Mohd. Waheed Khan, Hyderabad V. ITO, Ward - 6(1), Hyderabad

ITA 316/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66170 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 28-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: A V RAGHURAM
• Keywords: Diversion of income; Cost of acquisition; Difference of opinion
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 316/HYD/2012 ASSESSMENT YEAR: 2002-03 MOHD. WAHEED KHAN, APPELLANT HYDERABAD (PAN AAXPM0859N) VS. INCOME-TAX OFFICER, RESPONDENT WARD 6(1), HYDERABAD. APPELLANT BY : SHRI A.V. RAGHURAM RESPONDENT BY : SMT. NIVEDITA BISWAS DATE OF HEARING : 09/08/2012 DATE OF PRONOUNCEMENT : 24/08/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE ASSESSEES IS DIRECTED AGA INST THE ORDER OF CIT(A)-IV, HYDERABAD DT. 27/12/2011 FOR TH E ASSESSMENT YEAR 2002-03.WE FIND THAT THERE IS A DELAY OF 2 DAY S IN FILING THE APPEAL BEFORE US AND THE SAME IS CONDONED. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE ALONG WITH HIS BROTHERS/SISTERS WERE OWNERS OF A PROPERTY KNOW N AS BASHIR MANZIL BEARING MCH NO. 6-3-581 ADMEASURING 4899 SQ .YDS., SITUATED AT KHAIRATABAD, HYDERABAD. THERE WAS BUILT UP AREA OF ABOUT 16,000 SFT ON THE ABOVE LAND. THE ASSESSEE AN D OTHERS ENTERED INTO AN AGREEMENT DT. 14/03/1988 WITH M/S B NR DEVELOPERS (P.) LTD. REP. BY ITS MANAGING DIRECTOR SRI B.C. REDDY, FOR THE PURPOSE OF DEVELOPMENT OF THE PROPERTY. AS PER THE TERMS OF THE AGREEMENT, BNR DEVELOPMENT PVT. LTD., WAS TO PAY TOTAL ITA NO. 316/HYD/2012 MOHD. WAHEED KHAN 2 CONSIDERATION OF RS. 34,50,000/-. OUT OF THIS RS. 1 8 LACS WAS TO BE PAID IN CASH AND THE REMAINING AMOUNT OF RS. 16, 50,000 WAS TO BE PAID IN THE FORM OF COST OF CONSTRUCTION OF S IX FLATS. AN AMOUNT OF RS. 5 LACS WAS PAID AT THE TIME OF AGREEM ENT DT. 14/03/1988 AND FURTHER AMOUNT OF RS. 6 LACS WAS TO BE PAID AFTER OBTAINING URBAN LAND CEILING EXEMPTION. HOWEVER, ON ACCOUNT OF VARIOUS FACTORS INCLUDING THE PENDENCY OF LITIGATIO N BEFORE THE CIVIL COURT AND FOR WANT OF NOC FROM APPROPRIATE AU THORITY FOR AGREEMENT DT. 14/03/1988, BNR DEVELOPERS P. LTD. CO ULD NOT DEVELOP THE PROPERTY AND IT DID NOT MAKE ANY OTHER PAYMENT EXCEPT THE INITIAL AMOUNT OF RS. 5 LAKHS. 3. ON A LATER DATE, THE ASSESSEE AND HIS BROTHERS & OTHERS DECIDED TO SELL THE PROPERTY. SINCE BNR DEVELOPERS PVT. LTD. HELD THE DEVELOPMENT RIGHTS IN RESPECT OF THE PROPERTY A ND HAD ALSO SPENT CONSIDERABLE WITH RESPECT TO THE WRIT PETITIO N FILED BEFORE THE HONBLE HIGH COURT, AGAINST 269UD ORDER BY THE DEPARTMENT, THE BNR DEVELOPERS MADE A PARTY TO THE AGREEMENT OF SALE ENTERED INTO ON 05/02/1997 WITH SHRI G. SUDARSHAN R EDDY AND 10 OTHERS. AS PER THE TERMS OF THE AGREEMENT OF SALE T HE TOTAL CONSIDERATION WAS AGREED AT RS. 2.01 CRORES. OUT OF THIS CONSIDERATION, THE ASSESSEE AND HIS BROTHERS WAS TO RECEIVE AN AMOUNT OF RS. 189 LACS AND BNR DEVELOPERS PVT. LTD. , WAS DIRECTLY PAID RS. 12 LACS FOR THE RIGHTS IT HELD IN THE PROPERTY. THUS, THE ASSESSEE AND OTHERS RECEIVED ONLY RS. 1.8 9 LACS AND THE ASSESSEE IN RETURN OF INCOME HAD CLAIMED THE AMOUNT OF RS. 12 LACS AS DEDUCTION FROM TOTAL CONSIDERATION RECEIVED . THE ASSESSEE AND OTHERS HAD NOT REFUNDED THE AMOUNT OF RS. 5 LAC S RECEIVED ON 14/03/1988 AS BNR DEVELOPERS FAILED TO HONOUR ITS A GREEMENT AND FURTHER ON ACCOUNT OF FACT THAT ASSESSEE AND OT HERS HAD TO INCUR HUGE LITIGATION EXPENSES FROM 1988 TILL 1997 WHEN THE PROPERTY WAS ULTIMATELY SOLD. ITA NO. 316/HYD/2012 MOHD. WAHEED KHAN 3 4. THE ASSESSING OFFICER DID NOT ALLOW THE ABOVE DE DUCTION AND HELD THAT THE AMOUNT OF RS. 12 LAKHS PAID TO BNR DE VELOPERS IS IN THE FORM OF EARNEST MONEY REFUND BY THE ASSESSEE AN D OTHERS TO BNR DEVELOPERS. THE ASSESSEE BOTH IN THE ASSESSMENT PROCEEDINGS AS WELL AS IN THE PENALTY PROCEEDINGS S UBMITTED THAT THEY HAD RECEIVED ONLY RS. 5 LAKHS INITIAL PAYMENT ON 14/03/1988 AND THAT THE AMOUNT OF RS. 12 LAKHS IS NOT RETURN O F EARNEST MONEY BUT IS AN AMOUNT PAID BY THE VENDORS (G. SUDE RSHAN & 10 OTHERS) DIRECTLY TO BNR DEVELOPERS TO ENSURE THE CO OPERATION OF BNR DEVELOPERS AND TO PERFECT THE TITLE. THIS AMOUN T PAID BY VENDORS DIRECTLY TO BNR DEVELOPERS IS DIVERSION OF INCOME BY OVERRIDING TITLE AND THE ASSESSEE AND OTHERS NEVER RECEIVED SUCH AMOUNT INTO THEIR COFFERS. IN FACT THE ASSESSEE AND OTHERS SHOULD HAVE TAKEN INTO ACCOUNT ONLY RS. 189 LACS AS TE CON SIDERATION INSTEAD OF TAKING RS. 201 LACS AS CONSIDERATION AND THEN CLAIMING DEDUCTION OF RS. 12 LACS PAID BY VENDORS TO BNR DEV ELOPERS DIRECTLY. 5. WITH REGARD TO THE AMOUNT OF RS. 12,00,000/- CON TENTEDLY PAID TO M/S BNR DEVELOPERS P. LTD., BEFORE THE CIT( A), THE ASSESSEE SUBMITTED THAT THE SIX BROTHERS HAD ENTERE D INTO AN AGREEMENT FOR SALE OF THE ABOVE PROPERTY TO M/S BNR DEVELOPERS P. LTD VIDE AN AGREEMENT DT. 14/03/1988, GIVING A P OWER OF ATTORNEY. HOWEVER, THEY COULD NOT FULFILL THE SAID AGREEMENT AND LATER THE SIX BROTHERS ALONG WITH THE SAID AGREEMEN T HOLDER, ENTERED INTO A FRESH AGREEMENT WITH M/S SAIRAM CONS TRUCTIONS ON 05/02/1997. IN VIEW OF THIS, THE ASSESSEE AND HIS B ROTHERS HAD AGREED TO PAY RS. 12,00,000/- TO M/S BNR DEVELOPERS P. LTD. HOWEVER, ON FINDING THAT THERE WAS NO CLAUSE IN THE AGREEMENT WITH M/S BNR DEVELOPERS P. LTD., BINDING THE ASSESS EE AND HIS BROTHERS TO MAKE SUCH PAYMENT, THE SAME WAS CONSIDE RED BY THE ITA NO. 316/HYD/2012 MOHD. WAHEED KHAN 4 CIT(A) AS MADE OUT OF PERSONAL OBLIGATION AND NOT O UT OF ANY LEGAL REQUIREMENT. IT WAS HELD THAT THERE WAS NO LE GAL ENCUMBRANCE ON THE PROPERTY TO THAT EXTENT AND THER EFORE THE CIT(A) DID NOT CONSIDER IT TO BE AN ALLOWABLE DEDUC TION AGAINST SALE. THE CIT(A) FURTHER DID NOT AGREE WITH THE CON TENTION OF THE ASSESSEE THAT THE CONSIDERATION MINUS RS. 12,00,000 /- SHOULD BE HELD AS SALE PROCEEDS RECEIVED AS THE ASSESSEE WAS NOT LEGALLY BOUND TO MAKE SUCH PAYMENT FOR REMOVING ANY ENCUMBR ANCES. HE, THEREFORE, CONSIDERED THE PAYMENT OF RS. 12,00, 000/- AS AN APPLICATION OF SALE PROCEEDS WHICH COULD NOT BE ALL OWED AS DEDUCTION. THE CIT(A) FURTHER OBSERVED THAT THE INC LUSION OF BNR DEVELOPERS AS A PARTY TO THE AGREEMENT COULD NOT HA VE BEEN CONSIDERED AS HAVING BEEN DONE AS A LEGAL COMPULSIO N ON ACCOUNT OF THE AGREEMENT DT. 14.3.1988. ACCORDINGLY, THE AC TION OF THE AO IN IGNORING THE PAYMENT OF RS. 12 LAKHS AS DEDUCTIO N FROM SALE CONSIDERATION WAS UPHELD. 6. DURING THE COURSE OF SET ASIDE ASSESSMENT PROCEE DINGS, THE AO NOTED THAT SINCE THE PROJECT AS PROPOSED IN THE AGREEMENT WITH M/S BNR DEVELOPERS P. LTD. COULD NOT BE TAKEN UP, THE AMOUNT OF RS. 12,00,000/- WAS IN THE NATURE OF ADVA NCE RETURNED TO THE SAID PARTY, WHICH COULD NOT BE ALLOWED AS DE DUCTION OUT OF SALE CONSIDERATION AS COST OF ACQUISITION. IT WAS S UBMITTED BEFORE HIM VIDE A LETTER DT. 10/12/2008 THAT THE AGREEMENT OF SALE DT. 05/02/1997 (PAGE 5) (PARA 1 AND 3) DOES NOT INDICAT E THAT THE AMOUNT OF RS. 12 LAKHS WAS TOWARDS THE REFUND OF EA RNEST MONEY. IT WAS SUBMITTED THAT WHAT WAS PAID AS EARNEST MONE Y WAS RS. 5 LAKHS AND THE BALANCE WAS NEVER PAID. THE ASSESSEE ALSO FURNISHED A COPY OF AN UNSIGNED RESCIND AGREEMENT, INTENDED TO BE ENTERED INTO IN NOV. 1995. IT WAS SUBMITTED THAT AS PER THE SAME, THE ASSESSEE HAD TO FACE LITIGATION BEFORE TH E HONBLE HIGH COURT AND THEREFORE THEY DID NOT AGREE TO REFUND TH E AMOUNT OF ITA NO. 316/HYD/2012 MOHD. WAHEED KHAN 5 RS. 5 LAKHS AS THE SAME WAS SPENT TOWARDS LITIGATIO N. IT WAS FOR THIS REASON THAT THE SAID RESCIND AGREEMENT WAS NOT EXECUTED. HOWEVER, WHEN THE ASSESSEE AND HIS BROTHERS LATER I NTENDED TO ENTER INTO A FRESH AGREEMENT, M/S BNR DEVELOPERS P. LTD. CONVINCED THE OTHER PARTY FOR THE SAME AND GOT RS. 12 LAKHS AS AGREEMENT HOLDER AND NOT AS A REFUND OF EARNEST MON EY. IT WAS SUBMITTED THAT SINCE THE EARNEST MONEY WAS SPENT FO R THE LITIGATION IN RESPECT OF THE EARLIER AGREEMENT, THE EXPENDITURE SO INCURRED TOWARDS LITIGATION BOTH WITH THE DEPARTMEN T AND HIGH COURT AND ALSO WITH THE SISTERS HAS NOT BEEN INCLUD ED IN THE EXPENSES. IT WAS FURTHER CLAIMED THAT IN CASE THE C LAIM OF DEDUCTION OF RS. 12 LAKHS FROM CONSIDERATION RECEIV ED IS NOT ACCEPTED, EXPENDITURE OF RS. 5 LAKHS ON LITIGATION SHOULD BE CONSIDERED. THE ASSESSEE ALSO FILED AN UNSIGNED COP Y OF THE ABOVE REFERRED RESCIND AGREEMENT. 7. WHILE DECIDING THE APPEAL AGAINST THE ORDER PASS ED U/S 143(3) R.W.S. 250, IT WAS SEEN THAT EVEN DURING THE COURSE OF SET ASIDE ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NO T FURNISH ANY EVIDENCE REGARDING ITS LIABILITY TO PAY THE AMOUNT OF RS. 12 LAKHS TO M/S BNR DEVELOPERS P. LTD. THE UNSIGNED RESCIND AGREEMENT SOUGHT TO BE FURNISHED COULD NOT BE SAID TO HAVE AN Y EVIDENTIARY VALUE. SIMILARLY, IT WAS ALSO SEEN THAT THERE WAS N O EVIDENCE REGARDING ANY LEGAL EXPENDITURE AND FURTHER WITH RE GARD TO THE SOURCE OF ANY SUCH EXPENDITURE IF INCURRED. ON THE OTHER HAND, THERE WAS NO DISPUTE WITH REGARD TO THE FACT THAT T HE ASSESSEE AND HIS BROTHERS HAVE RECEIVED RS. 11 LAKHS FROM M/ S BNR DEVELOPERS P. LTD, EVEN THOUGH THE AGREEMENT SOUGHT TO BE ENTERED WAS NOT ACTED UPON. UNDER THE CIRCUMSTANCES , THE AMOUNT SO RECEIVED WAS TO BE TREATED AS AN ADVANCE GIVEN FOR GETTING A RIGHT IN THE PROPERTY ONLY. ACCORDINGLY, IT WAS HELD THAT SINCE THE ASSESSEE WAS NOT LEGALLY BOUND TO MAKE AN Y SUCH ITA NO. 316/HYD/2012 MOHD. WAHEED KHAN 6 PAYMENTS TO M/S BNR DEVELOPERS P. LTD., THE PAYMENT OF RS. 12 LAKHS TO THE SAID PARTY WAS TO BE CONSIDERED AS HAV ING BEEN MADE OUT OF SOME PERSONAL OBLIGATION, WHICH ONLY AMOUNTE D TO APPLICATION OF THE SALE PROCEEDS TO THAT EXTENT. OB VIOUSLY, THE SAME COULD NOT HAVE BEEN ALLOWED AS A DEDUCTION FRO M THE SALE CONSIDERATION OF THE SALE PROPERTY. 8. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S IN APPEAL BEFORE US. 9. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI A.V. RAGHURAM SUBMITTED THAT THE ASSESSEE AND OTHERS HAV E MADE A BONAFIDE CLAIM OF RS. 12,00,000/- AS DEDUCTION FROM THE TOTAL AMOUNT PAID BY THE VENDORS AND THIS AMOUNT SHOULD H AVE BEEN TREATED AS DIVERSION OF INCOME BY OVERRIDING TITLE IN AS MUCH AS THE ASSESSEE AND OTHERS DID NOT RECEIVE THIS AMOUNT AT ALL SO AS TO TREAT IT AS PART OF SALE CONSIDERATION. WITHOUT PREJUDICE, THIS AMOUNT CANNOT BE TREATED AS RETURN OF EARNEST AMOUN T IN AS MUCH AS THERE IS NO EVIDENCE ON RECORD THAT THE ASSESSEE HAS RECEIVED MORE THAN RS. 5 LAKHS, AND IT HAS BEEN THE STAND OF THE ASSESSEE THAT HE AND OTHERS DID NOT RECEIVE ANY AMOUNT EXCEP T RS. 5 LACS MENTIONED ABOVE. THIS AMOUNT ALSO IS NOT RETURNABLE AS BNR DEVELOPERS FAILED TO EXECUTE THE AGREEMENT ON ACCOU NT WHICH AND FOR OTHER REASONS THE ASSESSEE AND OTHERS HAVE TO S PEND HUGE AMOUNTS IN LITIGATION. IT IS, THEREFORE, SUBMITTED THAT THE CLAIM FOR DEDUCTION OF RS. 12 LAKHS AND THE CLAIM OF EXPENDIT URE OF RS. 5 LAKHS FOR MEETING LITIGATION EXPENSES IS GENUINE. 10. ON THE OTHER HAND, THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 316/HYD/2012 MOHD. WAHEED KHAN 7 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND THAT THE DETAILS PERTAIN ING TO THE CLAIM OF THE ASSESSEE WERE FILED AND WERE AVAILABLE WITH THE AO. WE ARE OF THE VIEW THAT WHILE THE ASSESSEE HAD MADE BONAFI DE CLAIMS IT WAS FOR THE AO TO DETERMINE WHETHER THE SAME ARE AL LOWABLE AS PER THE PROVISIONS OF THE ACT. THEREFORE, THE QUEST ION OF CONCEALING INCOME OR FURNISHING INACCURATE PARTICUL ARS DOES NOT ARISE. SINCE IT IS A DIFFERENCE OF OPINION, ON WHIC H, PENALTY CANNOT BE LEVIED AS HELD BY THE HONBLE SUPREME COURT IN T HE CASE OF RELIANCE PETROPRODUCTS PVT. LTD., [2010] 322 ITR 158 (SC), WE ARE OF THE OPINION THAT CONCEALMENT PENALTY IS NOT LEVIABLE ON THE ASSESSEE AND ACCORDINGLY THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST, 2012. SD/- SD/- (D. KARUNAKARA RAO) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL M EMBER HYDERABAD, DATED: 24 TH AUGUST, 2012. KV COPY TO:- 1) MOHD. WAHEED KHAN, C/O. SHRI K. VASANTKUMAR, ADVOCATE, FLAT NO. 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 500 001. 2) ITO, WARD 6(1), HYDERBAD 3) THE CIT (A)-IV, HYDERABAD 4) THE CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.