaur [2009] 311 ITR 38 [2008] 168 Taxman 39 (Punj. & Har.) has been discussed and analyzed by the CIT(A). In that case, initiation of re-assessment proceedings was undertaken, on the basis of information received from Survey Circle and the belief for escapement of income, chargeable to tax was founded on suspicion. Accordingly, the Hon'ble jurisdictional High Court held that notice issued u/s 148 was not valid. Ld. 'AR', further, argued that AO has not applied his mind, in the matter. Ld. 'AR' also referred to the submission filed before the CIT(A). Before AO, assessee placed reliance, on the decision in the case of N.D. Bhatt, Inspecting Asstt. CIT v. IBM World Trade Corpn. [1995] 216 ITR 811 (Bom.), Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC), ITO v. Lakhmani Mewat Das [1976] 103 ITR 437 (SC). The AO, had considered such case laws in the light of the factual matrix of the present case. The assessee placed reliance on the decision in the case of Sarthak Securities (P.) Ltd. v. ITO [2010] 329 ITR 110/195 Taxman 262 (Delhi), Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332/137 Taxman 479 (Bom.), CIT v. SFIL Stock Broking Ltd. [2010] 325 ITR 285 (Delhi).
5. We have considered the submissions filed by the party, before the CIT(A). In this case, return was filed by the assessee, on 26.11.2006, declaring income of (-) Rs.26,764/-. The AO, received information from the Investigation Wing, as mentioned in the reasons recorded by the AO u/s 148 of the Act, that assessee company is a beneficiary of accommodation entries, provided by Shri Tarun Goyal, Karol Bagh, New Delhi. The reasons recorded reveal the modus-operandi resorted by Shri Tarun Goyal. A bare perusal of the reasons recorded by the AO, on 13.04.2011, and as reproduced by the CIT(A), in para 3.1 of his appellate order, under reference, reveals that the AO, acted upon the information provided by the Investigation Wing, in respect of the entries provided by Shri Tarun Goyal, to the assessee alongwith the detail of such entries. The report, submitted by the Investigation Wing, to the AO, is a report on certain facts, which can certainly serve as the basis, for initiating re-assessment proceedings, u/s 147 read with Section 148 of the Act. A bare perusal of the reasons recorded reveals that the AO, has duly applied his mind, to the report submitted by the Investigation Wing.
6. Ld. CIT(A), has considered the factual matrix of the case as also the decisions relied upon by the assessee. Ld. CIT(A) referred to the decision of the Hon'ble Supreme Court, in the case of GKN Driveshaft (India) Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963 (SC). The AO, had supplied the reasons recorded u/s 148 of the Act, to the assessee. It is, further, evident from the appellate order of the CIT(A), that objection raised by the assessee appellant, were duly disposed of by the AO, as is evident from 2nd para, page 14 of the assessment order. In view of this, the CIT(A) upheld the re-opening of the case, u/s 148 of the Act and dismissed the ground raised by the assessee, in the matter.
7. In this case, original assessment u/s 143(3) of the Act was framed on 24.12.2008. Subsequently, notice u/s 148 of the Act was issued by the AO, on 18.09.2009, and duly served upon the assessee, on 22.09.2009. Accordingly, the notice u/s 148 of the Act has been issued to the assessee before expiry of four years, from the end of the relevant assessment year. Consequently, the case of the assessee does not fall under the proviso to Section 147 of the Act.
8. Ld. 'DR' argued that reasons recorded u/s 148 are valid, to initiate action u/s 147 read with Section 148 of the Act. Ld. 'DR', further, stated that information was received, after completion of the original assessment order. He also made reference to the search conducted in the case of Shri Tarun Goyal, on 15.09.2008, whereby certain information was collected regarding his business of providing accommodation entries. Ld. 'DR' supported the findings, on the issue of validity of notice u/s 148 of the Act, arrived at by the CIT(A).
9. We have carefully perused the rival submissions, facts of the case, the case laws relied upon and the relevant available records. A bare perusal of the reasons recorded by the AO reveals that there is a direct nexus between the reasons and the formation of belief, for the escapement of income, chargeable to tax, within the meaning of Section 147 of the Act. The reasons recorded by the AO, are specific, definite and relevant, and not vague and irrelevant. It is a well settled proposition of law, that at the stage of initiation of re-assessment proceedings, the AO is not expected to establish conclusively the factum of escapement of income, chargeable to tax. Similarly, it is not essential that addition must be made by the AO, in terms of the reasons recorded u/s 148 of the Act. The recording of reasons, u/s 148 of the Act, is a threshold statutory condition, for assumption of jurisdiction, for the purpose of re-assessment in a case. In such a situation, only prima-facie belief, formed by the AO, in the matter of escapement of income, chargeable to tax, is essential. In this case, the notice u/s 148 of the Act has been issued before the expiry of four years, hence, the proviso to Section 147 of the Act is not applicable. It is, further, essential to mention here that there is no statutory bar, in invoking the provision of Section 147 read with Section 148 of the Act, on the basis of valid information supplied by the Investigation Wing of the Income Tax Department. Where the information is factual and not false one and the same has merely been communicated to the AO, he would be within his statutory right to invoke the provisions of Section 147 read with Section 148 of the Act. Needless to stress that communication of information from any source, is different from the interpretation of the same. The AO, has been supplied with information by the Investigation Wing and he applied his mind to such information, hence, there is no infirmity or illegality in issuance of notice u/s 148 of the Act by the AO.
10. We have considered the case laws cited by the assessee and the ratio, laid down therein, and found that the same are factually different and distinguishable and, hence, not applicable to the fact-situation of the present case. Such case laws had been considered by the AO and the ld. CIT(A) also, as relied upon by the assessee.
11. Let us discuss, the relevance of information supplied by the Investigation Wing. The Hon'ble Supreme Court, in the case of CIT v. P.V.S. Beedies (P.) Ltd. [1999] 237 ITR 13/103 Taxman 294 (SC) held that factual error or omission in the assessment order, pointed out by the Audit Party, is permissible under law to invoke the provisions of Section 147 r.w. Section 148 of the Act. Relevant part of the decision is reproduced hereunder (Head Note) :
"Reassessment - Information-Internal audit party entitled to point out factual error or omission in assessment-re-opening of case on basis of factual error pointed out by internal audit party is permissible under law-ITO granting deduction under Section 80G on account of donation to charitable trust overlooking fact that recognition granted to charitable trust had expired-Re-opening was on basis of factual information given by internal audit party-Re-opening of assessment valid-Income-tax Act,1961, s.147(b)."
11. (i) The Hon'ble Delhi High Court in the case of AGR Investment Ltd. v. Addl. CIT [2011] 333 ITR 146/197 Taxman 177/9 taxmann.com 62 has held as under :
"Held, dismissing the petition, that the transactions involving Rs.27 lakhs constituted fresh information in respect of the assessee as a beneficiary of bogus accommodation entries provided to it and represented undisclosed income. There was specific information received from the office of the Directorate of Investigation as regards the transactions entered into by the assessee with a number of concerns which had made accommodation entries and they were not genuine transactions. It was neither a change of opinion nor did it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceedings under Section 147 of the Act. The reason to believe had been appropriately understood by the AO and there was material on the basis of which the notice was issued. In exercise of the jurisdiction under article 226 of the Constitution, the sufficiency of reasons for formation of the belief could not be considered. It was open to the assessee to participate in the re-assessment proceedings and put forth its stand in detail to satisfy the AO that there was no escapement of taxable income."
11. (ii) A letter received from the ADI that hundi loans in the names specified therein, shown by the assessee were fictitious. There is rational connection between the letter and the belief of the Income Tax Officer that income had escaped assessment and the assessment was held valid in the case of Midland Fruit & Vegetable Products (India) Ltd. v. CIT [1994] 208 ITR 266/73 Taxman 30 (Delhi).
11. (iii) The decision of the Hon'ble Delhi High Court in the case of Rajat Export Import India (P.) Ltd. v. ITO [2012] 341 ITR 135/206 Taxman 50/18 taxmann.com 11 (Delhi) directly support the issue in question in the present appeal. The relevant part of the same is reproduced hereunder :
"Held, dismissing the petition that in the reasons recorded the AO had referred to the investigation made by the Director of Income-tax (Investigation), who was in charge of the investigation into groups that operated as entry providers or entry operators, in the case of a group which was found to have operated multiple accounts in various branches of banks to introduce unaccounted money in the guise of gifts, loans, share application money etc. After referring to the broad and general modus operanti adopted by the entry providers, The AO specifically noticed from the list of entries given to him by the investigation wing that the assessee had taken accommodation entry from S in the amount of Rs. 3 lakhs. S had been described as an entry provider and the instrument number, date, name of the bank and the branch as well as account number were given. This information constituted reason to believe, prima facie, that income chargeable to tax had escaped assessment in the hands of the assessee. The material before the AO was relevant and afforded a live link or nexus to the formation of the prima facie belief that income chargeable to tax had escaped assessment in the assessee's hands. Admittedly, the information received from the Director of Income-tax (Investigation) did not contain material linking S, stated to be an entry provided, with the assessee. The reasons to believe recorded in writing by the AO were detailed and showed application of mind. It was therefore unnecessary to go into whether the assessee had been implicated in the statement of the director of S."
11. (iv) In view of the above discussed case-laws, the contention of the ld. 'AR' that action cannot be taken u/s 147 r.w.s. 148, on the basis of report from investigation wing of the deptt., is not legally tenable. The report emanating from investigation wing being factually correct and the assessee failed to rebut the same in any proceedings under the Act. The report from Investigation Wing cannot be construed as taboo for the purpose of initiation of action u/s 147 of the Act. It is evident that mere communication of information emanating from the investigation and not interpretation thereof, is not the same thing. If there is an information from the investigation, on which AO has acted, as is in the present case, then AO has jurisdiction u/s 147 r.w.s. 148 of the Act.
12. In view of above legal and factual discussions, findings of the CIT(A) are upheld and C.O. of the assessee is dismissed.
ITA No. 685/CHD/2011 A.Y. 2006-07 (Revenue's Appeal)
13. The Revenue raised a single substantive ground of appeal, contending that the CIT(A), erred on facts and in law, in deleting addition of Rs.1,95,00,000/-, made by the AO, on account of disallowance on the issue of new share capital, as is evident from perusal of Ground No.1.
14. Ld. 'DR' contended that findings of the AO deserve to be upheld, having regard to the fact-situation of the present case. Ld. 'DR' placed reliance on the decision in the case of Aggarwal Coal Corpn. (P.) Ltd. v. Addl. CIT [2012] 135 ITD 270/19 taxmann.com 209 (Indore) and Power Drugs Ltd. v. CIT [2011] 201 Taxman 194 (Punj. & Har.) (Mag.) 13 taxmann.com 56 (Punj. & Har.). No other decision, to support the case of the revenue was cited or brought to the notice of the Bench by the ld. 'DR'.
15. Ld. 'AR' referred to the submissions filed by the appellant before the CIT(A). In the submissions, before the CIT(A), the assessee placed reliance on the decision in the case of CIT v. Steller Investments (P.) Ltd. [2001] 251 ITR 263/115 Taxman 99 (SC), CIT v. Lovely Exports (P.) Ltd. Application no. 11993 of 2007, dated 11-1-2008. He contended that the case of the appellant is squarely covered by these decisions.
15. (i) Ld. 'AR' referred to Paper Books filed by him, wherein necessary details regarding identity of the subscriber to the share capital, credit worthiness of the same and genuineness of the transaction, were filed. Ld. 'AR' filed affidavit relating to the application and allotment of shares, acknowledgement of Income tax return, for the assessment year 2005-06/2006-07, bank account of the company, showing the source of such transactions, auditors' report, balance sheet and Profit & Loss Account of the company, for the assessment year 2006-07. Similar details had been filed, in respect of such subscribers to the share capital. The ld. 'AR' filed necessary evidences, (in the shape of Paper Books) with a view to proving the identity of the subscribers, genuineness of the transactions and credit-worthiness of the subscribers. The details of such evidence are as under:
| S.No. | Particulars | |
| a. | Mis Sidhvandan Enterprises Private Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2005-06 & 2006-07 | ||
| - Bank Account of the company showing the transaction | ||
| - Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| b. | M/s G N Credits Private Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2005-06 and 2006-07 | ||
| - Bank Account of the company showing the transaction | ||
| - Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| c. | M/s Vishakha Infotech Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2005-06 & 2006-07 | ||
| - Bank Account of the company showing the transaction | ||
| - Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| d. | M/s Paonta Finance & Deposits Private Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Bank Account of the company showing the transaction | ||
| - Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| e. | M/s Taurus Iron & Steel Company Private Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2004-05 & 2006-07 | ||
| - Letter relating to PAN of the company | ||
| - Bank Account of the company showing the transaction | ||
| - Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| f. | M/s Karol Bagh trading Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2004-05 & 2006-07 | ||
| - Copy of PAN | ||
| - Bank Account of the company showing the transaction | ||
| - Cheque relating to credit entry in the bank on 22.09.2005 | ||
| - Notice for the AGM, Director's Report, Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| g. | M/s Adonis Financial Services Private Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2004-05 & 2006-07 | ||
| - Letter by the Department allotting PAN to the company | ||
| - Source of money applied for the allotment of the shares of the assessee | ||
| - Notice for the AGM, Director's Report, Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| h. | M/s Countrywide Credit & Securities Private Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2004-05 2006-07 | ||
| - Copy of PAN of the company | ||
| - Bank Account of the company showing the transaction | ||
| - Cheque relating to credit entry in the bank on 12.08.2005 | ||
| - Notice for the AGM, Director's Report, Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| i. | M/s Thar Steels Private Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2004-05 & 2006-07 | ||
| - Copy of PAN of the company | ||
| - Bank Account of the company showing the transaction | ||
| - Cheque relating to credit entry in the bank on 09.09.2005 | ||
| - Notice for the AGM, Director's Report, Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| j. | M/s Sadguru Finman Private Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2004-05 | ||
| - Copy of PAN of the company | ||
| - Source of money applied for the allotment of the shares of the assessee | ||
| - Notice for the AGM, Director's Report, Auditor's Report, Balance Sheet and Profit & Loss Account of the company for the A/Y 2006-07 | ||
| k. | M/s Tejasvi Investments Private Limited | |
| - Affidavit relating to the application and allotment of shares | ||
| - Acknowledgement of Income Tax Return of the company for A/Y 2004-05 & 2006-07 | ||
| - Copy of PAN of the company | ||
| - Bank Account of the company showing the transaction | ||
| - Cheque relating to credit entry in the bank on 30.08.2005 | ||
| - Notice for the AGM, Director's Report, Auditor's Report, | ||
| Balance sheet and Profit & Loss Account of the company for the A/Y 2006-07." |
15. (ii) To support his contention, ld. 'AR' placed reliance, on the decision in the case of CIT v. G.P. International Ltd. [2010] 325 ITR 25/186 Taxman 229 (Punj. & Har.) and Prakash Chand Nahta v. CIT [2008] 301 ITR 134/170 Taxman 520 (MP) Ld. 'AR' also placed reliance on the following decisions :
| 1. | CIT v. M/s Shree Dadu Auto (P.) Ltd. ITA No. 704/2009 Punjab & Haryana High Court | |
| 2. | Observer Compounds (P.) Ltd. v. ACIT, Chandigarh ITA No. 139/Chd/2004, ITAT Chandigarh Bench | |
| 3. | ITO Ward 5(1) Delhi v. M/s Kailashpati Overseas (P.) Ltd. ITA No. 4269/Del/2009, ITAT Delhi Bench | |
| 4. | CIT v. Dwarkadhish Investment (P) Ltd. 45 DTR 281 (Del) | |
| 5. | CIT v. Ujala Dyeing & Printing Mills (P) Ltd. 328 ITR 437 (Guj) | |
| 6. | CIT v. Kamdhenu Vyapar Co. Ltd. 263 ITR 692 (Cal) | |
| 7. | Prakash Chand Nahta v. CIT 301 ITR 134 (MP) | |
| 8. | Anil Kumar Midha (HUF) v. ITO 100 TTJ 644 (Jodh-Trib) | |
| 9. | APS Associates (P) Ltd. v. ACIT 101 TTJ (Asr-Trib) 15 | |
| 10. | Golden Remedies (P) Ltd. v. ITO 18 SOT 260 (Del-Trib) | |
| 11. | ITO v. Nova Promoters & Finlease (P) Ltd. 44 DTR 9 (Del-Trib) | |
| 12. | Master Abhinav Malhotra v. ACIT 89 TTJ 144 (Del-Trib) | |
| 13. | ITO v. Purvi Fabrics & Texturise (P) Ltd. 47 DTR 225 (Del-Trib) | |
| 14. | CIT v. Emerald Commercial Ltd. 250 ITR 539 (Cal) | |
| 15. | Prashant Khosla Pneumatics Ltd. v ACIT 54 ITD 229 (Del-Trib). |
15. (iii). The ld. 'AR', further, placed reliance, on a number of decisions to support his contentions. However, ratio of a few decisions are reproduced hereunder :
| 1. | CIT v. Shri Dadu Auto (P) Ltd. (supra) | |
| "Having heard ld. Counsel for the Revenue, we are of the considered view that no exception is provided to admit the appeal especially when the view of Hon'ble the Supreme Court in various judgements is absolutely clear The proper course for the Assessing Officer could have been to re-open the assessment of the share applicants/ share holders rather than making addition against the assessee-respondent. There is thus no merit in the appeal. Dismissed." | ||
| 2. | CIT v. Dwarkadhish Investment (P) Ltd.(supra) | |
| "Income—Cash credit—Share application money— Though in s. 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN or income-tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue—Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s. 68— Revenue has all the power and wherewithal to trace any person—Moreover, it is settled law that the assessee need not to prove the 'source of source'—In the instant case, the Tribunal has confirmed the order of the CIT(A) deleting the impugned addition holding that the assessee has been able to prove the identity of the share applicants and the share application money has been received by way of account payee cheques— No question of law arises—CIT v. Lovely Exports (P) Ltd. [2008] 216 CTR (SC) 195 : [2008] 6 DTR (SC) 308, CIT v. Divine Leasing & Finance Ltd. [2007] 207 CTR (Del) 38 : [2008] 299 ITR 268 (Del) and CIT v. Dwarikadjnish Investment (P) Ltd. [2008] 2 DTR (Del) 7 [2008] 167 Taxman 321 (Del) followed" | ||
| 3. | CIT v. Ujala Dyeing & Printing Mills (P) Ltd. | |
| "Where the Tribunal has come to a finding that as the assessee has discharged its onus of proving identity of parties, genuineness of transaction and creditworthiness of share applications in as much as evidently their returns of income, assessment orders, balance-sheets showing investment, explanation regarding how they raised funds have been submitted before the lower authorities, the adverse inference drawn by the AO was misplaced, the Tribunal has come to correct conclusion, as the findings have been recorded by the Tribunal after appreciation of the evidence, no substantial question of law arises out of the order of the Tribunal." |
15. (iv) Ld. 'AR' placed reliance on a number of decisions to support his contention that in case the AO ignores the request made by the assessee to him, to issue summons to the subscribers, no addition can be made as held in such decisions. The assessee has furnished a long list of such cases. However, in the case of CIT v. Kamdhenu Vyapar Co. Ltd. [2003] 263 ITR 692/130 Taxman 147 (Cal.), Prakash Chand Natha v. CIT [2008] 301 ITR 134/170 Taxman 510 (MP), Anil Kumar Midha (HUF) v. ITO [2006] 153 Taxman 65 (Jodh.) (Mag.), APS Associates (P.) Ltd. v. Asstt. CIT [2006] 101 ITD 215 (Asr.), Golden Remedies (P.) Ltd. v. ITO [2007]18 SOT 260 (Delhi), it has been held that where a request has been made by the assessee to the AO, for issuing summons u/s 131 of the Act, it is incumbent on the AO to issue such summons, with a view to enabling the assessee to avail of the opportunity u/s 68 of the Act to prove the genuineness of transactions and where the AO failed to issue such summons, no addition can be made.
16. We have carefully perused the rival submissions, facts of the case and the relevant records, including the case laws, cited by the parties and Paper Books, filed by the assessee. The AO made an addition of Rs.1,95,00,000/-, as undisclosed income of the assessee, on the ground that persons who subscribed to the share capital were not produced before him. The AO, after a consideration of the submissions, filed by the assessee, recorded his findings at page 17 of the assessment order, dated, 22.12.2010, passed u/s 143(3)/147 of the Act. The relevant part of the findings of the AO are reproduced hereunder, for the purpose of proper appreciation of the same:
"The above reply of the assessee has been considered and serve no purpose as the assessee has failed to produce the persons for verification to whom it has allotted the shares during the period 01.04.2005 to 31.03.2006 amounting to Rs. 1,95,00,000/- as per details given in questionnaire dated 30.11.2010. Since the primary onus for producing the allottees of shares for verification lies on the assessee itself and by not producing these allottees of share of the assessee company, the assessee company has failed to discharge the onus deliberately with a motive and from which it can be aptly concluded that the assessee has obtained accommodation entries to the tune of Rs. 1,95,00,000/-. Even the information received from the Addl. D1T (Inv), New Delhi that the assessee has obtained accommodations J entries from the bogus companies floated by Sh. Tarun Goyal, C.A. on the basis of which proceedings u/s 147 of the Income Tax Act, 1961 were re-opened also strengthens the above fact. The various case laws quoted by the assessee are of no help when the assessee has failed to discharge the onus of producing the persons for examination to whom it has allotted the shares. Thus in view of the above discussions, it is evidently clear that the assessee company has obtained accommodation entries to the tune of Rs. 1,95,00,000/- and the same is assessed as assessee's income from undisclosed sources."
17. A bare perusal of the findings of the AO reveals that as the assessee had failed to produce the persons, for verification, to whom shares were allotted, during the period from 1.4.2005 to 31.3.2006, for an amount of Rs.1,95,00,000/-, the AO observed that the assessee had failed to discharge the primary onus cast on him, and, hence, impugned addition was made. Ld. CIT(A), on appreciation of the submissions, filed by the assessee and case laws cited therein, deleted the impugned addition. The relevant part of the findings of the CIT(A), is reproduced hereunder, with a view to appreciating the same :
"6. In view of the ratio of above case laws it becomes clear that appellant has discharged its basic responsibility. There is no evidence of any cash having been deposited for issuing the cheques in the bank accounts of the shareholder companies. The appellant has discharged the onus in view of the evidence filed i.e. filling of documents in proof of establishing the identity of the Shareholder, genuineness of transaction, creditworthiness of Shareholders, Regd. Address, PAN of Shareholders, Proof of filing of Income-tax return, Balance Sheet of the shareholders showing the Investment in their books, confirmation from shareholders, copy of Bank statement evidencing the mode of payment by the shareholders and the proof of filing of return of allotment by the appellant. The Id. A.O. has not rebutted the evidence led by the appellant, the copy of which was provided to the A.O. During appellate proceedings both A.O. and counsel attended and the A.O. was specifically asked that whether he has in his possession any specific concrete adverse material to support his contention and in reply to that the A.O. just relied upon his assessment order and reiterated the same fact as stated in assessment order. The Counsel emphasized that as for as the appellant is concerned there is no element of bogus capital from the applicant companies involved. The Id. Counsel has also brought to my notice a number of judgements of ITAT, Jurisdictional High Court and Apex Court where the addition made under identical facts has been deleted. Therefore, by following the ratio laid down by the Jurisdictional ITAT, Chandigarh Bench and Hon'ble Punjab and Haryana High Court and the Hon'ble Supreme Court/in the case of M/s. Lovely Exports (P) Ltd. (Supra), I have no option but to delete the addition in the hands of appellant and the same is directed to be deleted. However, the A.O. is directed to take suitable necessary/remedial action as warranted by the facts in the case of subscribers of the share capital of the company or to intimate the respective A.Os of those share applicants for necessary action at their end.
In the result, appeal of the appellant is partly allowed."
18. The revenue has placed reliance on the decision in the case of Aggarwal Coal Corporation (P) Ltd. (supra). A bare perusal of the facts of this case and the ratio laid down by the Hon'ble Bench reveals that the issue of cash credit/share application money has been decided by the Hon'ble Bench of the Tribunal, on the ground of non-existent of HC Ltd. & OT Ltd., the subscribers to the share capital of the assessee. As the assessee, in that case failed to establish the existence of such companies, the issue was accordingly decided by the Bench. In the present case, the existence of such subscribers, has not been challenged by the revenue. The AO, merely made the addition on the ground of non-production of the persons, who subscribed to the share capital of the assessee company, as is evident from the above discussions. In view of this, the facts of the present case are entirely different and distinguishable, hence the case-law relied upon by the revenue does not aid the case of the revenue. The revenue, further, placed reliance on the decision in the case of Power Drugs Ltd. (supra). We have considered the fact-situation of the case, relied upon and the ratio laid down by the Hon'ble jurisdictional High Court. In this case, the assessee company failed to establish the identity, credit-worthiness and genuineness of the transactions. Consequently the addition u/s 68 of the Act was upheld by the jurisdictional High Court. In the present case, revenue has failed to bring any material on record to rebut evidences filed by the assessee appellant to establish the identity, credit-worthiness and genuineness of the transactions. In view of this, the facts of the present case are materially different and distinguishable and hence, not applicable to the present case.
19. In view of the evidences filed by the assessee appellant, it cannot be said, as rightly held by the CIT(A), that the appellant has failed to discharge the onus cast on him, within the meaning of provisions of Section 68 of the Act. The decisions cited by the CIT(A) in his findings, reproduced above, currently hold the field. On the contrary, the AO, has failed to bring on record cogent and corroborative material (except information from Investigation Wing of the Department), to support his conclusion, in the matter. The appellant has discharged onus, within the meaning of Section 68 of the Act and also in consonance with the general principles of law. The AO made the impugned addition, primarily on the ground of non-production of the persons, who subscribed to the share capital, as is evident from the extracts of findings of the AO, reproduced above. The assessee vide letter, dated 22.12.2010, made a submission to the Asstt.CIT, Circle, Khanna, whereby it had been mentioned that the assessment in the case was framed u/s 143(3) of the Act vide order dated 24.12.2008. The detail, including confirmations, copy of their Income Tax Returns, PAN, copy of the bank accounts, evidencing the mode of investment made by all the persons from whom share capital was received, were filed during the assessment proceedings. The AO, duly accepted such evidences and no adverse inference was drawn. At Page 15 of the assessment order dated 22.12.2010, it was further mentioned in that submission before the AO that complete details of subscribers to share capital, had been filed and it was requested by the assessee to issue commission u/s 133(6) of the Act. However, the AO ignored such request of the assessee. In the present case, the assessee filed evidences before the AO and the CIT(A), showing identity of the shareholders, credit worthiness of such parties and the genuineness of transactions. In view of this, the onus stands shifted to the revenue. The Hon'ble Rajasthan High Court, in the case of CIT v. First Point Finance Ltd. [2006] 286 ITR 477 (Raj.) found that company had furnished not only the addresses of the shareholders, but even copies of returns of income filed by them, so that the AO's doubt on their creditworthiness was not justified, interalia, following the rationale of the decision in Steller Investment Ltd. (supra). It was pointed out that there is no presumption of benami in respect of the existing persons. It was, in this view that Deduction`epartmental appeal was not admitted, as not involving any question of law. In the light of such findings, it is evident that the case of the assessee is covered by the ratio of the Hon'ble High Court, as the assessee has filed evidences to prove the tripple ingredients in respect of the evidences, required to be adduced under Section 68 of the Act. On the contrary, the AO has failed to bring on record any relevant and credible material, to neutralize the documentary evidences, filed by the appellant, as discussed earlier, particularly in the context of identity and credit worthiness of the subscribers and the genuineness of such transactions. Mere assertions are not enough to demolish such evidences. It is pertinent to mention here that the AO, in the assessment order passed on 22.12.2010 u/s 143(3)/147 of the Act, for the assessment year in question, himself recorded therein that as per available information on record, you have allotted the shares of your company during the F.Y. 01.04.2005 to 31.3.2006 to the following companies (para 3 of the assessment order in question). Thus, the factum of allotment of shares to various companies, remains undisputed, even as per the observations of the AO, in the matter. The assessee has filed affidavit, confirmation indicating number of shares, amount invested, mode of investment as cheque, bank account number, source of funds, occupation and receipt of share certificate, Income Tax PIN number, photo copy of the acknowledgement of return of income, statement of bank account, audited Profit & Loss Account and Balance Sheet, to prove the identity and existence of the subscribers as also the evidence of investment in shares through banking channels. In such a fact-situation, onus shifts on the AO, to bring credible material on record to show the non-existence of such subscribers and non-genuineness of such transactions. Similarly, evidence in the form of statement of bank account filed by the assessee, remained un-rebutted.
20. Having regard to the above legal and factual discussion and considering the decisions relied upon by the CIT(A), in his findings as also the decision cited before us, we do not find any infirmity in the findings of the CIT(A). Hence, the same are upheld. Consequently, the ground of appeal of the revenue is dismissed.
21. Ground Nos. 2 & 3 are general in nature and, hence, need no separate adjudication and the same are dismissed.
22. In the result, both the CO of the assessee and appeal of the revenue, are dismissed.
USP *Partly in favour of assessee.
IT-Additions couldn't be made merely on basis of statement given during survey not duly substantiated by docs
IT : Addition can be made on basis of assessee's statement in survey, only if it is supported by relevant material to substantiate same
■■■
[2013] 33 taxmann.com 130 (Madras)
HIGH COURT OF MADRAS
Commissioner of Income-tax, Trichy
v.
P.Balasubramanian*
MRS. R. BANUMATHI AND K. RAVICHANDRA BAABU, JJ.
T.C.(A) NO. 233 OF 2010†
MARCH 6, 2013
Section 133A, read with section 132, of the Income-tax Act, 1961 - Survey [Statement made during survey] - Assessment year 2003-04 - Whether, it is open to assessee to show that statement made during survey is incorrect - Held, yes - Whether, therefore, any statement recorded under section 133A would have an evidentiary value only if it is supported by relevant material to substantiate same - Held, yes - Assessee in statement recorded under section 133A stated that he had 3000 gms of gold; 900 gms was found during search and balance was given to 3 goldsmiths - Commissioner (Appeals) made addition on basis of above statement - Officers did not verify availability of gold with said goldsmiths - Tribunal confined addition only to extent of gold seized - Whether since in respect of gold with goldsmiths, there was nothing to substantiate same, Tribunal had rightly confined said addition - Held, yes [Para 18] [In favour of assessee]
FACTS
| ■ | The assessee was engaged in the business of manufacturing jewels on job work basis. A survey was conducted in the premises of the assessee during which gold weighing 900 gms was seized. During survey a sworn statement under section 133A was recorded from the assessee in which he admitted having 3000 gms of gold, 900 gms of which was found in the premises during survey. The balance was said to have been given to three goldsmiths. The Assessing Officer made an addition on the basis of statement made by the assessee. | |
| ■ | On first appeal, the Commissioner (Appeals) dismissed the appeal of the assessee. | |
| ■ | On Second appeal, the Tribunal partly allowed the assessee's appeal and confined the addition in respect of gold only to the extent it was found at the time of survey. | |
| ■ | In instant appeal, the revenue contended that assessee himself admitted having 3000 gms of gold and had not discharged the burden of explaining the source. Therefore, action taken by the Tribunal was not right. | |
| ■ | On the other hand assessee contended that section 133A does not empower Income Tax Officer to examine any person on oath; therefore, the statement recorded under section 133A does not have any evidentiary value. Thus, the statement recorded under section 133A during survey can hardly be the basis for any assessment. |
HELD
| ■ | There is a clear distinction between the statement recorded under sections 132(4) and 133A. The statement of assessee was recorded under section 133A(3)(iii) during the survey operation. Since statement recorded under section 133A was not recorded on oath, such statement recorded under section 133A was not at par with the statement recorded under section 132(4) and did not have any evidentiary value. [Para 12] | |
| ■ | A power to examine a person on oath is specifically conferred on the authorities only under section 132(4) in the course of any search or seizure. Wherever it thought fit and necessary to confer such power to examine a person on oath, the Income-tax Act has expressly provided for it. Whereas section 133A does not empower any Income-tax Officer to examine any person on oath. Thus, in contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorized officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement recorded under section 133A is not given an evidentiary value. [Para 13] | |
| ■ | The Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 held that an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. Any statement recorded under section 133A would have evidentiary value only if supported with materials and form the basis for assessment. | |
| ■ | The statement recorded during survey operation under section 133A may be a relevant material. But in the absence of further materials to substantiate the same, such statement recorded under section 133A can hardly be the basis for assessment. During the survey, 900 gms of gold was found in the premises of the assessee and the statement of the assessee was supported only to the extent of actual seizure of 900 gms. Since the statement of assessee in respect of the remaining gold was not substantiated, the Tribunal rightly set aside the addition in respect of the gold. [Para 18] |
CASE REVIEW
Bachittar Singh v. CIT [2010] 328 ITR 400 (Punj. & Har.) (para 17) distinguished.
Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) (para 18) followed.
CASES REFERRED TO
Paul Mathews & Sons v. CIT [2003] 263 ITR 101/129 Taxman 416 (Ker.) (para 14), CIT v. G.K Senniappan [2006] 284 ITR 220/155 Taxman 118 (Mad.) (para 15), CIT v. Ajit Kumar [2008] 300 ITR 152 (Mad.) (para 15), CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad.) (para 15), Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) (para 15), CIT v. Dhingra Metal Works [2010] 328 ITR 384/[2011] 196 Taxman 488 (Delhi) (para 15) and Bachittar Singh v. CIT [2010] 328 ITR 400 (Punj. & Har.) (para 16).
J. Narayanasamy for the Appellant. M.P. Senthilkumar for the Respondent.
JUDGMENT
Mrs. R. Banumathi, J - The Tax case Appeal is at the instance of the revenue against the Order dated 31.1.2008 in I.T.A.No.1279/ Mds/2006 on the file of Income-tax Appellate Tribunal 'D' Bench, Chennai, in and by which the Tribunal held that addition should be confined to materials during the course of survey only and also deleting the other additions towards interest on money lending business, household expenses and creditors and expunging the levy of penalty. The assessment year relates to 2003-2004.
2. The Tax Case Appeal is admitted on the following substantial questions of law:
| "(a) | Whether the Tribunal was right in not considering the fact that the assessee himself had admitted the unexplained investment made in gold and cash which was not disclosed in the book of accounts? | |
| (b) | Whether on the facts and in the circumstances of the case, the Tribunal was right in cancelling penalty under Section 271(1)(c) of the Income-tax Act? | |
| And | ||
| (c) | Whether the direction of the Tribunal is to be construed as a mandatory direction to reopen or a direction to exercise discretion whether to reopen the Assessment order?" |
3. Brief facts:- The assessee is doing business of manufacture of gold jewels for others on job work basis. There was a survey at the premises of the assessee on 29.10.2002. During survey, it was noticed that gold jewels weighing 900 grams were available at the premises of the assessee. During survey, a sworn statement under Section 133A sub-section 3(iii) was recorded from the assessee on 29.10.2002. The assessee filed his return of income on 21.07.2003 admitting an income of Rs. 2,97,410/- and the return was processed under Section 143(1). As this is survey case, a notice under Section 148 was issued on 27.10.2004. In response to the said notice, the assessee filed return of income on 16.11.2004 admitting income of Rs. 2,97,410/- and the same was taken up for scrutiny and notice under Section 143(2) was issued. While recording his statement during survey, the assessee was requested to state the investment in the gold business being in the form of jewellery to which he has stated that he has 3 kilos of gold jewellery and that 900 grams of jewellery was found in the premises during survey and inventorised and that the balance of stock was given for making jewellery, to the following three goldsmiths (i) Murali Krishnan; (ii) Balan and (iii) Ravi.
4. During scrutiny, the assessee was asked to explain the source for investment in the above jewellery. stated to have been owned by the assessee, at the time of survey. The assessee explained that he has to furnish source only for the jewellery as per the inventory of jewellery found on the date of survey. The assessee was asked to explain the source of investment for 900 gms of gold found in the premises as well as the quantity of gold stated by the assessee. During the course of hearing, the assessee in the letter filed on 13.3.2005 is said to have stated as under:
"The total jewellery admitted by the assessee and his wife is at 1802 gms and 15 Cts of Diamond. The total jewellery stated to have been invested by the assessee in his statement dt.29.10.2002 is 3000 gms. The total jewellery physically found on the date of survey was 840 gms and 12 Cts of diamond. The Investigating Officers have not verified with the so called persons with whom the assessee is stated to have handed over the jewellery of 2200 gms. Assuming but not conceding that the assessee has to explain the quantity of jewellery stated by him before the investigating officers (3000 gms) we submit that the quantity remaining to be explained is 1198 gms only (3000-1802) after taking into account the declared quantity of jewellery by the assessee and his wife at 1802 gms as above and adopting the market value at 400 per gm (501 × 80%), the value of the same comes to Rs. 4,79,200/."
5. The above explanation was considered and after giving allowance for the jewellery already admitted, the unexplained investment in gold jewellery of 1802 gms is taken at Rs.4,79,200/- and the Assessing Officer added the same to Rs. 2,97,410 - the income returned and calculated total income as Rs. 7,76,610/- and completed the assessment.
6. The assessee preferred appeal to Commissioner of Income-tax (Appeals). After issuing notice for enhancement, Commissioner of Income-tax (Appeals) dismissed the appeal preferred by the assessee and making additions as under:-
| (i) | discovery of 900 gms of gold jewellery by the survey team clearly shows that the assessee was doing unaccounted business of gold jewellery and made an addition of Rs. 8,70,800/- over and above the addition of Rs. 4,79,200/-; | |
| (ii) | in respect of unaccounted cash found during the course of survey, enhancement was made to the tune of Rs. 2,49,770/-; | |
| (iii) | addition of Rs. 1,10,000/- towards interest earned on Rs. 5.00 lakhs as unaccounted investment in money lending business, and | |
| (iv) | initiation of penalty proceedings. |
The Commissioner of Income-tax (Appeals) accordingly dismissed the appeal making an enhancement of Rs. 17,30,570/- made to the income determined by the Assessing Officer.
7. The appeal preferred by the assessee was partly allowed by the Tribunal:-
| (i) | to confine the addition in respect of gold only to the extent of 900 gms of gold found at the time of survey; | |
| (ii) | so far as unaccounted cash, addition of Rs. 2,49,770/- was set aside with a direction to the Assessing Officer to verify whether cash balance as per the book of accounts has emanated from the cash withdrawn from the Bank on 17.10.2002; | |
| (iii) | deleted the addition made towards interest on money lending business; and | |
| (iv) | penalty proceedings under Section 271(1C) was expunged. |
8. Learned counsel for revenue submitted that the assessee himself had admitted in the statement that he was having 3000 gms of gold and admitted to offer Rs. 13.50 lakhs as undisclosed income towards investment in gold. The learned counsel contended that having so admitted, the assessee had not discharged the burden of explaining the source of 3000 gms of gold and while so Tribunal was not right in holding that addition has to be confined only to the extent of 900 gms of gold found at the time of survey. Learned counsel further submitted that in his statement when the assessee himself had admitted unexplained cash of Rs. 2,49,770/-, the Tribunal was not right in issuing direction to verify the unaccounted cash to the tune of Rs. 2,49,770/-, the Tribunal was not right in issuing direction to verify the unaccounted cash to the tune of Rs. 2,49,770/-.
9. Learned counsel for assessee submitted that Section 133A does not empower Income-tax Officer to examine any person on oath and the statement recorded under Section 133A of the Act does not have evidentiary value. The learned counsel further submitted that in the absence of other materials or information, the Commissioner of Income-tax (Appeals) was not right in enhancing the interest income on the alleged money lending business and the Tribunal rightly allowed the assessee's appeal.
10. The assessee is doing business of manufacture of jewels for others on job work basis. The survey operation was conducted in the premises of the assessee on 29.10.2002. Survey authority noticed gold jewels weighing 900 gms were available at the premises of the assessee. The assessee on his own explained that remaining 2100 gms had been given to Asaris viz., (i) Muralikrishnan; (ii) Balan and (iii) Ravi. In the statement recorded under Section 133A, the assessee is said to have agreed that the value of the investment in the gold was around Rs. 13.50 lakhs. It is the case of revenue that the assessee having admitted the investment in 3000 gms of gold, burden lies upon the assessee to explain the source of his income and the assessee had not discharged his burden of explaining source of his income for investment in the gold.
11. The substantial questions of law raised by the revenue revolve on the question whether material collected and the statement recorded during the survey operation under Section 133A of the Act has any evidentiary value. There is a clear distinction between the statement recorded under Section 132(4) and 133A. It is apt to refer to Sections 132(4) and 133A of the Act, which read as under:-
132. Search and Seizure.
| (1) (2) and (3)** | ** | ** |
(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act.
Explanation. - For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purpose of any investigation connected with any proceeding under the Indian Income Tax Act, 1922 (11 of 1922), or under this Act."
"133A. Power of survey. - (1) Notwithstanding anything contained in any other provision of this Act, an Income Tax authority may enter-
| (a) | any place within the limits of the area assigned to him, or | |
| (b) | any place occupied by any person in respect of whom he exercises jurisdiction, or | |
| (c) | any place in respect of which he is authorised for the purposes of this section by such Income Tax authority, who is assigned the area within which such place is situated or who exercises jurisdiction in respect of any person occupying such place, at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession- |
| (i) | to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, | |
| (ii) | to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and | |
| (iii) | to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act |
Explanation. - ......
| (2)** | ** | ** |
(3) An Income Tax authority acting under this section may,-
| (i) | if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom, | |
| (ii) | make an inventory of any cash, stock or other valuable article or thing checked or verified by him, | |
| (iii) | record the statement of any person which may be useful for, or relevant to, any proceeding under this Act. |
(4) An Income Tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing.
| (5) and (6)** | ** | **" |
12. The statement of assessee was recorded under Section 133A(3)(iii) during the survey operation. Since statement recorded under Section 133A was not recorded on oath, such statement recorded under Section 133A was not at par with the statement recorded under Section 132(4) and did not have any evidentiary value. According to the assessee, the statement recorded under Section 133A during survey can hardly be the basis for any assessment.
13. A power to examine a person on oath is specifically conferred on the authorities only under Section 132(4) of the Act in the course of any search or seizure. Wherever it thought fit and necessary to confer such power to examine a person on oath, the Income-tax Act has expressly provided for it. Whereas Section 133A does not empower any Income Tax Officer to examine any person on oath. Thus, in contradistinction to the power under Section 133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income Tax Act. On the other hand, whatever statement recorded under Section 133A of the Act is not given an evidentiary value.
14. The scope of Sections 132(4) and 133A came up for consideration before the Kerala High Court in Paul Mathews & Sons v. CIT [2003] 263 ITR 101/129 Taxman 416. In the said case, the assessee contended that the statement recorded during survey under Section 133A cannot be put against the assessee as the same has no evidentiary value. Accepting the stand taken by the assessee, the Division Bench of the Kerala High Court has held as under:-
"... we find that the power to examine a person on oath is specifically conferred on the authorised officer only under Section 132(4) of the Income Tax Act in the course of any search or seizure. Thus, the Income Tax Act, whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas Section 133A does not empower any Income Tax Officer to examine any person on oath. Thus, in contradistinction to the power under Section 133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income Tax Act. On the other hand, whatever statement is recorded under Section 133A of the Income Tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law...
Therefore, the statement elicited during the survey operation has no evidentiary value and the Income Tax Officer was well aware of this. (emphasis supplied)"
15. After elaborately referring to the decisions of Paul Mathews & Sons (supra); CIT v. G.K Senniappan [2006] 284 ITR 220/155 Taxman 118 (Mad.) and CIT v. Ajit Kumar [2008] 300 ITR 152 (Mad.) and the Circular of the Central Board of Direct Taxes dated March 10, 2003 with regard to confession statement of additional income during the course of search and seizure and survey operations, the Division Bench of this Court in CIT v. S. Khader Khan Son [2008] 300 ITR 157 (Mad.) has summarised the principles as under:
| (i) | An admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the assessee should be given a proper opportunity to show that the books of accounts do not correctly disclose the correct state of facts, vide decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18; | |
| (ii) | In contradistinction to the power under Section 133A, Section 132(4) of the Income Tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income Tax Act. On the other hand, whatever statement is recorded under Section 133A of the Income Tax Act it is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews & Sons (supra); | |
| (iii) | The expression "such other materials or information as are available with the Assessing Officer" contained in Section 158BB of the Income Tax Act, 1961, would include the materials gathered during the survey operation under Section 133A, vide G.K. Senniappan, (supra); | |
| (iv) | The material or information found in the course of survey proceeding could not be a basis for making any addition in the block assessment, vide decision of this Court in T.C. (A) No. 2620 of 2006 between Ajit Kumar (supra); | |
| (v) | Finally, the word "may" used in Section 133A(3)(iii) of the Act, viz., "record the statement of any person which may be useful for, or relevant to, any proceeding under this Act, as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under Section 133A are not conclusive piece of evidence by itself." |
In CIT v. Dhingra Metal Works [2010] 328 ITR 384/[2011] 196 Taxman 488 (Delhi), the Delhi High Court held that while Section 132(4) of the Act specifically authorises an Officer to examine a person on oath, Section 133A did not permit the same. The Delhi High Court further held that the word "may" used in Section 133A(3)(iii) of the Act clarifies beyond doubt that the material collected and the statement recorded during the survey was not a conclusive piece of evidence by itself and that Assessing Officer could not have made the addition solely on the basis of the statement made on behalf of the assessee during the course of survey.
16. Mr. Narayanaswami, learned counsel appearing for the revenue submitted that even though statement under Section 133A was not at par with the statement under Section 132(4), such statement recorded under Section 133A cannot be held to be irrelevant material and in the absence of any explanation by the assessee, the Commissioner of Income-tax (Appeals) rightly made enhancement. In support of his contention, the learned counsel placed reliance upon a decision of Punjab and Haryana High Court in Bachittar Singh v. CIT [2010] 328 ITR 400.
17. The Punjab and Haryana High Court held that even if the statement under section 133A was not at par with the statement under section 132(4) and did not have that evidentiary value, such statement cannot be held to be irrelevant material so as to be ruled out of consideration in totality of facts, particularly in the absence of regular books of account. In the facts and circumstances of the case that the assessee failed to produce books of accounts, which may have been maintained during the regular course of business or any other authentic contemporaneous evidence of agricultural income, the Punjab & Haryana High Court held that the statement under Section 133A cannot be held to be irrelevant material. In our considered view, in the factual matrix of present case, the above decision of Punjab & Haryana High Court is not applicable.
18. The Hon'ble Supreme Court in Pullangode Rubber Produce Co. Ltd.(supra) held that an admission is extremely an important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect. Any statement recorded under Section 133A would have evidentiary value only if supported with materials and form the basis for assessment. In his explanation, the assessee stated that he has been doing job work and the remaining 2100 gms had been given to 3 Asaris. The Officers had not verified whether the gold was available with the said Asaris nor chosen to examine the said Asaris. The statement recorded during survey operation under Section 133A may be a relevant material. But in the absence of further materials to substantiate the same, such statement recorded under Section 133A can hardly be the basis for assessment. During the survey, 900 gms of gold was found in the premises of the assessee and the statement of the assessee was supported only to the extent of actual seizure of 900 gms. Since the statement of assessee in respect of the remaining gold was not substantiated, the Tribunal rightly set aside the addition in respect of the gold.
19. In so far as unaccounted cash of Rs. 2,49,770/-, the assessee tried to explain the cash by stating that he has sold the land at Kodaikanal for Rs. 2,80,000/- and the same was deposited in Bank on 5.10.2002 and the amount was withdrawn from the Bank on 17.10.2002 and during the course of survey, the Department came across the said cash. The survey was on 29.10.2002 and the drawal of money from the Bank was a few days before search. Even though the said amount of Rs. 2,49,770/- was not disclosed in his books, the assessee tried to explain the same. The Tribunal rightly set aside the addition and remitted to the Assessing Officer to verify whether the cash balance as per the books of accounts has emanated from the cash withdrawn from the Bank on 17.10.2002. We do not find any error or infirmity in the order of the Tribunal directing the Assessing Officer to afford an opportunity to the assessee and verify the correctness of assessee's statement.
20. Insofar as addition of interest earned Rs. 1,10,000/- on the unaccounted investment of Rs. 5.00 lakhs in money lending business, here again, the enhancement is based only on the statement recorded from the assessee. No other material or information was available that the assessee invested Rs. 5.00 lakhs in money lending business and earned interest. We are of the view that the addition of Rs. 5.00 lakhs as unaccounted investment in money lending business and addition of interest earned is based on only rough estimate and the Tribunal rightly deleted the addition on the interest of money lending business, household expenses and creditors.
21. So far as levy of penalty under Section 271(1C), since the Tribunal deleted the addition and ordered expunging the initiation of penalty proceedings under Section 271(1C), we do not find any reason to interfere with the finding of the Tribunal.
22. Since the order of Commissioner of Income-tax (Appeals) making enhancement to the income determined by the Assessing Officer is based on the unsworn statement obtained under Section 133A, in the absence of other materials, the Tribunal rightly set aside the order of Commissioner of Income-tax (Appeals) and we do not find any reason to interfere with the order of the Tribunal. No substantial question of law arise for consideration and the Tax Case Appeal stands dismissed.
Esha IT-Even good fences don't make good neighbours; high value of neighbour's property saddles assessee with re-assessment
IT : Where during search in case of third party, department found exchange of money over and above recorded sale consideration in relation to certain property located in close vicinity of property sold by assessee to sister concern of said third party, Assessing Officer could have reason to believe that sale consideration shown by assessee was less than actual sale consideration and, thus, there was escapement of income
■■■
[2013] 33 taxmann.com 232 (Rajasthan)
HIGH COURT OF RAJASTHAN
Shree Om Builders and Colonizers
v.
Assistant Commissioner of Income-tax*
Mohammad Rafiq, J.
S.B. Civil Writ Petition No.858 of 2013
Stay Application No. 739 of 2013
Stay Application No. 739 of 2013
FEBRUARY 28, 2013
Section 147, read with section 69, of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [To tax undisclosed investment] - Assessment year 2009-10 - Assessee had sold a residential plot to K for certain consideration - During course of search in case of K's sister concern, department found that said concern had purchased a plot in close vicinity of plot sold by assessee and there was exchange of money over and above recorded sale consideration in relation to said property - On basis of said information, Assessing Officer believed that sale consideration disclosed by assessee for property sold by it also could not be relied as market value of that property and issued notice under section 148 - Whether on facts reasons recorded by Assessing Officer for reopening were such which would impel an ordinary person of reasonable prudence to hold that income had escaped assessment - Held, yes [Para 22] [In favour of revenue]
FACTS
| ■ | The assessee had sold a property at D-81 to K for registered sale consideration of Rs. 1.20 crore. | |
| ■ | During the course of search at premises of K's sister concern, department found that said concern had purchased plot No. D-112-A for the registered sale consideration of Rs. 2 crore. While the actual sale consideration for said plot was of Rs. 7 crore and hence, the actual cost of the plot was suppressed by Rs. 5 crore. As both the plots, i.e., D-112-A and D-81 were in same locality and the latter was in close vicinity of the former, the department believed that the market value of both the plots should be almost same and the actual sale consideration for plot No. D-81 sold by assessee was actually much higher than the registered sale consideration. Therefore, the Assessing Officer issued notice under section 148 for reopening the case. | |
| ■ | The assessee challenged the notice contending that: |
| 1. | the impugned reassessment proceedings had been initiated on 'mere suspicion' and not on the basis of 'reasons to believe'; | |
| 2. | plot No. D-81 was a residential property and was located on an inner road whereas comparable plot No. D-112-A was a commercial property located on a commercial road; | |
| 3. | the plot of the assessee was located on a 40' wide road whereas comparable plot was situated on a 100' wide road; | |
| 4. | the assessee's plot was situated at T point which, according to Vaastu, was not considered good/auspicious and such property fetches less market value; and | |
| 5. | both the properties were not in close vicinity, there being distance of about 2.5 Km. between them. |
HELD
| ■ | The Assessing Officer, in order to acquire the jurisdiction to make reassessment of the income of the assessee with reference to section 148, has to arrive at twin satisfactions, viz., (i) he has to have a reason to believe that income chargeable to tax has escaped assessment and (ii) such income has escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly material facts before assessment of his income in the relevant assessment year. It is only when these two conditions are fulfilled, that the Assessing Officer acquires jurisdiction to make reassessment. It is, therefore, imperative for the Assessing Officer to record reasons for such belief before initiating proceedings for reassessment. [Para 13] | |
| ■ | The assessee has contended that the plot which it sold to K was situated at D-81, while another plot with which comparison was sought to be made is situated at D-112-A, though also in same locality but was not situated in close vicinity and there was a distance of about 2.5 kms. between these two properties. Whereas this fact is disputed by the revenue in their counter, but the assessee in rejoinder has reasserted this fact that distance between these two plots is at least more than two kilometers. The revenue in their counter have rather asserted that plot No. D-81 is very close to main Collectorate Circle of Bani Park, whereas plot No. D-112 is far away from that Circle situated on Power House Road. The assessee asserts that its plot is located on 40' wide road whereas the plot of which comparison is sought to be made is located at 100' wide road. Whereas the revenue has denied this fact by producing sale-deeds of two transactions asserting that, neither of them mentions the width of the road that these two plots are situated at 40' or 100' wide roads, respectively. The assertion of the assessee that plot No. D-81 is situated at T point is refuted by the revenue by producing the map of Bani Park submitted by none other than the assessee itself before the Assessing Officer during reassessment proceedings wherein Plot No. D-81 is shown just opposite plots No. F-34 and F-35 and actual T point is in front of plot No. D-83 and not D-81. Yet another minus point enumerated by the assessee to run down the value of its plot D-81 is that there existed 10' wide transformer of Rajasthan State Electricity Board just in front of this plot but this is also contested by the revenue stating that the width of the plot is 75.3' and mere occupancy of 10' by transformer does not diminish the market value of the land as it still has 60' front opening on main road. All these are matters of enquiry and investigation in the reassessment proceedings but for the present what is relevant for the Court is to find out whether there exists some reasonable ground for Assessing Officer to form the requisite belief about escapement of the income of the assessee on account of his failure or omission to disclose fully or truly material facts in the return filed by him. It is found that there does not exist such reasonable ground to form such belief. Whether or not those grounds are adequate is not for the Court to examine. [Para 20] | |
| ■ | At this stage, it is not for the Court to examine whether or not those reasons were sufficient or adequate for forming the requisite belief. It is also not for the Court to examine those reasons from the standpoint whether the material on which they are found conclusively proved the escapement of income as formation of such belief by the Assessing Officer is in the realm of the subjective satisfaction. Moreover, in this case, the Assessing Officer has not proceeded merely on the basis of report of the valuer but also considered that such valuation was got done by a third party, i.e., the ICICI Bank, which has advanced loan of Rs. 1.25 crore to the assessee on the land being valued by their valuer at Rs. 3.53 crore as against Rs. 1.20 crore. [Para 21] | |
| ■ | On critical examination of the reasons supplied to the assessee after show-cause notice, the objections raised by the assessee and the order rejecting such objections passed by the Assessing Officer, it is clear that the reasons were such which would impel an ordinary person of reasonable prudence to hold that the income escaped assessment. Those reasons do not fall merely within the realm of 'mere suspicion' so to say. There exists material with the Assessing Officer for issuance of notice under section 147, read with section 148, for formation of requisite belief as to the escapement of income. [Para 22] |
CASE REVIEW
ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); K.P. Verghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC); CIT v. Gillanders Arbuthnot & Co. [1973] 87 ITR 407 (SC); CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC); Ajanta Pharma Ltd. v. Asstt. CIT [2004] 267 ITR 200/135 Taxman 246 (Bom.); Garden Finance Ltd. v. Asstt. CIT [2004] 268 ITR 48/137 Taxman 49 (Guj.) (FB) and P.G. Foils Ltd. v. ITSC [2008] 302 ITR 331 (Mad.)distinguished.
CASES REFERRED TO
ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC) (para 6), K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) (para 6), CIT v. Gillanders Arbuthnot & Co. [1973] 87 ITR 407 (SC) (para 6), CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC) (para 6), Ajanta Pharma Ltd. v. Asstt. CIT [2004] 267 ITR 200/135 Taxman 246 (Bom.) (para 6), Garden Finance Ltd. v. Asstt. CIT [2004] 268 ITR 48/137 Taxman 49 (Guj.)(FB) (para 6), P.G. Foils Ltd. v. ITSC [2008] 302 ITR 331 (Mad.) (para 6), GKN Drivershafts (India) Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963 (SC) (para 8), Kalyan Mavji & Co. v. CIT [1976] 102 ITR 287 (SC) (para 9), Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) (para 11), Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627 (SC) (para 11), S. Narayanappa v. CIT [1967] 63 ITR 219 (SC) (para 11) and Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316 (SC) (para 18).
Prakul Khurana, Anurag Kalavatiya and Sanjay Jhanwar for the Petitioner. R.B. Mathur and Nikhil Simlote for the Respondent.
ORDER
1. This writ petition has been filed by petitioner, Shree Om Builders and Colonizers, challenging; notice issued by respondent no.2 - the Deputy Commissioner of Income Tax, Central Circle-1, Jaipur, dated 12.12.2011, under Section 148 of the Income Tax Act, 1961 (for short, 'the Act of 1961'); reasons supplied for reopening of the case under Section 147 of the Act of 1961 for assessment year 2009-10 and the order dated 28.03.2012 rejecting objections submitted by the petitioner.
2. Shri Prakul Khurana, learned counsel for the assessee, has argued that notice for initiating reassessment proceedings are based on mere surmises and conjectures that sale consideration mentioned in the registered sale-deed is less than the actual sale consideration and there has been exchange of money over and above the recorded sale consideration. Alleged basis for such suspicion is that the Income Tax Department during the course of search in the case of M/s Kamakshi Hospitality, has found that there was exchange of money over and above the recorded sale consideration in relation to some property situated in Bani Park, Jaipur and therefore the sale consideration disclosed by the petitioner for that property also cannot be relied as the market value of petitioner's properties on mere basis of the alleged vicinity. It is further contended that the department has not found any material/evidence/proof during the course of search proceedings or post search assessment proceedings which could have led to the requisite formation of the belief that the transaction between the petitioner herein and Kamakshi International has been entered on a higher amount than shown in the registered sale deed. Even in the survey that was conducted by the department at the premise of the petitioner pursuant to search at the premise of M/s Kamakshi International, no contrary evidence/ material was found which could have led to such belief that the petitioner has also sold the land on a higher value than shown in the registered sale deed. Issuance of notice under Section 148 of the Act of 1961 for reassessing the income of petitioner for the assessment year 2009-10, on a mere suspicion that the petitioner must have also sold the land on a higher value, is totally devoid of any basis and is wholly illegal. The impugned reassessment proceedings have been initiated on 'mere suspicion' and not on the basis of 'reasons to believe', which is a mandatory requirement for the purpose of issuing notice under Section 148 of the Act of 1961. It is argued that locality of Bani Park is spread over a very big area and is one of the biggest colonies/localities of the city of Jaipur. It has both commercial as well as residential spaces and the differences in the prices of such commercial and residential spaces vary to a great extent based on the actual location of the plot. Price of a particular land/plot also depends upon the actual location and the commercial viability of of the area where it is situated. Petitioner's plot No.D-81 is a residential property and is located on an inner road of Ghiya Marg in Bani park, whereas comparable Plot No.D-112-A is a commercial property located on Station Road, which is a commercial road of Bani Park and located barely 300 meters from the main Railway Station of Jaipur towards Chinkara Canteen. Moreover, the plot of the petitioner is located on a 40' wide road whereas plot with which comparison is sought to be made is situated on a 100' wide road. Plot of the petitioner is situated at T point which, according to Vastu, is not considered good/auspicious and such property fetches less market value. Besides there being a transformer of the R.S.E.B. installed just in front of the plot of the petitioner, which occupies 10' front of the plot. Both the properties are not in close vicinity. There is distance between them of about 2.5 kilometers. The rate of the plot of the petitioner presumed by respondents no.1 and 2 is wholly unrealistic and unfounded and is not based on sale-deed of any plot in the close vicinity of the plot of the petitioner.
3. Shri Prakul Khurana, learned counsel argued that petitioner in response to the notice, filed two replies respectively on 19.12.2011 and 27.03.2012 objecting against the issuance of the impugned notice describing the reasons for it to be illegal and without authority of law as the same has been issued on the basis of mere suspicion and not on the basis of reasons to believe. Respondents however rejected those objections vide order dated 28.03.2012. Learned counsel argued that reasons recorded by respondent no.1 for issuing notice under Section 148 of the Act of 1961 are not in consonance with the statutory provisions contained in Section 50C of the Act of 1961. Allegation of showing sale consideration of the plot of the petitioner towards lower side in the sale-deed cannot be justified because the position of law is very much clear and there is specific provision in the Act itself, which covers such nature of cases of understatement of sale consideration. As per Section 50C, it is the stamp valuation adopted by the Stamp Registering Authority, which has to be taken into consideration for the purpose of assuming the correct consideration liable to be taxed for the purpose of tax.
4. Learned counsel for the petitioner argued that respondents have rejected the objections of the petitioner on the premise that sufficiency of reasons cannot be a question at the preliminary stage, whereas once the competent authority has formed a requisite opinion as to his belief for issuance of notice for reassessment, what remains is mere computation of the tax, satisfaction as to the escapement of tax having become fait-accompli. The respondents in rejecting the objections have wrongly maintained that he has recorded proper reasons based on substantial material in the form of evidence whereas no evidence has been disclosed either in the reasons supplied to the petitioner or the order of rejecting the objections. Further the competent authority in rejecting the objections of the petitioner has wrongly maintained that information received during the course of assessment proceedings of the third party can form the basis for belief of escapement of income.
5. Learned counsel for the petitioner lastly argued that the service of notice on the petitioner is mere formality because Assessing Officer has determined to revise the assessment. The writ petition is only effective remedy. Requiring the petitioner to go back to the assessing officer and wait for the passing of the final assessment order would be a mere formality because the assessing officer has already formed an opinion as to escapement of the income. He may, therefore, possibly not now change that opinion.
6. Learned counsel in support of his arguments relied on the judgments of the Supreme Court in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC), CIT v. Gillanders Arbuthnot & Co. [1973] 87 ITR 407 (SC), CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC) and that of Bombay High Court in Ajanta Pharma Ltd. v. Asstt. CIT [2004] 267 ITR 200/35 Taxman 246 (Bom), and that of Gujarat High Court in Garden Finance Ltd. v. Asstt. CIT [2004] 268 ITR 48/137 Taxman 49 (Guj.) (FB) and that of Madras High Court in P.G. Foils Ltd. v. ITSC [2008] 302 ITR 331 (Mad).
7. Shri R.B. Mathur, learned counsel for the Revenue, opposed the writ petition and submitted that this writ petition has been filed merely against show cause notice at a preliminary stage, which should not be entertained. Whether or not the assessing officer in the assessment order records a finding as to escapement of income would be depended on material and evidence. While such facts are being asserted by the respondents and the petitioner is disputing them. A detailed enquiry cannot be undertaken by this court on this question. Those disputed questions of facts cannot be appropriately gone into in the writ jurisdiction under Article 226 of the Constitution of India. Learned counsel for the respondent submitted that notice under Section 147/148 of the Act of 1961 was issued only because the assessing officer had reasons to believe that the income of the petitioner has escaped assessment. The petitioner is free to file his reply and justify the sale consideration disclosed.
8. Shri R.B. Mathur, learned counsel for the respondents cited judgment of the Supreme Court in GKN Drivershafts (India) Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963 to argue that it was held in that case by the supreme Court that proper course of action for noticee, who has been served with notice under Section 148 of the Act, is to file return and if he so desires to seek reasons of notices, which the Revenue would be bound to furnish, on receipt of reasons filed objections which will be decided by a speaking order, which course has been adopted by the department. Petitioner was supplied reasons. He filed objections, which have been considered and rejected by the respondents. It cannot be therefore said that the assessing officer has wrongly assumed jurisdiction under Section 147 of the Act. The assumption of jurisdiction is based on proper satisfaction of the assessing officer after duly recording reasons for satisfaction or proof in writing.
9. It was argued that "reasons to believe" would mean cause or justification of assessing officer to believe that income has escaped assessment and that the assessing officer should have finally ascertained the facts by legal evidence or reached a conclusion as this is determined and decided in the assessment order, which is the final stage before the assessing officer and which is always open to challenge before the appellate authority. In the present case the assessing officer had sufficient evidence in support of his belief that apparent sales tax is not real one and the underhand money transaction has taken place in this deal. Such evidence is available in the form of similar nature of transaction made between other parties in the same area. The department has in its possession sufficient proof/evidence in the form of identical transaction of land in the same locality giving clear idea of actual market price of land. It is well settled principle of law that information creates form of belief of the widest amplitude and comprehends authority of facts. Such information may come from external sources or even from the material already on record or may be derived from the discovery of new and important material or fresh facts. Learned counsel, in support of his arguments, has relied on judgment of the Supreme Court in Kalyan Mavji & Co. v. CIT [1976] 102 ITR 287.
10. It is argued that the petitioner assessee has sold its property to M/s Kamakshi International whereas other sister concern of this party namely M/s Kamakshi Hospitality Private Limited has purchased property from other person at Plot No.D-112, Bani Park, in the same locality having almost the same size and under similar circumstances, in which case amount of Rs.2 crores was declared as sale consideration. After a survey conducted of the business premise of M/s. Kamakshi Hospitality Private Limited, it transpired that actual sale consideration was Rs.7 crores. The assessing officer also came in possession of a letter dated 23.12.2011 of I.C.I.C.I. Bank with copy of valuation of market value of Plot No.D-81, Ghiya Marg, got done by the Bank while dispersing/sanctioning loan of Rs.1.25 crores to the petitioner. Market value of this property has been valued by the Valuer at Rs.3,53,29,230/- as against Rs.1.20 crores claimed by petitioner in the sale deed.
11. Contention of the petitioner that Plot No.D-81 is residential property and plot No.D-112-A is commercial property is not only incorrect but patently false. Learned counsel for the respondent has in this connection referred to the sale-deeds of both the plots which are Annexure R-2 and R-3, and argued that therein both the plots have been described to be residential. The relevant deeds also nowhere indicates that the road size in front of the plot is 40' or 100' respectively. The deeds only indicate that the Plot No.D-81 is situated at Ghiya Marg whereas Plot No.D-112-A is situated on Power House Road, Bani Park, Jaipur. Learned counsel also sought to submit that a plea has been set up by the petitioner before this court that the plot of the petitioner is situated at T point whereas map of the locality furnished by the petitioner before the assessing officer during reassessment proceedings, the Plot No.D-81 is shown just opposite Plot No.F-34 and F-35 and actual T point plot is at D-83 and not D-81. Reference in this connection is made to the map of Bani Park so produced by the petitioner, which is filed at Annexure R-4. It is not verified from the record as to any transformer of electricity connection is situated in front of the plot of the petitioner. Moreover, the front of plot of the petitioner is of 75.3' and mere occupancy of 10' by transformer does not much diminish its market value as still it has 65' front opening on Ghiya Marg. No comments can be made on the distance between two plots and it is a matter of evidence which can be considered only during assessment proceedings. In fact, the plot of zero mark is situated close to main circle of Bani Park i.e. Collectorate Circle, which is center of the Bani Park locality as compared to Plot No.D-112 which is far away from center point of Bani Park and situated on Power House Road. Learned counsel submitted that the petitioner has not at all denied the facts that both the plots are situated in Bani Park. Reference to provisions of Section 50C of the Act of 1961 is quite irrelevant because the petitioner did not disclose the transaction of sale/purchase of the land under the head of capital gain but clearly this transaction is business transaction and for such business transaction of land, provisions of Section 50C would not be applicable. Relying on the judgments of the Supreme Court in Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34, Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627 (SC) and S. Narayanappa v. CIT [1967] 63 ITR 219 (SC), learned counsel for the respondents argued that it is well settled proposition of law that sufficiency of reasons cannot be judged at the time of issue of notice.
12. I have given my thoughtful consideration to rival submissions and perused the material on record.
13. The assessing officer in order to acquire the jurisdiction to make reassessment of the income of the assessee with reference to Section 148 of the Act of 1961 has to arrive at twin satisfactions viz., that (i) it has to have a reason to believe that income chargeable to tax has escaped assessment and further that (ii) such income has escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly material facts before assessment of his income in the relevant assessment year. It is only when these two conditions are fulfilled that the assessing officer acquires jurisdiction to make reassessment. It is therefore imperative for the assessing officer to record reasons for such belief before initiating proceedings for reassessment. The question that arises for consideration is whether the reasons, which led to formation of belief by the assessing officer contained in Section 147(a) that income of the petitioner escaped assessment on account of his omission or failure to disclose fully or truly material facts necessary for assessment, can be said to exist on the grounds referred to in the reasons supplied to the petitioner or otherwise disclosed in the order by which objections raised by them have been rejected.
14. Reasons as supplied for reopening of the case of the petitioner for reassessment, following was mentioned as the basis for arriving at the requisite satisfaction in terms of Section 147 of the Act:-
"A search and seizure operation u/S 132 Income Tax Act, 1961 was carried out of 23.07.2009 in the case of Shri Mahaveer Singh Sankhla the then Zonal Chief Engineer (Civil), RRVPNL, Jaipur, his family members and other connected cases. Consequent upon the search, the Mahaveer Singh Sankhla Group of cases were centralized with Center Circle-1, Jaipur.
M/s Kamakshi Hospitality Pvt. Ltd. and M/s Kamakshi International were two concerns which belong to the family members of Shri Mahaveer Singh Sankhla. The documents seized during the course of search from the residence of Shri Mahaveer Singh Sankhla at A-3, Moti Lal Atal Road, Jaipur, reveal that the family members of Shri Mahaveer Singh Sankhla routed huge amount through their concerns viz. M/s Kamakshi Hospitality Pvt. Ltd. and M/s Kamakshi International in purchase of various immovable properties at Jaipur.
M/s Kamakshi Hospitality Pvt. Ltd. purchased plot No.D-112-A, Bani Park Jaipur measuring to 1000 Sq Yards from Shri Bimal Jain & Shri Nirmal Kumar Jain vide Sale Deed dated 17-4-2009 for the registered sales consideration of Rs.2 Crores. Search u/s 132 was also conducted at the premises of Sh. Bimal Jain & Sh. Nirmal Kumar Jain on 23-7-2009. During the search it was established that the actual sales consideration for Plot No.D-112-A, Bani Park, Jaipur was of Rs.7 Crores. Hence, the actual cost of the Plot was suppressed by Rs.5 Crores. Sh. Bimal Jain & Sh. Nirmal Kumar Jain admitted the above fact and accordingly offered the difference amount for taxation.
Another property at D-81, Ghiya Marg, Bani Park, Jaipur was purchased by Kamakshi International Form M/s Om Builders and Colonizers vide Sale Deed dated 25-2-2009. This plot of land measures 1058 Sq. Yards and registered sale consideration for this plot of land was at Rs.1.20 Crores. Both the plots i.e. D-112-A and D-81 are in same locality and the later is in close vicinity of the former. As such the market value of both the plots should be almost same. It is learnt that the plot No.D-81, Ghiya Marg was free from any dispute. Therefore, no apparent reasons are evident for difference in market value of the both properties. It is pertinent to mention here that the plot D-112-A, Bani Park was registered at sales consideration of Rs.2 Crores. However the actual sales consideration was at Rs.7 Crores. Hence, there is sufficient reason to believe that the actual sale consideration for plot No.D-81 is actually much higher than the registered sales consideration.
In view of above facts and circumstances I have got sufficient reasons to believe that M/s Om Builders & Colonizers has suppressed the actual sales consideration of plot No.D-81, Ghiya Marg, Bani Park, Jaipur and the same amount has escaped assessment. Therefore, I propose to reassess the income of M/s Om Builders & Colonizers for the assessment year 2009-10. Accordingly, action u/S 147/148 of the Income Tax Act 1961 is hereby initiated. Issue notice u/S 148."
15. Before proceeding to examine the merits of the case, it would be apposite to take stock of the relevant case law of the subject.
16. In this connection following observations of the Supreme Court in Lakhmani Mewal Das (supra), are apt to quote:-
"8. The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. (See observations of this court in the cases of Calcutta Discount Co. Ltd. v. Income-tax Officer and S. Narayanappa v. Commissioner of Income-tax, While dealing with the corresponding provisions of the Indian Income-tax Act, 1922)."
17. In Phool Chand Bajrang Lal (supra), the Supreme Court has after considering previous case law on the subject on the scope of power of the Income Tax Officer to reopen assessment under Section 147 read with Section 148 of the Act of 1961 observed as under :-
From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen assessment under Section 147(a) read with Section 148 of the Income Tax 1961 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record, to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profit or gains chargeable to income tax has escaped assessment. He may start reassessment proceedings either because some fresh facts come to light which where not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income-tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if one the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment. The High Courts which have interpreted Burlop Dealer's case (Supra) as laying down law to the contrary fell in error and did not appreciate the import of that judgment correctly.
We are not persuaded to accept the argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of Sections 147(a) and 148 of the Act and is against the settled law by this Court. We have to look to the purpose and intent of the provisions. One of the purposes of Section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude.
18. In Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316, the Supreme Court while considering the import of phraseology "reason to believe" in Section 147 of the Act of 1961, held as under:-
Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is 'reason to believe', but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC)].
The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.
19. In Raymond Woollen Mills Ltd. (supra), the Supreme Court held that sufficiency or correctness of the material is not a thing to be considered at the stage of issuance of notice under Section 147 read with Section 148 of the Act of 1961. It was held that the court cannot strike down the reopening of the case in the facts of the case. It will be open to the assessee to prove that the facts mentioned in the notice are incorrect. The assessee can also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding.
20. While the petitioner has contended that the plot which the petitioner sold to M/s. Kamakshi International vide sale-deed dated 25.02.2009 is situated at D-81, Ghiya Marg, another plot with which comparison is sought to be made is situated at D-112-A, though also in Bani Park but is not situated in close vicinity and there is a distance of about 2.5 kilometers between these two properties whereas this fact is disputed by the respondents in their counter, but the petitioner in rejoinder has reasserted this fact that distance between these two plots is at-least more than two kilometers. Respondents in their counter have rather asserted that Plot No.D-81 at Bhragu Marg is very close to main Collectorate Circle of Bani Park, whereas Plot No.D-112 is far away from that Circle situated on Power House Road. Petitioner asserts that his plot is located on 40' wide road whereas the Plot of which comparison is sought to be made is located at 100' wide road, whereas the respondents have denied this fact by producing sale-deeds of two transactions asserting that neither of them mentions the width of the road that these two plots are situated at 40' or 100' wide roads, respectively. The assertion of the petitioner that Plot No.D-81 is situated at T point is refuted by the respondents by producing the map of Bani Park submitted by none other than the petitioner themselves before the assessing officer during reassessment proceedings wherein Plot No.D-81 is shown just opposite Plots No.F-34 and F-35 and actual T point is in front of Plot No.D-83 and not D-81. Yet another minus point enumerated by the petitioner to run down the value of their Plot D-81 at Bhragu Marg is that their existed 10' wide transformer of Rajasthan State Electricity Board just in front of this Plot but this is also contested by the respondents stating that the width of the plot is 75.3' and mere occupancy of 10' by transformer does not diminish the market value of the land as it still has 60' front opening on main Ghiya Marg. All these are matters of enquiry and investigation in the reassessment proceedings but for the present what is relevant for this court is to find out whether there exists some reasonable ground for assessing officer to form the requisite belief about escapement of the income of the assessee on account of his failure or omission to disclose fully or truly material facts in the return filed by him. This court finds that there does exist such reasonable ground to form such belief. Whether or not those grounds are adequate is not for this court to examine.
21. At this stage, it is not for this court to examine whether or not those reasons were sufficient or adequate for forming the requisite belief. It is also not for this court to examine those reasons from the stand point whether the material on which they are found conclusively proved the escapement of income as formation of such belief by the assessing officer is in the realm of the subjective satisfaction. Moreover, in this case, the assessing officer has not proceeded merely on the basis of report of the Valuer but also considered that such valuation was got done by a third party i.e. the ICICI Bank, which has advanced loan of Rs.1.25 crore to the petitioner on the land being valued by their valuer at Rs.3,53,29,230/- as against Rs.1.20 crores.
22. On critical examination of the reasons supplied to the petitioner after show cause notice, the objections raised by the petitioner and the order rejecting such objections passed by the assessing officer, this court is satisfied that the reasons were such which would impel an ordinary person of reasonable prudence to hold that the income escaped assessment. Those reasons do not fall merely within the realm of 'mere suspicion' so to say. There does exist some material with the assessing officer for issuance of notice under Section 147 read with Section 148 of the Act of 1961 for formation of requisite belief as to the escapement of income. Judgments cited by learned counsel for petitioner in this behalf are therefore distinguishable and do not afford any help to him.
23. In view of above discussion, I do not find any merit in this writ petition. The writ petition is therefore dismissed. No order as to costs.
Varsha *In favour of revenue.
IT-Alienation of property for construction under joint development agreement comes within meaning of 'transfer'
IT : Transfer of possession of property to developer for construction of flats under Joint Development Agreement, as per which assessee was entitled to 50 per cent built up area, is 'transfer' as per section 2(47) and is taxable in year in which agreement, giving vacant and peaceful possession to developer, was entered into by assessee
■■■
[2013] 33 taxmann.com 311 (Hyderabad - Trib.)
IN THE ITAT HYDERABAD BENCH 'B'
Mrs. Durdana Khatoon
v.
Assistant Commissioner of Income-tax, Circle - 6(1), Hyderabad*
CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
IT Appeal No. 449 (Hyd.) of 2012
[ASSESSMENT YEAR 2005-06]
[ASSESSMENT YEAR 2005-06]
MARCH 15, 2013
Section 2(47), read with section 45, of the Income-tax Act, 1961 and section 53A of the Transfer of Property Act, 1882 - Capital gains - Transfer [Immovable property] - Assessment year 2005-06 - Assessee who owned a property, entered into a Joint Development Agreement with a developer for construction of flats on said property, for which assessee was entitled to 50 per cent of built up area - Assessee gave vacant and peaceful possession of property to builder - Whether, where legal ownership continued with assessee, but possession and control of property was transferred to builder, transaction amounted to transfer as per section 2(47) and section 53A of Transfer of Property Act, and was taxable in year in which development agreement, giving vacant and peaceful possession of property to developer, was entered into by assessee - Held, yes [Para 29] [In favour of revenue]
FACTS
| ■ | The assessee owned a property and entered into a Joint Development Agreement with a builder for construction of residential /commercial flats as per which the assessee was entitled to 50 per cent of built up area. The assessee gave vacant and peaceful possession of the property to the builder. | |
| ■ | The Assessing Officer considered the transaction as transfer as per section 2(47)(v) and computed capital gain. | |
| ■ | On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. |
HELD
| ■ | Section 2(47)(v) defines 'transfer' as any transaction involving allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882). [Para 23] | |
| ■ | The importance of the word 'transfer' is due to the reason that under the charging section, viz. section 45, capital gain is taxable on 'transfer of a capital asset'. Precisely, this section prescribes that 'any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place. [Para 24] | |
| ■ | Thus, the fundamental features which determine the taxability of capital gain, are that the gain ought to be from the transfer of a capital asset. This phrase can be interpreted in the manner that the total profits may actually be received in any other year, but for the purposes of section 45, the gain shall be the deemed income of the year of transfer of the capital asset. The Authority of Advance Rulings in the case of Jasbir Singh Sarkaria, In re [2007] 164 Taxman 108 (AAR - New Delhi), observed that the expression used in sec. 45 is 'arising', which cannot be equated with the expression 'received' or even with the expression 'accrued' as being used in the statute. Due to the presence of this statutory fiction, the actual year in which the entire sale consideration is received, is beside the point but what needs to be judged is the point of time at which the transfer took place either by handing over of the possession or by allowing the entry into the premises or by making the constructive presence of the vendee nevertheless duly supported by a legal document. [Para 25] | |
| ■ | But the issue does not get settled only by the interpretation of section 45 and section 2(47)(v) because the definition of "transfer" not merely prescribes allowing of possession but also to be retained in part performance of a contract of the nature referred in section 53A of the Transfer of Property Act. |
| ■ | The factual matrix of the case in hand is as follows : |
| (a) | Starting words of section 53A are 'where any person contracts', which means just the existence of a contract. The assessee is the 'person' who has entered into a contract with the developer. | |
| (b) | The term 'transfer' is to be read along with section 45 and section 2(47)(v). In the past there was a long line of pronouncements, while deciding income tax cases, that unless and until a sale deed was executed and that too it was registered, transfer could not be said to have been effected. Thereafter, there were major amendments in the income-tax statute for levy of capital gain. The main objective of those amendments was to enact that for the purposes of capital gains, the transaction involving transfer of the nature referred are not required to be registered under Registration Act. In the present case, the developer has got bundle of rights and thereupon entered into the property. Thereafter, it is to be seen that what happened and what steps the transferee has taken to discharge the obligation on his part. If transferee has taken any steps to construct the flats, undisputedly then, under the provision of Income-tax Act a 'transfer' has definitely taken place. | |
| (c) | The existence of the 'consideration' is the essence of the contract. In this case the amount of consideration has to be paid to the assessee in the form of cash as well as in kind i.e., the flats to be constructed by the developers to be handed over to the owners. | |
| (d) | Next is the important phrase i.e., 'terms necessary to constitute the transfer can be ascertained with reasonable certainty'. In this case, the terms and conditions of the contract were unambiguous and clearly spoke about the rights and duties with certainty of both the signing parties. Mainly two certainties are to be considered; one being passing of substantial consideration and second being passing over of possession. | |
| (e) | The other factor which governs the happening of transfer is the handing over of possession. Retention of possession is one kind of the facet of part performance of contract. The agreement in question can be said to be a distinct transaction that has given rise to the event of allowing the contractor to enter into the property. The possession as contemplated in clause (v) need not necessarily be sole and exclusive possession, so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. The mere fact that the assessee owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement, did not restrict the rights of the developer or did not introduce any incompatibility. In a situation like this when there is a concurrent possession of both the parties, even then clause (v) has its full role to play. Any other interpretation i.e., possession means exclusive possession, shall defeat the purpose of amendment even if some part of consideration remains to be paid, the transaction shall not affect the liability of capital gains tax so as to postpone the same indefinitely. | |
| (f) | The last noticeable ingredient is, 'the transferee has performed or is willing to perform his part of the contract'. To ascertain the existence of willingness on the part of the transferee one must not put stop at one event but willingness is to be judged by the series of actions of the transferee. The transferees surveyed the land and to attract purchasers put up hoardings plus sales office and carried out site development work. Landscaping, sales promotion, execution of construction and completion of project are all incidental to demonstrate the willingness of the transferee. Facts of this case thus suggest that the developer had never intended to walk-out of the project. | |
| (g) | From the Development Agreement, it is more than clear that it was an agreement for construction of residential/commercial flats on the property owned by the assessee. In lieu of the right given to the Developer there under, the assessee was to receive 50 per cent of the constructed area of all the floors. Further, even the vacant and peaceful possession of the property had been delivered to the developer on 7-3-2005, as evidenced by the 'Delivery Note' of the same date. Under the circumstances, there was indeed an exchange of property which amounted to a transfer within the meaning of section 2(47)(v) and the gain resulting from such transfer was indeed taxable in the year in which the Development Agreement giving vacant and peaceful possession of the property to the Developer was entered into by the assessee, as held by the Hon'ble Bombay High Court in the case of Chaturbuj Dwarakadas Kapadia v. CIT [2003] 260 ITR 491/129 Taxman 497 and in the several decisions of the Jurisdictional ITAT, Hyderabad, including the case of Dr. Maya Shenoy v. CIT [2009] 124 TTJ (Hyd.) 692. Since the Development Agreement in the assessee's case has been executed on 2-8-2004 and the vacant and peaceful possession also was given in 7-3-2005 itself, such gains were indeed to be taxed in the Financial year 2004-05, relevant to the Assessment year 2005-06. | |
| (h) | There is no merit in the contention that the Development Agreement could not have come into force unless and until the builder deposited Rs. 2 crores. As discussed in the assessment order, the assessee had indeed been paid Rs. 50 lakhs by cheques dated 19-7-2004 itself. Further, the assessee was to receive 3 instalments of Rs. 50 lakhs each at different stages. Under the circumstances, it cannot be disputed that there was a promise to pay which has not been shown as having remained unfulfilled. It is an established judicial proposition that the consideration may be futuristic also, as held by the Supreme Court in the case reported in Jugal Kishor v. Raw Cotton Co. AIR 1955 S.C. 376. Accordingly, there is no merit in such contention of the assessee. [Para 28] |
| ■ | Thus, the owners entered into an agreement for development of the property and certain rights were assigned to the developer who in turn made the substantial payment and consequently entered into the property and thereafter the transferee has taken steps in relation to construction of the building, then it is to be considered as transfer under section 2(47)(v). The fact that the legal ownership continued with the owners to be transferred to the developer at a future distant date really does not affect the applicability of section 2(47)(v). As the transferee was undisputedly willing to perform its part of the contract, there was transfer under section 2(47)(v). Thus, since the possession and control of the property was already vested with the transferee and the impugned development agreement had not been duly cancelled and it was still in operation, there was a transfer under section 2(47)(v). Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of section 45 on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. [Para 29] | |
| ■ | Accordingly, the above issue relating to transfer of property under section 2(47)(v) is decided in favour of the Department. [Para 30] | |
| ■ | In the result, assessee's appeal is dismissed. [Para 31] |
CASES REFERRED TO
Chaturbhujdas Dwarkadas Kapadia v. CIT [2003] 260 ITR 491/129 Taxman 497 (Bom.) (para 3), Dr. Maya Shenoy v. CIT [2009] 124 TTJ (Hyd.) 692 (para 3), Ms. K. Radhika v. Dy. CIT [2011] 13 taxmann.com 92/47 SOT 180 (Hyd.) (URO) (para 7), Baisakhi Bhattacharjee v. Shayamal Bose 2002 (4) CHN 115 (para 7), Smt. Raj Rani Devi Ramana v. CIT [1993] 201 ITR 1032 (Pat.) (para 7), S. Raghurami Reddy [IT Appeal No. 296 (Hyd.) of 2003, dated 30-7-2004] (para 7), Avatar Singh v. ITO [2004] 270 ITR 92/[2003] 132 Taxman 113 (MP) (para 7), Zuari Estate Development & Investment Co. (P.) Ltd. v. Dy. CIT [2004] 271 ITR 269/139 Taxman 209 (Bom.) (para 7), Alapati Venkataramaiah v. CIT [1965] 57 ITR 185 (SC) (para 7), K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) (para 9), Taher Alimohammed Poonawala v. Addl. CIT [2009] 124 TTJ (Pune) 387 (para 20), Jasbir Singh Sarkaria, In re [2007] 164 Taxman 108 (AAR - New Delhi) (para 25) and Jugal Kishor v. Raw Cotton Co. AIR 1955 SC 376 (para 28).
P. Muralimohan Rao for the Appellant. K.E. Sunil Babu for the Respondent.
ORDER
Chandra Poojari, Accountant Member - This appeal by the assessee is directed against the order of the CIT(A)-IV, Hyderabad dated 31.1.2012 for assessment year 2005-06.
2. The grievance of the assessee in this appeal is with regard to treatment of transaction entered by the assessee in Joint Development Agreement (JDA) for development of property situated at Door No. 1-8-5777/1, Chikkadpally, Hyderabad with M/s. Imperial Constructions vide agreement dated 2-8-2004 as transfer by invoking provisions of section 2(47)(v) of the Income-tax Act, 1961 so as to determine the long term capital gain.
3. Brief facts of the issue are that the assessee owned a property situated at Door No. 1-8-5777/1, Chikkadpally, Hyderabad and entered into a JDA with M/s. Imperial Constructions for construction of residential/commercial flats on 2.8.2004. As per the agreement, the assessee is entitled for 50% of built up area. As per agreement and also vide delivery note dated 7.3.2005, the assessee given vacant and peaceful position of the property to the builder. Being so, the Assessing Officer considering the provisions of section 2(47)(v), the assessee said to be exchanged the property for consideration in kind i.e., to receive 50% of the built up area. Accordingly, the Assessing Officer, placing reliance on the judgement of Bombay High Court in the case of Chaturbhujdas Dwarkadas Kapadia v. CIT [2003] 260 ITR 491/129 Taxman 497 and also on the decision of the Tribunal in the case of Dr. Maya Shenoy v. CIT [2009] 124 TTJ (Hyd.) 692 treated this transaction as "transfer of capital asset" and computed the capital gain on this transaction at Rs. 3,88,35,451. On appeal the CIT(A) confirmed the order of the Assessing Officer. Against this the assessee is in appeal before us.
4. The learned AR submitted that the lower authorities wrongly placed reliance on the judgement of Bombay High Court in the case of Chaturbhujdas Dwarkadas Kapadia (supra) and also on the decision of the Tribunal in the case of Dr. Maya Shenoy (supra). He submitted that in the present case there was no transfer of property as enumerated in section 2(47)(v) of the Act, as in this case no possession has been given by the assessee to the developer. Whatever the assessee has given is only a licence to the developer to enter into plot for the limited purpose of construction of building. He submitted that giving symbolic possession of the property for limited purpose of construction cannot be construed as giving of absolute possession of the property. He also filed additional evidences as follows:
| (a) | Agreement between Durdhana Khatoon and M/s. Imperial Constructions dated 2nd August, 2004. | |
| (b) | Memorandum of Understanding (MOU) between Durdhana Khatoon and M/s Imperial Constructions dated 2nd August, 2004. | |
| (c) | Lease Deed with M/s. Pantaloon Retail (I) Ltd. | |
| (d) | Copy of Income-tax Return for the A.Y. 2005-2006 along with computation of Income. | |
| (e) | Copy of Income-tax Return for the A.Y. 2006-2007 along with computation of Income. | |
| (f) | Copy of Income-tax Return for the A.Y. 2007-2008 along with computation of Income. | |
| (g) | Copy of Income-tax Return for the A.Y. 2008-2009 along with computation of Income. | |
| (h) | Details of Capital Gains offered to tax for the A.Ys. 2007-2008 onwards. |
5. He also submitted that the assessee could not produce the documents in Sl. Nos. (c) to (h) before the lower authorities as these are not available at the time of proceedings before the lower authorities and requested to admit these additional evidences. We have gone through the above additional evidences. Considering the nature of documents, in our opinion, these documents have no consequence in deciding the issue. We have to see only Development Agreement and Delivery Note for handing over the possession of the property for construction. Further the assessee has paid the taxes on capital gain in subsequent years, it cannot lead to conclusion that there is no transfer in this A.Y. 2005-06. The right amount has to be taxed in right assessment year.
6. The AR, on applicability of section 2(47)(v) of the income tax Act, 1961, submitted that the provisions of section 2(47)(v) of the Income Tax Act, 1961, do not apply to the case of the assessee's case or to any development agreement for that matter of fact. He submitted that the ratio of following case-law was wrongly applied by the Assessing Officer:
| (a) | Chaturbhuj Dwarakadas Kapadia (supra) | |
| (b) | Dr Maya Shenoy (supra) |
7. According to him, the following judicial decisions and interpretation have not been brought to the notice of the Courts/Appellate Authorities in the course of the presentation/ arguments:
| (a) | Ms. K. Radhika v. Dy. CIT [2011] 13 taxmann.com 92/47 SOT 180 (Hyd.) (URO) | |
| (b) | Baisakhi Bhattacharjee v. Shayamal Bose 2002 (4) CHN 115 | |
| (c) | Smt. Raj Rani Devi Ramana v. CIT [1993] 201 ITR 1032 (Pat.) | |
| (d) | Order of ITAT, Hyderabad in the case of S. Raghurami Reddy in ITA No. 296/Hyd/2003 dated 30.7.2004. | |
| (e) | Avatar Singh v. ITO [2004] 270 ITR 92/[2003] 132 Taxman 113 (MP) | |
| (f) | Zuari Estate Development & Investment Co. (P.) Ltd. v. Dy. CIT [2004] 271 ITR 269/139 Taxman 209 (Bom.) | |
| (g) | Alapati Venkataramaiah v. CIT [1965] 57 ITR 185 (SC) |
8. The AR submitted that in all the cases the arguments before the appellate forums was that the amendment to section 2(47) of the Act was brought in to plug the loop hole of transferring the property without registering a conveyance deed. It was presented to the courts that the transfer of property was being done through General Power of Attorneys and that through this devise though the real owner of the property changes the registered owner remains the same and that this kind of transactions were outside the purview of the definition of the word "transfer" under section 2(47) of the Income Tax Act. The AR submitted that the following extract from the case of Chaturbhuj Dwarakadas Kapadia shows the line of arguments before the Hon'ble Court:
"Section 2(47)(v) was introduced in the Act from assessment year 1988-89 because prior thereto, in most cases, it was argued on behalf of the assessee that no transfer took place till execution of the conveyance. Consequently, assessees used to enter into agreements for developing properties with the builders and under the arrangement with the builders, they used to confer privileges of ownership without executing conveyance and to plug that loop hole, section 2(47)(v) came to be introduced in the Act. It was argued by the assessee that there was no effective transfer till grant of irrevocable licence. [Para 5]"
9. The AR further submitted that the fact that the subject matter of taxation being the consideration for transfer does not exist on the date concluded by the department to be the date of transfer has not been brought to the notice of the adjudicating authorities in any of these cases. The Apex Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) laid down that it is not very fictional accrual or receipt of income which has never accrued nor never received, which could be brought to tax for the purpose of taxation of capital gain. The provisions seek to bring within the net of taxation only that income which has accrued or is received by the assessee as a result of the transfer of the capital asset.
10. The learned AR submitted that this issue has been considered by the co-ordinate Bench of the Tribunal in the case of K Radhika (supra) wherein held that handing over of the possession of property is only one of the conditions u/s. 53A of the Transfer of Property Act but it is not the sole and isolated condition and it is necessary to go into whether or not transferee was "willing to perform" its obligation under the consent terms; on the facts of the case, provisions of section 2(47)(v) of the Act will not apply in the assessment year under consideration and capital gains could not be charged in the assessment year under consideration.
11. The AR submitted that the method of computation of full value of consideration itself throws open so many anomalies that the very basis of taxation goes against the principles of Income Tax Act which seeks to tax real and certain income.
12. According to the AR, this being the case an agreement being out of the scope of section 53 A of the Transfer of Property Act, the AR submitted that the assessing officer as well as the learned CIT (Appeals) erred in law in holding that the transaction is within the meaning of transfer under section 2(47)(v) of the Act. As stated earlier the case and the course of arguments before the Hon'ble Bombay High Court is that the amendment to the section 2(47) which defines "Transfer" has been made with a view to plug the loop hole of the assesses entering into development with builders and evading taxes. Accordingly, the AR submitted that this is not the actual legal position nor is it the intention of the legislature. Further he submitted that section 2(47) as originally introduced was substituted by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985. The section with effect from 1-4-1985 had four sub clauses as under:
["transfer", in relation to a capital asset, includes,-
| (i) | the sale, exchange or relinquishment of the asset; or | |
| (ii) | the extinguishment of any rights therein; or | |
| (iii) | the compulsory acquisition thereof under any law; or | |
| (iv) | in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment;] | |
| Vide Taxation Laws (Amendment) Act, 1984 two new sub clauses have been introduced and these are as under; | ||
| (v) | any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or | |
| (vi) | any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. |
Explanation.-For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA;]
13. These two new sub clauses were introduced by the Finance Bill 1987. The Hon'ble Finance Minister in his budget speech stated as under; (para 77 of the speech as published)
"77. I understand that for the purpose of taxation of income from houses, our tax laws make a distinction between the real owner who is not a legal owner and a legal owner who is not a real owner. Following the well established revenue tradition, when it comes to taxing, we tax both the real owner who is not a legal owner and the legal owner who is not a real owner. Concessions available to a house owner are, however, given to a real owner, who is also a legal owner. I propose to simplify the law by clarifying that the real owner, even if he is not the legal owner, will pay the tax and avail of the concessions available to the legal owner. I hope this proposal is abundantly clear to Hon'ble Members."
14. He drew our attention to the relevant clause (clause 27) of the Memorandum Explaining Provisions in Finance Bill 1987 which states the objective and purpose of the amendment as under:
Simplification and Rationalization of Provisions
Enlarging the meaning of "owner of house property"
"27. Under the existing provisions of section 22 of the Income Tax Act, any income from house property is chargeable to tax only in the hands of the legal owner. As per section 27 of the Income Tax Act, certain persons who are not otherwise legal owners are deemed to be owners for the purposes of these provisions.
Under the Transfer of Property Act, the transfer of ownership can be effected only by means of a registered instrument. However, in the recent times various other devices are sought to be employed to transfer one's ownership in property. As a result, there are situations in which the actual owner, say, of an apartment in a multi-storeyed building, or a holder of a power of attorney is not the legal owner of a property. In some cases, pending resolution of disputes, the legal owners as well as the beneficial owners are assessed to tax in respect of the same income.
As a measure of rationalization, the Bill seeks to enlarge further the meaning of the expression "owner of house property", given in clause (iii) of section 27 by providing that a person who come to have control over the property by virtue of such transaction as are referred in clause (f) of section 269UA will also be deemed to be the owner of the property. The amendment also seeks to enlarge the applicability of this clause to a member of a company or other association of persons. Corresponding amendments have also been proposed in regard to the definition of "transfer" in section 2(47) of the Income Tax Act" section 2(m) of the Wealth Tax Act defining "net wealth" and section 2(xii) of the Gift Tax Act defining "gift". These amendments will take effect from 1st April 1988, and will, accordingly, apply in relation to assessment year 1988-89 and subsequent years.
[Clauses 3(9), 6, 77 and 92]
15. The AR submitted that from the above it is clear that the intention of the legislature was to plug the loop hole in escapement of income from being taxed under the head "House Property" and also to avoid double taxation and complexities between the real owners and the legal owners when it comes to taxation of property income. The AR placed reliance on the judgment and principles laid down by the Hon'ble Apex Court in the case of K.P. Varghese (supra). In this case weight was given to Finance Minister's speech at the time of introduction of a Bill by the Supreme Court, where even violence to the plain meaning of the language of statute was found permissible with reference to the declared objective of the provision on the basis of the Finance Minister's assurance that the deeming provisions under section 52(2) (now deleted by the Finance Act, 1987 w.e.f. 1-4-1988) may not be invoked in the case of bona fide transactions. It was found to be clearly in the nature of contemporanea expositio furnishing legitimate aid to construction. Such a view was sought to be supported by the rule admitted in Crawford on Statutory Construction described as "practical construction", although non controlling, is nevertheless entitled to considerable weight and is highly persuasive.
16. The AR further submits that the provisions of section 2(47)(v) of the Income Tax Act do not apply to the case of the assessee nor is it the intention of the legislature that they be so intended. Therefore, he prayed that the determination of capital gains in his case be quashed. Without prejudice to the above, regarding computation of capital gains, the AR submitted that the assessing officer acted arbitrarily in taking the sale price.
17. The AR submitted that whatever the sale price may be, a standard measure of profit is not a criteria to determine cost. On this count both the assessing officer as well as the learned first appellate authority erred on law and on facts. It is not necessary that every business venture should result in profit. What the assessing officer and the learned CIT (Appeals) did was to estimate income from an asset that did not exist and this is contrary to the principles of real income and against the law laid down by various judicial pronouncements.
18. The learned AR further submitted that on this count alone the assessment order deserves to be quashed. The assessing officer, while not taking the real cost (that did not exist) on the date of the agreement applied the imaginary cost to the built up area as well as to the parking area uniformly in arriving at the full value of consideration. This act of the assessing officer is arbitrary and against principles of accounting and costing as well as determination of real income taxable under the Income Tax Act. The AR submitted that, had the development agreement not been cancelled, there is no denial that transfer of his land has taken place and that he would have gained from it. The issue is how much is the real gain that is to be taxed and what is the criteria in arriving at the real capital gain, whether short tern or long term, that is to be taxed. The issue is how to determine this amount and what is the scientific and evidentially based way of determining it.
19. The AR submitted that the assessment is based on imaginary income, arising out of wild estimates, not stemming up from facts and therefore deserves to be quashed. The AR submitted that, on the basis of the above submissions and further submissions that may be permitted by the Tribunal to be made in the course of the appellate proceedings, the assessment of capital gains in his case for the assessment year 2005-06 be held to be untenable and contrary to the provisions of law and that the same may be directed to be deleted otherwise it amounts to double taxation as the assessee has offered the capital gain in subsequent assessment year.
20. The DR submitted that the Assessing Officer was justified in bringing to tax the transaction relating to the development agreement in view of the provision of sec. 2(47) of the I.T. Act. He relied on the decision of ITAT Pune Bench in the case of Taher Alimohammed Poonawala v. Addl. CIT [2009] 124 TTJ (Pune) 387 wherein the Tribunal observed as under:
"Where owners (assessees) had entered into an agreement for development of property and certain rights were assigned to developer who in turn had made substantial payment and, consequently, entered upon property and constructed flats, fact that legal ownership continued with owners to be transferred to developer at a future distant date really would not affect applicability of section 2(47)(v) and capital gain would arise in year in which agreement for development of property was entered into .... "
21. The learned DR relied on the decision in the case of Dr. Maya Shenoy (supra) wherein the Hon'ble ITAT Hyderabad observed as under:
"Development agreement under which developer was to hand over 45 per cent of constructed area as consideration to assessee could not merely amount to granting of licence to builder to carry on development activities but would be a case of transfer under section 2( 47)."
The ITAT after analysing the issue further held that
"In the instant case, on facts, the assessee had, in fact, exchanged her present property for consideration in kind which was in the nature of 4-1/2 flats to be given to her by the developer. Thus, it was a case of exchange as understood in clause (i) of section 2(47). There was no force in the argument that the handing over of the possession was not in pursuance of part performance of the contract. Possession of the land being one of the interests in property had been transferred to the developer who also would be enjoying the usufruct of the land. If the shield of section 53A was available to the developer, it obviously meant that handing over of the possession was pursuant to the transfer contemplated under the Transfer of Property Act and hence under clause (v) of section 2(47}. In the present case, this was not a sale transaction as money was not the consideration but some other valuable consideration was passing to the assessee in the form of 4-1/2 flats. Therefore, the transfer in the present case was for consideration and it was immaterial that the consideration may be received in future. Therefore, the development agreement in the present case had the effect of transfer as contemplated in section 2(47). (Head Note)"
22. The learned DR submitted that the case of the assessee is identical to that of Dr. Maya Shenoy (cited supra). Accordingly, the assessee was liable for capital gains in respect of the Development Agreement by virtue of which the assessee was liable to get 50% of the constructed area.
23. We have heard both the parties and perused the material available on record with reference to the contentions of the assessee with regard non-chargeability of capital gains in respect of the land. We have also gone through the various case-law cited by the parties and considered the additional evidence filed by the assessee. According to AR which was not 'transferred' but only given for development. We may refer to the provisions of S. 2(47)(v) which reads as follows:-
| "2 and (47)** | ** | ** |
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act, 1882 (4 of 1882)"
24. The importance of the word "transfer" is due to the reason that under the charging section, viz. S. 45, and the capital gain is taxable on "transfer of a capital asset". Precisely, this section prescribes that "any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains and shall be deemed to be the income of the previous year in which the transfer took place".
25. Thus the fundamental features which determine the taxability of capital gain, are that the gain ought to be from the transfer of a capital asset. This section has a large scope of its operation due to the presence of deeming provision which says that the gain shall be the deemed income of that previous year in which the transfer took place. This phrase can be interpreted in the manner that the total profits may actually be received in any other year, but for the purposes of S. 45, the gain shall be the deemed income of the year of transfer of the capital asset. It shall not be out of context, at this juncture, to mention an observation of the Hon'ble Authority of Advance Rulings in the case of Jasbir Singh Sarkaria, In re [2007] 164 Taxmann 108 (AAR - New Delhi), that the expression used in sec. 45 is "arising", which cannot be equated with the expression "received" or even with the expression "accrued" as being used in the statute. The point which deserves notice is that the amount or the consideration settled may not be fully received or may not technically accrue but if it arises from the agreement in question, then the deeming provisions shall come into operation. Another point is also equally noticeable that by the presence of the deeming provision, the income on account of arousal of the capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. Due to the presence of this statutory fiction, the actual year in which the entire sale consideration is received, is beside the point but what needs to be judged is the point of time at which the transfer took place either by handing over of the possession or by allowing the entry into the premises or by making the constructive presence of the vendee nevertheless duly supported by a legal document.
26. But the issue do not get settled only by the interpretation of s. 45 and s. 2(47)(v) because the definition of "transfer" not merely prescribes allowing of possession but to be retained in part performance of a contract of the nature referred in s. 53A of the Transfer of Property Act. Therefore, it is further requisite to deal with the relevant section contained in Transfer of Property Act. Transfer of Property Act contains S. 53A under the heading "Part performance" and, for deciding the case in hand, it is necessary to quote the impugned section verbatim as follows:
"Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,
And the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,
And the transferee has performed or is willing to perform his part of the contract,
Then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transfer or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:
Provided that nothing in this section shall effect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof."
27. The doctrine of "part performance" is undoubtedly based upon the doctrine of equity. If one party has performed his part of duty then equity demands that the other party shall also perform his part of the obligation. If one party stood by his words then it is expected from the other party to also stand by his promise. Naturally an inequitable conduct of any person has no sanction in the eye of law.
28. In the light of the ingredients of this section, which has been argued from both the sides, now we proceed to examine the factual matrix of the case in hand, herein below:
| (a) | Starting words of s. 53A are "where any person contracts" which means just the existence of a contract. The assessee is the "person" who has entered into a contract with the developer vide agreement dated 12.4.2006. | |
| (b) | This sections says "to transfer" means the said contract is in respect of a transfer and not for any other purpose. The term "transfer" is to be read along with the s. 45 and s. 2(47)(v) of IT Act. It is pertinent to clarify that one must not mistake to identify the issue of capital gain with the term "transfer" as defined in s. 54 of Transfer of Property act. At the cost of elaboration, we may like to add that in the past there was a long line of pronouncements; while deciding income tax cases, that unless and until a sale deed is executed and that too it is registered, transfer cannot be said to have been effected. The consequence of said catena of decisions was that no capital gain tax was directed to be levied so long as the "transfer" has no taken place as per the generally accepted connotation of the term under Transfer of Property Act. The resultant position was that the levy of capital gain tax thus resulted in major amendments in the income-tax statute. The main objective of those amendments was to enact that for the purposes of capital gains, the transaction involving transfer of the nature referred are not required to be registered under Registration Act. Such arrangement does not include transfer of certain rights vesting to a purchaser; however such "transfer" does confer certain privileges of constructive ownership with connected bundle of rights. Indeed it is a departure from the commonly understood meaning of the definition "transfer" while interpreting this term for tax purpose. On the facts of this case, the developer has got bundle of rights and thereupon entered into the property. Thereafter, we have to see what has happened and what steps the transferee has taken to discharge the obligation on his part. If transferee has taken any steps to construct the flats, undisputedly then, under the provision of Income Tax Act a "transfer" has definitely taken place. | |
| (c) | The existence of the "consideration" is the essence of the contract. In this case the amount of consideration has to be paid to the assessee in the form of cash as well as in kind i.e., the flats to be constructed by the developers to be handed over to the owners. | |
| (d) | Next is the important phrase i.e., "terms necessary to constitute the transfer can be ascertained with reasonable certainty". According to us, in this case, the terms and conditions of the contract were unambiguous and clearly spoke about the rights and duties with certainty of both the signing parties. We are concerned mainly with two certainties; one is passing of substantial consideration and second is passing over of possession. As far as the payment of consideration is concerned, we have already noticed that it is in the form of both cash as well as kind and payment made to the assessee has been brought on record by the lower authorities and the same was examined and considered by the CIT(A). There was a payment of Rs. 50 lakhs by cheque on 19.7.2004 itself. Further, the balance of Rs. 150 lakhs was to be paid by 3 equal instalments. | |
| (e) | The other factor which governs the happening of transfer is the handing over of possession. This section says "and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession continues in possession in part performance of the contract and has done some act in furtherance of the contract". Retention of possession is one kind of the facet of part performance of contract. The agreement in question can be said to be a distinct transaction that has given rise to the event of allowing the contractor to enter into the property. What is contemplated by s. 2(47)(v) is a transaction which has direct and immediate bearing on allowing the possession to be taken in part performance. It is at that point of time that the deemed transfer takes place. According to us the possession as contemplated in cl. (v) need not necessarily be sole and exclusive possession, so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. The mere fact that the assessee owner has also the right to enter the property to oversee the development work or to ensure performance of the terms of the agreement, did not restrict the rights of the developer or did not introduce any incompatibility. In a situation like this when there is a concurrent possession of both the parties, even then cl. (v) has its full role to play. There is no warrant to postpone the operation of cl. (v) to that point of time when the concurrent possession would become exclusive possession of the developer. Any other interpretation i.e., possession means exclusive possession, shall defeat the purpose of amendment. The possibility of staggering of payment linked with possession is ruled out by this amendment so that the taxability of gain may not be shifted to an uncertain distant date. We have no hesitation in saying that even if some part of consideration remains to be paid, the transaction shall not affect the liability of capital gains tax so as to postpone the same indefinitely. What is meant in clause (v) is the "transfer" which involves allowing the possession so as to allow developer to undertake development work on the site. It is a general control over the property in part performance of the contract. The date of that transaction determines the date of transfer. To our understanding of the language of the Act, it is enough if the transferee has, by virtue of the impugned transaction, has a right to enter upon and exercise the act of possession effectively, then such an act amounts to legal possession over the property. | |
| (f) | The last noticeable ingredient is, "the transferee has performed or is willing to perform his part of the contract". To ascertain the existence of willingness on the part of the transferee one must not put stop at one event but willingness is to be judged by the series of actions of the transferee. The transferees survey the land and to attract purchases put up hoardings plus sales office and carry out site development work. Landscaping, sales promotion, execution of construction and completion of project are all incidental to demonstrate the willingness of the transferee. On one hand, the JDA grants bundle of possessor rights to the developer simultaneously and on the other hand transferee's gesture of payment of consideration coupled with development work can be said to be a positive step towards willingness to fulfil the commitment. Facts of this case thus suggest that the developer had never intended to walk-out of the project. However, whether the developer has performed its part of the contract by taking steps to construct the flats or not has been verified by the lower authorities and the possession was with developer as per delivery note dated 7.3.2005. | |
| (g) | From the Development Agreement, it is more than clear that it was an agreement for construction of residential/commercial flats on the property owned by the assessee. In lieu of the right given to the Developer there under, the assessee was to receive 50% of the constructed area of all the floors. Further, even the vacant and peaceful possession of the property had been delivered to the developer on 7.3.2005, as evidenced by the "Delivery Note" of the same date. Under the circumstances, there was indeed an exchange of property which amounted to a transfer within the meaning of sec. 2(47)(v) of the Act and the gain resulting from such transfer was indeed taxable in the year in which the Development Agreement giving vacant and peaceful possession of the property to the Developer was entered into by the assessee, as held by the Hon'ble Bombay High Court in the case of Chaturbuj Dwarakadas Kapadia (supra) and in the several decisions of the Jurisdictional ITAT, Hyderabad, including that in the case of Dr. Maya Shenoy (supra). Since the Development Agreement in the assessee's case has been executed on 2.8.2004 and the vacant and peaceful possession also was given in 7.3.2005 itself, such gains were indeed to be taxed in the F.Y. 2004-05, relevant to the A.Y. 2005-06. | |
| (h) | As regards the contention of the assessee's representative that the said decisions are not applicable to the assessee's case, it is clear that no reasons for such view could be ever furnished by him. Similarly, there is no merit in the contention that the Development Agreement could not have come into force unless and until the builder deposited Rs. 2 crores. As discussed in the assessment order, the assessee had indeed been paid Rs. 50 lakhs by cheques dated 19.7.2004 itself. Further, the assessee was to receive 3 instalments of Rs 50 lakhs each at different stages. Under the circumstances, it cannot be disputed that there was a promise to pay which has not been shown as having remained unfulfilled. It is an established judicial proposition that the consideration may be futuristic also, as held by the Supreme Court in the case reported in Jugal Kishore v. Raw Cotton Co. AIR 1955 S.C. 376. Accordingly, there is no merit in such contention of the representative of the assessee. As regards the argument that the agreement under reference had been executed only for the purpose of getting permissions from various department for construction, the very terms of the agreement belie any such claim as the development agreement gives absolute rights to the builders, including possession, duly specified the consideration to be received by the assessee on such exchange. As regards the case laws cited by the AR, evidently those stand on a set of different facts and hence cannot be considered in the facts of the present case. |
29. To sum up the owners have entered into an agreement for development of the property and certain rights were assigned to the developer who in turn had made the substantial payment and consequently entered into the property and thereafter the transferee has taken steps in relation to construction of the building, then it is to be considered as transfer u/s. 2(47)(v) of the I.T. Act. The fact that the legal ownership continued with the owners to be transferred to the developer at a future distant date really does not affect the applicability of s. 2(47)(v) as per the reasons assigned hereinabove. The transferee was undisputedly willing to perform its part of the contract, in this circumstance we have to hold that there is transfer u/s. 2(47)(v) of the Act. Thus, the possession and control of the property is already vested with the transferee and the impugned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer u/s. 2(47)(v) of the Act. We have to see the real intention of the parties. As per the well known cannon of construction of document, the intention generally prevails over the word used and that such a construction placed on the word in a deed as is most agreeable to the intention of the parties. There are grounds appearing from the face of the instrument affording proof of the real intention of the parties, then that intention would prevail against the obvious and ordinary meaning of the words used. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of S. 45 of the Act on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. In our opinion, the real intention of the parties herein is to be seen.
30. Accordingly, we decide the above issue relating to transfer of property u/s. 2(47)(v) of the IT Act in favour of the Department. We also hold that subsection (47) of s. 2 was amended by the Finance Act, 1987 w.e.f. 1st April, 1988 by inserting new sub-cls. (v) and (vi) thereunder. These two new sub-clauses provide that 'transfer' includes (i) any transaction which allows possession to be retained in part performance of a contract of the nature referred to in s. 53A of the Transfer of Property Act; and (ii) any transaction entered into in any manner which has the effect of transferring or enabling the enjoyment of any immovable property. Therefore, under these two sub-clauses, the capital gain would be taxable in the year in which such transactions are entered into even if the transfer of the immovable property is not effective or complete under the general law. The assessee entered into an agreement with the builder/developer for development of the impugned land and construction of flats thereon. Also, the assessee signed a delivery note dated 7.3.2005 in favour of the builder/developer and gave possession of the property to the builder/developer. Further, the assessee acted on the impugned agreement by accepting from the builder/developer payments by cheques on different dates in the financial year 2004-05. In view of the facts and circumstances discussed above, all the conditions of sub-cl. (v) of s. 2(47) are satisfied in this case and therefore, it has to be inferred that a 'transfer' did take place within the meaning of s. 2(47)(v). The argument that the deeds in respect of the sale of flats were not registered/executed is not a relevant consideration so far as provisions of sub-cl. (v) of s. 2(47) are concerned. The completion of 'transfer' of an immovable property as per the general law is not a requirement for the applicability of the provisions of the sub cl. (v) of s. 2(47). Thus, this ground is dismissed.
31. In the result, assessee's appeal is dismissed.
Promita *In favour of revenue.
IT-Disallowance for TDS default under sec. 194C can't be invoked without ascertaining the existence of a contract
IT: Without ascertaining whether assessee itself had carried on transportation contract or merely sub-contracted same, mischief of section 40(a)(ia), read with section 194C, is not attracted
IT: Addition under section 40A(3) as well as 40(a)(ia) cannot be made simultaneously on same amount
■■■
[2013] 34 taxmann.com 35 (Kolkata - Trib.)
IN THE ITAT KOLKATA BENCH 'A'
Ghosh & Chakraborty Transport
v.
Income-tax Officer, Ward - 2(1), Asansol*
Mahavir Singh, JUDICIAL MEMBER
AND C.D. RAO, ACCOUNTANT MEMBER
AND C.D. RAO, ACCOUNTANT MEMBER
IT Appeal No. 1604 (Kol.) of 2009
[ASSESSMENT YEAR 2006-07]
[ASSESSMENT YEAR 2006-07]
SEPTEMBER 1, 2011
Section 194C, read with section 40(a)(ia), of the Income-tax Act, 1961 - Deduction of tax at source - Contractors/sub-contractors, payment to [Conditions precedent] - Assessment year 2006-07 - Assessee-firm was a transport sub-contractor, it took on hire several trucks/dumpers for executing work order undertaken from its contractor - Assessing Officer disallowed transport hire charges claimed by assessee for failure to deduct tax at source under section 194C - Whether where revenue had not ascertained whether assessee carried on transportation work order issued by contractor on its own by engaging vehicles and incurred expenses or merely sub-contracted work to vehicle owners, no disallowance could be made as mischief of provisions of section 40(a)(ia), read with section 194C, is attracted in case of contract/sub-contract only - Held, yes [Para 6] [Matter remanded]
Section 40A(3), read with section 40(a)(ia), of the Income-tax Act, 1961 - Business disallowance - Cash payment exceeding prescribed limits [Vis-a-vis section 40(a)(ia)] - Assessment year 2006-07 - Whether addition cannot be made simultaneously on same amount by applying provisions of section 40A(3) as well as section 40(a)(ia) - Held, yes [Para 6.2] [Matter remanded]
FACTS
| ■ | The assessee-firm was a transport sub-contractor. It executed work order of transporting coal from one designated place to another and for executing such sub-contract work, it took on hire several trucks/dumpers. | |
| ■ | The assessee claimed that it had incurred truck hire expenses and vehicle running expenses of Rs. 61,65,119 and Rs. 37,81,639 respectively and debited its profit and loss account by the total sum of Rs. 99,46,758 under the head 'transport charges'. | |
| ■ | The Assessing Officer held that the assessee failed to deduct TDS under section 194C from the payment made against transport hire charges and disallowed the entire expenditure of Rs. 99,46,758 and added the same under section 40(a)(ia). | |
| ■ | On appeal, the Commissioner (Appeals) confirmed the order of Assessing Officer and further added Rs. 13,82,541 being 20 per cent of cash payment made by the assessee of Rs. 69,12,706 under section 40A(3). | |
| ■ | On second appeal: |
HELD
Mischief of section 40(a)(ia)
| ■ | The Commissioner (Appeals) has pointed out that a list containing 132 names of truck owners/drivers along with their address and amount paid to each of them has been filed, whereas before the Assessing Officer a list of 54 of such truck owners/drivers without any address etc. was filed. The Commissioner, therefore, did not Act on the list of 132 truck owners/drivers filed before him, nor the same was sent to Assessing Officer for verification at his end. | |
| ■ | There is allegation and counter allegation about submission of various details in respect of incurring of truck hire expenses and running expenses, the details of which have already been given. Further the Assessing Officer did not enquire from any of the truck owners given in the alleged incomplete list about the actual nature of transaction entered into with them by the assessee. The complete list of 132 truck owners/drivers with addresses etc. was filed before the Commissioner (Appeals). On the given facts and circumstances of the case and evidence on record, it is required to be first ascertained whether the assessee carried on the transportation work as specified in the work order on its own by engaging vehicles and incurring expenses, as claimed by the assessee, or merely sub-contracted the work to the vehicle owners so as to attract the mischief of provisions of section 40(a)(ia) read with section 194C of the Act, because the authorities below have mainly relied on the hypothesis that there was a contractual relation existed between the assessee and the truck owners for transporting goods vide work order received from assessee's contractor. | |
| ■ | In fact, the conditions precedent to attract the provision of section. 194C, as enumerated by Supreme Court in the case of Birla Cement Works v. CBDT [2001] 248 ITR 216/115 Taxman 389] are- |
| (i) | there must be a contract between the persons responsible for making payment and the contractor; | |
| (ii) | the contract must be for carrying out 'any work'; | |
| (iii) | the work is being carried out through the contractor; | |
| (iv) | the consideration for the contract should exceed Rs. 10,000 i.e., the amount fixed by section 194C and | |
| (v) | the payment is made to the contractor for the work carried out by him. |
| ■ | Authorities have not dealt with the issue in terms of the above settled position before invoking provisions of section 40(a)(ia), read with section 194C. It is for the revenue to prove that the conditions precedent to apply provisions of section 194C(2) are satisfied in the instant case so as to attract the mischief of section 40(a)(ia). [Para 6] | |
| ■ | It would meet the ends of justice if the matter is set aside to the file of Assessing Officer for re-examination and readjudication as to whether the assessee's case falls within the guidelines enumerated by the Supreme Court in the case of Birla Cement Works (supra) so as to attract provisions of section 40(a)(ia) read with section 194C. Therefore, the orders of the authorities below on this issue is set aside and the matter is restored to the file of Assessing Officer, and is directed to consider the list of 132 truck owners/drivers and make necessary enquiries by way of test-check to ascertain as to whether the assessee carried on the transportation work as specified in the work order on its own by engaging vehicles and incurring expenses or merely sub-contracted the work to the vehicle owners. The Assessing Officer is also directed to re-examine the details already on record and further evidence that may be furnished by the assessee during remand proceeding and shall provide adequate opportunity of being heard to the assessee. [Para 6.1] |
Section 40A(3) vis-a-vis section 40(a)(ia)
| ■ | The Commissioner (Appeals) has stated that there were payments by bearer cheques to 35 persons in contravention of provisions of section 40A(3) and, thus, he directed the Assessing Officer to add back the sum of Rs. 13,82,541 to the assessee's total income. It is observe that the Commissioner (Appeals) himself has upheld the disallowance of Rs. 99,46,758 under section 40(a)(ia) on account of transportation charges. The addition cannot be made simultaneously by applying provisions of section 40A(3) as well as section 40(a)(ia), which the Commissioner (Appeals) has done in this case. Such action of the Commissioner (Appeals) is not in accordance with law. Since the issue on account of disallowance under section 40(a)(ia) was already set aside to the file of the Assessing Officer and the Assessing Officer has already discussed the applicability of section 40A(3) in his order and dropped the proceedings thereof. It is considered to set aside this issue also to the file of Assessing Officer to decide afresh after giving opportunity of being heard to the assessee. [Para 6.2] |
CASES REFERRED TO
CIT v. Maharajadhiraja Kameswar Singh of Darbhanga [1933] ITR 94 (PC) (para 3), Dakeshwari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC) (para 3), ITO v. Rama Nand & Co. [1987] 163 ITR 702 (HP) (para 3), City Transport Corpn. v. ITO [2007] 13 SOT 479 (Mum.) (para 3), Mythri Transport Corpn. v. Asstt CIT [2010] 124 ITD 40 (Visakhapatnum) (para 4), Dy. CIT v. Satish Aggarwal & Co. [2010] 122 ITD 35 (Asr.) (para 4), R.R. Carrying Corpn. v. Asstt CIT [2009] 126 TTJ 240 (Ctk.) (para 4), Chandrakant-Thackar v. Asstt CIT [2011] 45 SOT 13 (Cuttack) (URO) (para 4) and Birla Cement Works v. CBDT [2001] 248 ITR 216/115 Taxman 359 (SC) (para 6)
Somnath Ghosh for the Appellant. A.K. Singh for the Respondent.
ORDER
C.D. Rao, Accountant Member - This appeal by the assessee is directed against the order of ld. C.I.T.(A), Asansol dated 19/6/2009 for assessment year 2006-07. The grounds raised in this appeal by the assessee are on two counts, first, against upholding the additions of Rs.61,65,119/- and Rs. 37,81,639/-, totalling to Rs.99,46,758/- by the ld. CI.T.(A) u/s. 40(a)(ia) r.w.s. 194C of the Act and secondly against enhancement of income by the ld. CI.T.(A) by invoking provisions of sec. 251(1)(a) of the Act to the extent of Rs.13,82,541/-, being 20% of the cash payments of Rs.69,12,706/- u/s. 40A(3) of the Act. The grounds raised by the assessee, however, read as under :-
| "I. | FOR THAT on facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) Asansol erred in upholding the impugned addition of Rs. 99,46,758/- invoking the provision of section 40(a)(ia) of the Income-tax Act, 1961 made by the Ld. Income Tax Officer, Ward 2(1), Asansol on account of alleged infringement of the provision of section 194C of the Income-tax Act, 1961 as none of the conditions precedent for such alleged action existed and/or has been complied with and/or fulfilled in the instant case and his alleged action on that behalf is ab initio void, ultra vires and null in law. | |
| II. | FOR THAT the Ld. Commissioner of Income Tax (appeals) Asansol manifestly erred in upholding the impugned addition of Rs.61,65,119/- invoking the provision of s. 40(a)(ia) of the income Tax Act, 1961 made by the Ld. Income Tax Officer, Ward 2(1), Asansol on account of alleged infringement of the provision of section 194C of the Income-tax Act, 1961 without establishing on record the applicability of such provision in the facts and circumstances of the instant case and the purported action on that behalf are absolutely arbitrary, unreasonable, infirm and perverse. | |
| III. | FOR THAT the Ld. Commissioner of Income Tax (Appeals) Asansol acted unlawfully in upholding the alleged disallowance of Rs. 37,81,639/- made by the Ld. Income Tax Officer, Ward 2(1), Asansol invoking the provision of section 40(a)(ia) of the Income-tax Act, 1961 on mere presumption and in gross violation of the provision of section 142(3) of the Income-tax Act, 1961 and the impugned findings in this regard are wholly arbitrary, unsustainable, biased, capricious, erroneous and perverse. | |
| IV. | FOR THAT the Ld. Commissioner of Income Tax (Appeals) Asansol assumed jurisdiction u/s. 251(1)(a) of the Income-tax Act, 1961 illegally and thereby entranced the income of the appellant by invoking the provisions of section 40A(3) of the Income-tax Act, 1961 without referring to the books of account of the appellant and the purported action on that behalf is ultra vires, ab initlo void and perverse. | |
| V. | FOR THAT the Ld. Income Tax Officer, Ward 2(1), Asansol was correct in law in not applying the provision of section 40A(3) of the Income Tax Act, 1961 to the impugned amounts being mere withdrawals from bank and not expenditure as required for application of section 40A(3) of the Income-tax Act, 1961 as was wrongly resorted to by the Ld. Commissioner of Income Tax (Appeals) Asansol in invoking the mischief of such provision within the scope and ambit of section 251(1)(a) of the Income-tax Act, 1961 without considering the cash book of the appellant and the impugned findings in this regard are totally wrong, infirm and perverse." |
2. The facts of the case as are that the assessee-firm is a sub-contractor to Shri Harjit Singh Talwar for transportation of coal from one designated site to another, who had obtained contract from G.S. Atwal & Co. (Engineers) Pvt. Ltd. In pursuance of its activities of carrying out transportation work under the work order undertaken from its principal Shri Harjit Singh Talwar, the assessee was required to deploy several trucks/dumpers obtained from number of truck owners on hire basis, apart from the trucks owned by either the partners of the assessee-firm or their relatives. During the assessment year under appeal, the assessee had incurred two components of expenditure for conducting its activities of transporting goods on behalf of its principal, viz., (i) expenditure on making payments for vehicles taken on hire which amounted to Rs.61,65,119/- and (ii) expenses incurred for running of such vehicles in the sum of Rs.37,81,639/-. The assessee debited the expenditure of Rs.61,65,119/- on account of vehicle hire charges paid to several vehicle owners and running cost of such vehicles of Rs.37,81,639/-, totalling to Rs.99,46,758/- under the nomenclature 'transportation charges' in its P/L Account. During the course of assessment proceedings, the A.O. issued several notices requiring the assessee to furnish documents as mentioned in those notices and the assessee also replied those notices explaining its case and furnishing documents, the copies of which are filed in the paper book at pages 27 to 55. The A.O., however, observed that the assessee although filed copies of bank account, agreement with the contractee, Sri Harjit Singh Talwar, but could not file cash book, complete details of bills/vouchers in support of expenses of Rs.37,81,939/- debited to P/L Account. He further alleged that the assessee furnished incomplete list consisting of names of truck owners and some truck numbers. However, the assessee in its written submissions filed before the A.O. on several occasions has stated that it has, inter alia, already produced/filed books of account, cash book, ledger bills, bills/vouchers etc. However, in the assessment order, the A.O. has denied such claim of the assessee in its entirety and stated that, in fact, the assessee has produced all party ledger only and some copies of bills for truck charges and some original vouchers in support of purchasing diesel for respective trucks. He has further alleged that the assessee could not produce books of account with supporting evidences in respect of the expenditure of Rs.37,81,939/- claimed to have been incurred in pursuance of its activities and hence he presumed discrepancy resulting in inflation in respect of the following expenses :-
| 1. Repairs & Maintenance | Rs. 3,15,816 | |
| 2. Fuel and lubricants | Rs.27,00,372 | |
| 3. Tyre and fittings | Rs. 60,915 | |
| 4. Running expenses | Rs. 3,43,916 | |
| 5. Drivers and helpers | Rs. 3,60,920 | Rs.37,81,939/- |
2.1. In addition to the above, the A.O. observed, as detailed on page-3 of the assessment order, that the assessee had made payments by bearer cheques to 35 persons in the total sum of Rs.75,00,761/-, out of which a sum of Rs.5,88,055/- was paid on different dates upto Rs.20,000/- and the balance cash payments exceeding Rs.20,000/- in single transaction amounted to Rs.69,12,706/-. He, therefore, show caused to the assessee as to why 20% of Rs.69,12,706/- should not be disallowed u/s. 40A(3) of the Act and added to its total income. In reply, the assessee submitted that as per cash book maintained by the assessee, none of the persons was having more than one truck or dumper given on hire and aggregate payment to each of such persons was below Rs.50,000/- during the relevant financial year and, therefore, as per provisions of sec. 194C(3) of the Act, deduction of TDS from such owners of trucks was not necessary. The A.O., however, did not separately add back 20% of Rs.69,12,706/-, being the cash payment exceeding Rs.20,000/- in one single transaction u/s. 40A(3) of the Act.
2.2. The A.O. also deputed Inspector to enquire about the business activities of the assessee-firm and as per Inspector's report, the A.O. observed that the assessee could not give complete details, i.e. names & addresses of the truck owners and numbers of the trucks engaged in its transportation business. The A.O. was not satisfied with the explanation of the assessee and found lack of evidence being filed/produced in support of the claim of the assessee. He, therefore, observed that it is clear that the assessee has paid the amount of Rs.37,81,639/- on behalf of the truck owners and had the above expenses has been incurred by the truck owners individually, the assessee had not to pay the identical amount on account of transport charges in addition to Rs.61,65,119/-. He, therefore, held that the actual transport hire charges paid by the assessee was for Rs.99,46,758/- [Rs.61,65,119 + Rs. 37,81,639] which was in contravention of provisions of sec. 194C of the Act and on such premise, the A.O. made an addition of Rs.99,46,758/- by way of disallowance u/s. 40(a)(ia) of the Act.
3. On appeal, the assessee furnished before the ld. C.I.T.(A) detail list of truck owners comprising of names of the owners, their addresses, truck Nos. and gross amount paid to each of them aggregating to Rs.61,65,119/-, a copy of which has also been filed in the paper book at pages 21 to 26. The ld. C.I.T.(A) issued show-cause notices u/s. 251(2) of the Act (pages 11 to 13 of the paper book) and the assessee filed its written submission, which is also placed at pages 14 to 20 of the paper book, wherein the assessee has explained as to why its case shall not fall under the mischief of sec. 40(1)(ia) of the Act r.w.s. 194C of the Act. In its submission before the ld. C.I.T.(A), the assessee submitted that the assessee paid transport charges of Rs.61,65,119/- in the assessment year under consideration to various truck owners, which are evidenced by the ledger of each parties. The details of disbursement of transport charges were filed before the A.O. containing names of truck owners/drivers, their addresses, registration Nos. of the vehicles and the gross amount received. The A.O. abdicated his duties of issuing summons to the persons concerned and making enquiries as per power conferred upon him by the statute. It was further submitted that provision of sec. 40(a)(ia) of the Act attracts where tax is not deducted as per sec. 194C(2) of the Act on payment to sub-contractors, which includes supply of labour for carrying out any work. In the instant case, the assessee itself is a transport sub-contractor will be evidenced by the TDS certificate issued by the contractor, Sri Harjit Singh Talwar. Therefore, it is not the requirement in law that the payments of transport charges if paid by a sub-contractor to a truck owner/driver will attract disallowance u/s. 40(a)(ia) of the Act and as such the genuine business expenditure by way of truck hire charges cannot be regarded as income of the assessee. It was further submitted before the ld. C.I.T.(A) that admittedly there was no contract/agreement entered into between the assessee and the truck owners and as such the finding of the A.O. to disallow the expenses without proving existence of any such contract has no validity in the eye of law. It was further contended that the assessee did not engage any truck owner or driver under any contract or agreement to execute the work order given by the assessee's principal, Sri Harjit Singh Talwar and further the truck owners/drivers have no locus standi as contractors. Therefore, the conditions precedent to attract the provisions of sec. 194C of the Act are totally missing in the case of the assessee. It was, therefore, submitted that the assessee had no legal liability to deduct tax at source u/s. 194C of the Act and as such the alleged invocation of sec. 40(a)(ia) of the Act in the instant case is ultra vires the scope and ambit of such enactment. In support of the submissions, the assessee relied on the decisions in the cases of (i) CIT v. Maharajadhiraja Kameswar Singh of Darbhanga [1933] 1 I.T.R.94 (PC); (ii) Dakeshwari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC); (iii) ITO v. Rama Nand & Co. [1987] [163 ITR 702 (HP)] and (iv) City Transport Corpn. v. ITO [2007] 13 SOT 479 (Mum).
3.1. After considering the submissions of the assessee, the ld. C.I.T.(A) at the outset opined that the assessee has not produced the books of accounts, bills/vouchers, complete postal addresses of the truckers etc. before the A.O. and the assessee did not enable the A.O. to verify the correctness and completeness of books of account as well as the submissions made by the assessee. He further rejected the submission and/or explanation of the assessee about non-application of provisions of sec. 40(a)(ia) r.w.s. 194C of the Act on the facts of the assessee's case. He pointed out that before the A.O. the assessee has furnished list of 54 truck owners/drivers, whereas before him the assessee has filed such list of such 132 truck owners/drivers. He, therefore, did not accept the list, over & above 54 names, produced before him and treated the same as an Act of afterthought and hence incorrect. According to him further, the list produced before him to bring down the truck payments below Rs. 50,000/- in F.Y. 2005-06 was not reliable because it was prepared for keeping the assessee outside the ambit of provisions of sec. 40(a)(ia) r.w.s. 194C of the Act. He has also held that the assessee was having dual status - in one status it was a sub-contractor of its contractor Sri Harjit Singh Talwar and in other status it was a contractor of the truck owners/drivers (on behalf of the truck owners), who were the sub-contractors of the assessee for the works contract between the assessee and them. He, therefore, held that the A.O. has rightly invoked the provisions of sec. 40(a)(ia) r.w.s. 194C of the Act for making the disallowance of Rs.61,65,119/- on account of truck hire charges and Rs.37,81,636/- on account of running expenses of the hired out vehicles, aggregating to Rs.99,46,758/-.
3.2. He has also resorted to further disallowance of Rs.13,82,541/- being 20% of Rs.69,12,706/- and thereby enhanced the total assessed income by the said amount by applying the provisions of sec. 40A(3) of the Act and by invoking provisions of sec. 251(1)(a) of the Act as, according to him, the A.O. has failed to make disallowance u/s. 40A(3) of the Act for payments made to 35 persons by bearer cheques exceeding Rs.20,000/-. It was contended by the assessee before the ld. C.I.T.(A) that amounts were withdrawn by several persons including partners of the assessee-firm from banks through bearer cheques. These withdrawals from the banks were not the expenditure incurred by the assessee and, therefore, the A.O. has rightly appreciated that provisions of sec. 40A(3) of the Act are not attracted and no addition was made on this account. However, the ld. C.I.T.(A) directed the A.O. to enhance the assessee's income by further sum of Rs. 13,82,541/- for alleged violation of provisions of sec. 40A(3) of the Act.
4. At the time of hearing before us, the ld. counsel for the assessee reiterated the arguments made before the ld. C.I.T.(A). He further submitted that the assessee is a transport sub-contractor of Sri Harjit Singh Talwar and according to the work order, the assessee only transported coal from one designated place to another. The loading & unloading of the goods transported were done by the principal himself. To get this work order done, the assessee hired out empty trucks/dumpers on payment of hire charges of Rs.61,65,119/- and all running expenses on such hired out vehicles were incurred by the assessee on its own which amounted to Rs.37,81,639/-. These expenses were combinedly debited in the P/L Account as transport charges. The payments received by the assessee in execution of work order issued by Sri Harjit Singh Talwar were subject to TDS, as would be evident from page-70 of the paper book. He further submitted that detailed list of truck owners from whom the assessee hired out vehicles and other documents in regard to running expenses on such vehicles were produced/furnished before the A.O. as well as before the ld. C.I.T.(A). Referring to replies in response to notices issued by the A.O., placed in the paper book, the ld. counsel submitted that books of account, cash book, bills/vouchers etc. were produced/filed before the A.O. Without appreciating all these evidences, the revenue authorities have proceed with a preconceived notion that the assessee being a contractor gave transport sub-contract to several truck owners/drivers for execution of his work order received from Sri Harjit Singh Talwar. Nothing has been brought on record by the Revenue to establish that manpower was also provided along with hired out trucks by the owners and running costs have been incurred by them. He further submitted that the assessee alone under its control and supervision had executed the entire work order undertaken from its principal and the vehicle owners in no way were responsible for all the Acts and defaults committed in executing such work and they have simply placed their vehicles on hire at the disposal of the assessee without involving themselves in carrying out any part of the work undertaken by the assessee. He, therefore, submitted that the assessee was not liable to deduct tax at source as per the provisions of sec. 194C(2) of the Act on payment of vehicle hire charges and in such circumstances provisions of sec. 40(a)(ia) of the Act would not apply to the case of the assessee. In support of his submissions, the ld. counsel relied on several decisions, copies of which have been filed before us, and some of them are - (i) Mythri Transport Corpn. v. Asstt CIT [2010] 124 ITD 40 (Vishakhapatnam) (ii) Dy CIT v. Satish Aggarwal & Co. [2010] 102 ITD 35 (Asr.) (iii) R.R.Carrying Corpn. v. Asstt CIT [2009] 126 TTJ 240 (Ctk.) (iv) Chandrakant Thackar v. AssttCIT [2011] 45 SOT 13 (Cuttack) (URO). He, therefore, submitted that the disallowance made of Rs. 99,46,758/- u/s. 40(a)(ia) of the Act being contrary to law should be deleted.
In regard to ld. C.I.T.(A)'s action in enhancing the income by Rs.13,82,541/- being 20% of Rs.69,12,706/- alleging violation of provisions of sec. 40A(3) of the Act, the ld. counsel submitted that such sum was merely withdrawal from bank accounts and not expenditure and as such the provisions of sec. 40A(3) of the Act are not applicable. He further submitted that the allegation of ld. C.I.T.(A) that the withdrawals from bank were made by way of payment to truck owners for hire charges is on baseless presumption, because these withdrawals had nothing to do with the payments of hire charges to truck owners. He further submitted that the assessee's bank was situated at Asansol, which was far away from the assessee's place of operation and as a matter of convention followed, the assessee used to request the persons including its drivers etc. to encash the bearer cheques from the bank and to deliver the cash on their return at the assessee's place. Without linking such withdrawal with any expenditure in cash exceeding Rs.20,000/-, the ld. C.I.T.(A) has wrongly assumed power u/s. 251(1)(a) and thus arbitrarily invoked provisions of sec. 40A(3) of the Act. He, therefore, submitted that the disallowance made on that account by enhancing the income of Rs.13,82,541/- should be quashed.
5. On the other hand, the ld. Departmental Representative relied on the order of ld. C.I.T.(A). He has further submitted that the ld. C.I.T.(A) has elaborately dealt with the issues involved in this appeal in great detail and justifiably upheld the action of the A.O. in making addition of Rs.99,46,758/- by invoking provisions of sec. 40(a)(ia) of the Act. He has further submitted that the A.O. although discussed in his assessment order about violation of provisions of sec. 40A(3) of the Act by the assessee, but he omitted to ultimately add back the amount of Rs. 13,82,541/- being 20% of Rs.69,12,706/-. According to him, therefore, the ld. C.I.T.(A) has rightly enhanced the assessee's income by the said amount of Rs.13,82,541/-, which should be upheld.
6. We have heard the parties and perused the material placed on record. There is no dispute to the fact that the assessee is a transport sub-contractor. During the assessment year under consideration, the assessee executed work order of transporting coal from one designated place to another, issued by assessee's contractor Sri Harjit Singh Talwar. The assessee for executing such sub-contract work took on hire several trucks/dumpers and incurred truck hire expenses of Rs.61,65,119/-. The assessee also claimed that it had incurred vehicle running expenses under different heads of expenditure in the total sum of Rs.37,81,639/- and thus debited its P/L Account by the total sum of Rs.99,46,758/- under the head 'transport charges'. According to the Revenue authorities, the assessee executed its transportation work received from Sri Harjit Singh Talwar through several truck owners/drivers under sub-contract with them and the assessee as per provisions of sec. 194C(2) of the Act failed to deduct TDS from the payments made to them. Hence the authorities below disallowed the entire expenditure of Rs.99,46,758/- and added the same u/s. 40(a)(ia) of the Act to its total income. We observe that the A.O. in his assessment order has stated that in spite of opportunity provided, the assessee could only file incomplete list consisting of names of truck owners and some truck numbers. It is further alleged by the A.O. that books of account, cash book and bills/vouchers in support of the entire expenditure could not be produced by the assessee to substantiate the expenses incurred. The ld. C.I.T.(A) has pointed out that a list containing 132 names of truck owners/drivers along with their address and amount paid to each of them has been filed, whereas before the A.O. a list of 54 of such truck owners/drivers without any address etc. was filed. The ld. C.I.T., therefore, did not Act on the list of 132 truck owners/drivers filed before him, nor the same was sent to A.O. for verification at his end. A copy of the above list of 132 truck owners/drivers has also been filed in the paper book at pages 21 to 26. On perusal of the orders of the authorities below and documents filed by the assessee before them as well as before us in the paper book, we observe that there is allegation and counter allegation about submission of various details in respect of incurring of truck hire expenses and running expenses, the details of which have already been given above. We further observe that the A.O. did not enquire from any of the truck owners about the actual nature of transaction entered into with them by the assessee. The complete list of 132 truck owners/drivers with addresses etc. was filed before the ld. C.I.T.(A), which has been made annexure to his impugned appellate order. On the given facts and circumstances of the case and evidence on record, it is required to be first ascertained whether the assessee carried on the transportation work as specified in the work order on its own by engaging vehicles and incurring expenses, as claimed by the assessee, or merely sub-contracted the work to the vehicle owners so as to attract the mischief of provisions of sec. 40(a)(ia) r.w.s. 194C of the Act, because the authorities below have mainly relied on the hypothesis that there was a contractual relation existed between the assessee and the truck owners for transporting goods wide work order received from Sri Harjit Singh Talwar. In fact, the conditions precedent to attract the provision of sec. 194C of the Act, as enumerated by Hon'ble Supreme Court in the case of Birla Cement Works v. CBDT [2001] 248 ITR 216/115 Taxman 359 are - i) there must be a contract between the persons responsible for making payment and the contractor; ii) the contract must be for carrying out 'any work'; iii) the work is being carried out through the contractor; iv) the consideration for the contract should exceed Rs. 10,000/- i.e. the amount fixed by sec. 194C of the Act and v) the payment is made to the contractor for the work carried out by him. On perusal of the orders of the authorities below, we are of the considered opinion that they have not dealt with the issue in terms of the above settled position before invoking provisions of sec. 40(a)(ia) r.w.s. 194C of the Act. It is for the revenue to prove that the conditions precedent to apply provisions of sec. 194C(2) of the Act are satisfied in the instant case so as to attract the mischief of sec. 40(a)(ia) of the Act.
6.1. Considering the totality of the facts and circumstances of the case, we are of the considered opinion that it would meet the ends of justice if the matter is set aside to the file of A.O. for re-examination and readjudication as to whether the assessee's case falls within the guidelines enumerated by the Hon'ble Supreme Court in the case of Birla Cement Works (supra) so as to attract provisions of sec. 40(a)(ia) r.w.s. 194C of the Act. We, therefore, set aside the orders of the authorities below on this issue and restore the matter to the file of A.O., who is directed to consider the list of 132 truck owners/drivers and make necessary enquiries by way of test-check to ascertain as to whether the assessee carried on the transportation work as specified in the work order on its own by engaging vehicles and incurring expenses or merely sub-contracted the work to the vehicle owners. It is pertinent to mention here that although the revenue authorities have doubted the quantum of expenditure of Rs.37,81,639/- claimed to have been incurred on truck running expenses and presumed the same to be inflatory, but at the same time they have added the said amount with the truck hire expenses for adding the sum of Rs.99,46,758/- u/s 40(a)(ia) of the Act. In this view of the matter, the A.O. is also directed to re-examine the details already on record and further evidence that may be furnished by the assessee during remand proceeding. Needless to mention, the A.O. shall provide adequate opportunity of being heard to the assessee.
6.2. The assessee has also objected the enhancement of income by the ld. C.I.T.(A) by invoking provisions of sec. 251(1)(a) of the Act to the extent of Rs.13,82,541/-, being 20% of the cash payments of Rs.69,12,706/- u/s. 40A(3) of the Act. We observe that although the A.O. has discussed this issue in his assessment order, but ultimately did not separately add the said amount to the total income of the assessee. However, the ld. C.I.T.(A) has stated that there were payments by bearer cheques to 35 persons, as detailed on page-3 of the assessment order in contravention of provisions of sec.40A(3) of the Act and thus he directed the A.O. to add back the sum of Rs.13,82,541/- to the assessee's total income. We observe that the ld. C.I.T.(A) himself has upheld the disallowance of Rs.99,46,758/- u/s. 40(a)(ia) of the Act on account of transportation charges. We are of the view that the addition cannot be made simultaneously by applying provisions of sec. 40A(3) as well as sec. 40(a)(ia) of the Act, which the ld. C.I.T.(A) has done in this case. Such action of the ld. C.I.T.(A) is not in accordance with law. Since we have already set aside the issue on account of disallowance u/s. 40(a)(ia) of the Act to the file of the ld. A.O. and the ld. A.O. has already discussed the applicability of sec. 40A(3) of the Act in his order and dropped the proceedings thereof, we consider it to set aside this issue also to the file of ld. A.O. to decide afresh after giving opportunity of being heard to the assessee.
7. In the result, the appeal of the assessee is allowed for statistical purposes.
SB *Matter remanded.
Thanks & Regards,
CA AMRESH VASHISHT, FCA, LLB, DISA (ICA__._,_.___
No comments:
Post a Comment