2011 (5) TMI 569 - HC - Income Tax

Income on account of long-term capital gain - Remand report - the additional evidence given in the form of correspondence provided by the assessee - Held that - Additional evidence given in the form of correspondence provided by the assessee was duly and properly admitted by the CIT(A), the question on merits as decided by the two authorities below does not pose any problem. It is stated in the remand report that AO had not questioned the genuineness and veracity of the documents. Though he had specifically mentioned that the additional documents had been gone through and perused by him, he had only questioned the admission of these documents in view of Rule 46A of the Income Tax Act that too on the ground that the original agreements entered into between the assessee and the lenders did not provide for giving additional security on subsequent dates and for this reason alone, he contended that the assessee could not place reliance on subsequent correspondence. Therefore, CIT(Appeal) was right in proceeding on the premise that such a correspondence was in fact genuine and exchanged between the parties. Once this position is accepted coupled with the fact that the parties to the contract have agreed to change the terms thereof and it was actually done in the instant case, the furnishing of additional security became justified and there was no reason to treat the same as long-term capital gain, authorities below in this behalf have rightly referred to the judgment of K.P. Verghese (1981 (9) TMI 1 - SUPREME Court) in arriving at this decision Appeal is dismissed

Summary

Issues:
1. Additional security pledged by the assessee with lenders beyond the original agreement terms.
2. Admission of additional documents under Rule 46A of the Income Tax Rules.
3. Deletion of the addition made by the Assessing Officer on account of long-term capital gain.
4. Challenge by the Revenue against the decision of the CIT(A) and ITAT.

Issue 1: Additional security pledged by the assessee with lenders beyond the original agreement terms:
- The Assessing Officer found that the assessee had pledged additional shares beyond the terms of the original agreements with two lenders.
- The CIT(A) admitted additional documents submitted by the assessee under Rule 46A, which showed that the original agreement was modified by subsequent correspondence between the parties.
- The CIT(A) concluded that the additional security was justified based on the correspondence exchanged between the parties, leading to the deletion of the addition made by the Assessing Officer.
- The ITAT upheld the decision of the CIT(A) stating that the original agreement had been modified by the parties, justifying the additional security provided by the assessee.

Issue 2: Admission of additional documents under Rule 46A of the Income Tax Rules:
- The CIT(A) admitted the additional documents submitted by the assessee under Rule 46A, as it was observed that the Assessing Officer did not raise further queries after the initial explanation provided by the assessee.
- The CIT(A) found no fault in admitting the additional evidence, as the terms of the original agreement were found to have been modified by subsequent mutual agreements between the parties.

Issue 3: Deletion of the addition made by the Assessing Officer on account of long-term capital gain:
- The CIT(A) and ITAT deleted the addition made by the Assessing Officer on account of long-term capital gain, as they found justification in the modification of the original agreement by the parties through subsequent correspondence.
- The authorities relied on the judgment of the Supreme Court in K.P. Varghese v. Income Tax Officer to support their decision to delete the addition.

Issue 4: Challenge by the Revenue against the decision of the CIT(A) and ITAT:
- The Revenue challenged the decision of the CIT(A) and ITAT in the High Court under Section 260A of the Income Tax Act.
- The High Court dismissed the appeal, stating that no substantial question of law arose, and the admission of additional evidence by the CIT(A) was within the proper discretion.
- The High Court upheld the decision of the lower authorities, emphasizing that the modification of the original agreement by the parties justified the additional security provided by the assessee.

This detailed analysis of the judgment highlights the issues involved, the legal reasoning behind the decisions of the authorities, and the final outcome of the case as determined by the High Court.