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TMI Blog2015 (1) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... t of long term capital gains arising out of property sold during the year under consideration. Since facts are identical in all the appeals, for the sake of convenience, we will deal with facts as involved in ITA No. 1386/Hyd/2014. 4. Briefly, facts are that assessee is an individual deriving income from salary, share income from M/s. Hansa Overseas Enterprises and also income from other sources. For the assessment year under consideration, assessee filed his return of income on 31.10.2006 declaring income of Rs. 3,34,510. Though the return was initially processed u/s. 143(1), subsequently on the basis of information available on record, Assessing Officer had reason to believe that assessee's income assessable for the year under consideration has escaped assessment. Accordingly, he reopened the assessmnt u/s. 147 of the Act by issuing notice u/s. 148 on 8.9.2011. During the assessment proceedings, Assessing Officer from the information available on record noticed 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 Rs. 1,09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at Rs. 1,00,16,340. Being aggrieved of the assessment order so passed, assessee preferred appeal before the learned CIT(A). 6. In course of hearing before the First Appellate Authority, it was submitted by assessee that he along with one Sri Syed Baqar Hasan are directors and shareholders in M/s Hoe Leather Garments Pvt. Ltd. and equal partners in a partnership firm in the name and style of M/s. Hansa Overseas Enterprises. It was submitted that both these concerns availed loan from SBI by hypothecating their residential house bearing H. No. 8-2-678, Road No. 12, Banjara Hills, Hyderabad jointly in the name of assessee, his brother Sri Syed Baqar Hasan and his mother Smt. Hoorjahan Begum. It was submitted, due to recession in market from 2002 onwards the loan with the 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 Rs. 3,31,79,343. Similar proceeding was also initiated by bank against the partnership firm M/s. Hansa Overseas Enterprises for recovery of Rs. 4,47,84,511. Thus the total amount due to bank was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H by the assessee whereas OTS arrived at between the two concerns and bank on 29.12.2005 and 28.12.2005 which indicates that the sale transaction is neither connected nor confined by the fact of mortgage of the said property to bank. 8. He observed that there is no connection between repayment of loan and as to mortgage of the property and holding of sale transaction of property, as it is clear that sale of property has taken place earlier to the OTS. He further found that the entire sale consideration received by the bank was credited to assessee's bank account and being used for repayment of loan as per OTS through books of the company, the amount was invested in FDs in the name of the assessee on which interest was also earned. Thus there 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions made before the departmental authorities, learned AR submitted before us that the property belonging to the assessee, his brother and their mother, sale consideration of which was subjected to capital gain, was hypothecated to SBI for availing financial limit by M/s Hoe Leather Garments Pvt. Ltd. and M/s. Hansa Overseas Enterprises wherein assessee and his brother respectively are directors and partners. It was submitted, as the loan account of both the concerns became NPA and the bank initiated recovery proceedings to meet the situation, assessee and his brother approached the bank to sell the hypothecated property. It was submitted, after negotiations bank accepted the proposal for OTS. Accordingly, the property was sold and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company nor in the name of the partnership firm but in the name of the individual. It was submitted that there is no direct nexus between the receipt of sale consideration and the payment made to the bank towards discharge of the debt of the company and the firm where the assessee and his brother are directors and partners, respectively. The learned DR submitted that there is also no dispute to the fact that the assessee after receiving the sale consideration had kept the same in FDs and also earned income on them. Therefore, it cannot be said that the sale of property was for the purpose of discharging debts of the company and the firm. He, therefore, submitted that as there is a gain accruing to the assessee 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 decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 discharge 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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