TMI Blog2020 (5) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... supra, it is needless to say that if the assessee has got the sale of property and consequently, if the money was routed through the bank account of the assessee before being finally appropriated towards the dues of M/s. PPPL, there cannot be diversion of income by overriding title and in that fact situation, capital gains tax liability would arise in assessee's hands. In the interest of justice, we, therefore, remand this issue back to the file of the A.O. for the limited purpose to verify the correct facts on the lines stated by us in the preceding para. In case after due enquiry, he finds that the assessee s case falls in the first category as discussed in para 22 supra, he shall delete the addition. The A.O. shall also afford reasonable opportunity of hearing to the assessee to explain/ substantiate the correct facts and pass a speaking order. Computation of capital gain - computation of indexed cost of acquisition - cost of acquisition of the land to the assessee or the fair market value of the land as on 01.04.1981 - HELD THAT:- Since the land was acquired before 01.04.1981, as per the provisions of the section 55(2) clause (b), the cost of acquisition of the lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see which is against the action of Ld. CIT(A) in confirming the action of AO in making addition of ₹ 1,25,42,334/- as Long Term Capital Gain (hereinafter LTCG) from sale of property when, according to assessee, there was diversion of income due to overriding title. 5. Briefly stated facts of the case as emanating from the assessment order passed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) are that in this case notice u/s. 142(1) was issued calling for submission of return, since the assessee did not file his return of income for this assessment year. The said notice u/s. 142(1) was served upon the assessee on 25.03.2010. In response, the assessee filed the return of income for the AY 2008-09 which was received by the office of the AO on 04.05.2010. In the said return the assessee had shown a total income of ₹ 58,974/-. On perusal of the return of income furnished by the assessee it was found by the AO that the assessee has shown income from salary of ₹ 1,50,000/- which was received from M/s. Pragati Printers Pvt. Ltd. (hereinafter called as M/s. PPPL ). Assessee had filed the following computation of income sheet along with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the proceedings u/s. 147 of the Act: On perusal of the details filed along with the copy of the return, it is seen that the assessee has no business activity and without any business activity, assessee cannot claim deductions of any bad debts. The copy of statement had no supporting evidences or particulars of having carried any business activity during the year or any previous years. Even after proper perusal it was found that the calculation of indexation in VIP road land is inaccurate. There were enough reasons for reopening. Thus the assessing officer had reasons to believe that the assessee has furnished inaccurate particulars and has reasons to believe that income chargeable to tax has escaped assessment for the AY 20-08-09. It is a fit case for issuance of notice u/s. 148 for proceedings u/s. 147 of the Income Tax Act, 1961. 8. Finally, a show cause notice was issued to the assessee and asking him to explain the following: i) What are the business activities that the assessee had carried out in the previous years? ii) What are the business losses that the assessee had to incur in his own business being the sole proprietor, owner of such business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee is in appeal before us in respect of LTCG in respect of two properties. 10. First we will take up the addition confirmed ofthe LTCG in respect of land at Berabari. We have heard rival submissions and gone through the facts and circumstances of the case. According to ld.AR the brief facts of the issue before us is that the assessee an individual who was the owner of the immovable property at Berabarihad mortgaged the same as secured asset (refer page 69-72) with the SBI (lender of loan) since the assessee stood as guarantor for the loan taken by a corporate entity M/s. Pragati Printers Pvt. Ltd. Further, according to ld.AR, when the loan taken by M/s. Pragati printers Ltd. was classified by the lender as a non-performing asset, the lender bank i.e. SBI issued notice dated 04.01.2007 u/s. 13(2) of Securitization Reconstruction of Finance Asset and Enforcement of Security Interest Act, 2002 (hereinafter referred to as SARFESI Act and proceeded to take possession of theassessee s immovable property at Berabari and sealed the same by SBI (refer to page 79 of paper book). Since the assessee had leased the said immovable property to the M/s. Pragati Printers Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rues to the assessee. For the aforesaid proposition of law the ld. AR relied on the following case laws : a) In the case of Addl. CIT Vs. Mohanbhai Pamabhai (1997) 165 ITR166 (SC), affirmed by Hon ble Supreme Court in Mohanbhai Pamabhai's case (supra), Hon ble Gujarat High Court have stated the position in the following words: But, section 48 shows that the transfer that is contemplated by section 45 is a transfer as a result of which consideration is received by the assessee or accrues to the assessee. Section 48 provides the mode of computation of capital gains by enacting that the income chargeable to tax as capital gain shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely: (i) expenditure incurred wholly and exclusively in connection with such transfer; and (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. The amounts specified in clauses (i) and (ii) are to be deducted from the consideration received or accruing as a result of the transfer of the capital asset for the purpose of determining the profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation of Smt. Thressiamma Abraham (the assessee) to discharge the liability of M/s. National Tyre Rubber Co. India Ltd. and there was a constructive receipt of the entire moneyby the assessee. On assessee's appeal the Tribunal held that the assessee's full ownership stood diminished by reason of transfer of interest in the property by way of mortgage and, therefore, there was expenditure incurred for the purpose of transferring the full owner hip right in the property . Against these findings of the Tribunal the revenue took up the matter in reference to Hon'ble Kerala High Court. The revenue, inter alia, contended that the assessee was not entitled to the deduction of the amount paid to Kerala Financial Corporation for discharge of mortgage as deduction under section 48(1)(a)(z) of the Act from the sale consideration because such deduction was impermissible in the light of earlier Hon ble Kerala High Court s decision in the case of Ambat Echukutty MenonVs. CIT (1978) 111 ITR 880 and the Hon ble Supreme Court decision in the case of CIT v. George Henderson Co. Ltd. [1967] 66 ITR 622. The Hon'ble Kerala High Court observed that the Tribunal appeared to have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court directed to deposit of ₹ 25,00,000 with the Registrar of this court to be kept in fixed deposit with the Allahabad Bank free from lien and all attachments until further orders of this Court. This was done in order to effectuate the transfer of the assets of these two firms after securing payment of the liability towards the Allahabad Bank in respect of one of the firms. It appears that there was but one sale comprising the assets of both the firms and the bid of one Ganesh Prasad at ₹ 3,51,00,000 was accepted as the highest bid and that the payment towards the same was made in driblets from time to time. 12. After considering the arguments of the parties Hon'ble Calcutta High Court delivered their verdict in the following words: The decision in S.R. V. Press and Publications (P.) Ltd. [2000] 241 ITR 626 (Ker.), cited by Mr. Som is also distinguishable and would have no manner of application in the present case in view of the fact that the amount was sent in that case after the receipt of the consideration by the liquidator to discharge the liability of the assessee in respect of finance received from the Karala Finance Corporation on the security o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Roshanbabu Mohammad Hussein Merchant 275 ITR 231 and Tribunal (Delhi) order in the case of ACIT Vs. Glad Investment Pvt. Ltd. 8 SOT 612. 14. Rival submission heard. We find that during the re-assessment proceedings, the assessee submitted before the A.O that the land at Beraberi belonging to the assessee, which was hypothecated by M/s Pragati Printers PvtLtd (PPPL) to SBI as a collateral security against loans taken by the said PPPL, was sold. The assessee being a shareholder and a director handed over the title deeds of the land to the said company M/s PPPL and allowed it to mortgage the land to the SBI. When M/s PPPL was unable to repay the dues being loan and interest accrued thereon, the land was sold by the bank. The Ld AR submitted that the sale proceeds were collected by the bank directly from the buyer and appropriated towards the dues from M/s PPPL, thus, the sale proceeds never reached the hands of the assessee resulting into the real income being diverted at source. 15. We note that in the case of CIT vs Sunil J. Kinariwala, 259 ITR 10 ( SC), it was held that when a third person becomes entitled to receive the amount under an obligation of the assessee, even bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that we should follow the judgment of Hon 'ble Calcutta High Court in the case of Gopee Nath Paul Sons (supra) and of Hon 'ble Kerala High Court in the case of Smt. Thressiamma Abraham (supra) in preference to the judgment of Hon 'ble Bombay High Court in the case of Roshan babu Mohammed Huseein Merchant (supra) for the following reasons: 18. We further note that the case laws relied upon by the authorities below and the Ld. DR are distinguishable on facts. In V.S.M.R. Jagadishchandranvs CIT, 227 ITR 240 (SC), it was held that where the mortgage is created by the assessee himself, benefit of cost of acquisition won't apply. Here the mortgage was created for the assessee's own benefit and the issue of diversion of income by overriding title was neither raised nor considered. 19. We also note that in the case of R.M. Arunachalamvs CIT 227 ITR 222 (SC) deals with the case of deductibility of estate duty as cost of acquisition or cost of improvement. And in the case of CIT vs. Attili N Rao, 252 ITR 880 (SC), the Hen 'ble Supreme Court held that since the immovable property belonged to the assessee, the capital gains is to be charged on the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of facts, it is revealed that the assessee s case falls in the second category, then it is application of money of the assessee for repayment of loan and then the question of diversion of fund at the source by overriding title will not apply. However, if the facts of case falls in the first category then it would be case of diversion of fund at the source by over-riding title and the decision of CIT vs. Smt. Thressiamma Abraham (supra) would be applicable. Be that as it may be. It is observed that a vide letter dated 26.05.2007, SBI has written to the buyer of the property M/s. Svarna Infrastructure Builders Pvt. Ltd (supra) to deposit the full value of the consideration with SBI, SSI Branch, Bhowanipore before signing the conveyance deed. However, the Facts are not clear. It is not clear from the document as to whether the SBI conducted the sale by Public Auction and then consideration money was deposited by the buyer directly with the bank; or the sale of property was carried out by the assessee and the sale consideration was deposited by the buyer in assessee's account as per the SBI s instruction or in the account of M/s. PPPL. From the discussion supra, it is needless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R, this deed of conveyance was furnished in the office of the AO during the course of assessment proceedings. So, according to Ld. AR, since the land was acquired before 01.04.1981, as per the provisions of the section 55(2) clause (b), the cost of acquisition of the land to the assessee or the fair market value of the land as on 01.04.1981, at the option of the assessee, could be taken to be the cost of acquisition of the land. According to Ld. AR, the Fair market value of the land was determined by the Certified Valuer₹ 8,30,000/- , which was taken to be the cost of acquisition by the assessee in his revised computation of income. It was submitted that the valuation report received from such Valuer was furnished before the AO and is attached herewith in pg. nos. 136-144 of paper book. However, according to Ld. AR, the AO has taken the cost of acquisition of the property at VIP Road as ₹ 1122, without considering the provisions of clause (b) of section 55(2) of the Income Tax Act and has indexed it by taking the indexation base at 406. Such cost inflation index purported to the F.Y. 2000-01. And it was pointed out by the Ld. AR that the AO s contention that - the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Additional District Sub Registration Office, Cossipore Dum Dum and Recorded in Book No. 1, Volume No. 48, pages 78 to 85, and the AO erred in making a factual finding that the property was purchased on 25.04.2000. And since the land was acquired before 01.04.1981, as per the provisions of the section 55(2) clause (b), the cost of acquisition of the land to the assessee or the fair market value of the land as on 01.04.1981, at the option of the assessee, could be taken to be the cost of acquisition of the land. We note that the Fair market value of the land was determined by the Certified Valuer ₹ 8,30,000/- , which was taken to be the cost of acquisition by the assessee in his revised computation of income. It is noted that the valuation report received from such Valuer was furnished before the AO and is attached herewith in pg. nos. 136-144 of paper book. Thus, we are of the opinion that the computation of indexed cost of acquisition by the AO, taking the cost of acquisition at the cost price of 15.04.1976 without considering the provisions of section 55(2) clause (b) and taking the base cost inflation index at 406 is bad in law and we direct that ₹ 8,30,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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