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2015 (10) TMI 1746 - ITAT CHENNAI

2015 (10) TMI 1746 - ITAT CHENNAI - TMI - Reopening of assessment - enhancement of taxable income - taxation income from transfer of assets - Held that:- The impugned order of the Commissioner of Income Tax (Appeals) needs to be set aside on the reason that the Commissioner of Income Tax (Appeals) considered the income under the head "income from business" and invoked the provision of section 50C to determine the sale consideration at E64 crores on the basis of guideline adopted for stamp valuat .....

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has specific relevance with sec. 45 which provides for brining to tax on transfer of ‘capital asset’ as capital gain.

It is abundantly clear from the explanation given in circular No.8 of 2002, dated 27th Aug, 2002 that the basic intention to insert sec. 50C is for the purpose of determining full value of sale consideration for the purpose of computation of capital gains under sec. 48. The issuing of notification or circular is good guide of contemporaneous exposition of the positio .....

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icable. Being so, considering the entire facts and circumstances of this case, we are of the opinion that the Commissioner of Income Tax (Appeals) is not justified in enhancing the assessment. - I.T.A. No.623/Mds/2015 - Dated:- 11-9-2015 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For The Appellant : Shri. R. Vijayaraghavan, Advocate For The Respondent : Shri. S. Sankaralingam, IRS, CIT ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal by the .....

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it on the real estate transactions relying on the profit and loss account of the assessee. 4. The learned CIT Appeals was erred in placing reliance on the statement recorded of Shri S Nagarajan was the director of the assessee for which there is no corobrative evidence 5 The learned CIT Appeals has also erred in enhancing the assessment while correctly coming to the conclusion that the assessee was not the owner of the property. 6 The learned CIT Appeals has also erred in enhancing the assessmen .....

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ent as he has considered new source of income which was not before the Assessing Officer. As such we are collectively adjudicating all the above grounds. 3.1 The facts of the case are that the assessee is a company dealing with the real estate business. As per the information received from the internal source of the department, the case was reopened for the assessment year 2007-2008 for the following reasons: The A.R. Housing Pvt. Ltd., had purchased two properties at Adyar through Debts Recover .....

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was struck between the following parties by way of tripartite agreement entered into on 21.2.2007:- 1. Shri. Ramachandran Educational & Health Trust - Party of first part 2. M/s. Viacons Infrastructure & Environmental - Party of second part 3. M/s. A.R Housing Pvt. Ltd - Confirming party As per the tripartite agreement, the Adyar property has been sold to M/s. Vicoans Infrastructure and Environmental Engg. Pvt.Ltd., for a value of E35,42,50,000/- This property in turn was sold to Shri.Ra .....

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k, Chennai and property at Door Nos.15 and 16 , Dr.Muthulakshmi Salai, Adyar, Chennai in TS No.9/1, Block NO.21, in Urur Village, Mylapore, Triplicane Taluk, Chennai on 29.8.2001 and the DRT had subsequently registered the sale deed on 16.4.2003 & 25.7.2003 in favour of M/s A.R. Housing. It was understood that M/s A.R. Housing P. Ltd., had planned to sell the said property to M/s. Sri Ramachandra Educational & Health Trust for a consideration of E.39,50,00,000/- by way of making sale agr .....

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he money from the assessee, M/s. Sri Ramachandra Educational & Health Trust had introduced M/s Viocans Infrastructure & Environmental Engg. Pvt. Ltd. to purchase this property and this has resulted in a tripartite agreement between M/s Ramachandra Educational & Health Trust, M/s Viacons Infrastructure & Environmental Engg. Pvt. Ltd., and the assessee on 21.2.2007. The assessee was asked by the Assessing Officer to explain during the course of recording sworn statement that why th .....

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E20 Crores to the Estates of Mrs.Meerabai Dawson by way of executing a sale deed between the estates of Mrs.Meerabai Dawson and M/s Viacons Infrastructure & Environmental Engg. Pvt. Ltd., when M/s A.R. Housing P. Ltd., was holding a clear title of the property on the date of execution of sale deed, how can the sale deed be executed treating the estates of Mrs.Meerabai Dawson as the owner of the property and how come this has been accepted by the Sub-Registrar, Adyar. When this query was pos .....

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hat the estate of Mrs. Meerabai Dawson have paid the Capital Gain Tax of E 14,61,02,118/- towards the entire value of sale consideration i.e., E64,00,48,000/- and the assessee had stated that, since the entire tax of E.14,61,02,118/- had been paid on the entire sale consideration, by the Estates of Mrs.Meerabai Dawson, no tax had been paid by the assessee on the Adyar property. The contention of the assessee was not accepted by the Assessing Officer due to the reason that the said tripartite agr .....

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submitted by the assessee, it was seen that, even as per the Registered MOU before the High Court of Madras, the Court has stated that, the Memo of Compromise between M/s A.R.Housing P. Ltd., and other parties has been recorded. Nowhere, in the Memo of compromise, the Court made any declaration about the ownership of the properties either through the Court proceedings or through any other court order. Though, M/s A.R.Housing P.Ltd., was the actual owner of the Adyar property, since the Capital G .....

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ince the tax ought to have been paid by M/s. A.R. Housing P. Ltd has been paid by the Estates of Mrs. Meerabai Dawson due to various reasons a specified above, the tax which had been paid by the estates of Ms. Meerabai Dawson should be treated as the deemed income of M/s. A.R. Housing P. Ltd and should be taxed under income from Other Sources and according the income of M/s. A.R. Housing P. Ltd was computed as E14,61,02,118/- as against Nil income returned by the assessee. Aggrieved, the assesse .....

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ate proceedings, the Assessing Officer vide his letter dated 19.01.2015 has brought to his notice that the assessee had filed its return of income in response to notice u/s.148 by declaring net profit as per P & L account of E38,84,32,623 and claimed exemption under AOP. As the assessee failed to prove the existence of AOP before the Assessing Officer, the net profit admitted in the return of income needs to be taxed in the hands of the assessee either under business income or under Other So .....

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the assessee has treated M/s. Viacons Infrastructure & Environmental Engg. Pvt. Ltd. as a debtor for E30 crores as on 31.3.07 and closer of liability with Sri Ramachandra Educational & Health Trust indicates that the assessee has agreed to sell the properties for E65,67,50,000.(E30,00,00,000/- +E35,67,50,000/-). This fact was also corroborated by the sworn statement of Shri S. Nagarajan, director of the assessee company, dated 23.3.2013 recorded u/s 131 of the I.T. Act, the relevant part .....

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on tripartite agreement. The balance amount is yet to be received. Sale deed was executed on 22.02.2007. The Commissioner of Income Tax (Appeals) observed that the Assessing Officer had also brought to his knowledge that after the sale certificate issued by the DRT was declared "null and void" by the High Court of Madras, the Estate of Meerabai Dawson became the rightful owner of the property and the capital gain taxes were paid by Estate of Meerabai Dawson through a separate PAN in i .....

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Court vide its order dated 21.3.2005, the assessee has no right in the properties and when the aasessee had paid E20 crores to estate of Meerabai Dawson out of the amount of E35.42 crores received by it from Sri Ramachandra Educational & Health Trust (later this liability was owned by M/s. Viacons Infrastructure & Environmental Engg. Pvt. Ltd.), assessment on the same properties in the hands of the assessee uncalled for. 4.1 The Commissioner of Income Tax (Appeals) observed that the acc .....

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sing Officer on 14.03.2013 and the letter dated 28.01.2015 filed before the Commissioner of Income Tax (Appeals) in response to the enhancement notice issued. The fact that the assessee had received an amount more than the settled amount with Sri Ramachandra Educational & Health Trust was also evident from the statement of director of the assessee company Shri. N. Nagarajan. Out of E38,89,50,349/- received as profit on sale of properties, the assessee has disclosed net profit in the profit a .....

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y the assessee in response to enhancement notice was vague and inconsistent. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to enhance the assessment by adopting E38,84,32,623/- as income from business instead of assessing the income of E14,61,02,118/- as Income from Other Sources . With regard to the alternative claim of giving credit for the amount of taxes paid by Estate of Meerbai Dawson to the assessee company, the Commissioner of Income Tax (Appeals) observed that .....

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peal before us. 5. The ld. Authorised Representative for assessee submitted the original property was owned by Mrs. Meerabai Dawson and she had given the property as a security to the loan taken by Trivini Garments. On account of default the property was auctioned by Debts Recovery Tribunal (DRT) vide M.A. 176/2002 in OA 271 of 2001 (DRC 45/2002) vide order dated 26.07.2002 and the same was placed at page No.1 of paper book. The assessee has obtained ownership of the property owned by Mrs. Meera .....

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rder dated 6.12.2004 in O.P. No.192 of 2003 granted letter of administration which is placed on record at page no.14 of paper book. Meanwhile the assessee M/s. A.R. Housing Pvt. Ltd, entered into an agreement on 19.12.2005 to sell the property to Sri Ramachandra Educational and Health Trust for a consideration of E39.85 crores which is placed in paper book at page No.36. In view of the litigation by Executor of Mrs. Meera Bai Dawson, the said agreement of sale with Sri Ramachandra Educational &a .....

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er of appeal. The division bench of Madras High Court in W.A.Nos.972 to 974 of 2005 stayed the order of the single judge regarding cancellation of sale certificate dated 9.8.2002 vide order dated 03.05.2005 which is placed at record at page no.32 of paper book. Meanwhile the Sri Ramachandra Educational and Health Trust agreement was cancelled vide agreement dated 09.02.2007, and the same was placed at page No.48 of paper book. Thereafter, M/s. Vicoans Infrastructure entered into agreement with a .....

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o tripartite agreement with M/s. Sri Ramachandra and education and health Trust dated 21.02.2013 for the purchase of above mentioned property and towards settlement of Estate of Meerabai Dawson and the party of the second part between whom the title disputes are existing. WHEREAS, THE FIRST PART, has also entered in to negotiation with the Estate of Meerabai Dawson towards settlement who have agreed to effect the sale of the property As the vendor And Whereas the party of the first part has appr .....

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the sale deed in their favour, Whereas the party of the second part is also agreeable to the same Whereas the party of the first part agree to give compensation for non-performance in a separate agreement for the party of the second part Whereas the party of the firstpart has approached the second part to pay ₹ 5 Crores to Estate of Meerabai Dawson, along with the capital gains on the sale of the property which is estimated at Rs. .14 crores based on the prevailing guideline value of Rs . .....

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ax liability on this sale to party of the second part as the entire tax on the transaction is being paid on vendor s account to facilitate the execution of sale deed . Since the litigation was going on long time the parties decided to close the issue through Memorandum of Compromise between M/s.Viacons Infrastructure & Environmental Engineering Pvt. Ltd and the assessee and another Memorandum of Compromise entered on 22.02.2007 between estate of Meera Bai Dawson and the assessee in MOC dated .....

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ive for assessee, normally the assessee should have executed the sale deed as an owner and executor of Mrs. Meera Bai Dawson should have signed as confirming party. However, the Executors of Mrs. Meerabai Dawson citing English Law requested that unless they signed as a Vendor the benefit of capital gain taxation will not be available in UK and for repatriation to UK. Therefore the assessee agreed that Executors of Mrs. Meerabai Dawson will sign as a Vendor and the Assessee will sign as a confirm .....

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party and in Page No. 17 of the Sale deed (document No.1073 of 2007) in clause. 10 (page No.93 of paper book) pointed out Executors of Mrs.Meerabai Dawson has to pay the entire tax. The Writ Appeal against the order of Single Judge was disposed on 31.03.2009 on the basis of compromise arrangement dated 22.02.2007. 1. As per this arrangement, the Assessee is the owner on the basis of sale certificate from DRT. 2. They had agreed to pay the compensation of ₹ 5 crores to the Executor of Mrs. .....

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g to E14.61 was assessed in the hands of Executor of Mrs.Meerabai Dawson, which was paid out of the amount given by the assessee for this purpose. Now the department would like to tax E38 crores retained by the assessee. As per the compromise agreement both the assessee and Executor of Mrs. Meerabai Dawson agreed to join together and sell the property. The assessee had given E15 crores to Executor of Mrs.Meerabai Dawson to meet their tax liability. Thus, in the transaction the Executor of Mrs. M .....

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w foisted upon the Assessee credit should also be given for the E.15 crores since assessee has passed on to the Executor of Mrs.Meerabai Dawson for payment of tax. The Department cannot once again recover the tax separately from the Assessee for part of the sale consideration on which tax has been paid. In case Mrs. Meerabai Dawson is considered as owner, then the Assessee has merely agreed not to pursue the litigation. The amount retained by the Assessee should be considered as amount paid for .....

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jurisdiction. Further, he submitted that there was second reopening notice issued to the assessee on 31.03.2014. The reasons recorded for reopening the assessment u/s.147 of the I.T. Act for the assessment year under consideration is as follows:- 2. For the assessment year 2007-08, you had filed your income tax return(ITR) on 26.04.2012 admitting a Nil income in response to the notice under section 148 of the I.T. Act issued on 28.03.2012. Consequently, your case was taken for scrutiny under se .....

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a request to treat the ITR filed on 26.04.2012 vide e-filed ack 385486441260412 as the one filed in response to the notice issued under section 148 dated 31.03.2014 and also requested for the reason for issue of the above notice u/s. 148. After considering your above letter the reasons to sale the property in favour of M/s. Viacons Infrastructure and Environmental Eng. Pvt. Ltd and paid capital gains tax on the value adopted for stamp duty of ₹ 64,00,48,000/- in the name of executor of Ms .....

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on the above said property for which the assessee received ₹ 64,00,48,000/-. The capital gain on transfer of the right on the above said property works out to ₹ 37,95,95,157/- resulting in under assessment to an extent of ₹ 23,34,93,039/- (379595157-146102118). If the gain arising out of transfer of right is brought to tax there would be a tax demand of ₹ 19,33,61,150/- (including interest u/s.234A & B) as against ₹ 11,49,24020/- . Since it is failure on the pa .....

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he details as called for vide statutory notice(s) issued u/s.143(2)/142(1) of the I.T. Act 1961 dated 21.05.2014. Therefore, your case is again posted for hearing on 05.06.2014 at 3.00PM. Further, ld. Authorised Representative for assessee submitted that the above reopening was stayed by the High Court in W.P.No.28022 of 2014 and M.P. No.1 of 2014. Being so, the Commissioner of Income Tax (Appeals) wanted to do things indirectly which cannot be done directly. 6. The ld. Authorised Representative .....

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he hands of the assessee when the disputed parties agreed that Executor of Mrs. Meera Bai Dawson was the legal owner of the property and others are confirming parties. The Income Tax Department thrusted upon that the assessee is the original owner of the property and the present the assessee is liable for payment of tax. 7. On the other hand, the Departmental Representative relied on the orders of the Commissioner of Income Tax (Appeals). The ld. Departmental Representative submitted that the as .....

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2007-2008 on the basis of the following reasons. The assessee had purchased two properties at Adyar through Debts Recovery Tribunal sale on 29.8.2001 and registered it on 16.4.2003 and on 25.7.2003 respectively. On 19.12.2005, M/s A.R. Housing Pvt. Ltd., had entered into an agreement with Sri Ramachandra Educational & Health Trust for the sale of the Adyar Property for a value of ₹ 39,50,00,000/- on which Sri Ramachandra Education & Health Trust had paid a sum of Rs. .35,42,50,000 .....

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Vicoans Infrastructure and Environmental Engg. Pvt.Ltd., for a value of ₹ 35,42,50,000/- This property in turn was sold to Shri.Ramachandra Educational & Health Trust by M/s Viocans Infrastructure & Environmental Engg. Pvt. Ltd. As this transaction has not been disclosed to the Department by way of filing Return of Income, the case was reopened". Based on the above reason, notice u/s 148 was issued to the assessee on 28.3.2012. In response to that, the assessee had filed a Ret .....

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agreeing with the Assessing Officer assessed entire surplus income at E38,84,32,623/- which is the income generated from sale of impugned property. According to the Commissioner of Income Tax (Appeals), the AO requested for enhancement of taxable income and on that basis he has substituted his view in the place of the Assessing Officer. Now, the first issue for our consideration is whether the above direction of the Commissioner of Income Tax (Appeals) to the Assessing Officer is within his pow .....

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been considered by the Assessing Officer and determined in the course of assessment. However, there is a solitary but significant limitation to the power of revision, viz., that it is not open to the First Appellate Authority to introduce in the assessment a new source of income and the assessment has to be confined to those items of income which were the subject-matter of assessment. Applying the above well-settled principles of law to the facts of the instant case, we have to examine the prese .....

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lt by the Assessing Officer in the assessment year was treatment of payment of income tax by estates of Meera Bai Dawson in the hands of the assessee as assessee s income. None of the issue which was dealt by the Commissioner of Income Tax (Appeals) was considered by the Assessing Officer as seen from the records. It is evident from the order of first appellate authority that he brought into taxation income from transfer of assets. In other words, this income considered by the Commissioner of In .....

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he details were given as under:- STATEMENT OF TOTAL INCOME INCOME FROM BUSINESS Rs. Net Profit/(Loss) as per Profit and Loss A/c 38,84,32,623/- Less: AOP taxed separately 38,84,32,623/- GROSS TOTAL INCOME Nil Less: Deduction under Chapter VI-A Nil TOTAL INCOME NIL As seen from the above, the assessee had declared the net profit out of the above transactions at E38,84,32,623/- in its Profit and Loss Account and the return of income filed for the assessment year 2007- 08. As the assessee itself ha .....

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ce income, which the Assessing Officer has failed and neglected to consider certain aspects. In other words, the first appellate authority has the power to adjudicate and decide every-thing necessary to ascertain the true and correct income of the assessee. Accordingly, the proceedings before the first appellate authority cannot be restricted to only those matters considered and decided by the assessing authority. Failure on the part of the Assessing Officer to examine certain aspects can be rec .....

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, however, is that he cannot travel beyond the subject matter of assessment and return of income. It is to be noted that it is not subject matter of appeal, but the subject matter of assessment, when it is said that he cannot travel beyond the subject matter of assessment what is meant in that he cannot introduce in the assessment new source as his powers of assessment enhanced is restricted only to the income which was subject matter of consideration for the purposes of assessment by the Assess .....

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states of Meera Bai Dawson. Moreover, the powers of the Commissioner of Income Tax (Appeals) are restricted to the source of income in the return and in the assessment order. Thus, the Commissioner of Income Tax (Appeals) has fullest jurisdiction in respect of it; he can include it in the assessment, even though it was excluded by the Assessing Officer, and, naturally, when included it, he must include it under one or other head. However, in the present case, the addition on account of gain on t .....

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r:- a) A.R Housing (P) Ltd will not press any claims in respect of schedule mentioned properties whether as purchasers or otherwise in any capacity including under any sale certificate issued by DRT-1, Chennai in pursuance of OA 271 of 2001 and will withdraw Writ Appeals 972, 973 and 974 of 2005. b) The Second Party individually and jointly confirm that they have not right, title or interest in any manner whatsoever in the schedule mentioned property or in the estate of Late Mrs. Meerabai Dawson .....

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annexed hereto as Schedule C and confirm that they are not in possession of any other title deeds whatsoever pertaining to the schedule A mentioned property. e) The First party agrees that, in view of this memo of compromise the first party shall not press any criminal proceedings, contempt application or other actions against the second party individually or jointly. The first party further confirms that it has no cause of action against the second party individually or severally in future in .....

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ed property. h) Ahninesha Babu has also deposited with the purchaser the documents listed in Schedule B herein to be dealt with in any manner deemed fit by the purchaser. …………………. 11. The parties filed MOC before the Jurisdictional High Court in C.S. No.120 of 2005 and A.Nos.137, 138, 666, 667 & 1346 of 2005, wherein the High Court held as under:- Civil Suit under Order VII Rule I of C.P.C. 1908 (as amended) r/w Order IV Rule I of the O.S. Rul .....

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, vide order dated 31.03.2009, held as under:- 3. The parties confirm and agree that Vicoans Infrastructure and Environmental Engineering Private Limited is in absolute ownership, possession and enjoyment of the said properties as the purchase, having purchased, the same for proper and valid consideration, from the owners and the confirming party. The respondent, Andrew Yule & Co Ltd confirms that it has handed over vacant and peaceful possession of the property, as described in paras 2(i) f .....

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nts Welfare Association hereby confirms that it has handed over vacant and peaceful possession of the property, free of its leasehold and all other claims to the said Vicoans Infrastructure and Environmental Engineering Pvt. Limited. 6. The appellant, Respondent No.1 and Respondent Nos. 3 to 6 confirms that they have no claim against each other and against. Vicoans Infrastructure and Environmental Engineering Pvt. Limited in respect of the Schedule mentioned properties 7. The appellant and respo .....

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s, which this Hon ble Court may deem fit and proper under the circumstances of the case thus render justice. Dated at Madras on this the 27thday of March, 2009 The memo of compromise entered into between the parties is recorded and the same shall form part of this proceedings. This writ appeal is disposed of in terms of the memo of comprise. No cost. Consequently, WAMP Nos. 1787 to 1789 and 1858 of 2005 are closed. 13. Now, the Department cannot thrust upon the absolute ownership of the property .....

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essment for the second time vide notice issued u/s.148, dated 31.03.2014 recording the reasons as under:- 2. For the assessment year 2007-08, you had filed your income tax return(ITR) on 26.04.2012 admitting a Nil income in response to the notice under section 148 of the I.T. Act issued on 28.03.2012. Consequently, your case was taken for scrutiny under section 143(3) r.w.s 147 of the I.T. Act 1961 and the scrutiny assessment was completed on 03.03.2013 after assessing the total income at ₹ .....

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on 148 dated 31.03.2014 and also requested for the reason for issue of the above notice u/s. 148. After considering your above letter the reasons to sale the property in favour of M/s. Viacons Infrastructure and Environmental Eng. Pvt. Ltd and paid capital gains tax on the value adopted for stamp duty of ₹ 64,00,48,000/- in the name of executor of Ms. Meera Bai Dawson in PAN No.ALLPD 1138N. This is tax paid on the capital gain as transfer to land by the legal/real owner i.e the executor of .....

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d property works out to ₹ 37,95,95,157/- resulting in under assessment to an extent of ₹ 23,34,93,039/- (379595157-146102118). If the gain arising out of transfer of right is brought to tax there would be a tax demand of ₹ 19,33,61,150/- (including interest u/s.234A & B) as against ₹ 11,49,24020/- . Since it is failure on the part of the assessee in not truly and fully disclosing all the material facts during the course of assessment proceedings, I have reason to beli .....

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n posted for hearing on 05.06.2014 at 3.00PM . 15. Against this, the assessee filed Writ Petition before the Madras High Court, wherein the proceedings was stayed by the High Court vide its order dated 18.11.2014 in W.P.No.28022 of 2014 and MP No.1 of 2014. Meanwhile, after coming to know about the stay of second reopening by the High Court, the Assessing Officer requested the Commissioner of Income Tax (Appeals) for enhancement of taxable income. Further, we also note that u/s.251 of the Act, t .....

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d by the High Court as discussed earlier. The Assessing Officer should not have requested the Commissioner of Income Tax (Appeals) to enhance the assessment as the High Court has seized of the matter. The request made by the Assessing Officer was for collateral purpose and was not bonafide. No reason is shown as to why the Assessing Officer requested the Commissioner of Income Tax (Appeals) to enhance the assessment when the same issue was stayed by the High Court. There is no convincing reason .....

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admitted that the assessee made an income of E38,89,50,349/- on sale of property and incurred an expenditure of E5,17,726/- and thus net profit of E38,84,32,623/-. But the fact brought on record by the Commissioner of Income Tax (Appeals) in page no.6 of his order shows that the assessee stated in statement of income that the said amount was to be taxed in the hands of AOP separately. Further, even if it is admitted, the Revenue authorities cannot tax the same. The said consent of director Shri. .....

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be dealt with accordingly and the Revenue authorities normally has no jurisdiction to club holdings of persons who have a different status in the eye of law and who fill in different legal personalities in any one individual as held by the Jurisdictional High Court in the case of Mariam Aysha vs. Commissioner of Agricultural Income Tax, 104 ITR 381. 17. Irrespective of any other aspect of the matter, the impugned order of the Commissioner of Income Tax (Appeals) needs to be set aside on the rea .....

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