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

ITA 312/HYD/2015

• Counselvise Citation: 31222514 RSA 2015
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 27-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y SESHA SRINIVAS
• Assessee Lawyers: D V ANJANEYULU; P PRAVALLIKA
• Keywords: Unexplained cash credit; Salary income; Bonafide belief; Cost of acquisition
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI P.MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 312/HYD/2015 ASSESSMENT YEAR: 2006-07 SYED BAQAR HASAN, HYDERABAD PAN AAIPH 8713 R VS. INCOME TAX OFFICER, WARD 9(2), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 313/HYD/2015 ASSESSMENT YEAR: 2006-07 SYED AFSAR HASAN, HYDERABAD PAN AAMPH 2176 H VS. INCOME TAX OFFICER, WARD 9(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D.V. ANJANEYULU & MS. P. PRAVALLIKA REVENUE BY : SHRI Y. SESHA SRINIVAS DATE OF HEARING : 21-09-2015 DATE OF PRONOUNCEMENT : -10-2015 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS FILED BY DIFFERENT ASSESSEES AR E DIRECTED AGAINST SEPARATE ORDERS, BOTH, DATED 23/03/2015 OF LD. CIT(A) VII, HYDERABAD FOR THE AY 2006-07. THE ASSESSEES IN BOTH OF THESE APPEALS ARE DIRECTORS OF THE SAME COMPANY AND AS TH E FACTS AND ISSUES ARE COMMON IN BOTH THE APPEALS, THEY WERE CL UBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED F OR THE SAKE OF CONVENIENCE. 2 ITA NOS. 312 & 313 /HYD/2015 SYED BAQAR HASAN & SYED AFSAR HASAN 2. GROUNDS RAISED BY ASSESSEES IN BOTH THE APPEALS ARE COMMON, THE SUM AND SUBSTANCE OF WHICH IS AGAINST THE ACTIO N OF LD. CIT(A) IN SUSTAINING PENALTY U/S 271(1)(C) OF THE ACT. 3. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS IN CASE OF SYED BAQAR HASAN BEING ITA NO. 312/H/2015. 4. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE DERI VING INCOME FROM SALARY, SHARE INCOME FROM HANSA OVERSEAS AND OTHER SOURCES, FILED HIS RETURN OF INCOME FOR THE AY UNDER CONSIDERATION ON 31/10/2006 ADMITTING INCOME OF RS. 1,57,700. THE CASE WAS REOP ENED U/S 147 AND AN ORDER U/S 143(3) READ WITH SECTION 147 WAS P ASSED ON 30/03/13 DETERMINING THE INCOME AT RS. 1,06,50,840 INCLUDING LONG TERM CAPITAL GAINS AT RS. 1,03,16,340, WHICH WAS UP HELD BY THE CIT(A), ON APPEAL, VIDE ORDER DATED 22/11/13. 5. THEREAFTER, AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ON THE GROUND THAT ASSESSEE HAS CONCEALED H IS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME, BY OBSE RVING AS UNDER: A) THE ASSESSEE, ALONG WITH HIS BROTHER AND MOTHER , SOLD JOINTLY HELD PROPERTY AT DOOR NO.8-2-678/A, ROAD NO.12, BA NJARA HILLS VIDE SALE DEED NO.2541/05 ON 23.06.2005 AND RECEIV ED RS.1,09,50,000/- TOWARDS HIS SHARE OF SALE CONSIDE RATION. B) THE SAID CONSIDERATION OF RS.109.50 LAKHS WAS R ECEIVED VIDE TWO CHEQUES ON 22ND AND 29TH JUNE 2005 AND DEPOSIT ED IN THE BANK ACCOUNTS OF THE ASSESSEE. C) THE ASSESSEE CONVERTED THESE AMOUNTS INTO FDS, EARNED INTEREST AND ADMITTED THE SAME UNDER OTHER SOURCES FOR THE YEAR UNDER CONSIDERATION. D) THE ASSESSEE, ALONG WITH HIS BROTHER, AS DIRECT ORS AND PARTNER OF M/S HOE LEATHER GARMENTS PVT LTD., AND M/S HANSA OVERSEAS ENTERPRISES, AGREED FOR THE OTS WITH THE CREDITOR 3 ITA NOS. 312 & 313 /HYD/2015 SYED BAQAR HASAN & SYED AFSAR HASAN BANKS ON 29.12.2005. ACCORDINGLY, THE ASSESSEE UT ILIZED THE SALE PROCEEDS, AFTER MORE THAN SIX MONTHS OF THEIR RECEIPT, TOWARDS CLEARING DUES OUTSTANDING IN THE NAME OF C OMPANY AND FIRM. E) TO AVOID THE QUESTION OF TAXABILITY OF THE CAPI TAL GAINS IN THE HANDS OF ITS DIRECTORS, THE COMPANY AVOIDED EXPLAI NING THE CREDITS MADE AGAINST THE NAMES OF THE DIRECTORS, I NCLUDING THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDI NGS OF THE COMPANY. F) IT IS DURING THE COURSE OF REMAND PROCEEDINGS, THE COMPANY FOR THE FIRST TIME BROUGHT OUT THE ISSUE OF SALE O F PROPERTY BY THE DIRECTORS. HERE THE ASSESSEE TOOK THE STAND THAT T HE ENTIRE SALE CONSIDERATION WAS APPROPRIATED BY THE BANKS DIRECT LY TOWARDS DUES OUTSTANDING AGAINST THE NAME OF THE COMPANY, CONTRARY TO THE CREDITS APPEARING IN HIS BANK ACCOUNT AND THE SUBSEQUENT DATE OF OTS ON 29.12.2005. G) THOUGH A VAGUE CLAIM OF 'DIRECT APPROPRIATION B Y THE BANKS' WAS MADE BY THE ASSESSEE, BUT FAILED TO PROVE THAT THE SALE WAS A 'CONDITIONAL SALE' OR THE PROPERTY IN QUESTION W AS MORTGAGED TO THE BANKS. H) AS IT WAS CLEAR THAT NO STRINGS WERE ATTACHED T O THE SALE OF THE PROPERTY, THE GAINS ARISING OUT OF THE SALE OF PROPERTY WAS SUBJECTED TO TAX AND AS THE SUBMISSIONS OF THE ASS ESSEE ARE CONTRARY TO THE FACTS, CONSEQUENTIAL PENAL PROCEED INGS WERE INITIATED. I) AT THIS POINT, THE ASSESSEE BROUGHT OUT THAT TH E SALE CONSIDERATION, WHICH WAS CREDITED IN THE BOOKS OF THE COMPANY, WAS TREATED AS UNEXPLAINED IN THE HANDS OF THE COM PANY AND THEREFORE, THE SAME CREDIT CANNOT BE TAXED AGAIN. 4 ITA NOS. 312 & 313 /HYD/2015 SYED BAQAR HASAN & SYED AFSAR HASAN J) AS DISCUSSED IN THE PRECEDING PARAGRAPHS, THIS CLAIM OF DOUBLE TAXATION, IS NOT TENABLE SINCE THE ASSESSEE CANNOT AVOID THE RIGHT TAX PAYABLE IN THE HANDS OF RIGHT PERSON . 5.1. AFTER CONSIDERING ASSESSEES CONTENTIONS, THE OBSERVATIONS OF AO ARE AS UNDER: 5.2 THE ASSESSEE TRIED TO EVADE TAX ON SALE OF PROP ERTY AT EACH STAGE OF THE PROCEEDINGS AND IN THE CONTRARY CLAIME D THAT HE HAS FURNISHED VOLUNTARILY ALL THE INFORMATION RELATING TO THE SALE OF . PROPERTY AND HAS NOT CONCEALED ANY INCOME. HOWEVER, THIS CLAIM OF THE ASSESSEE IS BEREFT OF ANY MERIT. IT IS NOT A CA SE THAT THE ASSESSEE HAS DISCLOSED THE SALE OF PROPERTY IN HIS INDIVIDUA L RETURN OF INCOME FILED FOR THE SUBJECT ASSESSMENT YEAR AND CLAIMED T HE SAME AS EXEMPT, AS PER HIS UNDERSTANDING. IT IS ONLY DURING THE COURSE OF REMAND REPORT PROCEEDINGS IN THE CASE OF THE COMPAN Y, THE ASSESSEE BROUGHT OUT THE ISSUE OF SALE OF PROPERTY FOR THE P URPOSE OF EXPLAINING THE CREDITS APPEARING IN THE BOOKS OF THE COMPANY, BUT WITHOUT MUCH SUCCESS, INASMUCH AS, THE UNEXPLAINED CREDIT ADDED IN THE CASE OF COMPANY WAS UPHELD BY THE FIRST APPELLATE AUTHORITY . HE FURTHER OBSERVED THAT, BASED ON THE INFORMATION FURNISHED B Y THE ASSESSEE IN THE CASE OF COMPANY, M/S HOE LEATHER GARMENTS PVT L TD., THE CASE OF THE ASSESSEE WAS REOPENED AND A NOTICE U/S 148 W AS ISSUED. EVEN AT THIS STAGE, THE ASSESSEE HAS NOT DISCLOSED THE T RANSACTION OF SALE OF PROPERTY IN THE RETURN FILED IN RESPONSE TO NOTI CE U/S 148 AND CLAIMED SOME SORT OF EXEMPTION, AS HE THINKS FIT. T HE REASONS FOR NOT SHOWING THE SALE TRANSACTION ARE CLEAR SINCE THE AS SESSEE IS WELL AWARE OF THE FACT THAT THE GAINS ARISING OUT OF THE SALE ARE NOT EXEMPT UNDER ANY PROVISIONS OF THE' ACT. AS THE ASSESSEE I S CLEAR ABOUT THIS POSITION, HE AVOIDED ADMITTING THE SALE TRANSACTION IN HIS INDIVIDUAL RETURN BUT CASUALLY CLAIMS THAT HE HAS DISCLOSED AL L THE INFORMATION PERTAINING TO HIS ASSESSMENT. AS THIS CLAIM IS FOUN D TO BE TOTALLY UNTRUE, GOING BY THE NON-ADMISSION OF THE SALE TRAN SACTION IN THE 5 ITA NOS. 312 & 313 /HYD/2015 SYED BAQAR HASAN & SYED AFSAR HASAN RETURN OF INCOME FILED, AO HELD THAT THE ASSESSEE HAD CONCEALED HIS PARTICULARS OF INCOME RELEVANT FOR THE SUBJECT ASSE SSMENT YEAR. 5.3. IN VIEW OF THE ABOVE OBSERVATIONS AND CONSIDER ING THE FACTS OF THE CASE AND THE CONDUCT OF THE ASSESSEE, AO LEVIED PENALTY OF 200% WHICH COMES TO RS. 46,42,000 U/S 271(1)(C) OF THE A CT. 6. AGGRIEVED BY THE PENALTY ORDER, ASSESSEE PREFERR ED APPEAL BEFORE LD. CIT(A). 7. LD. CIT(A) AFTER DISCUSSING THE ISSUE AT LENGTH CONFIRMED THE PENALTY LEVIED BY AO BY OBSERVING THAT THE CLAIM OF BONA-FIDE BELIEF OF ASSESSEE IN NOT OFFERING THE GAINS TO TAX WAS NOT A T ALL PROVED WITH ANY IOTA OF BASIS AND IT IS ONLY TO ESCAPE THE BURD EN OF TAX THAT THE ASSESSEE WENT ON TO FURNISH PART INFORMATION/PART M ATERIAL TO SUIT HIS CONVENIENCE AND HAS NOT ACTED AS PER THE CLAIM OF B ONA-FIDE BELIEF. 8. STILL AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US . 9. BEFORE US, LD. AR SUBMITTED THAT THE CIT(A) FAIL ED TO APPRECIATE AND CONSIDER THE CREDIBLE EVIDENCE AND EXPLANATION OFFERED BY ASSESSEE REGARDING THE NON-DISCLOSURE OF CAPITAL GA INS IN THE ORIGINAL RETURN OR RETURN IN RESPONSE TO SECTION 148 WITH BO NAFIDE BELIEF THAT THERE IS NO CAPITAL GAINS AS THE ENTIRE SALE PROCEE DS FROM IMMOVABLE PROPERTY WHICH WAS OFFERED AS COLLATERAL SECURITY W AS WHOLLY AND EXCLUSIVELY USED FOR DISCHARGE OF DEBT AND NO BENEF IT ACCRUED OR RECEIVED TO ASSESSEE FROM THE SAID TRANSACTION. 9.1 LD. AR ALSO SUBMITTED THAT THE ASSESSEE BEING D IRECTOR/PARTNER OF THE COMPANY/FIRM HAS USED THE PROCEEDS OF SALE T OWARDS SETTLEMENT OF ONE TIME SETTLEMENT (OTS). ALSO, THE ASSESSEE HA S DISCLOSED THESE FACTS IN THE BOOKS OF THE COMPANY/FIRM AS UNS ECURED LOAN AND DISCHARGED THE LOAN COMMITMENTS IN THE COMPANY/FIRM . MOREOVER, THE ASSESSEE HAS DISCLOSED THE SURPLUS OUT OF THE SETTL EMENT TO THE BANK IN THE BOOKS OF THE COMPANY/FIRM AS BELOW: 6 ITA NOS. 312 & 313 /HYD/2015 SYED BAQAR HASAN & SYED AFSAR HASAN SECURED LOAN FROM SBI AS ON 31/03/05 RS. 332.00 LESS: ONE TIME SETTLEMENT BY SBI RS. 285.00 OFFERED AS INCOME FOR TAX PURPOSES DURING THE AY 2006-07 RS. 47.00 ======== SECURED LOAN FROM SBI RS. 447.00 LESS: ONE TIME SETTLEMENT BY SBI RS. 75.00 OFFERED AS INCOME FOR TAX PURPOSES DURING THE AY 2006-07 RS. 372.81 ======== IT IS CLEAR THAT THE ASSESSEE IS BONAFIDE AND LAW A BIDING CITIZEN BY DISCLOSING THE SURPLUS OF RS. 419.81 LAKHS AS OTHER INCOME IN THE BOOKS OF THE COMPANY/FIRM (REFER PAPER BOOK PAGE 13 ) 9.2 LD. AR ALSO SUBMITTED THAT THE ASSESSEE HAS TO KEEP THE FUNDS IN THE BANK FOR SHORT TERM TILL THE OTS ARRANGEMENT S ARE APPROVED BY THE BANK. AS SOON AS THE OTS IS SANCTIONED BY THE B ANK, THE PROCEEDS WERE USED TO CLEAR THE OTS. THE ASSESSEE H AS ALSO OFFERED THE INTEREST INCOME FOR THE INTERIM PERIOD. IT SHOW S THE INTENTION OF THE ASSESSEE. 9.3 LD. AR ALSO SUBMITTED THAT THE ASSESSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNT AND TRANSFERRED THE SALE PROCEEDS TO DISCHARGE THE OTS, HE WAS OF THE BONAFIDE BELIEF TH AT NO CAPITAL GAIN TAX APPLICABLE ON THIS SALE TRANSACTION. 9.4 LD. AR ALSO SUBMITTED THAT THE HONBLE ITAT, HY DERABAD IN ITA NO. 1386/HYD/2014 & OTHERS HAS STATED AS UNDER: THE HONBLE SUPREME COURT IN THE CASES OF R.M. ARUN ACHALAM VS. CIT (SUPRA) AND VSNR JAGDISH CHANDRAN VS. CIT (SUPRA) HAVE CLEARLY HELD THAT AMOUNT PAID OUT OF SALE PROCEEDS TO CLEAR MORTGAGE DEBT CANNOT BE TREATED AS COST OF ACQUISITION OR COST OF IMPROVEM ENT SO AS TO REDUCE THE SAME FROM SALE CONSIDERATION WHILE COMPUTING CAPITAL GA IN U/S. 48 OF THE ACT. THOUGH THE LEARNED AR HAS RELIED UPON CERTAIN DECISIONS T O CONTEND THAT WHEN THERE ARE CONFLICTING VIEWS, THE VIEW FAVOURABLE TO THE ASSESSEE IS TO BE ADOPTED. HOWEVER, IN THE FACTS OF THE PRESENT CASE, THE AR HAS NOT BROUGHT TO OUR NOTICE ANY DECISION OF THE HONBLE SUPREME COURT C ONTRARY TO THE VIEW EXPRESSED BY THE HONBLE SUPREME COURT IN THE AFOR ESAID DECISIONS. THEREFORE, WHEN THE DECISION RELIED UPON BY THE L EARNED AR IS NOT OF THE HONBLE SUPREME COURT AND THERE ARE DECISIONS OF T HE HONBLE SUPREME COURT 7 ITA NOS. 312 & 313 /HYD/2015 SYED BAQAR HASAN & SYED AFSAR HASAN HOLDING THAT AMOUNT PAID TOWARDS DISCHARGE OF MORT GAGE DEBT CANNOT BE TREATED AS EXPENDITURE U/S. 48 OF THE ACT, WE ARE BOUND TO FOLLOW THE DECISIONS OF THE HONBLE SUPREME COURT. IN VIEW OF THE AFORES AID, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) IN UPHOLDING THE ASSESSMENT OF CAPITAL GAIN AT THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE UP HOLD THE ORDER OF THE LEARNED CIT(A) BY DISMISSING THE GROUNDS RAISED BY THE AS SESSEE. 9.5 LD. AR ARGUED THAT THE HONBLE SUPREME COURT JU DGMENT RELIED ON BY THE HONBLE ITAT IS DISTINGUISHABLE. HE STILL INSISTED THAT THE TRANSFER OF ASSETS WILL NOT ATTRACT TAX. 10. LD. DR, ON THE OTHER HAND, BESIDES RELYING UPON THE ORDERS OF REVENUE AUTHORITIES, SUBMITTED THAT ASSESSEE HAS CO NCEALED HIS PARTICULARS OF INCOME IN AS MUCH AS THE GAIN WAS NO T OFFERED TO TAX IN THE RETURN OF INCOME. HE, THEREFORE, SUBMITTED THAT AO WAS JUSTIFIED IN LEVYING PENALTY U/S 271(1)(C) OF THE ACT. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES . AFTER CONSIDERING THE FACTS AND MATERIAL ON RECORD, IT IS THE FACT TH AT THE ASSESSEE HAS OFFERED THE SURPLUS OUT OF OTS TO BANK IN THE BOOKS OF THE COMPANY/FIRM, WHICH IS MORE THAN THE SALE UNDER DIS PUTE, TO TAX AND ALSO OFFERED TO TAX THE INTEREST INCOME. IT SHOWS T HAT THERE IS NO INTENTION TO CONCEAL THE INCOME. THE LD. AR ALSO IN SISTING THAT THE SALE TRANSACTION DOES NOT ATTRACT INCOME TAX AND HE WAS UNDER INFLUENCE OF HIS FINANCIAL ADVISERS THAT THE SALE OF PROPERTY FO R THE PURPOSE OF BANK SETTLEMENT IS EXEMPT FROM TAX. IT SHOWS THAT ASSESS EE WAS UNDER BONAFIDE BELIEF THAT THE TRANSACTION DID NOT ATTRAC T CAPITAL GAINS TAX. IT GIVES IMPRESSION THAT THE ASSESSEE HAS NO INTENTION TO CONCEAL ANY INCOME. THEREFORE, THIS IS NOT A FIT CASE TO IMPOSE PENALTY U/S 271(1)(C). ACCORDINGLY, WE CANCEL THE PENALTY LEVIE D BY AO U/S 271(1)(C) AND ALLOW THE APPEAL OF ASSESSEE. 12. AS THE FACTS AND ISSUE RAISED BY ASSESSEE IN IT A NO. 313/HYD/2015 ARE MATERIALLY IDENTICAL TO THAT OF IT A NO. 312/HYD/2015, FOLLOWING THE CONCLUSIONS DRAWN THERE IN, WE ALLOW THIS 8 ITA NOS. 312 & 313 /HYD/2015 SYED BAQAR HASAN & SYED AFSAR HASAN APPEAL OF ASSESSEE BY CANCELLING THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT. 13. IN THE RESULT, BOTH THE APPEAL OF ASSESSEES ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER, 2015. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHMA N) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED: 9 TH OCTOBER, 2015 KV COPY TO:- 1) SYED BAQAR HASAN 2) SYED AFSAR HASAN, C/O M/S ANJANEYULU & CO., CAS. , 30, BAGHYALAKSHMI NAGAR, GANDHI NAGAR, HYDERABAD 5 00 080 3) ITO, WARD 9(2), HYDERABAD 3) CIT(A)-VII, HYDERABAD 4) CIT-VII, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.