DCIT, CHENNAI V. M/s. A.P. Sridhar (HUF), CHENNAI

ITA 2735/CHNY/2016

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8346 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 21-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Income from undisclosed sources; Cost of acquisition; Fair market value; Capital Gains
• Section: 68; 54EC; 13

Judgement Text

आयकर अपील सं./ITA Nos.2735/Chny/2016 िनधा रण वष /Assessment Year: 2011-12 The Dy. Commissioner of Income Tax, Non-Corporate Circle-2, Chennai-34. v. M/s.A P Sridhar (HUF), “Newry Shobika” Flat No.2, I Floor, New No.3, Chimmaiah Pillai Street, T.Nagar, Chennai-600 017. [PAN: AAFHA 5116 E] (अपीलाथ /Appellant) ( यथ /Respondent) आयकर अपील सं./ITA Nos.2726/Chny/2016 िनधा रण वष /Assessment Year: 2011-12 The Dy. Commissioner of Income Tax, Non-Corporate Circle-2, Chennai-34. v. M/s.A P Sandhya, Flat No.2, I Floor, “Newry Shobika” New No.3, Chimmaiah Pillai Street, T.Nagar, Chennai-600 017. [PAN: AWOPA 2666 E] (अपीलाथ /Appellant) ( थ /Respondent) Department by : Mr. AR.V.Sreenivasan, Addl.CIT Assessee by : Mr.N.Arjunraj for S. Sridhar, Adv. सुनवाई क तारीख/Date of Hearing : 07.12.2021 घोषणा क तारीख /Date of Pronouncement : 23.02.2022 आयकर अपीलीय अिधकरण, ‘ए’ यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI ी महावीर िसंह, माननीय उपा , एवं ी जी. मंजूनाथा, , माननीय लेखा सद के सम BEFORE SHRI MAHAVIR SINGH, HON’BLE VICE PRESIDENT AND SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER ITA Nos. 2735 & 2726 /Chny/2016 :: 2 :: आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: These two appeals filed by the Revenue are directed separate, but identical orders of the Commissioner of Income Tax (Appeals)-2, Chennai, both dated 29.06.2016 and pertains to AY 2011-12. Since, the facts are identical and issues are common, for the sake of convenient, these appeals are heard together and are being disposed off, by this consolidated order. 2. The Revenue has raised the following grounds of appeal in ITA No.2735/Chny/2016: 1. The order of the learned CIT(A) is contrary to law, facts and Circumstances of the case. 2. The learned CIT(A) erred in modifying the addition made under the head "income from unexplained sources" to "Long Term Capital gains" without appreciating the fact the documentary value of the transacted property is only 2.50 crores, thereby the sale consideration for the purpose of Long Term Capital Gains ought to be only Rs.2.50 crores. 3. The learned CIT(A) erred in converting the addition made under the head "income from unexplained sources" to "Long Term Capital gains" without appreciating the fact that the buyer of the property had not acknowledged payment of sums over and above the registered value, and there is no evidence to prove the receipt of cash from the buyer of the property, and therefore the cash credits ought to be taxed as "income from other sources" and not "Capital gains". 4. The learned CIT(A) erred in allowing the assessee's claim that the cash credits represent the sale consideration of the property, received in cash, and therefore liable for taxation as Long term Capital gains in the hands of the HUF, is without any evidence, in as much as the cash portion, if any, was not deposited in the HUF's bank account, instead the same was deposited in the coparcener's bank accounts after a gap of six months, and the same cannot be telescoped against the sale consideration. 5. The CIT(A) erred in modifying the addition made under the head "income from unexplained sources" to "Lon^ Term Capital gains", without appreciating the fact that the partition document produced by the assessee is only a self-serving document, and mere tallying of receipt of cash, coparcener's shares would not ITA Nos. 2735 & 2726 /Chny/2016 :: 3 :: amount to actual receipt of sums, unless proved otherwise by means of Account payee cheques etc. 6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the ld.CIT(A) may be set-aside, and that of the Assessing Officer is restored. 3. The brief facts of the case are that the assessee M/s.A P Sridhar (HUF) filed its return of income for the AY 2011-12 on 02.02.2012 declaring total income of Rs.3,83,91,594/-. The case was taken up for scrutiny and during the course of assessment proceedings, it was noticed that the assessee has computed long term capital gains from sale of property at Burkit Road, T. Nagar, Chennai, and claimed that it has received a sale consideration of Rs.7,61,82,000/-. The assessee has claimed indexed cost of acquisition and indexed cost of improvement and declared net capital gain from transfer of property at Rs.6,87,87,600/-. Further, assessee has claimed exemption u/s.54 of the Income Tax Act, 1961 at Rs.2,53,96,006/- for purchase of residential flat and also claimed exemption u/s.54EC of the Act for Rs.50 lakhs in respect of investment in M/s.Rural Electrification Corporation Ltd. (in short “REC") Bonds and finally declared long term capital gains of Rs.3,83,91,594/-. During the course of assessment proceedings, the AO called upon the assessee to file necessary evidences, including copy of Sale Deed, details of investment in new residential flat and also proof for investment in REC Bonds to claim exemption u/s.54EC of the Act. In response, the assessee has filed the details called for by the AO, including copy of Sale Deed, proof of investment in new residential house property and also proof of investment in REC Bonds for claiming exemption u/ss.54 & 54EC of the Act. The assessee further contended that ITA Nos. 2735 & 2726 /Chny/2016 :: 4 :: though, it had sold the property for a consideration of Rs.7,61,82,000/- but to pay lesser stamp duty on the sale transaction, the consideration has been shown at Rs.2.50 Crs. and the balance amount of Rs.5,11,82,000/- has been received in cash. The assessee further contended that the sale proceeds of property have been distributed among the members of HUF as per their share and accordingly, computed long term capital gains from sale of property. 4. The AO, however, was not convinced with the explanation furnished by the assessee and according to the AO, though assessee’s claims to have received sale consideration of Rs.7,61,82,000/- from the buyer, but documentary evidence clearly shows that the property has been sold for a consideration of Rs.2.50 Crs. Therefore, the AO opined that claim of the assessee that the balance amount of Rs.5,11,82,000/- was received in cash and the same has been distributed among the members of HUF, cannot be accepted. The AO had discussed the issue in light of various evidences filed by the assessee, including statement recorded from Mr.A.Kuberan, purchaser of the property by the DDIT (I & CI)-II, Chennai, as per which, the purchaser had categorically denied payment of consideration in cash over and above what was specified in the Sale Deed. Therefore, the AO opined that claim of the assessee that it has received sale consideration of Rs.7,61,82,000/- is incorrect and accordingly, re-computed the long term capital gains derived from the sale of property by taking into account sale consideration as per Sale Deed dated 01.04.2010 at Rs.2.50 Crs and has ITA Nos. 2735 & 2726 /Chny/2016 :: 5 :: further allowed indexed cost of acquisition and improvement of Rs.73,94,400/- and arrived at long term capital gains at Rs.1,76,05,600/-. In so far as deduction claimed u/s.54 & 54EC of the Act, the AO has denied the exemption claimed by the assessee on two grounds by observing that the assessee has not made total consideration received from transfer of property on or before due date for filing of return of income u/s.139(1) to be eligible for claiming exemption u/s.54 of the Act. The AO had also rejected the claim on the ground that the assessee (HUF) was having one property and after sale of said property, the partition of HUF taken place and further, after distribution of sale proceeds among the members of HUF, ceased to exist and thus, investment made by the assessee for purchase of another residential property in the name of M/s. A P Sridhar (HUF), is not eligible for claiming exemption u/s.54 of the Act. The AO had also denied deduction claimed u/s.54EC of the Act for Rs.50 lakhs on the ground that the assessee has made investments in REC Bonds beyond stipulated period of six months from the end of the month, in which, asset has been sold and thus, opined that the assessee is not entitled for deduction u/s.54EC of the Act. In so far as consideration received in cash amounting to Rs.5,11,82,000/-, the AO after taking into consideration, the copy of Sale Deed dated 01.04.2010 filed by the assessee, which shows payment of sale consideration of Rs.2.50 Crs. and also statement of Mr.A.Kuberan, purchaser of the property, opined that consideration received in cash of Rs.5,11,82,000/- claims to have received towards sale of property, cannot ITA Nos. 2735 & 2726 /Chny/2016 :: 6 :: be accepted in view of specific evidences, which suggest payment of consideration by cheque only at Rs.2.50 Crs. Therefore, rejected the arguments of the assessee and made addition of Rs.5,11,82,000/- under the head ‘income from unexplained sources’. 5 Being aggrieved by the Assessment Order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee reiterated its arguments before the AO in light of various evidences including copy of final partition deed executed among the members of HUF to distribute sale proceeds of property and argued that it has received sale consideration of Rs.7,61,82,000/- and further, the same has been received in cash and cheque. The assessee, further, contended that except one immovable property at Burkit Road, T. Nagar, Chennai, the HUF does not own any other property and nor carried out any business to generate such a huge cash. Therefore, the AO is incorrect in coming to the conclusion that, income declared under the head ‘long term capital gains’ is an income from unexplained sources. The assessee had also challenged the disallowance of exemption claimed u/s.54 of the Act and also Sec.54EC of the Act towards payment made for purchase of another residential flat and investment made in REC Bonds. 6. The Ld.CIT(A) after considering the submissions of the assessee and also taken note of various facts, deleted the addition made by the AO towards income from unexplained sources amounting to Rs.5,11,82,000/- by holding that although, the registered document shows payment of ITA Nos. 2735 & 2726 /Chny/2016 :: 7 :: consideration of Rs.2.50 Crs. only, but other circumstantial evidences including location of the property and the Fair Market Value as on the date of sale, clearly indicate that the claim of the assessee that it has sold the property for consideration of Rs.7,61,82,000/- appears to be correct and acceptable. Therefore, rejected the reasons given by the AO and directed the AO to adopt sale consideration of Rs.7,61,82,000/- for computation of long term capital gains derived from transfer of property. As regards, disallowance of deduction u/s.54 of the Act towards re-investment of sale consideration in another residential flat, the Ld.CIT(A) rejected the arguments of the assessee and sustained the additions made by the AO by observing that once final partition of HUF took place, the HUF ceased to exist and thus, post distribution of assets among the members, the question of existence of HUF, cannot be considered. Accordingly, investment made by the assessee in another residential house property cannot be treated as investment made by the HUF. Because, the moment partition took place, status of HUF ceased to exist and the smaller HUF is formed. The Ld.CIT(A) had also rejected the arguments of the assessee on the ground that the new property has been purchased in the name of M/s.A P Sridhar, and accordingly, rejected the arguments of the assessee and sustained the additions made by the AO towards exemption claimed u/s.54 of the Act. In so far as deduction claimed u/s.54EC of the Act in respect of investment made in REC Bonds, the Ld.CIT(A) has sustained the additions made by the AO by holding that the investment made by the assessee on ITA Nos. 2735 & 2726 /Chny/2016 :: 8 :: 31.03.2011 is beyond stipulated period of six months which expires on 30.09.2010 and thus, the assessee is not entitled for exemption u/s.54EC of the Act. Aggrieved by the Ld.CIT(A), the Revenue is in appeal before us. 7. The only issue that came up for our consideration from Revenue appeal is computation of long term capital gains from transfer of property. The Ld.DR submitted that the Ld.CIT(A) erred in directing the AO to compute long term capital gains by adopting sale consideration of Rs.7,61,82,000/- without appreciating the fact that the documentary evidence including the copy of Sale Deed executed for sale of property clearly shows that, the purchaser has paid consideration of Rs.2.50 Crs only. The Ld.DR, further, submitted that the Ld.CIT(A) failed to appreciate the fact that the Mr.A.Kuberan, purchaser of the property clearly denied having paid cash consideration for purchase of property in the sworn statement recorded u/s.131 dated 20.01.2014 by the DDIT (I & CI)-II, Chennai, which clearly shows that the assessee has received sale consideration of Rs.2.5 Crs. only. The Ld.DR further submitted that the Ld.CIT(A) erred in allowing the claim of the assessee that cash credits represent the sale consideration of the property received in cash and therefore, to be treated as sale consideration for long term capital gains in the hands of the HUF without appreciating the fact that the cash portion of consideration, was not deposited in the HUF bank account, instead the ITA Nos. 2735 & 2726 /Chny/2016 :: 9 :: same was deposited in co-parcener bank account after a gap of six months and the same cannot be telescoped against the sale consideration. 8. The Ld.AR for the assessee, on the other hand, supporting the order of the Ld.CIT(A), submitted that except a piece of immovable property at Burkit Road, T. Nagar, Chennai, the assessee does not own any other property or carried out any business to generate such a huge cash to be treated as unexplained income and thus, the Ld.CIT(A) has rightly held that the claim of the assessee that it has received sale consideration of Rs.7,61,82,000/- to be accepted. The Ld.AR further submitted that the assessee itself has voluntarily offered sale consideration of Rs.7,61,82,000/- and computed long term capital gains after claiming certain deductions. Therefore, it is incorrect on the part of the AO to allege that the consideration received for transfer of property is income from unexplained source, that too without any evidence to prove that the assessee is having income from undisclosed sources. The Ld.CIT(A) after considering necessary facts has rightly deleted the addition made by the AO and his order should be upheld. 9. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from records indicate that the HUF had owned one property at Burkit Road, T. Nagar, Chennai, which is evident from the fact that the assessee (HUF) was disclosing rental income from the said property in the return of income filed for earlier years. It was also admitted fact that except rental ITA Nos. 2735 & 2726 /Chny/2016 :: 10 :: income, the HUF does not have any source of income. Therefore, to decide the issue whether cash consideration claims to have been received for transfer of property or income from undisclosed source, one has to keep in mind evidences filed by the assessee including the return of income for the earlier assessment years. Admittedly, the assessee itself has considered Rs.7,61,82,000/- sale consideration for computing long term capital gains. The AO rejected arguments of the assessee that it has received Rs.5.11 Crs. consideration in cash mainly on two grounds. The first and foremost reason given by the AO to reject the arguments of the assessee is Sale Deed executed by the assessee for transfer of property. As per the registered Sale Deed dated 01.04.2010, the consideration was shown at Rs.2.50 Crs. and the same has been paid by cheque & DD. The second reason given by the AO to reject claim of the assessee is that the buyer of the property Mr.A.Kuberan has denied payment of cash consideration as claimed by the assessee in the statement recorded by the DDIT (I & CI)- II, Chennai. Therefore, the AO came to the conclusion that cash consideration of Rs.5,11,82,000/- claimed by the assessee is nothing but income from unexplained source. 10. We have given our thoughtful consideration to the reason given by the AO in light of arguments advanced by the assessee and we ourselves do not subscribe to the reason given by the AO for the simple reason that the assessee (HUF) does not own any other property except the property sold during the impugned assessment year. Further, the assessee neither ITA Nos. 2735 & 2726 /Chny/2016 :: 11 :: carried out any business activity nor generated any other income from other sources. Therefore, in the absence of any business activity which generates undisclosed income, it cannot be alleged that the assessee has generated income from unexplained sources. No doubt, when assessee claims something, which is the duty of the assessee to justify its claim with necessary evidence. Unless assessee substantiated its claim with necessary evidences, then, the AO can infer otherwise but such inference should be based on circumstantial evidences. In this case, the assessee claims that it has received sale consideration in cash amounting to Rs.5,11,82,000/- from transfer of property which is although not supported by documentary evidences, but circumstantial evidences clearly show that there is every possibility of generating income from that source. Therefore, when the assessee has claimed that it has received sale consideration in cash for transfer of property, it is for the AO to disprove the claim of the assessee with cogent reason and sufficient evidences. In this case, the AO has simply gone on the basis of Sale Deed executed by the assessee and also statement of the buyer of the property. It is accepted but not admitted fact that there is a vast difference between guideline value of the property and market value of the property and the guideline value of the property not necessarily be Fair Market Value of the property. In the present case, consideration shown in the Sale Deed is more or less equivalent to guideline value of the property fixed by the Stamp Duty Authority as on the date of sale. Therefore, if you consider the arguments of the assessee in light of ITA Nos. 2735 & 2726 /Chny/2016 :: 12 :: prevailing fact that there will be a difference between guideline value of the property and Fair Market Value of the property, then, the claim of the assessee that it has received cash consideration of Rs.5,11,82,000/- cannot be doubted, more particularly if you consider the location of the property. Therefore, we are of the considered view that there is no error in the reasons given by the Ld.CIT(A) to accept the arguments of the assessee that it has received sale consideration of Rs.7,61,82,000/- for sale of property, even though, the Sale Deed shown only Rs.2.50 Crs. and also the buyer has denied having paid any cash consideration. Hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the Revenue. 11. In the result, the appeal filed by the Revenue in ITA No.2735/Chny/2016 is dismissed. 12. The Revenue has raised the following grounds of appeal in ITA No.2726/Chny/2016: 1. The order of the learned CIT(A) is contrary to law, facts and Circumstances of the case. 2. The learned CIT(A) erred in allowing the addition made U/s. 68 of the IT Act, towards unexplained cash deposits appearing in the assessee's bank accounts without appreciating the fact that, the nexus between the sale of the HUF property and the cash deposits found in the assessee's accounts are not established. 3. The learned CIT(A) 'erred in allowing the addition made u/s.68 of the IT Act, towards unexplained cash deposits appearing in the assessee's bank accounts without appreciating the fact that ,the claim of the assessee that the credited sums represents, receipts from the sale proceeds of the HUF property, is not proved by documentary evidence like sale deed of the property incorporating the full sale consideration, and further there was a time gap of more than six months from the date of sale of property by the HUF to the date of deposit of cash in the assessee's accounts. ITA Nos. 2735 & 2726 /Chny/2016 :: 13 :: 4. The learned CIT(A) erred in allowing the unexplained cash deposits found in the assessee's bank accounts, without appreciating the fact that the sale proceeds of the HUF property ought to be deposited in the HUF's account and then transmitted to the assessee's account, through account payee cheques, in order to establish the nexus, but payment of huge sums, of the order of more than 2 crores to a coparcener of 19 years age, directly by the buyer of the property is beyond the imagination of any sorts. 5. The learned CIT(A) erred in allowing in allowing the unexplained cash deposits found in the assessee's bank accounts, without appreciating fact that the partition document produced by the assessee is only a self-serving document, and mere tallying of co-partner's shares would not amount to actual receipt of sums, unless proved otherwise by means of Account payee cheques etc. 6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the ld.CIT(A) may be set-aside, and that of the Assessing Officer is restored. 13. The facts and issues involved in this appeal are identical to the facts and issues which we had considered in ITA No.2735/Chny/2016 for the assessment year 2011-12 in the case of M/s. A P Sridhar (HUF). The assessee had deposited cash into her bank account and explained that source for cash deposit was out of distribution of assets by M/s. A P Sridhar (HUF) from sale consideration received for sale of property. The AO has not accepted the claim of M/s. A P Sridhar (HUF) and accordingly, excess consideration over and above what was shown in the Sale Deed has been treated as income from unexplained source in the hands of M/s. A P Sridhar (HUF). Similarly, in the present case, the AO has not accepted the explanation of the assessee that source for cash deposit was out of distribution of assets by HUF and accordingly, the AO assessed the total value of the assets as on 31.03.2011 minus income declared by the assessee for the assessment year 2011-12 as income from unexplained sources. We find that an identical issue had been considered by us in the case of M/s. A P Sridhar (HUF) in ITA No.2735/Chny/2016, wherein, we ITA Nos. 2735 & 2726 /Chny/2016 :: 14 :: had accepted the claim of the assessee that it has received sale consideration of Rs.7,61,82,000/- from sale of property owned by HUF and further, the assets have been distributed among the members of HUF upon final partition. We, further, noted that as per the financial statement of HUF final partition filed by the assessee which has been re-produced at Para No.7 of Ld.CIT(A)’s order, the assessee, M/s. A P Sandhya had received a sum of Rs.2,36,00,000/- from M/s. A P Sridhar (HUF) upon distribution of assets. Therefore, once it has been accepted that M/s. A P Sridhar (HUF) has received sale consideration of Rs.7,61,82,000/- from sale of property, then the claim of the assessee that it has distributed assets of HUF upon final partition to its members also needs to be accepted. If the distribution of assets of HUF among members is accepted, then the present assessee Ms.A.P.Sandhya had received a sum of Rs.2,36,00,000/- from M/s. A P Sridhar (HUF) which includes cash deposit with Canara Bank amounting to Rs.2,10,50,000/-, Post office deposit of Rs.9 lakhs and investment in LIC amounting to Rs.16,50,000/-. The Ld.CIT(A) after taking into consideration various facts has given categorical findings that the source for cash deposit into assessee’s bank account is out of distribution of assets by HUF and thus, there is no reason to the AO to disbelieve the claim of the assessee that the source for cash deposit is out of amount received from HUF. We find that the reasons given by the Ld.CIT(A) to delete the addition made by the AO, cannot be faulted, because the Revenue has failed to bring on record any evidences to counter the findings of the facts recorded by the ITA Nos. 2735 & 2726 /Chny/2016 :: 15 :: Ld.CIT(A). Hence, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue. 14. In the result, the appeal filed by the Revenue in ITA No.2726/Chny/2016 is dismissed. 15. In the result, the appeals filed by the Revenue in ITA No.2735/Chny/2016 & ITA No.2726/Chny/2016 are dismissed. Order pronounced on the 23 rd day of February, 2022, in Chennai. Sd/- (महावीर िसंह) (MAHAVIR SINGH) उपा /VICE PRESIDENT Sd/- (जी. मंजूनाथा) ( G. MANJUNATHA) लेखा सद य/ACCOUNTANT MEMBER चे ई/Chennai, दनांक/Dated: 23 rd February, 2022. TLN, Sr.PS आदेश क ितिलिप अ ेिषत/Copy to: 1. अपीलाथ /Appellant 4. आयकर आयु"/CIT 2. यथ /Respondent 5. िवभागीय ितिनिध/DR 3. आयकर आयु" (अपील)/CIT(A) 6. गाड फाईल/GF