M/s. Hemadri Associates, Bangalore V. ACIT, Bangalore

ITA 450/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0570 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-09-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 12-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JASON P BOAZ
• Assessee Lawyers: H N KHINCHA
• Keywords: Block assessment; Capital Gains
• Section: 143(3); 147; 131; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI K.P.T. THANGAL, VICE PRESIDENT AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.450/BANG/2009 ASSESSMENT YEAR : 2003-04 HEMADRI ASSOCIATES, NO.20/2, UTTARADI MUTT ROAD, SHANKARPURAM, BANGALORE 560 004. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(4), BANGALORE. : RESPONDENT APPELLANT BY : SHRI H.N. KHINCHA RESPONDENT BY : SHRI JASON P. BOAZ O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF HEMADRI ASSOCIATES AN AOP IS D IRECTED AGAINST THE ORDER OF LD.CIT(A)-VI FOR THE ASSESSMENT YEAR 2 003-04. 2. THE ASSESSEE HAS RAISED TEN GROUNDS, OUT OF WHIC H, GROUND NOS:1, 2 AND 10 ARE GENERAL AND NOT SPECIFIC AND, THEREFORE, DO NOT SURVIVE FOR ADJUDICATION. IN THE REMAINING GROUNDS, THE ASSESSE E HAS AGITATED OVER THE ISSUES WHICH, FOR THE SAKE OF CLARITY, ARE REFORMUL ATED AS UNDER: ITA NO.450/B/09 PAGE 2 OF 15 (I) THE LOWER AUTHORITIES HAVE ERRED IN TREATING THE AS SESSEE AS AN AOP AND ASSESSING THE LTCG IN ITS HANDS WHICH IS CO NTRARY TO FACTS AND LAW; (II) THE CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO PASSED U/S 143(3) OF THE ACT AFTER PASSING THE BLOCK ASSESSMEN T ORDER U/S 158BC OF THE ACT ON THE SAME ISSUE OF A PROPERTY TR ANSACTION; (III) SINCE THE ASSESSEE WAS A CO-OWNER AND THE MEMBERS SHARES WERE DEFINED AND ASCERTAINED, THE ENTIRE INCOME WAS TO B E ASSESSABLE IN THE HANDS OF THE CO-OWNERS, BUT, NOT IN THE HANDS O F THE ASSESSEE; (IV) THE AO ERRED IN PASSING AN ORDER U/S 143(3) BASED O N AN UNSIGNED SCRAP OF PAPER WHICH HAD NO VALIDITY IN LAW AND THE CIT(A) HAD ERRED IN CONFIRMING THE SAME; (V) THE AO ERRED IN ASSESSING THE INCOME FROM THE ALLEG ED TRANSACTION FOR THE AY 03-04 WHEN THE TRANSACTION TOOK PLACE ON 25/2/02 WHICH WAS RELEVANT TO THE AY 02-03 AND, THUS, THE I MPUGNED ORDER OF THE AO WAS BAD IN LAW; & (VI) SINCE EACH OF THE MEMBERS OF THE ASSESSEE WERE ASSE SSED U/S 158BC OF THE ACT ON THEIR RESPECTIVE SHARES AS WELL AS U/S 143(3) OF THE ACT, THE AOS ACTION IN TAXING THE ENTIRE AM OUNT IN THE HANDS OF THE ASSESSEE IS WHOLLY UNJUSTIFIABLE. 3. THE FACTS OF THE ISSUE, IN BRIEF, ARE THAT THE ASSESSEE BEING AN AOP, CONSISTING OF FOURTEEN MEMBERS, HAVING DEFINITE SHA RES IN THE PROFIT OF AOP. THE ASSESSEE, BY AN AGREEMENT DATED 4/7/1986, HAD TAKEN ON LEASE A PROPERTY SITUATED AT NOS: 74 78, G.T.ROAD, BANGAL ORE FOR DEVELOPMENT AND COMMERCIAL EXPLOITATION. BY A REGISTERED DEED EXECUTED ON 6/5/2002, THE AOP HAD SUB-LET THE SAID PROPERTY FOR RS.65.4 L AKHS TO M/S. HOTEL CITY CENTAUR INTERNATIONAL PVT. LTD (HCCIPL). CONSEQUEN T ON THE SEARCH OPERATION WHICH TOOK PLACE IN JUNE 2002 IN THE PREM ISES OF THE ASSESSEE, ITS MEMBERS RESIDENCES AND ITS ADVOCATE J.P. ASS OCIATES A MEMORANDUM OF UNDERSTANDING (MOU) DATED: 25/2/2002 BETWEEN THE AOP ITA NO.450/B/09 PAGE 3 OF 15 AND THE SUB-LESSEE WAS UNEARTHED, ACCORDING TO WHIC H, THE ACTUAL AMOUNT OF SUB-LEASE WAS FOR RS.165 LAKHS AND NOT FOR RS.65 .4 LAKHS AS REFLECTED IN THE REGISTERED SUB-LEASE DEED. THE AO, AFTER DELI BERATING THE ISSUE AT LENGTH, NARRATED IN THE ASSESSMENT ORDER IN THE CAS E OF THE ASSESSEE U/S 158BD RWS 158BC DT:31.1.05 THAT (ON PAGE 3) AFTER GREAT DELIBERATIONS DURING THE B LOCK ASSESSMENT PROCEEDINGS OF EACH OF THE 14 MEMBERS OF THE AOP, T HE PORTION OF EXTRA CONSIDERATION FALLING TO EACH MEMBERS SHARE HAS BEEN BROUGHT TO TAX AS THEIR INDIVIDUAL SHARES OF UNDISC LOSED INCOME IN TAKING SUCH A DECISION, IT WAS ADMITTED BY EACH OF THE 14 MEMBERS THAT THOUGH IT WAS NAMED AS THE TRANSACTION OF M/S. HEMADRI ASSOCIATES (AOP), PRACTICALLY EACH MEMBER WAS DIREC TLY INVOLVED IN THE DEAL WITH M/S. HOTEL CITY CENTAUR INTERNATIONAL PVT. LTD, RECEIVED LEASE CONSIDERATION SEPARATELY AND THAT TH EREFORE ANY INCOME ARISING FROM THIS TRANSACTION SHOULD BE ASSE SSED IN THEIR INDIVIDUAL HANDS. THE TOTAL SUB-LEASE CONSIDERATIO N OF RS.99,60,000/- WHICH WAS TREATED AS UNDISCLOSED INC OME OF THE 14 MEMBERS THOUGH QUANTIFIED AS THE UNDISCLOSED INCOME OF M/S. HEMADRI ASSOCIATES (AOP), ON THE FACTS AVAILABLE ON RECORDS AND AS ADMITTED BY THE CONCERNED PARTIES , THIS HAS BEEN PROPORTIONATELY DIVIDED AND ASSESSED IN INDIVIDUAL BLOCK ASSESSMENT S OF THE 14 PERSONS. IT IS FOR THE SAME REASON THAT NO UNDISCLOSED INCOME RELATING TO SUB-LEASE TRANSACTION OF G.T.ROAD PROPE RTY HAS BEEN ASSESSED IN THE HANDS OF THIS ASSESSEE. 3.1. HOWEVER, SOME OF THE INDIVIDUAL MEMBERS OF T HE ASSESSEE APPEALED BEFORE THE CIT(A) WHO HAD CONFIRMED SUCH O RDERS AND ALSO ALLOWED THE APPEALS OF SUCH INDIVIDUALS FILED AGAIN ST THE REGULAR ASSESSMENT WHEREIN THE AO HAD MADE ADDITIONS ON PRO TECTIVE BASIS. THE STAND OF THE CIT(A) WAS CHALLENGED BY THE REVENUE B EFORE THE TRIBUNAL. THE HONBLE TRIBUNAL IN ITS FINDING IN ITA NOS: 40 46, 317,318, 356, 357, 13 & 14/B/07 DATED: 31/3/2008 HAD OBSERVED THUS 29. KEEPING IN VIEW THE FACTS AS DISCUSSED ABOVE A ND THE POSITION OF LAW AS STATED IN EARLIER PARAGRAPHS, IT IS CLEAR THAT THE CAPITAL ITA NO.450/B/09 PAGE 4 OF 15 GAIN ARISING FROM THE TRANSACTION IS TO BE TAXED IN THE HANDS OF M/S. HEMADRI ASSOCIATES IN THE STATUS OF AOP. INDIVIDUA L MEMBERS CANNOT BE ASSESSED, AS NO SUCH OPTION IS AVAILABLE UNDER THE INCOME-TAX ACT, 1961. HENCE, IT IS HELD THAT AO WA S NOT JUSTIFIED IN TAXING THE CAPITAL GAIN IN THE HANDS OF AN INDIVIDU AL.. 3.2. REVERTING BACK TO THE ISSUE, THE ASSESSEE HAD FURNISHED ITS ROI FOR THE AY UNDER DISPUTE ON 24/1/2005 ADMITTING NIL INC OME. IN THE COMPUTATION, THE ASSESSEE HAD COMPUTED THE LTCG OF RS.1,55,53,000/- IN ITS HANDS IN RESPECT OF SUB-LEASE TRANSACTIONS OF T HE SAID PROPERTY AND HAD CLAIMED THAT THE SHARES OF INDIVIDUAL MEMBERS OF AO P ARE DETERMINATE AND, HENCE, THE INCOME WAS NOT TAXABLE IN THE HANDS OF T HE AOP. THE STAND OF THE AO ON THE ISSUE AS NARRATED IN THE ASSESSMENT O RDER U/S 143(3) OF THE ACT, IS SUMMARIZED AS UNDER: (I) ON 25/2/02, THE AOP ENTERED INTO DEVELOPMENT AGREEM ENT WITH HCCIPL IN RESPECT OF THE LEASE PROPERTY. THE SUB-L EASE AGREEMENT WAS REGISTERED IN MAY 2002. THE VARIOUS DOCUMENTS UNEARTHED DURING SEARCH OPERATION REVEALED THAT THO UGH THE SUB- LEASE CONSIDERATION AS PER DEED DATED: 6/5/02 WAS RS.65 LAKHS (SIC) RS.65.4 LAKHS, THE ACTUAL CONSIDERATION WAS F OR RS.1.65 CRORES; (II) THE CAPITAL GAINS ARISING FROM THESE TRANSACTIONS W ERE ASSESSED IN THE HANDS OF INDIVIDUAL MEMBERS, PARTLY AS UNDISCLO SED INCOME IN RESPECT OF SUPPRESSED SUB-LEASE CONSIDERATION AND P ARTLY AS REGULAR INCOME OF EACH SUCH INDIVIDUAL MEMBERS; (III) THOUGH ALL THE MEMBERS OF AOP HAVE TOGETHER EXECUTE D THE SUB- LEASE DEED, AS FAR AS THE ASSESSMENT OF CAPITAL GAI NS WAS CONCERNED, THEY WERE TAKING DIFFERENT STAND IN THEI R INDIVIDUAL ASSESSMENTS AND CLAIMING DIFFERENT TAX TREATMENTS A ND THAT THERE WAS NO UNIFORMITY IN THEIR APPROACH THOUGH ALL THE FOURTEEN WERE THE MEMBERS OF AOP; (IV) A PROPOSAL WAS SENT BY THE AO REQUIRING THE ASSESSE E (AOP) TO EXPLAIN AS TO WHY THE LTCG ARISING FROM THE SUB-LEA SE CONSIDERATION OF RS.1.65 CRORES SHOULD NOT BE ASSES SED IN ITS HANDS; ITA NO.450/B/09 PAGE 5 OF 15 (V) IN ITS REBUTTAL, THE AOP TOOK A STAND THAT THE DEPA RTMENT ITSELF HAD HELD THAT ONLY INDIVIDUAL MEMBERS WERE LIABLE TO TH E TAXED ON LTCG AND THERE WAS NO QUESTION OF TAXING IT AGAIN I N THE HANDS OF AOP; (VI) THE AOPS OBJECTION WAS OVER-RULED ON THE GROUND TH AT MANY OF THE MEMBERS OF AOP HAVE DISPUTED THESE ASSESSMENTS IN APPEAL AND THE DIFFERENT STAND TAKEN BY THE MEMBERS WERE N OT JUSTIFIABLE; (VII) REJECTING THE AOPS STAND, THE LTCG ARISING FROM TH E SUB-LEASE CONSIDERATION OF RS.1.65 CRORES WAS BROUGHT TO TAX IN THE REGULAR ASSESSMENT OF AOP FOR THE AY UNDER DISPUTE. AGITATED, THE ASSESSEE TOOK UP THE ISSUE WITH THE L D. CIT(A) FOR REDRESSAL. AFTER CONSIDERING THE EXHAUSTIVE AND ELABORATE SUBM ISSIONS OF THE ASSESSEE, THE OBSERVATIONS OF THE LD. CIT(A) ARE TH AT (I) DURING THE BLOCK ASSESSMENT PROCEEDINGS BEFORE THE AO, ALL THE MEMBERS OF AOP HAVE AGREED AND ADMITTED TO SHOW THE LTCG PROPORTIONATELY RELATING TO THE MOU AND ACCORDINGLY THE UNDISCLOSED INCOME OF AOP WAS PROPORTIONATELY DIVID ED AND ASSESSED IN THE INDIVIDUAL BLOCK ASSESSMENTS OF THE MEMBERS. IT WAS FOR THAT REASON THAT NO UNDISCLOSED INCOME RELA TING TO SUB- LEASE TRANSACTION OF THE SAID PROPERTY WAS ASSESSED IN THE HANDS OF AOP; (II) HOWEVER, THE MEMBERS HAVE RETRACTED THEIR ASSURANCE S AND TREATED THE INCOME DIFFERENTLY BY NOT ADHERING TO THE ADMIT TED STAND; (III) EVEN IF ALL THE CONSTITUENTS OF AOP HAD DEFINITE SH ARES ON PAPER, THEY DO NOT ENJOY THE SAME PARI MATERIAL AS CAN BE SEEN FROM THE DIFFERENT STANDS TAKEN BY THEM IN THE PROCEEDINGS O F BLOCK AS WELL AS REGULAR ASSESSMENTS; (IV) THE INTENTIONS OF SOME OF THESE MEMBERS SHOW THAT T HE CO- OWNERSHIP AGREEMENT WAS ONLY A MAKE BELIEVE I.E., S OME OF THEM WERE ONLY NAME LENDERS AND THE INTENT WAS TO REDUCE THE INCIDENCE OF TAXATION AND THEREBY AVOID TAX THROUGH LEGAL PLA NNING; - STRONG RELIANCE WAS PLACED ON THE OBSERVATIONS OF T HE HONBLE SUPREME COURT IN THE CASE OF MCDOWELL AND CO, LTD. V. CTO - 154 ITR 148; (V) TO DRIVE HOME HIS POINT, HE HAD ILLUSTRATED AS- ITA NO.450/B/09 PAGE 6 OF 15 - K.N.HEMADRIAH SETTY, SMT.K.SAROJAMMA, RAJA SATYANARAYANASETTY, SMT.R.S.L.KANTHA HAVE ADMITTED THEIR SHARES OF PART OF THE SUB-LEASE CONSIDERATION IN T HEIR INDIVIDUAL BLOCK ASSESSMENTS AND PARTLY IN REGULAR ASSESSMENTS AND PAID TAXES; - K.ANANDAM AND SMT.K.SAROJAMMA HAVE CLAIMED THAT THE IR SHARES OF SUB-CONSIDERATION WAS YET TO BE RECEIVED IN THE FORM OF SHARES OF THE COMPANY FLOATED BY HM NATARAJ (MAN AGING DIRECTOR OF HCCIPL) AND THUS THEY HAVE NO LIABILITY TO PAY CAPITAL GAINS TAXES NOW; - B.S.SHANKAR AND SMT.N.B.SWARNALATHA HAVE TAKEN A ST AND THAT THERE WAS NO UNDISCLOSED INCOME TO BE TAXED IN THEI R BLOCK ASSESSMENTS AND THAT EACH ONE OF THEM HAD RECEIVED ONLY RS.1.60 LAKHS FROM H.M.NATARAJ AND THE LTCG ON SUCH ACTUAL RECEIPT ONLY WAS TAXABLE IN THE REGULAR INDIVIDUAL ASSESSMENTS FOR THE AY 03-04; - THE OTHER MEMBERS HAVE CLAIMED THAT THERE WAS NO UNDISCLOSED INCOME AND THAT THE LTCG ON THEIR SHARE S OF SUB- LEASE CONSIDERATION OUT OF RS.1.65 CRORES WAS ASSES SABLE IN THE REGULAR ASSESSMENTS FOR AY 03-04; (VI) DURING THE APPELLATE STAGE NONE OF THE FACTS NARRAT ED BY THE AO WERE REFUTED BY THEM. AS PER THE AGREEMENT DT.2.7. 86, THE SHARES OF B.SHANKAR AND SMT.N.B.SWARNALATHA WAS 5% EACH, B UT, THE PAYMENT TO THEM BY H.M.NATARAJ OF HCCIPL WAS NOT PROPORTIONATE TO THEIR RESPECTIVE SHARES; (VII) THIS PROVES THAT THE ASSESSEE WAS AN AOP BUT NOT WI TH SPECIFIC AND DETERMINATE SHARES AND THEREFORE NOT CAPABLE OF BEI NG TAXED IN THEIR INDIVIDUAL CAPACITY EITHER IN BLOCK OR IN REG ULAR ASSESSMENTS; (VIII) THE HONBLE TRIBUNAL IN ITS FINDING REFERRED SUPRA, CONCLUDED THAT THE INCOME HAD TO BE TAXED IN THE HANDS OF AOP AND NOT ITS CONSTITUENTS, BUT, THERE WAS NO MENTION AS TO WHETH ER SUCH INCOME HAS TO BE TAXED IN BLOCK OR IN REGULAR ASSESSMENT O F AOP; (IX) THE MOST RELEVANT FACTOR WAS THAT THE ASSESSEE HAD SUO MOTO SHOWN THE INCOME IN THE AY UNDER DISPUTE AND NOT IN THE A Y 02-03. THE DETERMINATION OF UNDISCLOSED INCOME/INVESTMENT CRYS TALLIZED NOT ON 25/2/02, BUT, ON 6/5/02 I.E., THE DATE OF REGIST RATION OF SUB-LEASE WITH THE REGISTERING AUTHORITY WHICH HAD SHOWN A DI FFERENT SUB- LEASE CONSIDERATION OF RS.65.4 LAKHS BUT NOT RS.1.6 5 CRORES ITA NO.450/B/09 PAGE 7 OF 15 MENTIONED IN THE SEIZED MOU. THE AO WAS JUSTIFIED TO TAX LTCG IN THE AY 03-04; (X) CONSIDERING THE RULING OF HONBLE GUJARAT HIGH COUR T IN THE CASE OF CARGO CLEARING AGENCIES V. JCIT REPORTED IN 307 ITR 17, THE CIT(A) HAD POINTED OUT THAT THOUGH CHAPTER XIV HAS BEEN REFERRED TO IN THIS DEC ISION, IT IS LIMITED TO THE INTERPRETATIONS OF PROCEDURES MENTIO NED IN SECTIONS 147 TO 153 ONLY WHICH DEAL WITH REASSESSMENT PROCED URE. IT HAS NOWHERE STATED THAT PROCEDURE LAID DOWN IN SECTION 158BC HAS ALSO PRIMACY OVER THE PROCEDURE OF ASSESSMENT ENSHR INED IN SECTION 143 OF THE I.T. ACT WHICH IS CALLED REGULAR ASSESSMENT. SECONDLY, IT MAY BE POINTED OUT THAT WHAT IS ASSESS ED IN SECTION 158BC IS THE UNDISCLOSED INCOME BUT U/S 143(3) WH AT IS ASSESSED IS TOTAL INCOME. THE WORDS TOTAL INCOME ENCOMP ASSES IN ITS FOLD ALL TYPES OF INCOME WHICH INTER ALIA INCLUDES UNDISCLOSED INCOME. IT WOULD BE UNFAIR IF AN INCOME WAS TREAT ED AND TAXED AS UNDISCLOSED INCOME U/S 158BC/158BD AT SPECIAL RAT ES AND AGAIN AS A PART OF TOTAL INCOME U/S 143(3) OF THE A CT ON NORMAL RATES WHICH AMOUNTS TO DOUBLE TAXATION OF THE SAME INCOME. (XI) DRAWING STRENGTH FROM THE JURISDICTIONAL HIGH COURT S RULING IN THE CASE OF CIT V. WIPRO FINANCE LTD. (2008) 218 CT R 105, THE CIT(A) HAD OBSERVED THAT THE UNDISCLOSED INCOME FRO M LTCG HAD NOT BEEN ASSESSED AS UNDISCLOSED INCOME OF THE ASSE SSEE OF THE BLOCK PERIOD UNLIKE IN THE REFERRED CASE NOR THE SA ME HAD BEEN TAXED PROTECTIVELY IN REGULAR ASSESSMENT OF ANY ASS ESSMENT YEAR FALLING WITHIN THE BLOCK PERIOD. ON THE OTHER HAND , IT HAD BEEN TAXED SUBSTANTIALLY IN THE REGULAR ASSESSMENT FOR T HE AY 03-04. THOUGH, THIS AY FALLS WITHIN THE BLOCK PERIOD, THE INCOME HAD BEEN TAXED SUBSTANTIALLY UNLIKE IN THE CASE OF WIPRO FIN ANCE LTD WHEREIN THE HONBLE HIGH COURT HAD STRUCK DOWN THE PROTECTIVE ADDITIONS IN THE REGULAR ASSESSMENT. THUS, THERE W AS NO LEGAL IMPEDIMENT TO TAX THE UNDISCLOSED LTCG IN THE HANDS OF THE ASSESSEE-AOP IN ITS REGULAR ASSESSMENT WHICH WAS IN CONFORMITY WITH THE FINDING OF THE HONBLE TRIBUNAL REFERRED S UPRA; 4. AGGRIEVED, THE ASSESSEE HAS COME UP WITH THE PRE SENT APPEAL. THE LD. A R REITERATED MORE OR LESS WHAT HAS BEEN URGED BEFORE THE LD. CIT(A). IN CONCLUSION IT WAS SUBMITTED THAT THE AO HAD ERRE D IN PASSING THE ORDER ITA NO.450/B/09 PAGE 8 OF 15 U/S 143(3) OF THE ACT WHEN THE ORDER PASSED U/S 158 BD RWS 158BC CONSIDERING THE SAME ISSUE WAS STILL SUBSISTING AND THE CIT(A) ALSO ERRED IN CONFIRMING THE SAME. SUCH AN ACTION WAS NOT AT ALL IN ACCORDANCE WITH THE LAW AND MAKES THE ORDER TOTALLY BAD WHICH REQUIRES TO BE QUASHED. HE HAS PLACED STRONG RELIANCE ON THE CASE LAWS REPORTED I N (I) 288 ITR 347 (MP), (II) 307 ITR 17. DURING THE COURSE OF HEARING, TH E LD. A R HAD FURNISHED A PAPER BOOK CONTAINING 1 177 PAGES WHICH CONSISTS OF INTER ALIA, COPIES OF (I) WRITTEN SUBMISSIONS MADE BEFORE THE CIT(A), (II ) CO-OWNERSHIP AGREEMENT DT.2.7.86, (III) DEVELOPMENT AGREEMENTS D T:3.2.89 & 25.2.02, (IV) SUB-LEASE DEED DT.6.5.02 ETC., 4.1. ON THE OTHER HAND, THE LD. D.R. WAS VERY FIR M IN HIS URGE THAT THE AO WAS RIGHT IN ASSESSING THE UNDISCLOSED INCOM E OUT OF SUB-LEASE TRANSACTION IN THE HANDS OF THE ASSESSEE-AOP WHICH IS RATHER IN CONFORMITY WITH THE FINDING OF THE HONBLE TRIBUNAL REFERRED S UPRA. EVEN THE LD. CIT(A) GONE THROUGH THE ISSUE ELABORATELY AND ARRIVED AT A CONCLUSION THAT THE AOS STAND HAS THE BACKING OF LEGAL SANCTITY AND, THUS, PLEADED THAT THE IMPUGNED ORDER OF THE CIT(A) REQUIRES TO BE SUSTAIN ED. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE HAVE ALSO PERUSED THE RELEVANT RECORDS AND ALSO GON E THROUGH THE PAPER BOOK FURNISHED BY THE LD.A.R. 5.1. THE HISTORY OF THE ISSUE IS THAT THE ASSESSE E [M/S.HEMADRI ASSOCIATES] HAD ENTERED INTO A FRESH DEVELOPMENT AG REEMENT WITH HCCIPL ON 25/2/02, THE SALIENT FEATURES OF WHICH WERE THA T (I) THE DEVELOPER SHOULD ITA NO.450/B/09 PAGE 9 OF 15 FULLY DEVELOP THE UNFINISHED MULTI-STORIED HOTEL-CU M-SHOPPING COMPLEX AT ITS OWN COST; (II) AFTER COMPLETION OF THE PROJECT, THE ASSESSEE WOULD GRANT SUB- LEASE TO HCCIPL FOR THE REMAINING PERIOD OF 28 YEAR S, (III) HCCIPL WOULD PAY TO THE ASSESSEE A NON-REFUNDABLE DEPOSIT OF RS. 65.4 LAKHS PAYABLE BY CERTAIN DIFFERENT STIPULATED DATES; & (V) THAT EAC H OF THE MEMBERS (14 MEMBERS) OF THE ASSESSEE SHALL BE ENTITLED TO ONE S HOP IN THE COMPLEX TO BE ALLOTTED BY HCCIPL. ACCORDINGLY, ON 6/5/02, A DEED OF SUB-LEASE BETWEEN THE MEMBERS OF THE ASSESSEE-AOP AND HCCIPL WAS DRAW N AND THE DOCUMENT IN QUESTION WAS REGISTERED WITH THE REGIST ERING AUTHORITY. 5.1.1. CONSEQUENT ON THE SEARCH PROCEEDINGS WHICH TOOK PLACE DURING JUNE, 02 ON THE PREMISES OF THE ADVOCATE [J. P.ASSOCIATES] OF THE ASSESSEE (AMONG OTHERS), A MOU WAS SEIZED FROM THE PREMISES OF THE ADVOCATE, ACCORDING TO WHICH, THE AGREED CONSIDERAT ION WAS RS.1.65 CRORES AND NOT RS.65.4 LAKHS AS PER THE DOCUMENT REGISTERED ON 6.5.02. THE MOU WAS PREPARED ON 25.2.02 AND IN THE DEVELOPM ENT AGREEMENT; THE CONSIDERATION WAS MENTIONED AS RS.65.4 LAKHS WHEREA S IN THE MOU, THE CONSIDERATION WAS STATED AT RS.1.65 CRORES. 5.1.2. THE CONSIDERATION OF RS.1.65 CRORES WAS NOT , INITIALLY, ADMITTED BY ANY MEMBERS OF THE ASSESSEE. HOWEVER, C.P.SUBBARAJ, ONE OF THE MEMBERS OF AOP, HAD ADMITTED IN HIS STATEMENT R ECORDED ON OATH U/S 131 OF THE ACT THAT, ANSWER 3 . I HAVE GONE THROUGH THE ABOVE MENTIONED DOCUMENTS AND THE STATEMENT OF SHRI H.M.NATARAJ. T HE TOTAL TRANSACTION FOR THE ABOVE MENTIONED PROPERTY WAS RS.165 LAKHS WHICH WAS TO BE RECEIVED BY ITA NO.450/B/09 PAGE 10 OF 15 MEMBERS OF THE AOP FROM SHRI H.M.NATARAJ. THIS INC LUDES AN ACCOUNTED PORTION OF RS.65 LAKHS AND RS100 LAKHS BY CASH TO B E DISTRIBUTED TO THE VARIOUS MEMBERS OF THE AOP... H.M.NATARAJ, M.D OF HCCIPL HAD ALSO ADMITTED ON OATH THAT THE TOTAL CONSIDERATION AGREE D UPON FOR SUB-LEASE WAS FOR RS.165 LAKHS. FURTHER, THE ADVOCATE N.JA YAPRAKASH RAO WHO DRAFTED THE VARIOUS DOCUMENTS HAD ADMITTED ON OAT H THAT HE WAS NOT A PARTY TO DISCUSSION OF FINANCIAL TRANSACTION, BUT, PREPARED THE AGREEMENT FOR RS.165 LAKHS ON THE FIGURES FINALIZED BY THE PARTIES CONCERNED AND THAT TWO DIFFERENT AGREEMENTS WERE PREPARED VIDE WHICH CONSI DERATIONS WERE MENTIONED DIFFERENTLY. 5.1.3. THE AO, CONSEQUENT ON THE SEARCH OPERATION, INITIATED PROCEEDINGS BY ISSUANCE OF NOTICES U/S 158BC TO THE MEMBERS OF AOP CALLING FOR RETURNS AND DULY CONSIDERING THE ASSESS EES CONTENTIONS, CONCLUDED THE BLOCK ASSESSMENTS, TREATING THE DIFF ERENCE AMOUNT OF RS.99.60 LAKHS [RS.1,65,00,000 - 65,40,000] AS UNDI SCLOSED PORTION OF SUB- LEASE TRANSACTION IN THE HANDS OF THE INDIVIDUAL ME MBERS PROPORTIONATELY. SIMULTANEOUSLY, THE ASSESSEE-AOP HAD ALSO FURNISHED ITS BLOCK ROI ONLY ON 24.1.05, ADMITTING UNDISCLOSED INCOME OF RS.1,34 ,287/-. WHILE CONCLUDING THE ASSESSMENT IN THE CASE OF THE ASSESS EE-AOP, THE AO HAD OBSERVED THAT, AFTER GREAT DELIBERATIONS DURING THE BLOCK ASSESSME NT PROCEEDINGS OF EACH OF THE 14 MEMBERS OF THE AOP, T HE PORTION OF EXTRA CONSIDERATION FALLING TO EACH MEMBERS SHARE HAS BE EN BROUGHT TO TAX AS THEIR INDIVIDUAL SHARE OF UNDISCLOSED INCOME. IN T AKING SUCH A DECISION, IT WAS ADMITTED BY EACH OF THE 14 MEMBERS THAT THOUGH IT WAS NAMED AS THE ITA NO.450/B/09 PAGE 11 OF 15 TRANSACTION OF M/S HEMADRI ASSOCIATES (AOP), PRACTI CALLY EACH MEMBER WAS DIRECTLY INVOLVED IN THE DEAL WITH M/S. HOTEL CITY CENTAUR INTERNATIONAL PVT. LTD. RECEIVED LEASE CONSIDERATION SEPARATELY AND TH AT THEREFORE ANY INCOME ARISING FROM THIS TRANSACTION SHOULD BE ASSESSED IN THEIR INDIVIDUAL HANDS. THE TOTAL SUB-LEASE CONSIDERATION OF RS.99,60,000/- WHICH WAS TREATED AS UNDISCLOSED INCOME OF THE 14 MEMBERS THOUGH QUANTIF IED AS THE UNDISCLOSED INCOME OF M/S. HEMADRI ASSOCIATES (AOP) ON THE FACT S AVAILABLE ON RECORDS AND AS ADMITTED BY THE CONCERNED PARTIES, THIS HAS BEEN PROPORTIONATELY DIVIDED AND ASSESSED IN INDIVIDUAL BLOCK ASSESSMENT S OF THE 14 PERSONS. IT IS FOR THE SAME REASON THAT NO UNDISCLOSED INCOME RELA TING TO SUB-LEASE TRANSACTION OF G.T.ROAD PROPERTY HAS BEEN ASSESSED IN THE HANDS OF THIS ASSESSEE. 5.1.4. IN THE MEANWHILE SOME OF THE AGGRIEVED MEMB ERS HAVE APPROACHED THE CIT(A) FOR REDRESSAL. THE CIT(A) HA D CONFIRMED THE STAND OF THE AO WHILE PASSING THE ORDERS U/S 158BC, BUT, ALLOWED SOME OF THE APPEALS WHEREIN THE AO HAD MADE ADDITIONS ON PROTEC TIVE BASIS IN THE CASE OF REGULAR ASSESSMENTS. MOST OF THE INDIVIDUAL MEM BERS WHO HAVE BEEN AGGRIEVED BY THE CIT (A)S STAND IN CONFIRMING THE AOS ACTION TOOK UP THE ISSUE BEFORE THE HONBLE TRIBUNAL. 5.1.5. THE HONBLE TRIBUNAL IN ITS WISDOM REFERRED SUPRA, AFTER DELIBERATING THE ISSUE IN AN EXHAUSTIVE AND COMPREH ENSIVE MANNER, DREW STRENGTH FROM VARIOUS JUDICIAL PRECEDENTS, HAD OBSE RVED THUS 29. KEEPING IN VIEW THE FACTS AS DISCUSSED ABOVE A ND THE POSITION OF LAW AS STATED IN EARLIER PARAGRAPHS, IT IS CLEAR TH AT THE CAPITAL GAIN ITA NO.450/B/09 PAGE 12 OF 15 ARISING FROM THE TRANSACTION IS TO BE TAXED IN THE HANDS OF M/S. HEMADRI ASSOCIATES IN THE STATUS OF AOP. INDIVIDUA L MEMBERS CANNOT BE ASSESSED, AS NO SUCH OPTION IS AVAILABLE UNDER THE INCOME- TAX ACT, 1961 5.1.6. RESPECTFULLY FOLLOWING THE FINDING OF THE H ONBLE TRIBUNAL REFERRED SUPRA, WE ARE OF THE UNANIMOUS VIEW THAT T HE CAPITAL GAIN ARISING FROM THE TRANSACTION WAS TO BE ASSESSED ONLY IN THE HANDS OF THE ASSESSEE- AOP AND, ACCORDINGLY, THE AO HAD RIGHTLY AND LEGALL Y ASSESSED IN THE HANDS OF THE ASSESSEE-AOP. WE SUSTAIN THE ACTION OF THE LOWER AUTHORITIES IN THIS REGARD IN TOTO. 5.2. WITH REGARD TO THE ASSESSEES OTHER OBJECTION OF THE LEGALITY OF PASSING AN ORDER U/S 143(3) OF THE ACT WHEN AN ORDER PASSED U/S 158 BD RWS 158 BC OF THE ACT CONSIDERING THE SAME ISSUE WAS STILL SUBSISTING, WE ARE OF THE FIRM VIEW THAT THIS VERY ISSUE HAS SI NCE BEEN DEALT WITH IN A COMPREHENSIVE MANNER BY THE LD. CIT(A) IN HIS IMPU GNED ORDER, WE FIND NO NEED TO DELIBERATE IT AGAIN. THUS, WE CONFIRM T HE CIT (A)S REASONING ON THIS COUNT. 5.3. IN RESPECT OF THE ASSESSEES OTHER OBJECTION OF AN UNSIGNED SCRAP OF PAPER HAS NO VALIDITY IN LAW, WE WOULD LIK E TO MAKE IT CRYSTAL CLEAR THAT THE UNEARTHED MEMORANDUM OF UNDERSTANDING WAS A DOCUMENT CONTAINING 12 PAGES WHICH, BY ANY STRETCH OF IMAGIN ATION, CANNOT BE CATEGORIZED AS A SCRAP OF PAPER, AS MADE OUT BY THE ASSESSEE. AS PER OXFORD THESAURUS OF ENGLISH (INDIAN EDITION), SCRA P MEANS PIECE, BIT (SMALL PIECE), OFFCUT, ODDMENT (BITS AND PIECES) , SNIPPET (PIECE, BIT, FRAGMENT, MORSEL, PARTICLE ETC), SNIP, TATTER(IN BI TS, IN PIECES), WISP(PIECE), ITA NO.450/B/09 PAGE 13 OF 15 SHRED, REMNANT . A DOCUMENT WHICH CONTAINS 1 12 PAGES CANNOT BE DESCRIBED AS A SCRAP OF PAPER. JAYAPRAKASH RAO, AD VOCATE WHO WAS THE AUTHOR OF THIS VERY DOCUMENT, VOUCHED ON OATH THAT HE HAD PREPARED THE AGREEMENT FOR RS.165 LAKHS ON THE FIGURES FINALIZED BY THE PARTIES AND THAT TWO DIFFERENT AGREEMENTS WERE PREPARED VIDE WHICH, CONS IDERATIONS WERE STATED DIFFERENTLY . TO NAIL THE ASSESSEES CLAIM THAT THE SCRAP OF PAP ER WHICH HAS NO VALIDITY, C.P.SUBBARAJ (ONE OF THE MEMBERS) DEPO SED THAT I HAVE GONE THROUGH THE ABOVE MENTIONED DOCUMENTS AND THE STATE MENT OF SHRI H.M.NATARAJ THE TOTAL TRANSACTION FOR THE ABOVE ME NTIONED PROPERTY WAS RS.165 LAKHS WHICH WAS TO BE RECEIVED BY MEMBERS OF THE AOP FROM SHRI H.M.NATARAJ. THIS INCLUDES AN ACCOUNTED PORTION OF RS.65 LAKHS AND RS.100 LAKHS BY CASH TO BE DISTRIBUTED TO THE VARIOUS MEMB ERS OF THE AOP THUS, THE ASSESSEES CONTENTION DOESNT COMMEND ANY MERIT WHICH REQUIRES CONSIDERATION. THE HONBLE TRIBUNAL REFER RED SUPRA CONSIDERING THE PROS AND CONS OF THE ISSUE, HAD ARRIVED AT A CO NCLUSION THAT THE CAPITAL GAIN ARISING FROM THE TRANSACTION IS TO BE TAXED IN THE HANDS OF M/S. HEMADRI ASSOCIATES IN THE STATUS OF AOP. THUS, THE ASSESSEE FAILS ON THIS COUNT ALSO. 5.4. WITH REGARD TO THE ASSESSEES OBJECTION THAT AO ERR ED IN ASSESSING THE INCOME FROM THE ALLEGED TRANSACTION F OR THE AY 03-04 WHEN THE TRANSACTION TOOK PLACE ON 25/2/02 WHICH WAS REL EVANT TO THE AY 02-03 AND, THUS, THE IMPUGNED ORDER OF THE AO WAS BAD IN LAW, WE ARE IN TOTAL AGREEMENT WITH THE FINDING OF THE LD. CIT (A) AND, THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. ITA NO.450/B/09 PAGE 14 OF 15 5.5. THE CONTENTION OF THE ASSESSEE THAT SINCE EAC H OF THE MEMBERS OF THE ASSESSEE WERE ASSESSED U/S 158BC OF THE ACT ON THEIR RESPECTIVE SHARES AS WELL AS U/S 143(3) OF THE ACT, THE AOS ACTION IN TAXING THE ENTIRE AMOUNT IN THE HANDS OF THE ASSESSEE WHO LLY UNJUSTIFIABLE DOESNT HOLD WATER, AS THE HONBLE TRIBUNAL IN ITS WISDOM R EFERRED SUPRA, WAS VERY FIRM IN ITS ENDEAVOUR THAT THE CAPITAL GAIN ARISING FROM THE TRANSACTION WAS TO BE TAXED IN THE HANDS OF THE ASSESSEE IN THE STA TUS OF AOP. INDIVIDUAL MEMBERS CANNOT BE ASSESSED, AS NO SUCH OPTION IS AV AILABLE UNDER THE INCOME-TAX ACT, 1961. THUS, THE ASSESSEE FAILS ON THIS COUNT TOO. 5.6. BEFORE PARTING WITH, WE WOULD LIKE TO MENTION HERE THAT THE CASE LAWS ON WHICH THE ASSESSEE PLACED STRONG RELIA NCE ARE DISTINGUISHABLE WHICH ARE NOT DIRECTLY APPLICABLE T O THE FACTS OF THE CASE ON HAND. 6. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF OCTOBER, 2009. SD/- SD/- ( K.P.T. THANGAL ) (A. MOHAN ALANKAMONY ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 30 TH OCTOBER, 2009. DS/- ITA NO.450/B/09 PAGE 15 OF 15 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.