TMI Blog2005 (10) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 by way of capital gain on the alleged sale of 3732 shares of M/s. Leader Valves Ltd. in this Block period by relying on the alleged Sale Agreement dated 29-4-1995 without giving due consideration on flimsy grounds of the legal position that, if that be so, then the said capital gains would not be includible in the Block period within the meaning of section 158BB(1)(d). 3. That, apart from the above legal position, the ld. Assessing Officer has again erred in law and facts in including the alleged gross sale price as capital gains without giving any deduction for the cost of shares involved and then further allowing the required increase thereon by adopting the Index cost merely on presumptions. 4. That, without prejudice to the aforesaid grounds of appeal, the Assessing Officer has erred in law and facts and in issuing the notice under section 158BD dated 29-3-2001 without any legal jurisdiction and about four years after the assessment for Block period in case of Vijay Sehgal individual had been considered/completed on 31-12-1996 by wrongly relying on the general observations of the Hon'ble ITAT regarding the taxability of capital gain on the sale of shares of M/s. Leader ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch. (b) Receipt in respect of cheque No. QWW61079 dated 6-2-1995 for a sum of Rs. 66,000 being the full and final consideration of sale of 330 equity shares of M/s. Leader Valves Ltd., Jalandhar of face value of Rs. 100 each at the rate of Rs. 2000 per share. (c) Receipt issued by Shri Vijay Sehgal for a sum of Rs. 7,46,000 vide cheque No. RGL 003846 dated 1-5-1995 being the full and final consideration of sale of 3732 equity shares of M/s. Leader Valves Ltd., Jalandhar which are yet to be devolved on Shri Vijay Sehgal as minimum 1/8th share of 29860 shares of the said company standing in the name of his deceased father Sh. D.D. Sehgal. (d) An agreement dated 1-5-1995 between Mrs. Purnima Beri and Shri Vijay Sehgal (HUF), vide which Shri Vijay Sehgal had agreed to sell 3732 shares of M/s. Leader Valves Ltd. out of its share in 29860 equity shares belonging to his deceased father Sh. D.D. Sehgal in which Shri Vijay Sehgal (HUF) had a right to inherit as per Hindu Succession Act. This agreement is for a consideration of Rs. 7,46,000 which has been paid by the purchaser Smt. Purnima Beri vide cheque No. RGL 003846 dated 1-5-1995. 4. Notice under section 158BC of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by cheque." 6. The Additional CIT, Special Range, Jalandhar, giving effect to the order of the ITAT reframed the assessment of Shri Vijay Sehgal (Individual) on 27-3-2001 total undisclosed income of Shri Vijay Sehgal (Individual) for the Block period 14-1-1985 to 31-12-1995 was determined at Rs. 30,08,866 which inter alia included capital gains of Rs. 5,60,566 accruing to Shri Vijay Sehgal (Individual) on the sale of 330 shares, taking sale price of per share of Rs. 2,000. During the course of above proceedings, the assessee filed letter dated 23-3-2001 wherein he admitted that out of 5052 shares sold to Smt. Purnima Beri 4722 shares belong to Vijay Sehgal (HUF). 7. The Assessing Officer observed as regards the capital gain arising to Shri Vijay Sehgal (HUF), the ITAT, Amritsar Bench in para 45 of its order (reproduced above) directed the Assessing Officer to calculate the same and further directed that in case sale has taken place during the block period the same will be taxed in the block period. Accordingly, in view of the findings of the ITAT, submission of Shri Vijay Sehgal in the letter dated 23-3-2001 and on the basis of other relevant documents seized during the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was well within the time i.e. 31-12-1996 which indicates that the Assessing Officer had no information in respect of Shri Vijay Sehgal (HUF) on the basis of documents and material seized under section 132 in the case of Shri Vijay Sehgal (Individual). It has been mentioned by the assessee that notice under section 158BD read with section 158BC has been issued to Shri Vijay Sehgal (HUF) more than four years after the completion of the assessment proceedings under this chapter on 31-12-1996 and such an action at this stage in the case of other persons is barred by time within the provisions of this chapter. 9. In last para, it has been pleaded to drop proceedings and without prejudice to this position it was also stated that the assessee may be informed the reasons on the basis of which notice under section 158BD was issued. It has also been staled by the assessee that he should be intimated the basis on which this notice was issued. The assessee also referred to the action taken by the Addl. CIT, Special Range, Jalandhar to tax the capital gain in respect of 330 shares of M/s. Leader Valves Ltd. in the hands of Vijay Sehgal (Individual) vide order dated 25-3-2001 passed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation for initiation of proceedings under section 158BD of the Income-tax Act. It may be mentioned that the total shares were sold for Rs. 101.04 lakhs. Out of this only Rs. 10.10 lakhs were received by cheque and the balance were cash transactions. The Assessing Officer had considered that income from these transactions accruing to Shri Vijay Sehgal (Individual). However, the ITAT directed that action should be taken in case of other respective owners including Vijay Sehgal (HUF). Shri Vijay Sehgal in letter dated 23-3-2001 had accepted that out of 5052 shares sold to Smt. Purnima Beri, 4722 shares belonged to Shri Vijay Sehgal (HUF). Assessing Officer, therefore, held that the action was justified in the case of Shri Vijay Sehgal (HUF) after the receipt of the order of the ITAT and after the clarification given by Shri Vijay Sehgal. 11.2 As regards the intimation of reasons/basis for issue of notice under section 158BD of the Income-tax Act, it is relevant to reproduce section 158BD of the Income-tax Act as under:- "Where Assessing Officer is satisfied that any undisclosed income belongs to any person other than the person with respect to whom search was made under section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, to satisfy the Assessing Officer that any part of income referred to in sub-section (1) of section 158BA relate to the assessment year for which the previous year has not ended or the date of filing of return of income under subsection (1) of section 139 for any previous year has not expired and that such income or transactions relating to such income are recorded on or before the date of search or requisition in the books of account maintained in the normal course relating to such previous year. Only in such eventuality, the said income shall not be included in the block period. Assessing Officer observed that it is undisputed that assessee's case is a no account case and on this very ground assessee's case does not fall under the provisions of section 158BA(3). Further, the assessee has failed to discharge the onus and has not even filed the return in response to notice under section 158BD of the Income-tax Act. Further, only small part of the sale consideration was paid by purchaser by cheque whereas the major part was paid in cash. This shows that major part of sale consideration was not meant to be recorded anywhere and was not meant to be disclosed to the Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The seller hereby has executed and signed all documents viz. transfer deed required for the transfer of shares abovesaid in favour of the purchaser in order to smoothly transfer the title of the shares in favour of the purchasers. However, if the seller is called upon to sign fresh documents i.e. Transfer deeds etc. at a later date on account of invalidity of existing signed transfer deeds as per provisions of Companies Act, 1956 or as per provisions of other Acts as may be applicable, the purchaser hereby undertakes to sign all the documents or transfer deeds at a later date as may be required by the purchaser." Para 5 of the same agreement dated 29-4-1995, which is Annexure 'A' of the Panchnama also require a close focus and is reproduced below:- "That from the date of this agreement any rights, dividends or bonuses declared in respect of such shares shall be the property of the purchaser and the seller shall not have any right in the same. Further in case any benefit above said if comes into the hands of seller, he will immediately transfer/pass these benefits and will execute all the transfer deeds which may be required in favour of the purchasers." 14. From paras 3 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial Range, Jalandhar vide order dated 27-3-2001. 17. In view of the above discussion, the total undisclosed income of the assessee was computed by the Assessing Officer as under:- Sale price of 990 shares @ Rs. 2000 per share Rs. 19,80,000 Less: Indexed cost price of 990 shares. b 990 X 116.86 X 281 divided by 109. Rs. 2,98,250 Capital gain. Rs. 16,81,750 E As no block return has been filed, undisclosed capital gain. Rs. 16,81,750 Sale for 3,732 shares @ Rs. 2,000 per share Rs. 74,64,000 Less:(it) Cost of acquisition taken as NIL in the absence of any details filed by the assessee. NIL Capital gain Rs. 74,64,000 Undisclosed capital gain as no block return has been filed Rs. 74,64,000 r Undisclosed income of the block period. Rs. 91,45,750 18. The assessee is in appeal before us on the grounds mentioned above challenging the additions. 19. The learned counsel for the assessee argued that the search took place in the case of Shri Vijay Sehgal (Indl.) on 13-12-1995 and the block assessment order was passed in his case on 31-12-1996. He has submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction on re-appreciation. The learned counsel for the assessee further submitted that since the search was conducted on 13-12-1995, therefore, the period for filing of the return for the assessment year 1996-97 did not expire. He has further submitted that the assessee filed return of income for the assessment year 1996-97 on 22-10-1996 showing the capital gains on sale of 990 shares and paid the taxes. However, as regards the remaining shares of 3,732 held by late Shri D.D. Sehgal are concerned and sold to Smt. Purnima Beri, the assessee has filed the details in the computation of income and it was explained that since there was a dispute between the legal heirs of late Shri D.D. Sehgal, the shares could not be transferred in the name of the assessee, however, the assessee is legally entitled to get the shares as a result of Court Order. Therefore, the assessee entered into an agreement to sale of 3732 shares with Smt. Purnima Beri, when shares have not yet been allotted to him. Therefore, the capital gains would not arise on those sales. The learned counsel for the assessee submitted that since the previous year is not ended or date of filing of the return for the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench vide order dated 31-12-1998 restored the matter to the file of the Assessing Officer with the direction to look into the matter and decide the same. The learned D.R. further submitted that the ITAT, Amritsar Bench has clearly given a direction to the Assessing Officer to proceed in the matter against HUF and other shareholders regarding capital gain. The learned D.R. further submitted that the assessee also filed a letter dated 23-3-2001 before the Additional CIT, Special Range claiming therein that out of 5,052 shares, 4,722 shares belonged to the HUF i.e. 990+3732. The learned D.R. accordingly submitted that the Assessing Officer was, therefore, satisfied as per seized material available on record as well as on the submissions of the assessee before the ITAT and submissions made vide letter dated 23-3-2001 that 4,722 shares belonged to the HUF is undisclosed income, therefore, the Assessing Officer en such material was satisfied that it is a fit case to proceed under section 158BD of the Income-tax Act. The learned D.R. submitted that there is no requirement of recording satisfaction in writing as is required in other provisions of the Income-tax Act. The learned D.R., there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "158BD. Undisclosed income of any other person.-Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person and the provisions of this Chapter shall apply accordingly." 21.1 On going through the order of the ITAT, Amritsar Bench in the case of Shri Vijay Sehgal (Indl.), we find that the issue as regards the above shares was considered by the Appellate Tribunal alongwith the unexplained investment in various properties like FDRs etc. In para 7 of that order, the Tribunal has recorded alternative submission of the teamed counsel for-the-assessee regarding receipt of consideration on account of sale of shares by Shri Vijay Sehgal for and on behalf of other co-owners of the shares owned by Sehgal Family in M/s. Leader Valves Ltd. The learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken place during the block period, the same will be taxed in the block period. Regarding capital gains of other shareholders, the Appellate Tribunal directed that the Assessing Officer can take legal action as he deems fit under the facts and in the circumstances of the case. It was also directed that so far as the issue of sale price is concerned, the same will be taken at Rs. 1,01,04,000, i.e. consideration received in cash as well as by cheque. 21.2 The above direction of the Appellate Tribunal clearly prove that 330 shares were held by Shri Vijay Sehgal Individual and rest of the shares were held by the HUF. The directions of the Appellate Tribunal are, therefore, very specific to proceed against the remaining persons as regards capital gains is concerned. The issue of the sale consideration was confirmed as was admitted before the Appellate Tribunal by the learned counsel for the assessee, Shri Vijay Sehgal (Indl.). We may remind here that the cases of Individual and HUF are represented by Shri Vijay Sehgal in his Individual as well as in the capacity representing the HUF, therefore, by the submission of the learned counsel for the assessee are binding in case of the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "In other words, in a given case, where there is sufficient material to take action under section 158BD, and the Assessing Officer has not specifically recorded satisfaction, it is not a lapse which would vitiate the proceedings. The main thing to be kept in mind is that proceedings under section 158BD cannot be a fancy or ipse dixit of the Assessing Officer but it should be based upon some material evidence found in the course of search. It must be appreciated that by invoking the provisions of section 158BD, a stranger to the search proceedings is being implicated for a liability higher than normal rates of tax. Therefore, it would be in the fitness of things that the Assessing Officer demonstrates in some way his satisfaction about there being undisclosed income hidden in the search material, which as per the provision, has to be handed over to the Assessing Officer having jurisdiction over that other person. To put it straight existence of material is a sine qua non for taking action under section 158BD. If the above requirement is fulfilled in a given case, then omission to record satisfaction may not vitiate the proceedings." 21.3 Considering the above decision and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore Bench, the decision relied upon by the learned counsel for the assessee is not applicable. According to the learned DR, the Additional CIT, Special Range took up the matter initially in both the cases of Individual and HUF. Therefore, the cases of Individual and HUF fall in the Range of Additional CIT, Special Range and as per the new Scheme of assessment, he could have handed over further matter to his subordinates of the same Range. Therefore, for all practical purposes, the Assessing Officer was the same in the cases of Individual and HUF. During the search, the material in the form of agreements dated 29-4-1994 and 1-5-1994, the receipts of the amount, transfer deed etc. were found, which, prima facie, shows that the assessee had undisclosed income. The individual assessee and the HUF are represented by the same person, Shri Vijay Sehgal. Some of the shares disclosing undisclosed income were explained to be of HUF. Therefore, the assessee cannot take the benefit of such plea in order to frustrate the provisions of law. The above facts are, therefore, sufficient to hold that the Assessing Officer in the case of the searched person was satisfied from the material collected du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale consideration was not meant to be recorded anywhere and may not mean to be disclosed to the department in the normal course. We do not find any infirmity in the observations of the Assessing Officer because Shri Vijay Sehgal in the individual case disputed/agitated this issue before the ITAT, Amritsar Bench in I.T.(SS) A. No. 8(Asr.)/1997. The counsel for the assessee Shri Vijay Sehgal (Individual) also took alternative plea before the Appellate Tribunal. However, finally he took the stand before t he Bench of the Appellate Tribunal that he is authorised by the appellant, Shri Vijay Sehgal (Indl.) to state before the Bench that he has, in fact, received consideration for sale of shares held by Sehgal family from Smt. Purnima Beri. Had there not been a search, the agreement dated 29-4-1995 disclosing lull value of sale consideration would not have been disclosed to the department because original receipts for sale consideration were not of full value of sale of shares through entire sale consideration was received. Further, the agreement dated 1-5-1995 recovered show that 3,732 shares were sold on behalf of Shri Vijay Sehgal (HUF) and consideration was also received on or be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in respect of such shares shall be the property of the purchaser and the seller shall not have any right in the case. Further, in case any benefit abovesaid if comes into the hands of the seller, he will immediately transfer/pass these benefits and will execute all the Transfer Deeds which may be required in favour of the purchaser." The above paras in the agreement read with the findings of the Appellate Tribunal in the case of Shri Vijay Sehgal (Indl.), it is clear that Shri Vijay Sehgal has received the total consideration in respect of sale of shares upto the date of agreement and has, therefore, relinquished all his rights in respect of these shares. The Assessing Officer is, therefore, right in observing that even otherwise no prudent person will give all his rights until he has received full and final consideration in respect of the transaction. Even it is mentioned in the agreement dated 1-5-1995 that Shri Vijay Sehgal (HUF) has a right to inherit shares as per Hindu Succession Act, as is observed by the Assessing Officer The learned counsel for the assessee filed order of the High Court dated 2-2-1996 in the paper book in the name of Shri Narinder Kumar Sehgal and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring or enabling the enjoyment of, any immovable property." 23. The ITAT Madras Bench 'C' in the case of Beardsell Ltd. v. Jt. CIT [2002] 80 ITD 224 held: "It is well known that any right or interest in a property is as much a property. Because this property had been held under lease from 1971, it would be a capital asset within the meaning of section 2(14) of the Act. The term "transfer" is defined in section 2(47) of the Act as relating to capital asset and it includes sale, exchange, or relinquishment of the asset or extinguishment of any rights therein. The right, title etc. in the instant case was assigned in favour of the third tenant for a consideration and, therefore, it involved exchange. Consequent to such assignment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of 990 plus 3,732 shares which transactions were not recorded in books of account and other documents in normal course before search and therefore same is undisclosed income of the assessee. This point is, therefore, decided against the assessee and in favour of the Revenue. Issue No. 3: Whether in the facts and the circumstances of the case, the assessee earned capital gain in the transaction entered through agreement to sell: 27. We have held above that the assessee held the shares with full right, title and interest and, therefore, the same was capital assets, which were transferred/sold for consideration. Even before the ITAT, Amritsar Bench in the case of Shri Vijay Sehgal (Indl.) in para 45 and other paras assessee did not dispute these facts. The counsel also stated that he has no objection of taxing the same sale for capital gain. Therefore, the Assessing Officer rightly held that capital gain arises. This point is, therefore, decided against the assessee. Issue No. 4: Last question remains as to whether the assessee is entitled for deduction being cost of the shares involved in this case as per ground No. 3: 28. The Assessing Officer in para 9.3 has mentioned tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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