TMI Blog2022 (6) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee cannot claim deduction thereof from the sale consideration. In light of the above analysis and the case of CIT vs. Attili N. Rao [ 2001 (10) TMI 5 - SUPREME COURT] and CIT v. Roshanbabu Mohammed Hussein Merchant [ 2005 (1) TMI 53 - BOMBAY HIGH COURT] , which are directly and squarely applicable to the assessee s set of facts, we are of the considered view, that the said amount represents application of income and does not qualify as diversion of income by overriding title and the assessee is not entitled in the instant set of facts to claim deduction thereof from the sale consideration received on the impugned property in question. The cases relied upon by the assessee are not directly applicable to the assessee s set of facts and are distinguishable in the instant set the facts. In the result, we hold that the Ld. CIT (Appeals) has not erred in facts and law in confirming the action of the AO in disallowing the sum of ₹ 3,80,00,000/-from the sale consideration. Estimation of net profit @ 2.5% as against business loss - HELD THAT:- It is seen that the books of account were never produced either before the AO or Ld. CIT(Appeals) for their consideration. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has grievously erred in confirming STCG of Rs.3,54,44,519/- as against the loss of Rs.25,05,481/-. 3.2 That in the facts and circumstances of the case as well as in law, the ld. CIT(A) has grievously erred in not allowing the loan liability aggregating to Rs.380 lakhs owed to Cosmos Coop. Bank Ltd. The Ld. CIT(A) has failed to appreciate that the actual sale consideration accruing or arising to the appellant Was only Rs.19,06,000/- so that the appellant had correctly computed STCG. 4.1 The Ld. CIT(A) has grievously erred in law and or on facts in working out short term capital loss of Rs.30,45,512/- in respect of plant and machinery as against the loss of Rs.21,29,284/- declared in the return. 4.2 That in the facts and circumstances of the case as well as in law, the ld. CIT(A) has grievously erred in working out short term capital loss of Rs.30,45,512/- in respect of plant and machinery as against the loss of Rs.21,29,284/- declared in the return. 5.1 The Ld. CIT(A) has grievously erred in law and or on facts in confirming the rejection of book result and upholding the addition to the extent of Rs.5,55,186/- by estimating NP @ 2.5% as against the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to severe cash crunch, assessee could not repay the debt of the bank, it decided to sell the property in order to clear the bank dues. Accordingly, Cosmos Bank agreed to issue NOC for sale of this mortgaged property, provided the purchaser would repay the outstanding bank liability. Therefore, counsel for the assessee submitted that as soon as the buildings are mortgaged with the bank, the ownership rights of the appellant were reduced from full ownership rights to the rights of a mortgagor and therefore the assessee had rightly claimed deduction of this amount of ₹ 3,80,00,000/- directly paid by the purchaser M/s Sukruti Polymers directly to the bank. Further, the counsel for the assessee relied on the case of CIT v Virtual Soft System 404 ITR 409 (SC) to contend that the assessee can only be charged on the real income which can be calculated only after applying the prescribed method. The assessee also challenged the rejection of declared book loss and its substitution by net profit computed @5% of turnover of the assessee. The Ld. CIT(Appeals) rejected the assessee s arguments and held that the AO had rightly disallowed deduction of ₹ 3,80,00,000/- since it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e placed reliance on the case of Balbir Singh Maini [2017] 86 taxmann.com 94 (SC) in which it was held that this income must have been received or have 'accrued' under section 48 as a result of the transfer of the capital asset. In response, the Ld. DR submitted that the argument of the counsel for the assessee that there is diversion by overriding title is unacceptable for the simple reason that the charge of the property is self-created by the assessee company. The amount of ₹ 3,80,00,000/- is not an expense in relation to transfer of the impugned property and hence the assessee cannot claim deduction thereof while computing capital gains. It is effectively the charge on the property which the purchaser directly paid to the Cosmos Bank instead of paying it to the seller i.e. the assessee company. On the issue of rejection of the books and action of the Ld. CIT(Appeals) restricting net profit to 2.5% of the turnover, the Ld. DR submitted that since the books were not produced before the lower authorities for verification at any stage, the question of rejecting the same does not arise in the first instance. 5. We have heard the rival contentions and perused the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that price, the State deducted its dues towards 'kist' and interest due from the assessee and paid over the balance to him. The capital gain that the assessee made was on the immovable property that belonged to him. Therefore, it was on the full price realised that the capital gain and the tax thereon had to be computed. Therefore, the High Court was not correct in holding that amount realised by the sale of the assessee's interest in the property was only Rs. 4,33,960, i.e., Rs. 5,62,980 minus Rs. 1,29,020. Again, the Mumbai ITAT (TM) Bench in the case of Perfect Threads Mills V. DCIT [2020] 113 taxmann.com 384 (Mumbai - Trib.) (TM) held that where on account of non-payment of corporate loan as per agreed terms, a charge on mortgaged property was created by assessee in terms of section 13(2) of SARFAESI Act, 2002, in such a case, upon sale of property so mortgaged, assessee could not claim deduction of principal amount of loan either as expenditure under section 48 or as 'diversion of income by overriding title'. The Madras High Court in the case of Smt. D. Zeenath v. ITO [2019] 1taxmann.com 298 (Madras) held that where property was mortgaged by assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to remove the encumbrance created by the assessee himself on the property which was acquired by the assessee without any encumbrance is not allowable deduction under section 48 . [Para 14] It was not in dispute that the property on which the encumbrance was created by the assessee was acquired by the assessee free from encumbrances. Therefore, it must be said that the assessee was not entitled to the deduction of the expenditure incurred to remove the encumbrance created by the assessee herself. [Para 15] The contention that the assessee had not received a pie from the transfer and the entire sale proceeds realised on transfer of the mortgaged asset had been appropriated towards discharge of mortgage was also without any merit. When the property belonging to the assessee was sold in discharge of the mortgage created by the assessee herself, then irrespective of the amount actually received by her, the capital gain had to be computed on the full price realised (less admissible deduction) on transfer of the asset . [Para16] Therefore, repayment of the mortgage debt created by the assessee was not an expenditure incurred in connection with the transfer of mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aben K. Ghelani [2017] 79 taxmann.com 249 (Rajkot - Trib.) , the ITAT held that where assessee failed to produce relevant books of account in scrutiny assessment, Assessing Officer was justified in rejecting book results and making addition on estimation basis under section 145(3) of the Act. In the case of Zora Singh v. CIT [2008] 173 Taxman 76 (Punjab Haryana) , the Punjab and Haryana High Court held that where the assessee, failed to produce books of account and vouchers to justify expenses made against gross receipts, the Tribunal was justified in confirming estimation of 6.5% as net profit as against 1.52% shown by assessee. In our view, it is seen that the books of account were never produced either before the AO or Ld. CIT(Appeals) for their consideration. Accordingly, in absence of production of books of account, in our considered view, the Ld. CIT(Appeals) has been quite reasonable in restricting the net profit @2.5% of the total turnover. Therefore, we are of the view that Ld. CIT(Appeals) has not erred in facts and law in restricting the net profit @2.5% of the total turnover in instant set of facts. 5.7 In the result, Ground Number 5 of the assessee s appeal is di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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