SHRI. B N RAMACHANDRA (HUF) V. THE DEPUTY COMMISSIONER OF INCOME TAX

ITA/889/2017

AI Insights

The case involves an appeal by Shri. B.N. Ramachandra (HUF) against the order of the ITAT, Bengaluru, which disallowed certain expenditures and included a payment as income in the hands of the assessee. The primary issues were the deductibility of Rs.3.27 Crores as expenditure under section 48 of the Income Tax Act, 1961, and the inclusion of Rs.2.5 Crores received by a power of attorney holder in the full value of consideration for tax purposes. The High Court found that the ITAT had misconstrued facts regarding the timing of payments and the legal implications of the power of attorney, leading to a decision in favor of the assessee on both counts.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 694228 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 23-08-2022
• Assessment Year: misc
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: DILIP
• Assessee Lawyers: A SHANKAR
• Keywords: Compensation; Deduction; Expenditure; Full Value of Consideration; Income tax appeal; Transfer
• Section: 48; 260-A

Judgement Text

"- 1 - IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF AUGUST, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON'BLE MR. JUSTICE UMESH M. ADIGA INCOME TAX APPEAL NO. 889 OF 2017 BETWEEN: SHRI. B.N. RAMACHANDRA (HUF) REP BY ITS KARTHA SRI. B.N. RAMACHANDRA BYRAMUNDI ESTATE MATADAGUDDA ESTATE UDAYAVARA POST SAKALESHPURA TALUK HASSAN DISTRICT - 573 134. PAN: AAHHB9087R …APPELLANT (BY SHRI. A. SHANKAR, SENIOR ADVOCATE FOR SHRI. BHAIRAV KUTTAIAH, ADVOCATE) AND: THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12, AYAKAR BHAVANA VIJAYANAGARA EXTENSION 2ND STAGE, BELUR ROAD HASSAN - 573 201. …RESPONDENT (BY SHRI. DILIP M., ADVOCATE FOR SHRI. K.V. ARAVIND, ADVOCATE) THIS INCOME TAX APPEAL FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 06.07.2017 PASSED IN ITA NO.1694/BANG/2013, FOR THE ASSESSMENT YEAR 2010-11 [ANNEXURE-A], PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AS STATED THEREIN AND THE ANSWER THE SAME IN FAVOUR OF THE APPELLANT AND ETC. Digitally signed by YASHODHA N Location: HIGH COURT OF KARNATAKA - 2 - THIS INCOME TAX APPEAL COMING ON FOR HEARING, THIS DAY, P.S. DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the assessee challenging the order dated 06.07.2017 in ITA No.1694/Bang/2013 passed by the ITAT1, Bengaluru Bench, for the A.Y.2010-11 has been admitted to consider the questions of law framed by the appellant. After hearing Shri A.Shankar, learned Senior Advocate for the assessee and Shri Dilip, learned Standing Counsel for the Revenue, in our considered view, the following two questions arise for consideration. \"1. Whether the Tribunal was justified in law in holding that the amount of compensation, expenditure incurred wholly in connection with the transfer, paid to the tune of Rs.3.27 Crores is not deductable under section 48 of the Income Tax Act, 1961 and consequently passed a perverse order on the facts and circumstance of the case. 2. Whether the Tribunal erred in holding that the amount of Rs. 2.5 Crores received by the registered power of attorney holder is to be taken into account for the purpose of determination of the full value of consideration under section 48 of the Act and consequently passed a perverse order on the facts and circumstance of the case. \" 1 Income tax Appellate Tribunal, Bengaluru Bench - 3 - 2. Brief facts of the case are, assessee along with one Shri Chethan A.Gandhi as the confirming party, sold land measuring 1 acre 16 guntas of land in Survey No.46/3, Dodda Bommasandra Village, Yelahanka Hobli, Bengalore North Taluk, in favour of MARS Builders, under sale deed dated 20.01.2020 for a total consideration of Rs.7 Crores. Out of the said amount, a sum of Rs.2.50 Crores was paid to the confirming party, i.e., Shri Chethan A.Gandhi through a cheque, details of which are recorded in the sale deed(Annexure-G). 3. The AO2 disallowed expenditure of Rs.3,86,40,000/- claimed by the assessee. There is no mention with regard to the sum of Rs.2.50 Crores paid to Shri Chethan Gandhi in the assessment order. Whilst the matter was under consideration before the CIT(A)3, the Assessing Officer wrote letter dated 04.09.2013 to the CIT(A) to add a sum of Rs.2.50 Crores paid to Shri Chethan Gandhi. The Commissioner held that payment was made 2 Assessing Officer 3 Commissioner of Income Tax (Appeals) - 4 - to Shri Chethan Gandhi by a crossed cheque and assessee had no right on the said amount and held that the said amount could not be treated as consideration received by the assessee. 4. So far as expenditure of Rs.3,86,40,000/- disallowed by the AO, the CIT(A) held that a sum of Rs.3,27,00,000/- had been paid through cheques and accordingly confirmed disallowance to the extent of Rs.59,40,000/-. 5. Revenue challenged CIT(A)'s order before the ITAT4. The ITAT upheld payment of Rs.2.50 Crores to Shri Chethan Gandhi. So far as disallowance of Rs.3.27 Crores, the ITAT considered the list of payments recorded in page No.15 of it's order and allowed Revenue's appeal. The resultant position is, payment of Rs.2.50 Crores made to Shri Chethan Gandhi was added as income in the hands of assessee and a sum of Rs.3.27 Crores claimed as expenditure by the assessee was disallowed. 4 Income Tax Appellate Tribunal - 5 - 6. Shri. A. Shankar, learned Senior Advocate for the assessee adverting to the sale deed pointed out that a sum of Rs.2.50 Crores was paid to Shri Chethan Gandhi directly through cheque No.548912 dated 20.01.2010 drawn on Shyam Rao Vittal Co-operative Bank Ltd. He submitted that it is recorded in the sale deed that assessee had executed a Registered General Power of Attorney in favour of Shri Chethan Gandhi and the land in question was under litigation since 1995. Therefore, to settle the matter amicably, assessee had taken a conscious decision to pay Rs.2.50 Crores directly to Shri Chethan Gandhi. 7. With regard to disallowance of Rs.3.27 Crores, Shri Shankar has filed a synopsis containing a list of payments and pointed out that what is considered by the ITAT in it's order is an incorrect statement. According to him, all payments were made in the year 2010 and in the list contained in ITAT's order, the very same payments are shown to have been made in the year 2013. - 6 - 8. With regard to certain payments said to have been made in the year 2013, Shri Shankar submitted that those payments were made in the year 2010 as per Syndicate Bank pass sheet and therefore the ITAT will have to re-examine the matter. 9. Shri M. Dilip, learned Standing Counsel for the Revenue submitted that Shri Chethan Gandhi was only a power agent. The property was not alienated in his favour nor possession of the property handed over to him. Therefore, entire sale consideration will have to be construed as receipt in the hands of the assessee. 10. With regard to disallowance of Rs.3.27 Crores as expenditure claimed by the assessee, Shri Dilip submitted that the statement relied upon by the ITAT is the one which was made available by the assessee. Therefore, there is no need for remand. 11. We have carefully considered rival submissions and perused the records. - 7 - 12. The first question of law is with regard to disallowance of Rs.3.27 Crores. The assessee has given a list stating that dates recorded in the cheques considered by the ITAT are all of the year 2010. The assessee has also produced bank pass sheet of Syndicate Bank from 01.01.2009 to 17.02.2011 as per Annexure-P to this appeal, wherein payment to one Shri Shivakumar is factually made on 21.01.2010 by way of two cheques, one for Rs.1 Lakh and other for Rs.15 Lakhs. The statement extracted by the ITAT contains 15 entries. Except entries No.5 & 6, all cheques are shown to have been drawn in the year 2013. Therefore, we are of the view that matter requires reconsideration in the hands of the ITAT. 13. The second question is with regard to payment of Rs.2.50 Crores to Shri Chethan Gandhi. We have carefully perused the sale deed. The sale deed contains a recital that assessee had executed a General Power of Attorney in favour of Chethan Gandhi, registered on 15.11.2007 in the office of the Sub-Registrar, Byatarayanapura, Bangalore. - 8 - The CIT(A) has recorded in his order, the synopsis of the criminal case, which had commenced in 1995. The recital in the sale deed also shows that property belonged to assessee's family and one of the family members namely Umesh has gifted the property in favour of his wife and thus litigation had ensued. 14. Suffice to record that after conclusion of the litigation, the property has been sold. The relevant aspect is, the assessee had, in fact, given a power of attorney in favour of Shri Chethan Gandhi. The payment of Rs.2.50 Crore has been made to Shri Chethan Gandhi by cheque. The Assessing Officer has not addressed this issue. On the other hand, he has written a letter to the CIT(A) who has considered the case in the right perspective and not added Rs.2.50 Crores as income of the assessee. In our view, the ITAT has misconstrued the facts and held that the CIT(A) has allowed the deduction of Rs.2.50 Crores. This aspect is factually incorrect. We say so, because there is no reference in AO's order with regard to amount of - 9 - Rs.2.50 Crores paid to Shri Chethan Gandhi. Though a letter was written by the Assessing Officer, the CIT (A) has not added that amount. Therefore, the finding recorded by the ITAT is perverse and unsustainable. 15. It is settled that it is not for the tax authority to sit in the chair of assessees and make commercial decisions. It is for the assessees to take appropriate decision with regard to their transactions and property. 16. In view of the fact that registered sale deed clearly shows that the sum of Rs.2.50 Crores was paid to Shri Chethan Gandhi, we are persuaded to accept the argument of Shri Shankar and agree with the view taken by the CIT(A). 17. In view of the above, the following: ORDER i) Appeal allowed; ii) Question No.2 is answered in favour of the assessee and against the Revenue; and - 10 - iii) The matter is remitted to the ITAT with a direction to re-examine the disallowance of Rs.3.27 Crores with reference to the bank pass sheet. Therefore, question No.1 does not call for any answer. No costs. Sd/- JUDGE Sd/- JUDGE YN List No.: 1 Sl No.: 40 "