TMI Blog2015 (1) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly paid to the concerned bank towards discharge of the debt as per OTS as claimed by the assessee. Moreover, it is not in dispute that the amount claimed to have been paid by the company/firm towards OTS originated from the unsecured loan claimed to have been availed through the personal accounts of the directors/partners. In these circumstances, assessee's claim that the bank has appropriated the sale consideration towards discharge of debt as per the OTS, in our view, is not acceptable. There is no direct nexus between the receipt of the sale consideration and payment made to the bank towards discharge of the debt. Moreover, it is a fact on record that the unsecured loan of the amount claimed to have been received from the directors has been disbelieved by the Department while completing assessment in case of M/s Hoe Leather Garments Pvt. Ltd. and additions were made u/s. 68 of the Act which also stand confirmed. Therefore, in a sense the claim of unsecured loans from the directors of the amount utilised towards discharge of debt has also not been accepted by the Department. In these circumstances, assessee's claim that since the entire sale consideration was utilised towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that assessee during the relevant previous year has sold a property situated at H. No. 8-2-678, Road No. 12, Banjara Hills, Hyderabad by registered Sale Deed No. 2540/05 dated 23.6.2005 for a consideration of ₹ 1,09,50,000. However, assessee has not offered to tax capital gains arising out of such sale transaction. Accordingly, AO called upon assessee to explain reasons for not disclosing capital gain. Assessee in his reply submitted that capital gain was not declared only because sale proceeds of the property has not come to their hands and the same has been paid to State Bank of India who appropriated sale proceeds towards dues of a company and a partnership firm respectively where assessee is one of the directors and a partner. Thus, it was submitted that the sale transaction will not attract any capital gain tax. Assessing Officer after verifying the facts and materials on record noticed that though assessee claimed that the entire sale consideration was appropriated by the bank towards dues outstanding in the name of M/s Hoe Leather Garments Pvt. Ltd. in which assessee is a director. However, on perusal of the bank account maintained by assessee with State Bank of Hyder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank became NPA as the company could not even make interest payment and the bank also initiated recovery proceedings by referring matter to Debt Recovery Tribunal, by claiming principal along with interest as on 31.3.2003 at ₹ 3,31,79,343. Similar proceeding was also initiated by bank against the partnership firm M/s. Hansa Overseas Enterprises for recovery of ₹ 4,47,84,511. Thus the total amount due to bank was to the tune of ₹ 7,79,60.854. Proposal for one time settlement was accepted by bank authorities on 28.12.2006 by settling the amount payable at ₹ 3.5 crores i.e., ₹ 2.85 crores for M/s Hoe Leather Garments Pvt. Ltd. and ₹ 75 lakhs for M/s. Hansa Overseas Enterprises which was also accepted by the concerns. It was submitted, in terms with the onetime settlement scheme (OTS) assessee along with his brother and mother made payment through their individual accounts details of which were reflected in books of M/s Hoe Leather Garments Pvt. Ltd. and M/s. Hansa Overseas Enterprises. It was submitted that those two concerns have also offered the amount waived by the bank on OTS as income from other sources. It was also submitted by assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no indication that sale consideration was either paid to the bank directly or appropriated by the bank directly so as to make the sale consideration eligible for deduction u/s. 48. The learned CIT(A) observed that unlike the decision relied upon by the assessee in assessee's case sale consideration was not paid directly to the mortgagee bank and more over property was directly sold by the assessee regardless of OTS and the mortgage in force. Hence, assessee s claim that sale consideration received should be allowed as deduction u/s. 48(1) of the Act cannot be accepted. Further, the learned CIT(A) observed, the amount claimed to have been repaid as loan was not the liability of the assessee the liability of the company and firm in which the assessee was a director or partner. Further, the amount used for repayment of loan was credited in the books of the company as loan in the names of directors who were shown as creditors to the company. Thus, the amount paid to bank through the books of those concerns credited in the name of director cannot be treated as expense to the assessee in connection with the transfer of property. 9. Insofar as the contention of the assessee th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire sale proceeds of the property were utilised to discharge the debt of the bank as per the OTS. It was submitted, this fact was also confirmed by the bankers. The learned AR submitted that when the total sale consideration was paid to the bank in discharge of the debt, it is an allowable deduction u/s. 48(1) of the Act. In support of such contention, the learned AR relied on the following decisions: a) N. Vajrapani Naidu vs. ITO, 28 ITD 459 b) Thressiamma Abraham vs. ITO, 38 ITD 53 c) Kanti Swarup Sharma vs. ITO, 41 ITD 246 d) Addl. CIT vs. Glad Investment (P) Ltd., 102 ITD 227 e) Naozar Chenoy vs. CIT, 234 ITR 95 f) CIT vs. Abrar Alvi, 247 ITR 312 13. The learned AR submitted, where two interpretations are possible, the view favourable to the assessee is to be adopted. For such proposition, he relied upon the following decisions: a) Manish Maheshwari vs. ACIT, 289 ITR 341 b) State of AP vs. CTO Anr. , 169 ITR 564 14. The learned AR submitted that the accounting treatment in the books of M/s Hoe Leather Garments Pvt. Ltd. and M/s. Hansa Overseas Enterprises would indicate that the repayment of bank loan as per one time settlement were intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee on sale of capital asset, the same is chargeable to capital gains tax. He further submitted only the expenditures which are allowable as per the provisions contained u/s. 48(1) can be reduced while computing the capital gain from the sale consideration. As amount paid towards discharge of the debt is not a expenditure conceived u/s. 48 of the Act, the assessee will not be able to claim expenditure of the said amount. In this context, the learned DR relied upon the decision of Hon ble Supreme Court in the case of R.M. Arunachalam vs. CIT (supra) and VSNR Jagdish Chandran vs. CIT (supra). 17. We have considered the submissions of parties, perused orders of the Revenue authorities as well as other materials on record. We have also carefully examined the decisions relied upon by both the parties. Undisputedly during the relevant previous year, assessee along with his brother and mother have sold a house property at Road No. 12, Banjara Hills for a sale consideration of ₹ 1,09,50,000. There is no dispute to the fact that the property sold is a capital asset as defined u/s. 2(14) of the Act. Hence the gain derived from sale of such property would normally be assessable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of the debt, the same cannot be chargeable to capital gain, in our view, is not acceptable. Even, assuming for arguments sake that the property in question was mortgaged as a security towards the debt availed by the company and the firm, the same cannot exempt the assessee from chargeability of capital gain on the sale of the asset. The Hon ble Supreme Court in the cases of R.M. Arunachalam vs. CIT (supra) and VSNR Jagdish Chandran vs. CIT (supra) have clearly held that amount paid out of sale proceeds to clear mortgage debt cannot be treated as cost of acquisition or cost of improvement so as to reduce the same from sale consideration while computing capital gain u/s. 48 of the Act. Though the learned AR has relied upon certain decisions to contend that when there are conflicting views, the view favourable to the assessee is to be adopted. However, in the facts of the present case, the AR has not brought to our notice any decision of the Hon ble Supreme Court contrary to the view expressed by the Hon ble Supreme Court in the aforesaid decisions. Therefore, when the decision relied upon by the learned AR is not of the Hon ble Supreme Court and there are decisions of the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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