K. Govinda Reddy (HUF), V. ACIT,

ITA 1162/BANG/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5284 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-04-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 19-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN
• Keywords: Unexplained investment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, B E NGAL U R U BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER 1. ITA NO S . 1156 & 1157 / BANG/20 13 (ASSESSMENT YEAR S : 20 03 - 04 & 2004 - 05) 2. ITA NO S . 1158 & 1159/ BANG/20 13 (ASSESSMENT YEAR S : 2003 - 04 & 2004 - 05) 3. ITA NO S . 1160 & 1161/ BANG/20 13 (ASSESSMENT YEAR S : 2003 - 04 & 2004 - 05) AND 4. ITA NO.1162/BANG/2013 (ASSESSMENT YEAR: 200 3 - 04) 5 . ITA NO. 1163/ BANG/20 13 (ASSESSMENT YEAR: 2003 - 04) AND 6. ITA NO. 1164/ BANG/20 13 (ASSESSMENT YEAR: 2003 - 04) 1. K.MUNISWAMY RE DDY (HUF), 2. K.MUNISWAMY REDDY (INDL), NO.119, COCONUT GARDEN, 3 RD CROSS, NEW THIPPASANDRA, HAL II STAGE, BENGALURU - 560075. 3. K.GOVINDA REDDY (INDL.), 4. K.GOVINDA REDDY (HUF), NO.1198, RENUKA NILAYA, NEW THIPPASANDRA, HAL III STAGE , BENGALURU - 560075. 5. K.RAMESH REDDY (HUF) 6. K.RAMESH REDDY (INDL.) NO.953, SUNKAMMA NILAYAM 12 TH MAIN, HAL II STAGE, INDIRANAGAR, BENGALURU - 560038. VS. APPELLANT ASST. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 1(3), BENGALURU. ... RESPONDENT ITA NO S1156 TO 1164 /BANG/201 3 PAGE 2 OF 24 A SSESSEES BY : SHRI V.SRINIVASAN, ADVOCATE. RESPONDENT BY : SHRI G.KAMALADAR, STANDING COUNSEL DATE OF HEARING : 03/04/2017 DATE OF PRONOUNCEMENT : 07 /0 6 /2017 O R D E R PE R BENCH: ALL THESE APPEALS ARE FILED BY THE ASSESSEE DIRECTED AGAINST DIFFERENT ORDERS OF THE CIT(A) FOR DIFFERENT ASSESSM ENT YEARS. SINCE COMMON ISSUE IS INVOLVED IN ALL THESE APPEALS, WE PROCEED TO DISPOSE OF THE SAME BY WAY OF THIS COMMON ORDER. 2. FIRST, WE TAKE UP THE APPEALS BEARING ITA NOS.1158 & 1159/BANG/2013 IN THE CASE OF K.MUNISWAMY REDDY (INDL.) FOR ASSESSMENT YEARS 2003 - 04 AND 2004 - 05. 3. BRIEF FACTS OF THE CASE ARE AS UNDER: THERE IS KRISHNA REDDY, HUF OF WHICH KARTHA IS SHRI KRISHN A REDDY. THE SAID KRISHNA REDDY HAS THREE SONS VIZ., K.MUNISWAMY REDDY, K.GOVINDA REDDY AND K.RAMESH REDDY. THESE INDIVIDUALS HAVE INHERITED CERTAIN PROPERTIES THROUGH PARTITION OF KRISHNA REDDY, HUF. INCOME DERIVED FROM THESE PROPERTIES IS ASSESSED IN INDIVIDUAL CAPACITY OF THE RESPECTIVE PERSONS BY THE AO. INCOME ARISING OUT OF ABOVE PROPERTIES WAS ASSESSED BY THE AO IN THE STATUS OF INDIVIDUAL FOLLOWING THE ORDER OF THE TRIBUNAL. ITA NO S1156 TO 1164 /BANG/201 3 PAGE 3 OF 24 3. BEING AGGRIEVED AN APPEAL WAS FILED BEFORE THE CIT(A) . BY THE TIME THE ORDERS ARE PASSED BY THE CIT(A) , THE HON BLE HIGH COURT OF KARNATAKA REVERSED THE ORDER OF THE TRIBUNAL IN ITA NO.96/2009 DATED 08/12/2014 AND THE HON BLE HIGH COURT HELD THAT THE PROPERTIES ARE TO BE ASSESSED IN THE HANDS OF HUF. THEREFORE, TH E CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF THE FOLLOWING PROPERTIES: ITA NO S1156 TO 1164 /BANG/201 3 PAGE 4 OF 24 BUT IN RESPECT OF BUILDING KMR BUILDING, THE CIT(A) HELD THAT IT BELONGS TO INDIVIDUAL AS THE AR FAILED TO IDENTIFY THIS PROPERTY IN THE HUF PARTITION DEED DATED 20/04/1999. 5. BEING AGGRIEVE D , THE ASSESSEE IS BEFORE US IN ITA NO.1158/BANG/2013 FOR THE ASSESSMENT YEAR 2003 - 04 CONTENDING THAT RENTAL INCOME FROM KMR BUILDING AMOUNTING TO ITA NO S1156 TO 1164 /BANG/201 3 PAGE 5 OF 24 RS.62,500/ - CANNOT BE ASSESSED IN THE HANDS OF THE ASSESSEE IN THE STATUS OF AN INDIVIDU AL AS THE HON BLE HIGH COURT HELD THAT THIS PROPERTY BELONGS TO HUF. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING MATERIAL ON RECORD, IT IS UNDISPUTED FACT THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2003 - 03, THE HON B L E HIGH COURT T HAT THIS PROPERTY BELONGS TO HUF OF THE APPELLANT. THEREFORE, SHOULD BE ASSESSED ONLY IN THE HANDS OF THE HUF OF THE APPELLANT. HENCE, THE GROUNDS OF APPEAL FILED BY THE ASSESSEE ARE ALLOWED. 7. FOR THE ASSESSMENT YEAR 2004 - 05, APART FROM ASSESSMENT OF R ENTAL INCOME FROM KMR BUILDING, T HERE IS ONE ANOTHER ISSUE VIZ., UNEXPLAINED INVESTMENT ON ACCOUNT OF COST OF CONSTRUCTION IN RESIDENTIAL COMPLEX SITUATED AT SITE NO. 17, HASB KHATA NO.1071/448/17 KRISHNA ENCLAVE APARTMENT, LB SASTRY NAGAR, BENGALURU . THE A O MADE ADDITION OF RS.7,63,000/ - . IT IS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE PROPERTY BELONGS TO HUF AND THEREFORE, NO ADDITION CAN BE MADE IN THE INDIVIDUAL ASSESSMENT. WITHOUT PREJUDICE TO ABOVE IT IS FURTHER ARGUED THAT DIFFERENCE IN COST OF C ONSTRUCTION MADE BY THE DVO AND SHOWN BY THE ASSESSEE IS LESS THAN 10% OF THE TOTAL COST. IN THE CIRCUMSTANCES, IT IS PRAYED THAT NO ADDITION SHOULD BE MADE AND RELIANCE IN THIS REGARD WAS PLACED ON THE DECISION OF THE ITAT IN ITA NO S1156 TO 1164 /BANG/201 3 PAGE 6 OF 24 ITA NO.58/BANG/2009 DATED 16 /10/2009 IN THE CASE OF SMT.ANASUYA K NAIK. 7.1 ON APPEAL BEFORE THE CIT(A), THE CIT(A) HAD REJECTED THE CLAIM THAT THE PROPERTY BELONGS TO HUF ON THE GROUND THAT IT WAS PURCHASED IN THE NAME OF THE APPELLANT AND HIS WIFE SMT. K.RADHA AFTER PARTIT ION DEED. 7.2 IN OUR CONSIDERED OPINION, THE CIT(A) WAS NOT JUSTIFIED IN REJECTING THE SAME MERELY ON THE GROUND THAT THIS PROPERTY DOES NOT FIND A PLACE IN THE PARTITION DEED. IT IS ALWAYS POSSIBLE THAT PROPERTY CAN BE ACQUIRED OUT OF NUCLEUS OF THE FUNDS OF THE HUF IN WHICH EVENT, PROPERTY ALWAYS BELONGS TO HUF. THEREFORE, INCOME ARISING OUT OF THE PROPERTY SHOULD BE ASSESSED ONLY IN THE HANDS OF THE HUF. THUS, THE APPEALS FILED BY THE ASSESSEE VIZ. ITA NOS.1158 & 1159/BANG/2013 ARE ALLOWED. K.GO VINDA REDDY (IND L. ): (ITA NOS.1160 & 1161/BANG/2013 ASSESSMENT YEARS: 2003 & 2004 - 05): 8. GROUND NO.2 CHALLENGES ASSESSMENT OF ANNUAL VALUE OF PROPERTY AT RENUKA BANGALORE, IN THE STATUS OF THE INDIVIDUAL OF THE ASSESSEE. IT IS THE CONTENTION OF THE ASSESSEE THAT IT BELONGS TO JOINT FAMILY AND THEREFORE, SHOULD BE ASSESSED IN THE STATUS OF HUF. IN SUPPORT OF THIS, HE RELIED ON THE ORDER OF THE HON BLE HIGH COURT OF KARNATAKA PASSED FOR ASSESSMENT YEAR 2002 - 03 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 7 OF 24 WHEREIN IT WAS HELD THAT THIS PROPERTY S HOULD BE ASSESSED IN THE HANDS OF HUF ALONE. THE CLAIM OF THE ASSESSEE IS THAT THIS PROPERTY WAS PURCHASED ON 3/2/1992 OUT OF FUNDS RECEIVED PURSUANT TO PARTITION DEED OF HIS HUF. THIS CONTENTION WAS REJECTED BY THE CIT(A) HOLDING THAT THERE WAS NO DOCU MENTARY EVIDENCE IN SUPPORT OF THE PARTITION OF HUF. IT WAS URGED THAT THE ENTIRE PROPERTY WAS VACANT DURING THE YEAR. HENCE, NO ANNUAL VALUE SHOULD BE ASSESSED TO TAX. AFTER HEARING RIVAL SUBMISSIONS AND PERUSING MATERIAL ON RECORD, THERE IS NO BAR UNDER LAW TO THROW INDIVIDUAL PROPERTY INTO COMMON HOTCHPOT OF H UF , EVEN IF THE CONTENTION OF THE ASSESSEE THAT THIS PROPERTY WAS PURCHASED OUT OF FUNDS RECEIVED ON PARTITION UNDER PARTITION FROM ERSTWHILE HUF OF HIS FATHER TO BE DISBELIEVED. IN THE CIRCUMSTAN CES, WE HOLD THAT ANNUAL VALUE OF PROPERTY IS TO BE ASSESSED IN THE HANDS OF THE HUF. THUS GROUND NO.2 IS ALLOWED. 9. GROUND N O .3 CHALLENGES THE ASSESSMENT OF ANNUAL VALUE AT NO.1198, RENUKA NILAYA, HAL III STAGE , BANGALORE. IT IS CLAIMED THAT P URCHASE OF SITE AND CONSTRUCTION OF BUILDING THEREON HAVE BEEN MADE OUT OF SALE CONSIDERATION RECEIVED FROM ASSESSEE S SHARE OF FLATS IN KRISHNA APARTMENT WHICH ARE IDENTIFIED AS HUF PROPERTY. THIS CONTENTION WAS DISBELIEVED BY THE AO AS WELL AS THE CIT(A ) ON THE GROUND THAT THERE WAS NO EVIDENCE ON RECORD TO DEMONSTRATE THAT THIS LAND WAS PURCHASED ITA NO S1156 TO 1164 /BANG/201 3 PAGE 8 OF 24 AND CONSTRUCTION THEREON WAS MADE OUT OF SALE CONSIDERATION OF HUF INCOME, WHEREAS THE CONTENTION OF THE ASSESSEE IS THAT SINCE NUCLEUS OF FUNDS IS FROM HUF, S AME SHOULD BE ASSESSED IN THE HANDS OF HUF ONLY. AFTER CONSIDERING SAME, WE ARE OF THE CONSIDERED OPINION THAT IN ABSENCE OF CONTRARY EVIDENCE, EXPLANATION TENDERED IN SUPPORT OF SOURCE OF ACQUISITION OF PROPERTY SHOULD BE ACCEPTED. THEREFORE, WE HOLD THA T ANNUAL VALUE OF PROPERTY SHOULD BE ASSESSED ONLY IN THE INDIVIDUAL CAPACITY. 10. IN THE RESULT, THE BOTH THE APPEALS ARE ALLOWED. ITA NO.1164/BANG/2013 (K.RAMESH REDDY , INDL. ) : (2003 - 04) : 11 . THE ONLY GROUND OF APPEAL CHALLENGES ADDITION ON AC COUNT OF ASSESSMENT OF SHORT TERM CAPITAL GAINS OF RS.14,30,100/ - ON SALE OF PROPERTY AT SURVEY NO.39/3, DODDANAKUNDI, BENGALURU,. IT WAS STATED BEFORE THE AO THAT THIS PROPERTY WAS PURCHASED IN THE NAME OF K.MUNISWAMY REDDY OUT OF FUNDS AVAILABLE WITH ER STWHILE JOINT FAMILY OF KRISHNA REDDY. THEREFORE, IT BELONGS TO HUF. THIS VERSION WAS DISBELIEVED BY THE AO AS WELL AS THE CIT(A) IN ABSENCE OF ANY DOCUMENTARY EVIDENCE. AFTER CONSIDERING RIVAL SUBMISSIONS AND PERUSING MATERIAL ON RECORD, IT IS TRITE LA W THAT IN ABSENCE OF ANY CONTRARY EVIDENCE, EXPLANATION TENDERED BY THE ASSESSEE SHOULD E ACCEPTED. THERE IS NOTHING ON RECORD TO DISBELIEVE THE ITA NO S1156 TO 1164 /BANG/201 3 PAGE 9 OF 24 EXPLANATION TENDERED BY THE ASSESSEE. W E HOLD THAT SHORT TERM CAPITAL GAINS SHOULD BE ASSESSED ONLY IN THE HA NDS OF HUF. 12 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NOS.1156 & 1157/BANG/2013 (AY S : 2003 - 04 & 2004 - 05) (K.MUNISWAMY REDDY, HUF): ITA NO.1162/BANG/2013 (AY: 2003 - 04)(K. GOVINDA REDDY, HUF): ITA NOS.1163/BANG/2013 (AY : 2003 - 04) ( K. RAMESH REDDY, HUF): 1 3 . THE ONLY ISSUE INVOLVED IN ALL THESE APPEALS IS WHETHER ASSESSMENT CAN BE MADE ON DISRUPTED HUF WHICH IS NOT HITHERTO ASSESSED TO TAX. IT IS THE CONTENTION OF THE ASSESSEES THAT ANNUAL VALUE OF THE PROPERTY SHOULD BE ASSESSED ONLY IN THE STATUS OF HUF OF THE ASSESSEE. THIS CONTENTION HAS BEEN ACCEPTED BY HON BLE HIGH COURT OF KARNATAKA BUT IT IS THE CONTENTION OF THE ASSESSEE THAT THIS HUF WAS PARTITIONED ON 14/01/2005 WHICH WAS REGISTERED ON 12/2/2005 AND THIS UN DIVIDED FAMILY WAS NOT ASSESSED TO TAX HITHERTO. THIS ISSUE HAS COME UP BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. LAKKANNA & SONS (ITRC NO.57/1994 DATED 26/05/2005) WHEREIN IT WAS HELD THAT WHERE HUF HAS NOT BEEN ASSESSED EARLIER , ENABLING PROVISIONS OF SECTION 171 OF THE ACT CANNOT BE APPLIED TO ASSESS AFTER PARTITION IN STATUS OF HUF. THE RELEVANT PORTION OF THE JUDGMENT IS AS UNDER: ITA NO S1156 TO 1164 /BANG/201 3 PAGE 10 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 11 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 12 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 13 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 14 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 15 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 16 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 17 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 18 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 19 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 20 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 21 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 22 OF 24 ITA NO S1156 TO 1164 /BANG/201 3 PAGE 23 OF 24 IN LIGHT OF THE RATIO LAID DOWN BY THE HON BLE HIGH COUR T IN THE ABOVE CASE, SINCE HUF OF RESPECTIVE PARTIES IS ALREADY DISRUPTED, THERE CANNOT BE ANY ASSESSMENT. THEREFORE, ASSESSMENTS FRAMED IN THE PRESENT CASE ARE CANCELLED. 13. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEES ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 07 TH JUNE , 201 7 S D/ - SD/ - (VIJAY PAL RAO) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : B EN GAL URU D A T E D : 07 /0 6 /2017 SRINIVASULU, SPS ITA NO S1156 TO 1164 /BANG/201 3 PAGE 24 OF 24 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CI T(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE