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2022 (3) TMI 76 - AT - Income TaxCapital gains derived from transfer of property - settlement of the Loans availed by the Companies from the Bank - As argued assessee did not receive a penny from the sale of assets, because the assets mortgaged to the bank, have been sold by the banks and the sale consideration has been appropriated towards loans payable by the borrowers - HELD THAT - Facts are contradicting. In case the claim of the assessee is correct that the banks have sold the property mortgaged by the assessee and appropriated sale consideration against loan payable by the three companies, then the case of the assessee is squarely covered by the decision in the case of CIT v. Smt.Thressiamma Abraham 1996 (9) TMI 60 - KERALA HIGH COURT wherein, it was clearly held that when the purchaser of the property paid entire sale consideration directly to the lender and it was only thereafter mortgaged property was released, then, it can be said that sale consideration was diverted to the lender by overriding title and in such circumstances, no capital gains accrued to the assessee. In case, the claim of the AO is correct that the assessee himself has sold the property and received sale consideration from the purchaser and thereafter discharged the debt payable by three companies to banks and get released the mortgaged property and thereafter executed the Sale Deed in favour of the purchaser, then the case of the assessee is not covered by the decision of the Hon ble Kerala High Court in the case of CIT v. Smt.Thressiamma Abraham (supra). Since, there are contradicting arguments from both the sides, we are of the considered view that the issue needs to be re-examined by the AO in light of the arguments of the assessee that the bank has took possession of the property under SARFAESI Act, 2002, sold the property directly to the buyers and buyers have directly paid the consideration to the banks against loans repayable by three companies in light of decision of the Hon ble Kerala High Court in the case of CIT v. Smt.Thressiamma Abraham (supra) to ascertain the correct facts to compute capital gains. As per the additional grounds filed by the assessee, Ld.CIT(A) having accepted the fact that once assessee become creditor in the books of accounts of three companies, and the assessee has written off loans and advances given to three companies in his books of accounts as irrecoverable bad debts, the Ld.CIT(A) ought to have examined the claim of the assessee in light of provisions of Sec.36(1)(vii) r.w.s.36(2) of the Act. Because, when the assessee had mortgaged his property in favour of the banks against loans availed by three companies, then loan repaid by the assessee to banks becomes loans and advances given to three companies in the books of accounts of the assessee. If assessee written off those loans and advances given to three companies as irrecoverable bad debts, then the assessee can claim the benefit of deduction towards bad debts, if conditions prescribed u/s.36(1)(vii) r.w.s.36(2) of the Act are satisfied. Since, the assessee has taken arguments for the first time before the Tribunal, we are of the considered view that the issue needs to go back to the file of the AO for verification of the facts on this count also.
Issues Involved:
1. Admission of additional grounds of appeal. 2. Taxability of capital gains on the sale of mortgaged property. 3. Validity of summons issued under Section 131 of the Income Tax Act. 4. Claim of bad debts under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act. Detailed Analysis: 1. Admission of Additional Grounds of Appeal: The assessee filed additional grounds of appeal challenging the findings of the CIT(A). The Tribunal considered whether these grounds, which were a mix of legal and factual questions, could be admitted. The Tribunal noted that the facts related to these issues were already on record before the Assessing Officer (AO) during the appellate proceedings. Therefore, the Tribunal admitted the additional grounds for adjudication. 2. Taxability of Capital Gains on the Sale of Mortgaged Property: The core issue was whether the sale of the property mortgaged to banks, where the sale consideration was appropriated towards loans availed by companies, resulted in capital gains taxable in the hands of the assessee. The assessee argued that since the sale proceeds were used to settle the loans, no capital gains should be computed. The Tribunal referred to the decision of the Kerala High Court in CIT v. Smt. Thressiamma Abraham, which held that if the sale consideration was diverted to the lender by overriding title, no capital gains accrued to the assessee. However, the Tribunal noted that there were contradictory claims about whether the bank or the assessee sold the property. Therefore, the Tribunal remanded the issue back to the AO for re-examination to ascertain the correct facts and compute capital gains accordingly. 3. Validity of Summons Issued under Section 131 of the Income Tax Act: The assessee contended that the summons issued under Section 131 was void ab initio since no proceedings were pending under the Income Tax Act at the time of issuance. The Tribunal did not provide a separate detailed analysis on this issue but implicitly included it in the remand for re-examination by the AO. 4. Claim of Bad Debts under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act: The assessee argued that the CIT(A) should have allowed the loan amount written off as bad debts, as the assessee had become a creditor in the books of the companies upon settling their loans. The Tribunal noted that if the assessee had written off these loans and advances as irrecoverable bad debts in his books, he could claim a deduction under Section 36(1)(vii) read with Section 36(2). Since this argument was raised for the first time before the Tribunal, it remanded the issue to the AO for verification of facts. Conclusion: The Tribunal set aside the appeals and remanded the issues back to the AO for re-examination in light of the arguments made by the assessee and relevant judicial precedents. The appeals for the assessment years 2013-14 and 2014-15 were treated as allowed for statistical purposes.
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