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TMI Blog2002 (1) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... hased prior to such date. A note was appended below the computation of capital gains stating that the shares were sold under purchase agreement dated 26-5-1996. It was further stated that the assessee had entered into a family settlement agreement dated 6-5-1996 whereby the assessee was required to pay off the liability amounting to Rs.2.41 crores of Hotel Amir Pvt. Ltd. on transfer/sale of shares to M/s. Bhojwani Hotels Pvt. Ltd. and was entitled for net consideration after such payment. It further stated that an opportunity be given to him to compute the capital gains based on the market value of the shares as on 1-4-1981 as per the provisions of section 55(2)(b) of the Act. The Assessing Officer while processing the return under section 143(1)(a) made an adjustment by disallowing the claim of the assessee amounting to Rs.2.41 crores for the reasons given by him in para 2 of the separate sheet enclosed to the intimation sheet. The said para 2 is reproduced as under: "The mode of computation of capital gains is provided under section 48 of the Income-tax Act. Under section 48 besides cost of acquisition of the asset and cost of improvement thereto, expenditure incurred wholly an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this was the only reason for making adjustment while processing the return. He then drew our attention to the Annexure to show that the assessee had never claimed deduction of Rs.2.41 crores on account of expenditure incurred wholly and exclusively in connection with the transfer of shares. He drew our attention to the provisions of section 48 to contend that the deduction is referable to the cost of improvement. According to him, the value of shares in a private limited company would vary on the basis of increase or decrease in the liability of the company. He also drew our attention to Rule 1-D of the Wealth-tax Rules which provides the principle for valuing the unquoted shares on the basis of break-up method, According to this rule, the total liability of the company are deducted from the total value of the assets and the balance amount is divided by the total number of shares of the company. According to this formula, if the liability of the company is taken away, then definitely, the value of the shares would go up. Therefore, there was definitely improvement in the value of the shares by taking over the liability of the company. According to him, if the assessee had not ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the claim are given by the assessee. He referred to Form No. 3, in which return is filed, which provides for various requirements in connection with the income arising as capital gains. According to him, the assessee must point out the details of deduction i.e. whether it is cost of acquisition or cost of improvement or the expenditure incurred wholly and exclusively in connection with such transfer of the asset. Lastly, he drew our attention to the revise return filed by the assessee withdrawing the deduction of Rs.2.41 crores. It was pointed out by him that in the revised return this liability has been taken against the sale of shares belonging to his sons. According to him, the assessee made a false claim in the original return. 6. In reply, the learned counsel for the assessee seriously objected to the reference of the revised return filed much after the orders of the lower authorities i.e. 31-3-1999 and could not be taken into consideration as it was not a part of the return on the basis of which the adjustment was made by the Assessing Officer. Alternatively, it was contended by him that in the revised return the assessee had not give up his original claim. In this con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation. Therefore, we have to restrict ourselves to the information available before the Assessing Officer. In these premises, it is not permissible for us to consider either the material produced before us for the first time by the learned counsel for the assessee or revised return filed by the assessee recently on 31-3-1999 to which our attention was invited by the learned D.R. since all these materials were not available in the original return. Therefore, we will restrict ourselves to the statement of the income along with the Annexure filed by the assessee along with the return as held by the Bombay High Court in the case of Khatau Junkar Ltd. 8. In the present case, the return was accompanied by all papers which included 7 TDS certificates, two advance-tax challans and two papers relating to computation of total income as mentioned above. The statement of the total income refers to the computation of various incomes under various heads. We are only concerned with the income falling under the head 'Capital gains'. Under this head, the assessee has computed the capital gains at Rs.1,12,56,915 the details of which are given in Annexure 'A'. For the benefit of our order, we wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 2728341 X 305 ------------- 100 Rs. 83,21,440 -------------- Long-term capital gains: Rs.1,12,56,915 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of Amir Hotels Pvt. Ltd. In coming to this conclusion, he has taken into consideration the entire shareholding of Amir Hotels Pvt. Ltd. i.e. 12000 shares held by the entire family of the assessee as well as entire sale consideration of 12000 shares. He has also assumed that if the liability of Amir Hotels Pvt. Ltd. had not been taken by the assessee, the entire holding of the shares would have been sold at Rs.15,56,07,200. In our opinion, the CIT(A) has travelled beyond the scope of his jurisdiction. It is well-settled law that powers of the appellate authority are coterminous with that of the Assessing Officer as held by the Hon'ble Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225. The information regarding the total number of shares of Amir Hotels Pvt. Ltd., shareholding of family members of the assessee, balance-sheets of Amir Hotels Pvt. Ltd. and the total sale consideration of the shares etc. were not available in the return. Such information could not have been obtained on the basis of material enclosed with the return. He has done what the Assessing Officer could do under section 143(3) after obtaining such information from the assessee. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability. That means the shares could not have been sold unless the family dispute was settled. It was a case of a change of management which could not have been affected unless the family disputes were settled. Therefore, on the face of it, it cannot be said that taking over such liability by the assessee did not improve the value of shares. The claim of the assessee may not be sustainable on merits but such rejection could be possible only after making due enquiry into the facts of the case by resorting to procedure prescribed under section 143(2) and 143(3) of the Act and not otherwise. Therefore, it is our view that it was not a case of prima facie adjustment under section 143(1)(a). 12. The contention of the learned Sr. D.R. that the claim of the assessee was inadmissible for want of particulars as required in Form No. 3 cannot be accepted. The learned Sr. D.R. had referred to the judgment of the Bombay High Court in the case of Khatau Junkar Ltd., for the submission that where the necessary particulars are not furnished along with the return, the claim of the assessee for investment allowance could not be allowed. In our opinion, the reliance placed by him on this judgment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tel Amir Pvt. Ltd. - a closely-held company. He was holding 3069 shares of the said company. However, other shares of the said company were held by two sons of the assessee and other relatives. According to the assessee, there was a dispute in the family and the dispute was resolved by a settlement on 6-5-1996. As per the said settlement except the shares of M/s. Hotel Amir which are individually owned by the assessee as a family member and the properties were mainly divided between the two sons of the assessee. The assessee as per the terms of family settlement got right to stay in bungalow at Koregaon Park till life-time. According to the assessee, it was provided in the settlement that the assessee shall take over the liability of M/s. Hotel Amir Pvt. Ltd. which was estimated to be Rs.2.41 crores. In the computation of capital gains attached with the return, the assessee deducted a sum of Rs.2.41 crores from the sale proceeds of 3069 shares of Hotel Amir Pvt. Ltd. at Rs.14,981 at Rs.4,59,76,689 on account of 'liability of Hotel Amir Pvt. Ltd.' In the note appended to the above calculation, which has been reproduced by my learned Brother at page 7 of his order, the assessee simpl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opy of this application was also not filed along with the return of income and accordingly it was not before the Assessing Officer at the time of passing the order under section 143(1)(a) of the Act. The Company Law Board approved the above application on 10-6-1996. It is also an admitted fact the copy of this approval by the Company Law Board was not filed before the Assessing Officer along with the return of income and accordingly it was not before the Assessing Officer at the time of passing the order under section 143(1)(a) of the Act. Thus, the assessee had made a claim of Rs.2.41 crores but it was a bald claim without any supporting evidence. Even the basis on which the amount of Rs.2.41 crores was calculated was not given. It is also not clear whether it is ascertained liability or estimated liability. Simply because there was a family settlement and as per this settlement the assessee assumed some liability is no ground for allowing such liability. In the case of Kale v. Dy. Director of Consolidation AIR 1976 SC 807, it has been held that a family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made. In the case of Singareni Collieries Co. Ltd. v. Dy. CIT[1995] 52 TTJ (Hyd.) 311, the Hon'ble Hyderabad Bench 'B' of ITAT have held that the claim, which is patently inadmissible, can be disallowed by way of prima facie adjustment under section 143(1)(a) of the Act. In this case, the Hon'ble Tribunal has also considered and distinguished, the judgment of the Bombay High Court in the case of Khatau Junkar Ltd. Again, the Bombay Bench 'D' of Tribunal in the case of Mrs. Pushpa B. Sheth v. Asstt. CIT [1994] 50 ITD 314 has held that where the computation of deduction under sections 53 and 54 i.e. income from capital gain, is contrary to law, the Assessing Officer can make prima facie adjustment. In the present case, while computing the income from capital gains, the assessee has sought deduction of a huge amount of Rs.2.41 crores which on the face of it was a bogus assumed liability and accordingly was contrary to the law. Hence, the Assessing Officer was well within his rights to make prima facie adjustment by disallowing the amount of Rs.2.41 crores. Similarly, the Delhi Tribunal in the case of Ram Charan v. ACIT [1996] 58 ITD 131 has held that where the assessee made claim of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 143(1)(a). In my considered opinion, the claim of Rs.2.41 crores was a dubious claim made to hoodwink the Assessing Officer and the Assessing Officer while framing the assessment, under section 143(1)(a) rightly disallowed the same. Under the circumstances, I uphold the findings of the learned Assessing Officer and of the learned CIT(A) and dismiss the assessee's appeal. 22. In the result, the appeal is dismissed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per Shri B.L. Chhibber, Accountant Member--As there is a difference of opinion between the Judicial Member and the Accountant Member, the matter is being referred to the President of the Income-tax Appellate Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire: "Whether on the facts and in the circumstances of the case and in law, the adjustment of Rs.2.41 crores claimed by the assessee as liability of Hotel Amir Pvt. Ltd. on transfer/sale of shares to M/s. Bhojwani Hotels Pvt. Ltd. could be made by the Assessing Officer while processing the return under section 143(1)(a) of the Income-tax Act, 1961?" THIRD MEMB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, where the statute or rules requires furnishing of certain details and documents, the non-furnishing of such details or documents would disentitle the assessee to make the claim and it would be open for the Assessing Officer to disallow such claims as prima facie adjustments while making assessment under section 143(1). It is not open for the Assessing Officer to prima facie disallow a claim without giving a hearing to the assessee if the issue is debatable. If the Assessing Officer is not satisfied with the claim for deduction, or if he requires any further information or any further evidence in that connection, he is bound to follow the procedure prescribed under section 143(2) of giving a notice to the assessee. It is not open to him to disallow such a claim under section 143(1)(a). In its literal sense, 'prima facie' means on the face of it. Hence before making such an adjustment, the Assessing Officer must satisfy himself that on the basis of the return and documents accompanying it, the deduction claimed cannot be admitted. Only then, it can be disallowed under the proviso to section 143(1)(a). If any further enquiry is necessary, or if the Assessing Officer feels t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore me. On that basis, it was submitted that the observation of the learned Accountant Member that the assessee withdrawn the deduction by way of revised return was not correct. 7. I have also examined the Note which the assessee appended along with the return. The learned Judicial Member narrated the text of the Note in his order at page 7. 8. Reference was made to the decision of the Hon'ble Bombay High Court rendered in the case of Bank of America N.T. & S.A. In this case, the Hon'ble High Court found that a Note explaining why the amount was not included in the return was also attached to the return. The Assessing Officer added the amount to the total income of the assessee under section 143(1)(a). The Hon'ble High Court has held that section 143(1)(a) provides for issuance of an intimation and the first proviso thereto specifically enumerates the circumstances under which such adjustments are permissible. The amount of claim must be prima facie inadmissible on the basis of the information available in such return. Only then, disallowance is repossible. Otherwise, the amount cannot be added to the, income of the assessee under section 143(1). 9. Reference was made to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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