2020 (5) TMI 19 - AT - Income Tax

Long Term Capital Gain - sale of property - diversion of income due to overriding title - whether the sale of the property has been made directly by the SBI and the sale consideration was appropriated to the loan amount? - whether the assessee has got the property sold and the buyer has deposited it directly to the SBI and thereafter the SBI appropriated it to the loan amount? - HELD THAT - It is observed that a vide letter dated 26.05.2007 SBI has written to the buyer of the property M/s. Svarna Infrastructure Builders Pvt. Ltd (supra) to deposit the full value of the consideration with SBI SSI Branch Bhowanipore before signing the conveyance deed. However the Facts are not clear. It is not clear from the document as to whether the SBI conducted the sale by Public Auction and then consideration money was deposited by the buyer directly with the bank; or the sale of property was carried out by the assessee and the sale consideration was deposited by the buyer in assessee s account as per the SBI s instruction or in the account of M/s. PPPL. From the discussion supra it is needless to say that if the assessee has got the sale of property and consequently if the money was routed through the bank account of the assessee before being finally appropriated towards the dues of M/s. PPPL there cannot be diversion of income by overriding title and in that fact situation capital gains tax liability would arise in assessee s hands. In the interest of justice we therefore remand this issue back to the file of the A.O. for the limited purpose to verify the correct facts on the lines stated by us in the preceding para. In case after due enquiry he finds that the assessee s case falls in the first category as discussed in para 22 supra he shall delete the addition. The A.O. shall also afford reasonable opportunity of hearing to the assessee to explain/ substantiate the correct facts and pass a speaking order. Computation of capital gain - computation of indexed cost of acquisition - cost of acquisition of the land to the assessee or the fair market value of the land as on 01.04.1981 - HELD THAT - Since the land was acquired before 01.04.1981 as per the provisions of the section 55(2) clause (b) the cost of acquisition of the land to the assessee or the fair market value of the land as on 01.04.1981 at the option of the assessee could be taken to be the cost of acquisition of the land. We note that the Fair market value of the land was determined by the Certified Valuer 8, 30, 000/- which was taken to be the cost of acquisition by the assessee in his revised computation of income. It is noted that the valuation report received from such Valuer was furnished before the AO and is attached herewith in pg. nos. 136-144 of paper book. Thus we are of the opinion that the computation of indexed cost of acquisition by the AO taking the cost of acquisition at the cost price of 15.04.1976 without considering the provisions of section 55(2) clause (b) and taking the base cost inflation index at 406 is bad in law and we direct that 8, 30, 000/- must be taken as the cost of acquisition instead of 1, 122/-.. So we order accordingly.

Summary

Issues Involved:
1. Admission of additional grounds of appeal.
2. Addition of ?1,25,42,334/- as Long Term Capital Gain (LTCG) from the sale of property.
3. Computation of LTCG considering the cost of acquisition for land at VIP Road.

Detailed Analysis:

1. Admission of Additional Grounds of Appeal:
The assessee's counsel prayed for the admission of additional grounds of appeal, arguing that the Assessing Officer (AO) erred in passing the order under sections 147/143(3) without issuing the statutory notice under section 143(2) and without recording "reasons to believe." These grounds were admitted as they were purely legal in nature. However, upon inspection of the assessment records, the assessee's counsel chose not to press these issues, leading to their dismissal.

2. Addition of ?1,25,42,334/- as Long Term Capital Gain (LTCG) from the Sale of Property:
The main grievance was the addition of ?1,25,42,334/- as LTCG from the sale of property at Beraberi. The AO noted discrepancies in the assessee's return, including a claimed bad debt loss and incorrect indexation for the sale of land at VIP Road. The AO initiated proceedings under section 147, believing that income had escaped assessment due to these inaccuracies.

The assessee argued that the property at Beraberi was mortgaged to SBI as a secured asset for a loan taken by M/s. Pragati Printers Pvt. Ltd. (PPPL). When the loan became a non-performing asset, SBI took possession of the property and sold it to M/s. Svarna Infrastructure & Builders Pvt. Ltd. The sale consideration was directly deposited to SBI by the purchaser, and the assessee did not receive any consideration. The assessee contended that this situation constituted a diversion of income by overriding title, thus no LTCG should be computed.

The Tribunal considered various case laws, including Addl. CIT vs. Mohanbhai Pamabhai, CIT vs. Smt. Thressiamma Abraham, and Gopee Nath Paul & Sons vs. Dy. CIT, which supported the assessee's claim of diversion of income by overriding title. The Tribunal noted that if the sale was conducted by SBI and the consideration was directly appropriated towards the loan, it would constitute a diversion of income by overriding title. However, if the sale was conducted by the assessee and the consideration was routed through the assessee's account, it would be an application of income.

The Tribunal remanded the issue back to the AO to verify the facts and determine whether the sale was conducted by SBI or by the assessee. If it was found that the sale was conducted by SBI, the addition should be deleted.

3. Computation of LTCG Considering the Cost of Acquisition for Land at VIP Road:
The assessee challenged the computation of LTCG for land at VIP Road, arguing that the cost of acquisition should be ?8,30,000/- (the fair market value as on 01.04.1981) instead of ?1,122/- (the purchase price in 1976). The AO had incorrectly taken the purchase date as 25.04.2000 and indexed the cost accordingly.

The Tribunal found that the property was indeed purchased on 15.04.1976, and as per section 55(2)(b), the cost of acquisition should be taken as the fair market value as on 01.04.1981. The assessee had provided a valuation report determining the fair market value as ?8,30,000/-. The Tribunal directed that this amount should be taken as the cost of acquisition, and the indexed cost should be recalculated accordingly.

Conclusion:
The appeal was partly allowed for statistical purposes. The issue of LTCG from the sale of property at Beraberi was remanded back to the AO for verification, and the cost of acquisition for land at VIP Road was directed to be taken as ?8,30,000/- instead of ?1,122/-.