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2016 (6) TMI 1042 - ANDHRA PRADESH HIGH COURT

2016 (6) TMI 1042 - ANDHRA PRADESH HIGH COURT - TMI - Eligibility for deduction u/s 48 on account of loan replaying - Escaped sales consideration from capital gain tax - Held that:- No deduction can be claimed under Section 48 of the Act, even if the said amount had been utilised for repayment of the loan extended by the bank to the company and the firm. The assessment orders passed in the case of the company and the firm, and certain transactions of the company and the firm being treated as une .....

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ubject property. The fact that the Tribunal took a lenient view subsequently, by its order dated 09.10.2015, would not justify setting aside the earlier order of the Tribunal dated 14.01.2015 upholding the assessment order. Viewed from any angle, we see no error in the order of the Tribunal, much less a substantial question of law, necessitating interference in these appeals. - I.T.T.A.Nos.433, 448 & 466 of 2015 - Dated:- 7-12-2015 - SRI RAMESH RANGANATHAN AND SRI S.RAVI KUMAR, JJ. FOR THE PETIT .....

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against the order of the Income Tax Appellate Tribunal, Hyderabad in I.T.A.Nos.1386, 1387 and 1388 of 2014 dated 14.01.2015. The assessees, in these three appeals, are two brothers and their mother. They were assessed as individuals deriving income from salary, share income from M/s.Hansa Overseas Enterprises (a partnership firm) and income from other sources. Returns of income were filed by the assessees declaring certain income. While the returns were initially processed under Section 143(1) o .....

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2005 for a consideration of ₹ 1,09,50,000/- each received by their two brothers, and ₹ 1,20,48,000/-, received by their mother, totalling to ₹ 3,39,48,000/-. The assessees, however, did not offer the said sale transaction to tax under the head capital gains . The case of the assessees, before the Assessing Authority, was that the entire sale proceeds, received on the sale of the subject property, were paid to State Bank of India, and was appropriated towards the debt due to the .....

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e directors, a perusal of the bank account maintained by them, with the State Bank of Hyderabad, showed that, after receipt of the sale consideration, the amount received was kept in short term Fixed Deposits, and the interest earned thereon was also offered as income in the assessment years under consideration. In his order, the Assessing Authority held that the claim of the assessees that they did not receive the sale consideration, and the Bank had appropriated the entire sale consideration a .....

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utory provisions, loan repayment is not one of the modes which would entitle the assessees to claim deduction from chargeability to tax on capital gains. In the appeals, filed before the Commissioner (Appeals), the assessees contended that both M/s.Hansa Overseas Enterprises (a partnership firm) and M/s.Hoe Leather Garments Private Limited had availed loans from the State Bank of India as security for which, their residential house, held jointly in the names of the assessees (both the brothers a .....

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epted by these concerns; in terms of the OTS, the assessees made payment, through their individual accounts, which were reflected in the books of M/s. Hoe Leather Garments Limited and M/s. Hansa Overseas Enterprises; these two concerns had also offered the amount, waived by the Bank on the OTS, as income from other sources; in the case of M/s.Hoe Leather Garments Private Limited, ₹ 2,85,00,000/- was added to the income of the company treating the amounts, introduced in the names of the two .....

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s towards OTS as an unsecured loan and, at the same time, charging the sale consideration again in the hands of the assessees as capital gains, would amount to assessing the same income twice over; the sale consideration had been utilised for the purpose of discharging the debts of the company, that too, on a property mortgaged to the bank; and the same is allowable under Section 48(1) of the Act. In his order, the Commissioner of Income Tax (Appeals) observed that there was no connection betwee .....

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n was either paid to the bank directly, or appropriated by the bank directly, so as to make the sale consideration eligible for deduction under Section 48 of the Act; the sale consideration was not paid directly to the mortgagee bank; the property was directly sold by the assessee, regardless of the OTS and the mortgage in force; and, hence, the assessees claim, that the sale consideration received by them should be allowed as deduction under Section 48(1) of the Act, could not be accepted. The .....

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s, could not be treated as expenses incurred by the assessees in connection with the transfer of property; the assessees were independent entities different from the concerns which had availed the loans; the properties were also sold independently by their owners, irrespective of the fact that there was a mortgage or an OTS; as the sale consideration had no connection with repayment of the loan, the consideration received, from such transactions, were chargeable to tax as capital gains in the ha .....

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ved from sale of such property would normally be assessable to tax under the head capital gains ; the sale consideration, received by the assesses, was deposited into their personal bank accounts, and was kept in the form of short term fixed deposits; the interest earned on these short term fixed deposits was also offered to tax in the returns of income filed by the assessees; the property was sold much prior to the sanction of OTS by the bank, which advanced the loans to M/s.Hoe Leather Garment .....

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had appropriated the sale consideration towards discharge of the debt as per the OTS, was not acceptable; there was no direct nexus between the receipt of the sale consideration, and the payment made to the bank towards discharge of the debt; the unsecured loan, of the amount claimed to have been received from the directors, was disbelieved by the Department while completing assessment in the case of M/s. Hoe Leather Garments Private Limited, and additions were made under Section 68 of the Act w .....

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d to capital gains; the Supreme Court, in R.M.Arunachalam vs. Commissioner of Income Tax and VSNR Jagdish Chandran vs. Commissioner of Income Tax, had held that the amount paid, out of the sale proceeds, to clear the mortgage debt could not be treated as the cost of acquisition or the cost of improvement, so as to reduce the same from the sale consideration, while computing capital gains under Section 48 of the Act; and there was no infirmity in the order passed by the Commissioner of Income Tax .....

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n the form of unsecured loans, were treated as unexplained cash credits in the books of accounts of the company/firm; and, as these transactions had already been subjected to tax in the hands of the company and the firm, the same could not be subjected to tax in the hands of the individual assessees also. Learned counsel would further submit that the very fact that the Tribunal had subsequently waived the penalty, imposed by the Assessing Authority, itself proved that the Tribunal also believed .....

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