2016 (6) TMI 128 - AT - Income Tax

Addition made on account of capital gains on protective basis - adoption of sale consideration - Held that - In the facts of the present case, where the land though on the date of sale deed was in the name of assessee, which fact has been accepted by the Assessing Officer, Chiplun Municipal Council did not pay the consideration for sale to the plot holder, but paid the amount by account payee cheque to Shri A.F. Patel, who was a GPA holder, except for ₹ 7,50,000/-, no other amount has been paid to the assessee. The assessee has filed a civil suit in the Civil Court of Ratnagiri against Shri A.F. Patel and Chiplun Municipal Council claiming that the GPA holder had acted fraudulently and had received the consideration of ₹ 51,58,560/- after TDS which should be refunded to the assessee. The said civil suit is pending before the Civil Court. In the above said facts and circumstances, the CIT(A) held that in the hands of assessee, the capital gains is to be taxed by adopting sale consideration at ₹ 7,50,000/-. It is further held by the CIT(A) that in case the assessee recovers some amount of sale consideration from Shri A.F. Patel, then the same is to be considered as capital gains in the hands of assessee on protective basis. However, the CIT(A) has further clarified this by saying that where the assessee receives additional consideration in future from Shri A.F. Patel, then the same is to be assessed in the hands of assessee on substantive basis by taking necessary action under section 150 of the Act in accordance with law. The final conclusion of CIT(A) in this regard is that since the civil suit for recovery of the consideration is pending, then whenever if any amount is received by the assessee, then the same is includable in the hands of assessee under section 150 of the Act. We find no error in the said directions of CIT(A). The grounds of appeal raised by the assessee that the addition has been made in the hands of assessee on protective basis has no merit since the CIT(A) has directed that pursuant to the decision of Civil Court, the necessary action should be taken under section 150 of the Act in accordance with law - Decide against assessee. Non-issue of notice under section 143(2) - Held that - Notice under section 143(2) of the Act was issued on 16.10.2006 which was duly served upon the assessee on 20.10.2006. In response to which, the assessee personally attended on 21.10.2006 and thereafter, on various dates up to August, 2007. Further, the assessee attended along with the learned Authorized Representative for the assessee from 28.09.2007 to 20.12.2007. In view of notice under section 143(2) of the Act being issued to the assessee and the assessee having failed to substantiate his claim we find no merit in the ground of appeal - Decide against assessee.

Summary

Issues Involved:
1. Addition of capital gains on a protective basis.
2. Validity of assessment due to non-service of statutory notice under Section 143(2).
3. Liability for interest under Sections 234A, 234B, and 234C.

Issue-Wise Detailed Analysis:

1. Addition of Capital Gains on a Protective Basis:
The core issue pertains to the addition of ?45,30,000 as capital gains on a protective basis. The assessee, a Deputy Engineer, had purchased agricultural land in 1999 and sold it in 2004. The sale was executed through an irrevocable General Power of Attorney (GPA) given to Shri A.F. Patel, who later sold the land to Chiplun Municipal Council for ?52,80,000. The dispute arose because the assessee claimed to have received only ?7,50,000, while the remaining amount was allegedly received by Shri A.F. Patel. The Assessing Officer (AO) included the entire sale consideration in the assessee's income, but the Commissioner of Income Tax (Appeals) [CIT(A)] held that only ?7,50,000 should be taxed as capital gains in the assessee's hands. The CIT(A) further directed that if the assessee recovered any additional amount from Shri A.F. Patel in the future, it should be taxed on a substantive basis under Section 150 of the Income-tax Act. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had filed a civil suit for recovery of the amount from Shri A.F. Patel and Chiplun Municipal Council, and any recovery would be taxable as per the court's decree.

2. Validity of Assessment Due to Non-Service of Statutory Notice Under Section 143(2):
The assessee contended that the assessment was invalid due to the non-service of a mandatory notice under Section 143(2). However, the Departmental Representative for the Revenue pointed out that the notice was issued on 16.10.2006 and duly served on 20.10.2006. The assessee had attended the proceedings on multiple occasions in response to the notice. The Tribunal found no merit in the assessee's claim and rejected the ground, affirming that the notice was properly served and the assessment was valid.

3. Liability for Interest Under Sections 234A, 234B, and 234C:
The assessee challenged the liability to pay interest under Sections 234A, 234B, and 234C of the Act. The Tribunal held that the interest charges were consequential to the assessment and rejected the ground of appeal.

Conclusion:
The appeal was dismissed in its entirety. The Tribunal upheld the CIT(A)'s decision to tax ?7,50,000 as capital gains in the assessee's hands and to consider any future recovery from Shri A.F. Patel as taxable income. The validity of the assessment was confirmed, and the liability for interest under Sections 234A, 234B, and 234C was maintained.