2011 (8) TMI 702 - HC - Benami Property

Issue of notice after the expiry of 4 years - Facts assessee had paid a sum of ₹ 3,03,435 to Sri Mitra, therefore, 33.85 per cent. of this was ₹ 1,02,712 had escaped the assessment. Payments made on development agreement included an amount of ₹ 3,03,435 paid by the assessee to Sri Mitra during the assessment year 1994-95 - Held That - Prima facie there was escapement of more than ₹ 1 lakh. Hence the reassessment proceedings were not hit by the provisions of section 149(1)(a) and (b) of the Income-tax Act. Clubbing of income - Benami Transaction versus shame transction - Held That - A benami transaction is different from a sham transaction wherein the owner of the property executes a conveyance in favour of another without the intention of transferring the title to the property thereunder. In the case of benami transaction, there is an operative transfer from the transferor to the transferee though the transferee holds the property for the benefit of the person who has contributed the purchase money. However, in the case of sham transaction there is no operative transfer at all and the title rests with the transferor notwithstanding the execution of conveyance. It is indeed surprising and unbelievable that a person of virtually no means would get life time gain of ₹ 8 lakhs and would not know where he has used/invested the money. It proves that he has no control over the source or destination of funds passing through his hands. - It proves that he has no control over the source or destination of funds passing through his hands. Thus, he is a benamidar of the assessee-firm. Therefore, on the basis of the statement of Sri Mitra (supra) we are of the view that he was the benamidar of the assessee-firm and his income was rightly clubbed with the assessee-firm. - Decided in favor of revenue.

Summary

Issues Involved:
1. Validity of second notice for reassessment under section 148 of the Income-tax Act after four years from the relevant assessment year.
2. Clubbing of income of Sri P. K. Mitra with the appellant-firm's income without fulfilling conditions under Chapter V of the Income-tax Act.
3. Reliance on statement of Shri Kuldeep Mehra in assessment proceedings.
4. Substantive assessment of both appellant-firm and Sri P. K. Mitra for consideration paid for sale of flats in assessment year 1995-96.

Analysis:

Issue 1:
The appellant challenged the validity of the second notice for reassessment issued under section 148 of the Income-tax Act, contending it was time-barred as the income allegedly escaped assessment was less than one lakh rupees. However, the court found that the reassessment proceedings were not time-barred as the income chargeable to tax which had escaped assessment was likely to amount to one lakh rupees or more, as per the provisions of section 149(1)(b) of the Act.

Issue 2:
The question of whether Sri P. K. Mitra's income could be clubbed with the appellant-firm's income was raised. The court examined the transactions and statements of Sri Mitra, concluding that he was a benamidar of the appellant-firm. As per the Benami Transactions (Prohibition) Act, the court found that the revenue had established the requirements of a benami transaction, leading to the decision that Sri Mitra's income was rightly clubbed with the appellant-firm's income.

Issue 3:
The appellant argued against the reliance on Shri Kuldeep Mehra's statement in the assessment proceedings, contending that it was not admissible as evidence in the appellant-firm's assessment. However, the court upheld the lower authorities' reliance on the statement, indicating that it played a crucial role in establishing the relationship between Sri Mitra and the appellant-firm.

Issue 4:
Regarding the substantive assessment of both the appellant-firm and Sri P. K. Mitra for the consideration paid for the sale of flats in the assessment year 1995-96, the court found in favor of the Revenue. The court determined that Sri Mitra was a benamidar of the appellant-firm based on the evidence and transactions, leading to the dismissal of the appeal.

In conclusion, the court upheld the decisions of the lower authorities, ruling in favor of the Revenue on all substantial questions raised by the appellant. The appeal was dismissed, and no costs were awarded.