Syed Baqar Hasan, Hyderabad V. ITO., Ward-9(2), Hyderabad

ITA 1387/HYD/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9013 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 08-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SYED AFSAR HASAN SON
• Assessee Lawyers: D V ANJANEYULU; P PRAVALLIKA
• Keywords: Unexplained cash credit; Capital asset; Recovery proceedings; Salary income; Cost of acquisition; Reasonable cause; Reason to believe
• Section: 147; 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1386/HYD/2014 A.Y. 2006-07 SRI SYED AFSAR HASAN HYDERABAD PAN: AAMPH2176A VS. THE INCOME TAX OFFICER WARD-9(2) HYDERABAD APPELLANT RESPONDENT ITA NO. 1387/HYD/2014 A.Y. 2006-07 SRI SYED BAQAR HASAN HYDERABAD PAN: AAIPH8713R VS. THE INCOME TAX OFFICER WARD-9(2) HYDERABAD APPELLANT RESPONDENT ITA NO. 1388/HYD/2014 A.Y. 2006-07 LATE SMT. HOORJAHAN BEGUM, HYDERABAD REP. BY SRI SYED AFSAR HASAN (SON) AND SRI SYED BAQAR HASAN (SON) PAN: ACVPB8168M VS. THE INCOME TAX OFFICER WARD-9(2) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI D.V. ANJANEYULU AND MS. P. PRAVALLIKA RESPONDENT BY: SRI RAJAT MITRA DATE OF HEARING: 11 .1 2 .2014 DATE OF PRONOUNCEMENT: 14. 01 .201 5 O R D E R PER SAKTIJIT DEY, JM: THESE APPEALS BY THREE DIFFERENT ASSESSEES ARE AGAINST SEPARATE ORDERS OF LEARNED CIT(A)-VI, HYDER ABAD PERTAINING TO ASSESSMENT YEAR 2006-07. AS FACTS AR E ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 2 IDENTICAL AND ISSUES ARE COMMON, ALL THESE APPEALS ARE CLUBBED TOGETHER AND DISPOSED IN THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THERE IS A DELAY OF 136 DAYS IN APPEALS PREFERRED B Y THE ASSESSEES. ASSESSEES HAVE FILED DELAY CONDONAT ION PETITIONS EXPLAINING CAUSE OF DELAY SUPPORTED BY AF FIDAVITS. AFTER CONSIDERING SUBMISSIONS OF THE PARTIES, WE AR E OF THE VIEW THAT THERE IS REASONABLE CAUSE FOR FILING THE APPEALS BELATEDLY. HENCE, WE CONDONE THE DELAY AND ADMIT T HE AFORESAID APPEALS FOR CONSIDERATION ON MERIT. 3. THE ONLY COMMON ISSUE IN THE AFORESAID APPEALS IS WITH REGARD TO ASSESSMENT OF LONG TERM CAPITAL GAIN S ARISING OUT OF PROPERTY SOLD DURING THE YEAR UNDER CONSIDERATION. SINCE FACTS ARE IDENTICAL IN ALL TH E APPEALS, FOR THE SAKE OF CONVENIENCE, WE WILL DEAL WITH FACT S AS INVOLVED IN ITA NO. 1386/HYD/2014. 4. BRIEFLY, FACTS ARE THAT ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM SALARY, SHARE INCOME FROM M/S. HANSA OVERSEAS ENTERPRISES AND ALSO INCOME FROM OTH ER SOURCES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATI ON, ASSESSEE FILED HIS RETURN OF INCOME ON 31.10.2006 DECLARING INCOME OF RS. 3,34,510. THOUGH THE RETUR N WAS INITIALLY PROCESSED U/S. 143(1), SUBSEQUENTLY ON TH E BASIS OF INFORMATION AVAILABLE ON RECORD, ASSESSING OFFICER HAD REASON TO BELIEVE THAT ASSESSEE'S INCOME ASSESSABLE FOR THE YEAR UNDER CONSIDERATION HAS ESCAPED ASSESSMENT . ACCORDINGLY, HE REOPENED THE ASSESSMNT U/S. 147 OF THE ACT BY ISSUING NOTICE U/S. 148 ON 8.9.2011. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER FROM THE ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 3 INFORMATION AVAILABLE ON RECORD NOTICED THAT ASSESS EE DURING THE RELEVANT PREVIOUS YEAR HAS SOLD A PROPER TY SITUATED AT H. NO. 8-2-678, ROAD NO. 12, BANJARA HI LLS, HYDERABAD BY REGISTERED SALE DEED NO. 2540/05 DATE D 23.6.2005 FOR A CONSIDERATION OF RS. 1,09,50,000. HOWEVER, ASSESSEE HAS NOT OFFERED TO TAX CAPITAL G AINS ARISING OUT OF SUCH SALE TRANSACTION. ACCORDINGLY, AO CALLED UPON ASSESSEE TO EXPLAIN REASONS FOR NOT DIS CLOSING CAPITAL GAIN. ASSESSEE IN HIS REPLY SUBMITTED THAT CAPITAL GAIN WAS NOT DECLARED ONLY BECAUSE SALE PROCEEDS OF THE PROPERTY HAS NOT COME TO THEIR HANDS AND THE SAME H AS BEEN PAID TO STATE BANK OF INDIA WHO APPROPRIATED S ALE PROCEEDS TOWARDS DUES OF A COMPANY AND A PARTNERSHI P FIRM RESPECTIVELY WHERE ASSESSEE IS ONE OF THE DIRE CTORS AND A PARTNER. THUS, IT WAS SUBMITTED THAT THE SALE TRANSACTION WILL NOT ATTRACT ANY CAPITAL GAIN TAX. ASSESSING OFFICER AFTER VERIFYING THE FACTS AND MATERIALS ON RECORD NOTICED THAT THOUGH ASSESSEE CLAIMED THAT THE ENTIR E SALE CONSIDERATION WAS APPROPRIATED BY THE BANK TOWARDS DUES OUTSTANDING IN THE NAME OF M/S HOE LEATHER GARMENTS PVT. LTD. IN WHICH ASSESSEE IS A DIRECTOR. HOWEVER, ON PERUSAL OF THE BANK ACCOUNT MAINTAINED BY ASSESSEE WITH STA TE BANK OF HYDERABAD, IT WAS NOTICED THAT ASSESSEE HAS DEPOSITED SALE CONSIDERATION OF RS. 1,09,50,000 IN THE FOLLOWING MANNER: S. NO. BANK & BRANCH DATED AMOUNT (RS.) ACCOUNT NO. 1. SBH SHANTI N AGAR BR. 27.06.05 82,31,490 01190015160 2. - DO - - DO - 27,13,000 - DO - 3. - DO - - DO - 5, 5 10 - DO - 1,09,50,000 5. FROM THE PATTERN OF DEPOSITS IN THE BANK ACCOUNT, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSE SSEE ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 4 HIMSELF RECEIVED THE SALE CONSIDERATION AND AFTER R ECEIVING IT DEPOSITED THE SAME IN FDS AND EARNED INTEREST WH ICH WAS ALSO OFFERED AS INCOME FOR ASSESSMENT YEAR UNDE R CONSIDERATION. THEREFORE, ASSESSEE'S CLAIM THAT HE DID NOT RECEIVE THE SALE CONSIDERATION AND THE BANK HAD APPROPRIATED THE ENTIRE SALE CONSIDERATION AGAINST DUES OF THE COMPANY IS NOT CORRECT. ASSESSING OFFICER CONF RONTED THIS FACT TO ASSESSEE. ASSESSEE STATED THAT HE HAS MADE SHORT TERM DEPOSIT WITH SBH OUT OF THE SALE PROCEED S AND THEREAFTER HAD MADE PAYMENT TO THE BANK TOWARDS DUE S OF THE COMPANY. ASSESSEE'S CLAIM THAT SINCE SALE PROC EEDS WERE UTILISED FOR CLEARING DEBTS OF THE COMPANY, NO CAPITAL GAIN WILL ARISE WAS REJECTED BY ASSESSING OFFICER. HE WAS OF THE VIEW THAT AS PER THE STATUTORY PROVISIONS LO AN REPAYMENT IS NOT ONE OF THE MODES WHICH CAN ENTITLE ASSESSEE TO CLAIM DEDUCTION FROM CHARGEABILITY OF C APITAL GAIN. AFTER REJECTING SUBMISSIONS OF ASSESSEE, AS SESSING OFFICER PROCEEDED TO COMPUTE LONG TERM CAPITAL GAIN S AT RS. 1,00,16,340. BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED, ASSESSEE PREFERRED APPEAL BEFORE THE LEA RNED CIT(A). 6. IN COURSE OF HEARING BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS SUBMITTED BY ASSESSEE THAT HE ALO NG WITH ONE SRI SYED BAQAR HASAN ARE DIRECTORS AND SHAREHOL DERS IN M/S HOE LEATHER GARMENTS PVT. LTD. AND EQUAL PAR TNERS IN A PARTNERSHIP FIRM IN THE NAME AND STYLE OF M/S. HANSA OVERSEAS ENTERPRISES. IT WAS SUBMITTED THAT BOTH T HESE CONCERNS AVAILED LOAN FROM SBI BY HYPOTHECATING THE IR RESIDENTIAL HOUSE BEARING H. NO. 8-2-678, ROAD NO. 12, BANJARA HILLS, HYDERABAD JOINTLY IN THE NAME OF ASS ESSEE, HIS BROTHER SRI SYED BAQAR HASAN AND HIS MOTHER SMT . HOORJAHAN BEGUM. IT WAS SUBMITTED, DUE TO RECESSIO N IN ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 5 MARKET FROM 2002 ONWARDS THE LOAN WITH THE BANK BE CAME NPA AS THE COMPANY COULD NOT EVEN MAKE INTEREST PAYMENT AND THE BANK ALSO INITIATED RECOVERY PROCEE DINGS BY REFERRING MATTER TO DEBT RECOVERY TRIBUNAL, BY C LAIMING PRINCIPAL ALONG WITH INTEREST AS ON 31.3.2003 AT RS . 3,31,79,343. SIMILAR PROCEEDING WAS ALSO INITIATED BY BANK AGAINST THE PARTNERSHIP FIRM M/S. HANSA OVERSEAS ENTERPRISES FOR RECOVERY OF RS. 4,47,84,511. THUS THE TOTAL AMOUNT DUE TO BANK WAS TO THE TUNE OF RS. 7,79,60.8 54. PROPOSAL FOR ONE TIME SETTLEMENT WAS ACCEPTED BY BA NK AUTHORITIES ON 28.12.2006 BY SETTLING THE AMOUNT PA YABLE AT RS. 3.5 CRORES I.E., RS. 2.85 CRORES FOR M/S HOE LE ATHER GARMENTS PVT. LTD. AND RS. 75 LAKHS FOR M/S. HANSA OVERSEAS ENTERPRISES WHICH WAS ALSO ACCEPTED BY THE CONCERNS. IT WAS SUBMITTED, IN TERMS WITH THE ONET IME SETTLEMENT SCHEME (OTS) ASSESSEE ALONG WITH HIS BRO THER AND MOTHER MADE PAYMENT THROUGH THEIR INDIVIDUAL ACCOUNTS DETAILS OF WHICH WERE REFLECTED IN BOOKS O F M/S HOE LEATHER GARMENTS PVT. LTD. AND M/S. HANSA OVERS EAS ENTERPRISES. IT WAS SUBMITTED THAT THOSE TWO CONCE RNS HAVE ALSO OFFERED THE AMOUNT WAIVED BY THE BANK ON OTS AS INCOME FROM OTHER SOURCES. IT WAS ALSO SUBMITTE D BY ASSESSEE THAT IN CASE OF M/S HOE LEATHER GARMENTS P VT. LTD. AN ADDITION OF RS. 2,85,00,000 WAS MADE BY AO BY TREATING THE AMOUNTS INTRODUCED IN THE NAMES OF THE TWO DIRECTORS THROUGH JOURNAL ENTRIES AS UNEXPLAINED CA SH CREDIT. ASSESSEE SUBMITTED THAT WHEN CHEQUES ARE G IVEN BY ASSESSEE'S BROTHER AND DECEASED MOTHER FROM THEI R INDIVIDUAL ACCOUNTS TO DISCHARGE THE DEBTS OF THE C OMPANY AND PARTNERSHIP FIRM AND WHEN THE BANK HAS ALSO CONFIRMED THIS IN THE COURSE OF INVESTIGATION MADE BY THE ASSESSING OFFICER, THERE CANNOT BE ANY CAPITAL GAIN . IT WAS ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 6 SUBMITTED BY THE ASSESSEE THAT ASSESSMENT MADE IN T HE HANDS OF THE COMPANY BY TREATING THE AMOUNTS PAID B Y THE DIRECTOR TOWARDS ONE TIME SETTLEMENT AS UNSECURED L OAN AND AT THE SAME TIME CHARGING THE SALE CONSIDERATI ON AGAIN AT THE HANDS OF THE ASSESSEE AS CAPITAL GAIN WILL AMOUNT TO ASSESSING THE SAME INCOME AT TWO DIFFEREN T HANDS. IT WAS SUBMITTED BY THE ASSESSEE THAT THE S ALE CONSIDERATION HAVING BEEN UTILISED FOR THE PURPOSE OF DISCHARGING THE DEBTS OF THE COMPANY THAT TOO ON A PROPERTY MORTGAGED TO THE BANK, THE SAME IS ALLOWAB LE U/S. 48(1) OF THE ACT. IN THIS CONTEXT THE ASSESSEE REL IED UPON THE DECISION IN THE CASE OF N. VAJRAPANAIDU VS. I TO (29 ITR 459) AND SOME OTHER DECISIONS. 7. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND EXAMINING FACTS AND MATERIALS ON RECORD NOTED THAT ASSESSEE ALONG WITH HIS BROTHER AND MOTHER HAD SOLD THE PROPERTY JOINTLY OW NED BY THEM LOCATED H. NO. 8-2-678, ROAD NO. 12, BANJARA H ILLS, HYDERABAD FOR A CONSIDERATION OF RA. 1,09,50,000 BY SALE DEED DATED 23.6.2005. THE SALE CONSIDERATION WAS DEPOSITED IN BANK ACCOUNT HELD WITH SBH BY THE ASSE SSEE WHEREAS OTS ARRIVED AT BETWEEN THE TWO CONCERNS AND BANK ON 29.12.2005 AND 28.12.2005 WHICH INDICATES T HAT THE SALE TRANSACTION IS NEITHER CONNECTED NOR CONFI NED BY THE FACT OF MORTGAGE OF THE SAID PROPERTY TO BANK. 8. HE OBSERVED THAT THERE IS NO CONNECTION BETWEEN REPAYMENT OF LOAN AND AS TO MORTGAGE OF THE PROPERT Y AND HOLDING OF SALE TRANSACTION OF PROPERTY, AS IT IS C LEAR THAT SALE OF PROPERTY HAS TAKEN PLACE EARLIER TO THE OTS . HE FURTHER FOUND THAT THE ENTIRE SALE CONSIDERATION RE CEIVED BY THE BANK WAS CREDITED TO ASSESSEES BANK ACCOUNT AN D ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 7 BEING USED FOR REPAYMENT OF LOAN AS PER OTS THROUGH BOOKS OF THE COMPANY, THE AMOUNT WAS INVESTED IN FD S IN THE NAME OF THE ASSESSEE ON WHICH INTEREST WAS ALSO EARNED. THUS THERE IS NO INDICATION THAT SALE CONS IDERATION WAS EITHER PAID TO THE BANK DIRECTLY OR APPROPRIATE D BY THE BANK DIRECTLY SO AS TO MAKE THE SALE CONSIDERATION ELIGIBLE FOR DEDUCTION U/S. 48. THE LEARNED CIT(A) OBSERVED THAT UNLIKE THE DECISION RELIED UPON BY THE ASSESSEE IN ASSESSEE'S CASE SALE CONSIDERATION WAS NOT PAID DIR ECTLY TO THE MORTGAGEE BANK AND MORE OVER PROPERTY WAS DIRECTLY SOLD BY THE ASSESSEE REGARDLESS OF OTS AND THE MORTGAGE IN FORCE. HENCE, ASSESSEES CLAIM THAT SA LE CONSIDERATION RECEIVED SHOULD BE ALLOWED AS DEDUCT ION U/S. 48(1) OF THE ACT CANNOT BE ACCEPTED. FURTHER, THE LEARNED CIT(A) OBSERVED, THE AMOUNT CLAIMED TO HAVE BEEN REPAID AS LOAN WAS NOT THE LIABILITY OF THE ASSESSE E THE LIABILITY OF THE COMPANY AND FIRM IN WHICH THE ASSE SSEE WAS A DIRECTOR OR PARTNER. FURTHER, THE AMOUNT USED FO R REPAYMENT OF LOAN WAS CREDITED IN THE BOOKS OF THE COMPANY AS LOAN IN THE NAMES OF DIRECTORS WHO WERE SHOWN AS CREDITORS TO THE COMPANY. THUS, THE AMOUN T PAID TO BANK THROUGH THE BOOKS OF THOSE CONCERNS CREDITE D IN THE NAME OF DIRECTOR CANNOT BE TREATED AS EXPENSE T O THE ASSESSEE IN CONNECTION WITH THE TRANSFER OF PROPERT Y. 9. INSOFAR AS THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT PAID TO THE BANK CANNOT BE TREATED AS UNEXPL AINED CASH CREDIT AT THE HANDS OF THE COMPANY AND AT THE SAME TIME TREATED AS CAPITAL GAIN AT THE HANDS OF THE AS SESSEE, LEARNED CIT(A) OBSERVED THAT ASSESSEE'S CONTENTION IS NOT ACCEPTABLE BECAUSE COMPANY'S FAILURE TO EXPLAIN THE SOURCE OF CREDIT IN THEIR BOOKS CANNOT BE REFERRED AS INCOME AS SUCH IS ASSESSABLE AT THE HANDS OF LAND O WNERS ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 8 AS CAPITAL GAIN. THE LEARNED CIT(A) OBSERVED THAT ASSESSEE AND HIS BROTHER ARE INDEPENDENT ENTITIES F ROM THE CONCERNS WHICH HAD AVAILED LOANS. HE OBSERVED THAT THE PROPERTIES WERE ALSO SOLD INDEPENDENTLY BY THEIR OW NERS IRRESPECTIVE OF THE FACT THAT THERE WAS A MORTGAGE OR OTS. 10. THE LEARNED CIT(A) HELD THAT AS THE SALE CONSIDERATION HAS NO CONNECTION WITH THE REPAYMENT OF LOAN CONSIDERATION RECEIVED FROM SUCH TRANSACTION I S CHARGEABLE TO TAX AS CAPITAL GAIN AT THE HANDS OF A SSESSEE AND OTHER CO-OWNERS. HE HELD THAT TREATING THE UNS ECURED LOANS AS UNEXPLAINED CASH CREDITS AT THE HANDS OF T HOSE TWO CONCERNS HAS ABSOLUTELY NO EFFECT ON THE CHARGE ABILITY OF CAPITAL GAIN AT THE HANDS OF THE INDIVIDUAL. 11. THE LEARNED CIT(A) RELIED ON THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF R.M. ARUNACHALAM VS. C IT (227 ITR 222) AND VSNR JAGDISH CHANDRAN VS. CIT (22 7 ITR 240) WHEREIN IT WAS HELD THAT DISCHARGE OF MORTGAGE CREATED AFTER ACQUISITION OF PROPERTY IS NOT DEDUCT IBLE FROM CAPITAL GAIN. THUS, ON THE ABOVE SAID BASIS, THE L EARNED CIT(A) FINALLY APPROVED THE ASSESSMENT OF CAPITAL G AIN AT THE HANDS OF THE ASSESSEE AND ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 12. MORE OR LESS REITERATING THE SUBMISSIONS MADE BEFORE THE DEPARTMENTAL AUTHORITIES, LEARNED AR SUB MITTED BEFORE US THAT THE PROPERTY BELONGING TO THE ASSESS EE, HIS BROTHER AND THEIR MOTHER, SALE CONSIDERATION OF WHI CH WAS SUBJECTED TO CAPITAL GAIN, WAS HYPOTHECATED TO SBI FOR AVAILING FINANCIAL LIMIT BY M/S HOE LEATHER GARMENT S PVT. LTD. AND M/S. HANSA OVERSEAS ENTERPRISES WHEREIN ASSESSEE AND HIS BROTHER RESPECTIVELY ARE DIRECTORS AND ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 9 PARTNERS. IT WAS SUBMITTED, AS THE LOAN ACCOUNT OF BOTH THE CONCERNS BECAME NPA AND THE BANK INITIATED RECOVERY PROCEEDINGS TO MEET THE SITUATION, ASSESSEE AND HIS BROTHER APPROACHED THE BANK TO SELL THE HYPOTHECATE D PROPERTY. IT WAS SUBMITTED, AFTER NEGOTIATIONS BANK ACCEPTED THE PROPOSAL FOR OTS. ACCORDINGLY, THE PR OPERTY WAS SOLD AND THE ENTIRE SALE PROCEEDS OF THE PROPER TY WERE UTILISED TO DISCHARGE THE DEBT OF THE BANK AS PER T HE OTS. IT WAS SUBMITTED, THIS FACT WAS ALSO CONFIRMED BY THE BANKERS. THE LEARNED AR SUBMITTED THAT WHEN THE TO TAL SALE CONSIDERATION WAS PAID TO THE BANK IN DISCHARG E OF THE DEBT, IT IS AN ALLOWABLE DEDUCTION U/S. 48(1) OF TH E ACT. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AR RELIED O N THE FOLLOWING DECISIONS: A) N. VAJRAPANI NAIDU VS. ITO, 28 ITD 459 B) THRESSIAMMA ABRAHAM VS. ITO, 38 ITD 53 C) KANTI SWARUP SHARMA VS. ITO, 41 ITD 246 D) ADDL. CIT VS. GLAD INVESTMENT (P) LTD., 102 ITD 227 E) NAOZAR CHENOY VS. CIT, 234 ITR 95 F) CIT VS. ABRAR ALVI, 247 ITR 312 13. THE LEARNED AR SUBMITTED, WHERE TWO INTERPRETATIONS ARE POSSIBLE, THE VIEW FAVOURABLE T O THE ASSESSEE IS TO BE ADOPTED. FOR SUCH PROPOSITION, H E RELIED UPON THE FOLLOWING DECISIONS: A) MANISH MAHESHWARI VS. ACIT, 289 ITR 341 B) STATE OF AP VS. CTO & ANR. , 169 ITR 564 14. THE LEARNED AR SUBMITTED THAT THE ACCOUNTING TREATMENT IN THE BOOKS OF M/S HOE LEATHER GARMENTS PVT. LTD. AND M/S. HANSA OVERSEAS ENTERPRISES WOULD INDI CATE THAT THE REPAYMENT OF BANK LOAN AS PER ONE TIME SET TLEMENT WERE INTRODUCED AS UNSECURED LOANS IN THE BOOKS OF THE COMPANY THROUGH A JOURNAL ENTRY AND AS INVESTMENT I N THE ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 10 BOOKS OF THE FIRM. THE LEARNED AR SUBMITTED THAT E VEN THOUGH IN THE BOOKS OF THE COMPANY AND FIRM AMOUNT DISCHARGED TO CREDIT INSTITUTION IS BEING SHOWN AS RECEIVABLE TO THE ASSESSEE BUT WHEN THEY COULD NOT HONOUR THEIR OBLIGATION TO CREDIT INSTITUTION, MUCH COULD NOT BE MADE OF IF THEY BECOME THE DEBTORS OF THE ASSESSEE. THEREFORE, IN REALITY NO AMOUNT BECAME RECOVERABLE EITHER FROM THE COMPANY OR FROM THE FIRM. IN ESSENCE, THE ASSESSEE LOST VALUABLE ASSET FOR NO CONSIDERATION O R BENEFIT AT ALL. IT WAS SUBMITTED, SECTION 73 OF TR ANSFER OF PROPERTY ACT, 1882 PROVIDES THAT WHERE THE MORTGAGE D PROPERTY IS SOLD, THE MORTGAGEE SHALL BE ENTITLED T O CLAIM AMOUNT OF MORTGAGE MONEY OUT OF SALE PROCEEDS AND T HE MORTGAGEE HAS ALSO PRIOR CLAIM OVER OTHER CREDITORS . 15. THE LEARNED AR SUBMITTED THAT ONLY BECAUSE THE PAYMENT MADE BY THE ASSESSEE TOWARDS DISCHARGING TH E DEBT HAVE BEEN SHOWN AS UNSECURED LOAN IN THE BOOKS OF THE COMPANY AND INVESTMENT IN FIRM, IT CANNOT BE SA ID THAT THE SALE CONSIDERATION RECEIVED WAS NOT TOWARDS DISCHARGE OF THE DEBT OF THE COMPANY AND THE FIRM. THE LEARNED AR SUBMITTED THAT THE ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT DECISIVE FACTOR FOR DETERMINING APPLICABILITY OF PROVISIONS OF LAW. IN THIS CONTEX T HE RELIED ON A NUMBER OF DECISIONS AS REFERRED TO IN THE WRIT TEN SUBMISSIONS. THUS, IN SUM AND SUBSTANCE, THE LEARN ED AR SUBMITTED THAT AS THE ENTIRE SALE CONSIDERATION WAS USED FOR DISCHARGING THE DEBT TO THE BANK, NO CAPITAL GA IN ACCRUES TO THE ASSESSEE. 16. THE LEARNED DR SUBMITTED THAT THE PROPERTY SOLD WAS NEITHER IN THE NAME OF THE COMPANY NOR IN THE NAME OF THE PARTNERSHIP FIRM BUT IN THE NAME OF THE INDIVIDUAL. IT WAS ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 11 SUBMITTED THAT THERE IS NO DIRECT NEXUS BETWEEN THE RECEIPT OF SALE CONSIDERATION AND THE PAYMENT MADE TO THE B ANK TOWARDS DISCHARGE OF THE DEBT OF THE COMPANY AND TH E FIRM WHERE THE ASSESSEE AND HIS BROTHER ARE DIRECTORS AN D PARTNERS, RESPECTIVELY. THE LEARNED DR SUBMITTED T HAT THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSES SEE AFTER RECEIVING THE SALE CONSIDERATION HAD KEPT THE SAME IN FDS AND ALSO EARNED INCOME ON THEM. THEREFORE, IT CANN OT BE SAID THAT THE SALE OF PROPERTY WAS FOR THE PURPOSE OF DISCHARGING DEBTS OF THE COMPANY AND THE FIRM. HE, THEREFORE, SUBMITTED THAT AS THERE IS A GAIN ACCRUI NG TO THE ASSESSEE ON SALE OF CAPITAL ASSET, THE SAME IS CHAR GEABLE TO CAPITAL GAINS TAX. HE FURTHER SUBMITTED ONLY TH E EXPENDITURES WHICH ARE ALLOWABLE AS PER THE PROVISI ONS CONTAINED U/S. 48(1) CAN BE REDUCED WHILE COMPUTING THE CAPITAL GAIN FROM THE SALE CONSIDERATION. AS AMOUN T PAID TOWARDS DISCHARGE OF THE DEBT IS NOT A EXPENDITURE CONCEIVED U/S. 48 OF THE ACT, THE ASSESSEE WILL NOT BE ABLE TO CLAIM EXPENDITURE OF THE SAID AMOUNT. IN THIS C ONTEXT, THE LEARNED DR RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF R.M. ARUNACHALAM VS. C IT (SUPRA) AND VSNR JAGDISH CHANDRAN VS. CIT (SUPRA). 17. WE HAVE CONSIDERED THE SUBMISSIONS OF PARTIES, PERUSED ORDERS OF THE REVENUE AUTHORITIES AS WELL A S OTHER MATERIALS ON RECORD. WE HAVE ALSO CAREFULLY EXAMIN ED THE DECISIONS RELIED UPON BY BOTH THE PARTIES. UNDISPU TEDLY DURING THE RELEVANT PREVIOUS YEAR, ASSESSEE ALONG W ITH HIS BROTHER AND MOTHER HAVE SOLD A HOUSE PROPERTY AT RO AD NO. 12, BANJARA HILLS FOR A SALE CONSIDERATION OF R S. 1,09,50,000. THERE IS NO DISPUTE TO THE FACT THAT THE PROPERTY SOLD IS A CAPITAL ASSET AS DEFINED U/S. 2( 14) OF THE ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 12 ACT. HENCE THE GAIN DERIVED FROM SALE OF SUCH PROP ERTY WOULD NORMALLY BE ASSESSABLE TO TAX UNDER THE HEAD CAPITAL GAIN. HOWEVER, ASSESSEE HAS CLAIMED EXEMPTION FROM CHARGEABILITY TO CAPITAL GAIN BY CONTENDING THAT AS THE ENTIRE SALE CONSIDERATION WAS PAID TO THE BANK TOWA RDS DISCHARGE OF THE DEBT OF A COMPANY AND FIRM WHEREIN THEY ARE DIRECTORS/ PARTNERS IT HAS TO BE ALLOWED AS AN EXPENDITURE WHILE COMPUTING CAPITAL GAIN. IN THIS CONTEXT, LET US EXAMINE WHETHER IT CAN BE SAID THAT THE SAL E CONSIDERATION WAS UTILISED TOWARDS DISCHARGE OF DEB T OF THE CONCERNED COMPANY AND FIRM. AS CAN BE SEEN FRO M THE FACTS AND MATERIALS ON RECORD, THE SALE CONSIDERATI ON RECEIVED BY THE ASSESSEE WAS DEPOSITED INTO HIS PER SONAL BANK ACCOUNT. IT IS ALSO A FACT THAT THE ASSESSEE HAS MADE FDS OUT OF THE SALE CONSIDERATION AND ALSO EARNED I NTEREST WHICH WERE OFFERED TO TAX IN THE RETURN OF INCOME F ILED BY THE ASSESSEE. IT IS ALSO A FACT ON RECORD THAT THE SALE OF PROPERTY TOOK PLACE MUCH EARLIER TO THE SANCTION OF OTS BY THE BANK WHICH ADVANCED LOAN TO M/S HOE LEATHER GARMENTS PVT. LTD. AND M/S. HANSA OVERSEAS ENTERPRI SES WHEREIN ASSESSEE ALONG WITH HIS BROTHER ARE DIRECTORS/PARTNERS. THEREFORE, AS CAN BE SEEN THE SALE CONSIDERATION RECEIVED ON SALE OF THE PROPERTY WAS NOT DIRECTLY PAID TO THE CONCERNED BANK TOWARDS DISCHAR GE OF THE DEBT AS PER OTS AS CLAIMED BY THE ASSESSEE. MOREOVER, IT IS NOT IN DISPUTE THAT THE AMOUNT CLAI MED TO HAVE BEEN PAID BY THE COMPANY/FIRM TOWARDS OTS ORIGINATED FROM THE UNSECURED LOAN CLAIMED TO HAVE BEEN AVAILED THROUGH THE PERSONAL ACCOUNTS OF THE DIRECTORS/PARTNERS. IN THESE CIRCUMSTANCES, ASSESS EE'S CLAIM THAT THE BANK HAS APPROPRIATED THE SALE CONSIDERATION TOWARDS DISCHARGE OF DEBT AS PER THE OTS, IN ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 13 OUR VIEW, IS NOT ACCEPTABLE. THERE IS NO DIRECT NE XUS BETWEEN THE RECEIPT OF THE SALE CONSIDERATION AND P AYMENT MADE TO THE BANK TOWARDS DISCHARGE OF THE DEBT. MOREOVER, IT IS A FACT ON RECORD THAT THE UNSECURED LOAN OF THE AMOUNT CLAIMED TO HAVE BEEN RECEIVED FROM THE DIRECTORS HAS BEEN DISBELIEVED BY THE DEPARTMENT WH ILE COMPLETING ASSESSMENT IN CASE OF M/S HOE LEATHER GARMENTS PVT. LTD. AND ADDITIONS WERE MADE U/S. 68 OF THE ACT WHICH ALSO STAND CONFIRMED. THEREFORE, IN A SE NSE THE CLAIM OF UNSECURED LOANS FROM THE DIRECTORS OF THE AMOUNT UTILISED TOWARDS DISCHARGE OF DEBT HAS ALSO NOT BEE N ACCEPTED BY THE DEPARTMENT. IN THESE CIRCUMSTANCES , ASSESSEE'S CLAIM THAT SINCE THE ENTIRE SALE CONSIDE RATION WAS UTILISED TOWARDS DISCHARGE OF THE DEBT, THE SAM E CANNOT BE CHARGEABLE TO CAPITAL GAIN, IN OUR VIEW, IS NOT ACCEPTABLE. EVEN, ASSUMING FOR ARGUMENTS SAKE THAT THE PROPERTY IN QUESTION WAS MORTGAGED AS A SECURITY TO WARDS THE DEBT AVAILED BY THE COMPANY AND THE FIRM, THE SAME CANNOT EXEMPT THE ASSESSEE FROM CHARGEABILITY OF CA PITAL GAIN ON THE SALE OF THE ASSET. THE HONBLE SUPREME COURT IN THE CASES OF R.M. ARUNACHALAM VS. CIT (SUPRA) AN D VSNR JAGDISH CHANDRAN VS. CIT (SUPRA) HAVE CLEARLY HELD THAT AMOUNT PAID OUT OF SALE PROCEEDS TO CLEAR MORT GAGE DEBT CANNOT BE TREATED AS COST OF ACQUISITION OR CO ST OF IMPROVEMENT SO AS TO REDUCE THE SAME FROM SALE CONSIDERATION WHILE COMPUTING CAPITAL GAIN U/S. 48 OF THE ACT. THOUGH THE LEARNED AR HAS RELIED UPON CERTAIN DECISIONS TO CONTEND THAT WHEN THERE ARE CONFLICTIN G VIEWS, THE VIEW FAVOURABLE TO THE ASSESSEE IS TO BE ADOPTE D. HOWEVER, IN THE FACTS OF THE PRESENT CASE, THE AR H AS NOT BROUGHT TO OUR NOTICE ANY DECISION OF THE HONBLE S UPREME COURT CONTRARY TO THE VIEW EXPRESSED BY THE HONBLE ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 14 SUPREME COURT IN THE AFORESAID DECISIONS. THEREFOR E, WHEN THE DECISION RELIED UPON BY THE LEARNED AR IS NOT OF THE HONBLE SUPREME COURT AND THERE ARE DECISIONS O F THE HONBLE SUPREME COURT HOLDING THAT AMOUNT PAID TOWA RDS DISCHARGE OF MORTGAGE DEBT CANNOT BE TREATED AS EXPENDITURE U/S. 48 OF THE ACT, WE ARE BOUND TO FOL LOW THE DECISIONS OF THE HONBLE SUPREME COURT. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF LD. CIT(A) IN UPHOLDING THE ASSESSMENT OF CAPITAL GAIN AT THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) BY DISMISSING THE GROUNDS RAI SED BY THE ASSESSEE. 18. FACTS AND ISSUES IN THE OTHER TWO APPEALS ARE MORE OR LESS IDENTICAL TO THE FACTS AND ISSUES IN ITA NO . 1386/HYD/2014. IN FACT, THE CASE OF LATE NOORJAHAN BEGUM STANDS STILL IN A WORSE POSITION AS SHE WAS NEITHER A DIRECTOR NOR A PARTNER IN THE CONCERNS IN WHOSE CAS E THE SUBJECT PROPERTY WAS ALLEGEDLY MORTGAGED FOR AVAILI NG LOAN. SHE, ABSOLUTELY HAD NO OBLIGATION TO DISCHARG E THE DEBT OF THESE TWO CONCERNS. MOREOVER, IN HER CASE A LSO THE SALE CONSIDERATION WAS RECEIVED AND DEPOSITED IN HE R BANK ACCOUNT AND WERE CONVERTED TO FDS AND NOT DIRECTLY APPROPRIATED BY BANK. THEREFORE, EVEN ASSUMING THE CLAIM OF THE ASSESSEE TO THE EFFECT THAT SALE CONSIDERATI ON WAS UTILIZED FOR DISCHARGING DEBT OF THE TWO CONCERNS T O BE CORRECT, SUCH PAYMENT CAN ONLY BE TREATED AS APPLIC ATION OF INCOME ALREADY ACCRUED TO THE ASSESSEE. IN THESE CIRCUMSTANCES CLAIM OF DEDUCTION U/S 48 CANNOT BE ALLOWED. THEREFORE, FOLLOWING OUR DECISION IN ITA N O. 1386/HYD/2014, WE UPHOLD THE ORDERS OF LEARNED CIT (A) IN THESE TWO APPEALS ALSO. ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 15 19. IN THE RESULT, RESPECTIVE APPEALS OF THE ASSESSEES ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 14 TH JANUARY, 2015. SD/ - (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED 14 TH JANUARY, 2015 TPRAO/KV COPY FORWARDED TO: 1. SRI SYED AFSAR HASAN, C/O. M/S. ANJANEYULU & CO., CHARTERED ACCOUNTANTS, 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABAD-500 080. 2. SRI SYED BAQAR HASAN, C/O. M/S. ANJANEYULU & CO., CHARTERED ACCOUNTANTS, 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABAD-500 080. 3. LATE SMT. HOORJAHAN BEGUM, C/O. M/S. ANJANEYULU & CO., CHARTERED ACCOUNTANTS, 30, BHAGYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABAD-500 080. 4 . THE INCOME TAX OFFICER, WARD - 9(2), HYDERABAD. 5 . THE CIT(A) - VI , HYDERABAD . 6 . THE CIT - VI , HYDERABAD . 7 . THE DR ' B ' BENCH, ITAT, HYDERABAD ITA NO. 1386/HYD/2014 & ORS. SRI SYED AFSAR HASAN &ORS. ======================= 16 SR. NO. PARTICULARS DATE 1. DATE OF DICTATION 18.12.2014 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER 22.12.2014 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER 5. DATE ON WHICH THE FAIR ORDER GOES TO THE SR. P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 8. DATE ON WHICH THE FILE GOES TO THE ASST. REGISTR AR 9. DATE OF THE DESPATCH OF THE TRIBUNAL ORDER