ITO, Ramanathapuram V. Shri S.Je.Ramesh Babu, Ramanathapuram

ITA 1660/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64502 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 25-09-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 06-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: N QUADIR HOSEYN
• Keywords: Unexplained expenditure; Business income
• Section: 69C; 143(3); 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT ME MBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1660/MDS/2010 (ASSESSMENT YEAR: 2005-06) INCOME TAX OFFICER, WARD-1(2), 176, VANDIKKARA STREET, SAPTHAGIRI VANIGAVALAGAM, RAMANATHAPURAM. VS. SHRI S.JE.RAMESH BABU, 33/3, RAJA RAMANATHA SETHUPATHY NAGAR, RAMANATHAPURAM. PAN: ABTPR6320G (APPELLANT) (RESPONDENT) APPELLANT BY : MR. S.DASGUPTA, JCIT RESPONDENT BY : MR. N.QUADIR HOSEYN, ADVOCATE DATE OF HEARING : 25 TH SEPTEMBER, 2012 DATE OF PRONOUNCEMENT : 29 TH OCTOBER, 2012 O R D E R PER VIKAS AWASTHY, JM: THE APPEAL HAS BEEN PREFERRED BY THE REVENUE IMPUGNING THE ORDER OF THE CIT(A)-II, MADURAI DATED 09.07.2010. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D FILED RETURN OF INCOME RELEVANT TO THE ASSESSMENT YEAR 20 05-06 ON 1.8.2005. THE ASSESSEE RETURNED NEGATIVE INCOME OF ` 33,550/-. THE RETURN FILED BY THE ASSESSEE WAS ACCE PTED AND PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFT ER, NOTICE ITA NO.1660/MDS/2010 2 UNDER SECTION 148 WAS ISSUED TO THE ASSESSEE ON 24. 4.2008. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 21.12.2009 PASSED UNDER SECTION 143(3) READ WITH S ECTION 147 OF THE INCOME TAX ACT MADE CERTAIN ADDITIONS IN THE INCOME RETURNED BY THE ASSESSEE. CONSEQUENT TO THE ADDITIONS MADE BY THE ASSESSING OFFICER, A DEMAND O F ` 20,28,220/- WAS RAISED BY THE ASSESSING OFFICER. T HE ASSESSING OFFICER MADE ADDITIONS INTER-ALIA ON ACCO UNT OF : I) EXCESS AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUN T OF FAMILY PARTITION : ` 29,47,273 II) LONG TERM CAPITAL GAINS ON SALE OF LAND : ` 5,71,950 III) UNEXPLAINED EXPENDITURE ASSESSED UNDER SECTION 69C : ` 3,00,000 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) V IDE IMPUGNED ORDER DATED 9.7.2010 PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE AND DELETED THE ADDITION MADE BY THE A SSESSING OFFICER ON ACCOUNT OF THE AMOUNT RECEIVED BY THE AS SESSEE IN A FAMILY PARTITION AND UNEXPLAINED EXPENDITURE ASSE SSED UNDER SECTION 69C. ITA NO.1660/MDS/2010 3 THE REVENUE AGGRIEVED BY THE ORDER OF THE CIT(A) HA S PREFERRED SECOND APPEAL BEFORE THE TRIBUNAL ASSAILI NG THE ORDER OF THE CIT(A). 4. THE ASSESSEE IS AN INDIVIDUAL AND WAS A PARTNER IN A FAMILY BUSINESS. AFTER THE DEATH OF THE FATHER OF T HE ASSESSEE DISPUTE AROSE BETWEEN THE ASSESSEE AND OTHER FAMILY MEMBERS. AS A RESULT, MULTIPLE LITIGATIONS STARTE D BETWEEN THE PARTIES IN VARIOUS COURTS. FINALLY, FAMILY ARRANGEM ENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND HIS BROTHERS ON 30.7.2004. JOINT COMPROMISE MEMO-CUM-FAMILY ARRANGEMENT WAS EXECUTED BETWEEN THE PARTIES BEFORE THE HONBLE HIGH COURT OF JUDICATURE AT MADRAS IN CIVIL REVISION PETITION NO.1143 OF 2004 . THE ASSESSEE HAS FILED A COPY OF THE ORDER OF THE HONBLE HIGH COURT DATED 30.7.2004 ALONG WITH A COPY OF JOINT COMPROMISE MEMO-CUM-FAMILY ARRANGEMENT BETWEEN THE ASSESSEE AND HIS BROTHERS. A PERUSAL OF THE FAMILY ARRANGEMENT SHOWS THAT THERE WERE FOUR PROPERTIES JOINTLY OWNED BY THE ASSESSEE AND HIS BR OTHERS I.E. ITA NO.1660/MDS/2010 4 I) JAGAN THEATRE II) MINI JAGAN A/C THEATRE III) JEGGAN SALTS IV) SRI SAKTHI SALTS AS PER THE TERMS AND CONDITIONS OF THE FAMILY ARRAN GEMENT JEGGAN SALTS AND SRI SAKTHI SALTS FELL INTO THE SH ARE OF THE ASSESSEE AND OTHER TWO PROPERTIES I.E. JAGAN THEAT RE AND MINI JAGAN A/C THEATRE WERE TAKEN OVER BY THE BROT HERS OF THE ASSESSEE I.E. J.SUGUMAR AND J.DHINESH BABU. IN LIEU OF RELINQUISHING HIS ALL RIGHTS, POSSESSIONS AND CLAIM S IN THE AFOREMENTIONED TWO PROPERTIES I.E.JEGAL THEATRE AN D MINI JAGAN A/C THEATRE, THE ASSESSEE RECEIVED ANOTHER SU M OF ` 70.00 LAKHS BY WAY OF BANKERS CHEQUE FROM HIS BROTH ERS. AS PART OF FAMILY ARRANGEMENT, THE ASSESSEE PAID AN AM OUNT OF ` 3.00 LAKHS TO HIS ELDER SISTER MRS.KOUSALYA TOWARD S FULL AND FINAL SETTLEMENT OF HER CLAIM. NEEDLESS TO SAY THAT FAMILY ARRANGEMENT WAS EXECUTED BETWEEN THE PARTIES TO AVO ID ANY FURTHER LITIGATIONS AND BUY MENTAL PEACE AND HARMON Y IN THEIR RELATIONSHIP. 5. THE ASSESSING OFFICER WHILE PASSING ASSESSMENT O RDER DATED 29.12.2009 MADE ADDITIONS TO THE TUNE OF ` 29,48,273/- ITA NO.1660/MDS/2010 5 ON ACCOUNT OF EXCESS AMOUNT RECEIVED BY THE ASSESSE E IN HIS FUTURE PROFITS FROM THE FIRMS M/S. JEGANATHAN & CO. AND M/S. MINI JEGAL THEATRE AND CONSIDERING IT TO BE TAXABLE UNDER THE PROVISIONS OF SECTION 28(VA) . THE ASSESSING OFFIC ER FURTHER MADE ADDITION TO THE TUNE OF ` 3.00 LAKHS ON ACCOUNT OF PAYMENTS MADE BY THE ASSESSEE TO HIS SISTER TERMING IT TO BE UNEXPLAINED EXPENDITURE AND ASSESSED THE SAME UNDE R SECTION 69C OF THE ACT. 6. THE LEARNED DR APPEARING ON BEHALF OF THE REVENU E SUBMITTED THAT THE CIT(A) HAS WRONGLY DELETED THE A DDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF THE AMO UNT RECEIVED BY THE ASSESSEE FOR RELINQUISHMENT OF HIS RIGHTS/INTERESTS IN THE ASSETS OF FAMILY BUSINESS AS A RESULT OF FAMILY ARRANGEMENT. THE AMOUNT OF ` 70.00 LAKHS RECEIVED BY THE ASSESSEE ON ACCOUNT OF RELINQUISHMENT OF HIS R IGHTS IN THE BUSINESS OF THE FIRM IS TAXABLE UNDER THE HEAD CA PITAL GAINS . THE ASSESSING OFFICER HAS WRONGLY ASSESSED THE AMOU NT UNDER THE PROVISIONS OF SECTION 28(VA) RATHER THE S AID AMOUNT SHOULD HAVE BEEN TAXED IN THE HANDS OF THE ASSESSEE AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME. THE D.R. F URTHER ITA NO.1660/MDS/2010 6 SUBMITTED THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 3.00 LAKHS TOWARDS UNEXPLAINED EXPENDITURE UNDER SECTION 69C OF THE ACT. THE DR SUBMITTED THAT A PERUSAL OF THE ARRANGEMENT SHOWS THAT THE AMOUNT OF ` 70.00 LAKHS HAS BEEN RECEIVED BY THE ASSESSEE VIDE BANKERS CHEQUE AND AT THE SAME TIME AN AMOUNT OF ` 3.00 LAKHS HAS BEEN PAID BY THE ASSESSEE IN CASH TO HIS SISTER MRS. KOUSALYA. THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN THE SOURCE OF ` 3.00 LAKHS PAID AT THE TIME OF FAMILY ARRANGEMENT. 7. ON THE OTHER HAND, THE COUNSEL APPEARING ON BEHA LF OF THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS PASSED A WELL REASONED AND DETAILED ORDER. THE CIT(A) HAS DELETED THE ADDITIONS MADE BY THE ASSESSING OFFICER GIVING COGE NT REASONS. HE STRONGLY SUPPORTED THE ORDER OF THE C IT(A). THE COUNSEL FURTHER SUBMITTED THAT THE AMOUNT OF ` 3.00 LAKHS WAS PAID BY THE ASSESSEE IN CASH FROM HIS OWN SOUR CE AND PREVIOUS SAVINGS. 8. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES AND HAVE PERUSED THE ORDERS OF THE AUTHORIT IES BELOW. THE FACTS NARRATED IN PARA 4 HEREINABOVE HAVE NOT B EEN ITA NO.1660/MDS/2010 7 DISPUTED BY EITHER OF THE PARTIES. IT IS AN ADMITTE D FACT THAT AN AMOUNT OF ` 70.00 LAKHS HAS BEEN RECEIVED BY THE ASSESSEE ON ACCOUNT OF FAMILY ARRANGEMENT. IT IS A WELL SETT LED LAW THAT ANY AMOUNT RECEIVED UNDER FAMILY ARRANGEMENT DOES N OT ATTRACT CAPITAL GAINS TAX. THE FAMILY ARRANGEMENT HAS BEEN EXECUTED BETWEEN THE PARTIES WITH AN OBJECT TO BUY MENTAL PEACE AND BRINGING HARMONY IN THEIR RELATIONSHIP. CONSEQUENT TO THE FAMILY SETTLEMENT, MULTIPLE LITIG ATIONS BETWEEN THE PARTIES WERE ALSO LAID TO THE REST. IN OUR CONSIDERED VIEW, THE AMOUNT RECEIVED BY THE ASSESSE E IN THE COURSE OF FAMILY ARRANGEMENT DOES NOT AMOUNT TO CAP ITAL RECEIPT. OUR VIEW IS FURTHER FORTIFIED BY THE JUDGE MENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KA Y ARR ENTERPRISES REPORTED AS 299 ITR 348. THE HONBLE HI GH COURT WHILE DISMISSING THE APPEAL OF THE REVENUE HAS HELD THAT : THE TRIBUNAL HAD RIGHTLY FOUND THAT THE TRANSFER O F SHARES BY WAY OF FAMILY ARRANGEMENT WOULD NOT ATTRACT CAPITAL GAINS TAX, AS THE SAME WAS A PRUDENT ARRANGEMENT TO AVOID POSSIBLE LITIGATION AMONG THE FAMILY MEMBERS AND WAS MADE ITA NO.1660/MDS/2010 8 VOLUNTARILY AND NOT INDUCED BY ANY FRAUD OR COERCION AND THEREFORE, COULD NOT BE DOUBTED. THE HONBLE HIGH COURT FURTHER HELD THAT: THE TRIBUNAL WAS JUSTIFIED IN ARRIVING AT THE CONCLUSION THAT THE FAMILY ARRANGEMENT AMONG THE ASSESSEES DID NOT AMOUNT TO ANY TRANSFER AND HENCE WAS NOT EXIGIBLE TO CAPITAL GAINS TAX. IN THE INSTANT CASE, THE FAMILY ARRANGEMENT HAS NOT BEEN DISPUTED. RATHER, IT HAS BEEN ENTERED INTO BET WEEN THE PARTIES IN A CIVIL REVENUE PROCEEDINGS BEFORE THE H ONBLE HIGH COURT. A PERUSAL OF THE AGREEMENT SHOWS THAT T HE OBJECT OF THE AGREEMENT IS WELFARE OF THE ENTIRE FAMILY, A VOIDING LITIGATION AND BRINGING MENTAL PEACE AND HARMONY IN THEIR RELATIONSHIP. THUS, IN VIEW OF THE LAW LAID DOWN BY THE HONBLE HIGH COURT IN THE CASE OF KAY ARR ENTERPRISES(SUPRA ), THE PRESENT GROUND OF APPEAL OF THE REVENUE IS DISMISSE D. 9. AS REGARDS THE AMOUNT OF ` 3.00 LAKHS PAID BY THE ASSESSEE TO HIS SISTER MRS. KOUSALYA IS CONCERNED, THE COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE SUM WAS PAID OUT OF THE CASH AVAILABLE IN THE HANDS OF TH E ASSESSEE ITA NO.1660/MDS/2010 9 AND HIS FAMILY MEMBERS. MORE SO, THIS FACT HAS NOT BEEN VERIFIED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT. WE, THEREFORE, UPHOLD THE FINDINGS OF T HE CIT(A) ON THIS ISSUE. 10. IN VIEW OF OUR ABOVE SAID FINDINGS, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE BEING DEVOID OF MERIT. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY, THE 29 TH DAY OF OCTOBER, 2012 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE) (VIK AS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 29 TH OCTOBER, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.