Smt. S.S.Sundhari, Gobichettipalayam V. ITO, Erode

ITA 1452/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64134 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 19-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA JT
• Assessee Lawyers: T BANUSEAKR
• Keywords: Capital asset; Opportunity of being heard; Cost of acquisition
• Section: 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER] I.T.A.NO.1452/MDS/2011 ASSESSMENT YEAR : 2005-06 SMT. S.S.SUNDHARI 3/317, PACHAYEE THOTTAM PARIYUR, VELLALPALAYALAM GOBICHETTIPALAYAM 638 432 [PAN AYFPS7284R] VS THE INCOME TAX OFFICER WARD II(1) ERODE (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T. BANUSEAKR, CA RESPONDENT BY : SHRI S.DASGUPTA, JT. CIT DATE OF HEARING : 06-08-2012 DATE OF PRONOUNCEMENT : 08-08-2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSE SSEE AGAINST THE ORDER OF THE CIT(A)-I, COIMBATORE, DATED 22.6.2011. 2. THE FIRST ISSUE INVOLVED IN THIS APPEAL IS THAT THE CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN INVOKING THE PROVISIONS OF SECTION 50B OF THE ACT. 3. THE OTHER ISSUE CONNECTED WITH THIS IS THAT THE CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS ACQUIRED ASSETS AT A I.T.A.NO. 1452/2011 :- 2 -: COST OF ` 27,30,000/- FROM THE PARTNERSHIP FIRM. FURTHER, T HE CIT(A) FAILED TO APPRECIATE THAT IN ARRIVING AT THE CAPITA L GAINS ON TRANSFER OF CAPITAL ASSETS AS PER SECTION 55, THE ASSESSEE IS ENTITLED TO CLAIM THE COST FOR WHICH THE CAPITAL ASSETS WERE ACQUIRED BY THE ASSESSEE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE AND HER FATHER, SHRI S.C.THANGAMUTHU WERE PARTNERS IN A FIR M CALLED M/S DEEPAM FOOD PRODUCTS HAVING 50% SHARE OF PROFIT EAC H. THE ASSESSEES FATHER EXPIRED ON 10.8.2002. THE IMMOVA BLE PROPERTIES AND CERTAIN MACHINERIES OF THE FIRM WERE TAKEN OVER BY THE ASSESSEE FROM THE FIRM ON 28.9.2004. THE LIABILITIES OF THE FIRM WERE NOT TAKEN OVER BY THE ASSESSEE. SINCE THE ASSESSEE HAD ALR EADY 12.5% SHARE IN THE FIRM AS LEGAL HEIR TO HER FATHERS SHARE, TH E OTHER THREE LEGAL HEIRS HAD RELEASED THEIR 37.5% OF THE SHARE IN THE ASSETS. THE ASSESSEE PAID ` 3 LAKHS AND GOT THE PROPERTY RELEASED IN HER FAVOU R. THE ASSESSEE AND ONE SMT. A.SRIDEVI BECAME PARTNER S HAVING 50% SHARE IN PROFITS IN A FIRM CALLED M/S SREE DEEPAM FOOD PRODUCTS VIDE PARTNERSHIP DEED DATED 24.1.2005. AS THE CAPITAL C ONTRIBUTION THE ASSESSEE INVESTED THE ASSETS RECEIVED FROM THE EARL IER PARTNERSHIP FOR AN AGGREGATE VALUE OF ` 20,39,752/- TOWARDS FIXED ASSETS AND ` 67,570/- TOWARDS DEPOSITS. REGARDING THE LOAN WITH SOUTH INDIAN BANK TAKEN BY THE ERSTWHILE FIRM, IT WAS SUBMITTED BY TH E A.R BEFORE THE CIT(A) THAT IT IS A BEQUEATHED MORTGAGE AND HENCE, THE COST OF THE I.T.A.NO. 1452/2011 :- 3 -: SAME WAS CLAIMED AS DEDUCTION BY THE ASSESSEE WHIL E CALCULATING THE CAPITAL GAINS. THE LOWER AUTHORITIES OBSERVED THAT THE LOAN WAS TAKEN BY THE FIRM AND AT THE TIME OF TAKING THE LOAN THE ASSESSEE DID NOT PRODUCE ANY DETAILS THAT LOAN WAS OBTAINED AFTER MO RTGAGING THE IMMOVABLE PROPERTY. THE LOAN COMPONENT WITH THE FI RM WAS DIFFERENT AND THE IMMOVABLE PROPERTY BELONGING TO THE FIRM TA KEN OVER BY THE ASSESSEE HAS NO RELATION. THE PROPERTY WAS TAKEN OV ER FROM THE FIRM WITHOUT ANY LIEN OF MORTGAGE ON IT. HENCE, THE SUB MISSION OF THE ASSESSEE THAT THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF R.M.ARUNACHALAM, 227 ITR 222, IS APPLICABLE TO THE FACTS OF THE CASE HAD NO MERIT. IT IS ALSO SEEN FROM THE NON-ENCUMBR ANCE CERTIFICATE THAT THERE WAS NO MORTGAGE OF THE PROPERTY ON THE L OAN TAKEN. IT WAS, THEREFORE, HELD THAT THE AMOUNT OF LOAN CANNOT BE R EDUCED IN THE COMPUTATION OF CAPITAL GAINS OF IMMOVABLE PROPERTY. IT WAS ALSO THE SUBMISSION OF THE ASSESSEE THAT THE COST OF ACQUIS ITION OF THE CAPITAL ASSET AS A DEDUCTION AS PER THE PROVISIONS OF SECTI ON 55 HAD NO RELEVANCE TO THE FACTS OF THE CASE. IT WAS HELD BY THE LOWER AUTHORITIES THAT AS PER THE RELEASE DEED DATED 28.9.2004, SMT J AYALAKSHMI, W/O LATE S.C.THANGAMUTHU, SHRI T.JAGADEESWARAN, S/O LATE S.C.THANGAMUTHU AND SMT.S.C.CHITRADEVI, D/O LATE S. C.THANGAMUTHU, HAVE RELEASED THEIR OWN 3/4 TH SHARE IN THE PROPERTY IN FAVOUR OF THE ASSESSEE, SMT. S.S.SUNDHARI. EACH OF THE PERSONS R ECEIVED ` 1 LAKH BY CASH FROM THE ASSESSEE. THE SHARE IN THE SCHEDULE MENTIONED I.T.A.NO. 1452/2011 :- 4 -: PROPERTY OF LAND OF 1.33 ACRES SITUATED AT S.F.NO.3 72/2 WAS RELEASED BY THE THREE MENTIONED ABOVE FOR AN AMOUNT OF ` 3 LAKHS TAKING THE MARKET VALUE OF THE PROPERTY AT ` 4 LAKHS. THE ASSESSING OFFICER GAVE DEDUCTION OF ` 4,15,140/- IN THE COMPUTATION OF CAPITAL GAINS. T HE CIT(A) ALSO DIRECTED THE ASSESSING OFFICER TO RE-CO MPUTE THE SHORT TERM CAPITAL GAINS ALLOWING DEDUCTION OF ` 3,15,140/- ONLY AS THE ASSESSEE HAD SHARE IN THE PROPERTY AMOUNTING TO ` 1 LAKH SO THE COST OF ACQUISITION WAS ONLY ` 3,15,140/- AND THE TOTAL MARKET VALUE WAS ` 4 LAKHS. THE A.R OF THE ASSESSEE AGREED FOR ENHA NCEMENT OF ` 1 LAKH ON THIS ACCOUNT. THE CIT(A) OBSERVED THAT AS SEEN FROM THE RELEASE DEED THE ASSESSEE DID NOT INCUR ANY OTHER COST ON THE PROPERTY AND NO PARTITION OF LIABILITIES OF THE FIRM HAD TAKEN PLAC E. HE, THEREFORE, HELD THAT THE SHORT TERM CAPITAL GAINS HAS TO BE ENHANCE D BY ` 1 LAKH AND DISMISSED THE GROUND OF APPEAL OF THE ASSESSEE. 5. THE A.R OF THE ASSESSEE REFERRED TO PAGE 3 OF HIS PAPER BOOK AND SUBMITTED THAT AS ON THE DATE OF DISSOLUTI ON OF THE FIRM ON 28.9.004, THE BALANCE SHEET OF THE ASSESSEE COMPRI SED OF FIXED ASSETS OF ` 60,000/- PRELIMINARY AND PRE-OPERATIVE EXPENSES OF ` 40,214/-, ADVANCE OF DEPOSIT OF ` 5,000/-, AND CURRENT ASSETS OF ` 1,34,877/-. THE FIRM HAD LIABILITY OF PARTNERS CA PITAL ACCOUNT OF ` 6 LAKHS, DEBIT BALANCE IN PARTNERS CURRENT ACCOUNT O F ` 73,32,520/- AND I.T.A.NO. 1452/2011 :- 5 -: CURRENT LIABILITY OF ` 69,72,400/-. HE THEN REFERRED TO PAGE 5 OF THE PAPER BOOK WHICH CONTAINED THE DETAILS OF FIXED ASS ETS. HE SUBMITTED THAT THE ASSESSEE HAD TAKEN OVER ALL THE ASSETS ME NTIONED IN THE DETAILS OF FIXED ASSETS EXCEPT VEHICLE OF ` 60,000/-. THEREFORE, HIS CONTENTION WAS THAT ALL THE ASSETS OF THE FIRM WERE NOT TAKEN OVER BY THE ASSESSEE. HE FURTHER REFERRED TO THE BANK STA TEMENT OF SOUTH INDIAN BANK LTD, PLACED AT PAGE 6 OF THE PAPER BOO K, AND SUBMITTED THAT ON 28.9.2004 IT SHOWED A DEBIT BALANCE OF ` 19.96,673/-. HE THEN REFERRED TO PAGE 7 OF THE PAPER BOOK AND SUBMI TTED THAT THE SOUTH INDIAN BANK LTDS BANK STATEMENT AT THIS PAGE SHOWS A DEBIT BALANCE OF ` 29,29,060/- ON 30.3.2005. THE ASSESSEE MADE PAYM ENT OF ` 20,29,060/- ON 30.3.2005 TO THE SOUTH INDIAN BANK AND A FURTHER PAYMENT OF ` 1097/- ON THE VERY SAME DATE. THUS, THE TOTAL PAY MENT MADE BY THE ASSESSEE WAS OF ` 20,30,157/- TO THE BANK WHICH WAS THE AMOUNT RECEIVED FROM THE NEW FIRM M/S SREE DE EPAM FOOD PRODUCTS. HE FURTHER REFERRED TO PAGE 8 OF THE PAP ER BOOK AND SUBMITTED THAT THIS SHOWS A SANCTION LETTER OF THE BANK DATED 29.3.2005 WHICH SANCTIONED CREDIT LIMIT OF ` 20 LAKHS TO THE NEW FIRM, M/S SREE DEEPAM FOOD PRODUCTS AFTER CANCELLING THE CREDIT LIMIT OF M/S DEEPAM FOOD PRODUCTS. HE ALSO REFERRED TO PAGE 9 OF THE PAPER BOOK WHICH SHOWS THE CAPITAL ACCOUNT OF THE ASSESS EE IN THE NEW FIRM M/S SREE DEEPAM FOOD PRODUCTS. HE SUBMITTED THAT V IDE JOURNAL ENTRY I.T.A.NO. 1452/2011 :- 6 -: PASSED ON 31.1.3005 THE ASSESSEE HAS INTRODUCED TH E ASSETS TAKEN FROM THE ERSTWHILE FIRM M/S DEEPAM FOOD PRODUCTS TH E ASSETS IN THIS FIRM THE TOTAL OF WHICH IS ` 20,39,932/- WHICH HAS BEEN CREDITED TO THE CAPITAL ACCOUNT OF THE ASSESSEE IN THE NEW FIRM. THERE IS A DEBIT TO THE CAPITAL ACCOUNT OF THE ASSESSEE OF ` 20,29,060/- AND ` 1097/- ON THE VERY SAME DATE FOR THE PAYMENT OF THE OUTSTANDI NG LOAN OF THE ERSTWHILE FIRM MADE BY THE ASSESSEE. THUS, IT WAS THE SUBMISSION OF THE A.R OF THE ASSESSEE THAT THE ASSESSEE HAD ACQ UIRED THE ASSETS AS WELL AS THE LIABILITIES FROM THE ERSTWHILE FIRM AND THEREFORE, THE PAYMENT MADE TO THE BANK FOR SETTLING THE LIABILITY OF THE FIRM SHOULD BE DEDUCTED FROM THE COST OF THE ASSETS OF THE FIRM WHILE COMPUTING THE CAPITAL GAINS. HE SUBMITTED THAT IF THAT IS DO NE THEN THE ASSESSEE HAS MADE PAYMENT OF ` 29,30,157/- TO THE BANK AND ` 3 LAKHS TO THE OTHER PERSONS FOR RELEASING THE 37.5% SHARE IN THE ASSETS OF THE FIRM, THE TOTAL OF WHICH COMES TO ` 23,30,157/- AS AGAINST WHICH THE ASSESSEE HAS ACQUIRED ASSETS OF ` 20,39,932/- ONLY. HENCE, THERE IS A NEGATIVE CAPITAL GAINS AND THUS, THE ASSESSEE IS NOT LIABLE TO ANY CAPITAL GAINS TAX. 6. ON THE OTHER HAND, THE DR VEHEMENTLY ARGUED AND SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE I.T.A.NO. 1452/2011 :- 7 -: INSTANT CASE, THE ASSESSEE TRANSFERRED CERTAIN ASS ETS TO THE NEWLY FORMED PARTNERSHIP FIRM NAMELY, M/S SREE DEPAM FOOD PRODUCTS ON 24.1.2005 FOR ` 20.39,782/-. THE ASSESSING OFFICER COMPUTED THE CAPITAL GAINS ON THE TRANSFER BY TAKING IT AS A CAS E OF SLUMP SALE AND TREATING THE NET WORTH I.E COST OF THE UNDERTAKING TRANSFERRED AT ` 4 LAKHS. 8. ON APPEAL, THE CIT(A) ENHANCED THE CAPITAL GAINS CO MPUTED BY THE ASSESSING OFFICER BY HOLDING THAT THE COST O F ASSETS WILL BE ONLY ` 3 LAKHS WHICH WAS PAID BY THE ASSESSEE TO THE LEG AL SUCCESSORS OF THE FORMER PARTNER TO GET THE ASSETS RELEASED IN HE R FAVOUR. 9. BEFORE US, THE A.R ARGUED THAT ALL THE ASSETS AND L IABILITIES OF THE EARLIER FIRM WERE NOT TRANSFERRED TO THE NEW UN DERTAKING AND THEREFORE, IT IS NOT A CASE OF SLUMP SALE AND HENCE , THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISION S OF SECTION 50B OF THE ACT. 10. FURTHER HE ARGUED THAT THE BANK LIABILITIES OF THE EARLIER FIRM WAS PAID BY THE ASSESSEE BY TAKING MONEY FROM THE NEW FIRM AGAINST THE TRANSFER OF THE ASSETS AND THEREFORE, THE SAME SHOULD BE REDUCED FROM SALE CONSIDERATION FOR COMPUTING THE CAPITAL G AINS. 11. WE FIND THAT BOTH THE LOWER AUTHORITIES HAVE NOT BR OUGHT ANY MATERIAL ON RECORD TO SHOW THAT WHETHER ALL THE ASS ETS AND LIABILITIES OF I.T.A.NO. 1452/2011 :- 8 -: THE EXISTING BUSINESS UNDERTAKING WAS TRANSFERRED T O THE NEW FIRM OR NOT. THE A.R OF THE ASSESSEE POINTED OUT TO US AS AN EXAMPLE THAT VEHICLE WAS NOT TRANSFERRED TO THE NEW FIRM. IN OU R CONSIDERED OPINION, WHEN THE ENTIRE ASSET AND LIABILITIES OF A N UNDERTAKING IS NOT TRANSFERRED AND ONLY CERTAIN SPECIFIC ASSETS ARE TR ANSFERRED, PROVISIONS OF SECTION 50B ARE NOT ATTRACTED. 12. HOWEVER, IN THE INSTANT CASE, IT NEEDS VERIFICATION BY THE ASSESSING OFFICER TO ASCERTAIN WHETHER THE ENTIRE A SSETS AND LIABILITIES OF THE EXISTING BUSINESS WAS TRANSFERRED TO THE NEW FIRM OR ONLY CERTAIN SPECIFIC ASSETS WERE TRANSFERRED. 13. FURTHER, WE DO NOT FIND ANY FORCE IN THE ARGUMENT O F THE A.R THAT AS AMOUNT RECEIVED AGAINST THE TRANSFER OF ASS ETS TO THE NEW FIRM WAS UTILIZED BY THE ASSESSEE TO REPAY THE BANK LOA N AND THEREFORE, THE AMOUNT OF BANK LOAN SO REPAID SHOULD BE REDUCED FR OM THE SALE CONSIDERATION TO ARRIVE AT THE AMOUNT OF CAPITAL GA INS. 14. FOR THE PURPOSE OF COMPUTING CAPITAL GAINS, THE SAL E CONSIDERATION IS REQUIRED TO BE REDUCED BY THE COST OF THE ASSETS TRANSFERRED BY THE ASSESSEE. WE FIND THAT ` 3 LAKHS REPRESENTS ONLY THE VALUE OF 32.5% SHARE OF THE FIRM WHICH BELONGS TO THE OTHER LEGAL SUCCESSORS OF THE FORMER PARTNER NAMELY, LATE SHRI S.C.THANGAMUTHU, IT CANNOT BE ASSUMED THAT THERE WA S NO COST IN THE I.T.A.NO. 1452/2011 :- 9 -: HANDS OF THE ASSESSEE IN RESPECT OF THE BALANCE 62 .5% OF SHARE OF ASSETS. THUS, IN OUR CONSIDERED OPINION, BOTH THE LOWER AUTHORITIES HAVE ERRED IN COMPUTING THE CAPITAL GAINS IN THE IN STANT CASE. WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE FILE OF T HE ASSESSING OFFICER FOR COMPUTING THE CAPITAL GAINS ASSESSABLE TO TAX AFRES H AFTER PROPER VERIFICATION IN THE LIGHT OF THE DISCUSSION MADE HE REIN ABOVE AND AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. 15. THE SECOND ISSUE INVOLVED IN THIS APPEAL IS THAT TH E CIT(A) ERRED IN CONFIRMING THE ADDITION OF ` 1,60,000/- TOWARDS THE CAPITAL CONTRIBUTION MADE BY THE ASSESSEE IN THE FIRM, M/S SREE DEEPAM FOOD PRODUCTS. 16. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE INTRODUCED ` 1,60,000/- IN THE MONTHS OF JUNE TO MARCH 2005 IN THE NEW FIRM, M/S DEEPAM FOOD PRODUCTS AND A SUM OF ` 1,65,000/- WAS INTRODUCED BY HER OTHER PARTNER, SMT. A.SRIDEVI. THE ASSESSING O FFICER ADDED ` 3 LAKHS AS UNEXPLAINED CAPITAL CONTRIBUTION U/S 69 I N THE HANDS OF THE ASSESSEE WHICH WAS REDUCED TO ` 1,60,000/- BY THE CIT(A) FOR THE REASON THAT THE CAPITAL CONTRIBUTION MADE BY THE PA RTNER OF THE ASSESSEE, SMT. A.SRIDEVI CANNOT BE ADDED IN THE HAN DS OF THE ASSESSEE. I.T.A.NO. 1452/2011 :- 10 -: 17. THE A.R OF THE ASSESSEE SUBMITTED THAT HE WAS NOT IN A POSITION TO FILE ANY EVIDENCE TO EXPLAIN THE SOURCE OF ` 1,60,000/- INVESTED BY THE ASSESSEE AS PARTNERS CONTRIBUTION IN THE FIRM, M/S SREE FOOD PRODUCTS. 18. ON THE OTHER HAND, THE DR SUPPORTED THE ORDERS OF T HE LOWER AUTHORITIES. 19. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE ASS ESSING OFFICER ADDED ` 3 LAKHS AS UNEXPLAINED CAPITAL CONTRIBUTION BY THE ASSESSEE IN THE FIRM M/S SREE DEEPAM PRODUCTS, U/S 69 OF THE ACT B ECAUSE THE ASSESSEE COULD NOT FILE EVIDENCE TO SHOW THAT THE A MOUNT CONTRIBUTED BY HER WAS OUT OF ACCUMULATED RESOURCES FROM BUSINE SS AND OTHER INCOME. THE CIT(A) HAS REDUCED THE ADDITION TO ` 1,60,000/- AS BECAUSE THE CONTRIBUTION MADE BY THE ASSESSEE WAS ` 1,60,000/- AND THE BALANCE WAS CONTRIBUTED BY HER PARTNER SMT.A.SR IDEVI. BEFORE THE CIT(A) OR EVEN BEFORE US, NO EVIDENCE COULD BE PROD UCED BY THE ASSESSEE TO SHOW THAT THE SUM OF ` 1,60,000/- WAS ACQUIRED BY THE ASSESSEE OUT OF RESOURCES FROM BUSINESS AND OTHER I NCOME. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF ` 1,60,000/-. THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. I.T.A.NO. 1452/2011 :- 11 -: 20. NO OTHER GROUND WAS ARGUED OR PRESSED AT THE TIME O F HEARING. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY, THE 08 TH OF AUGUST, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 08 TH AUGUST, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR