2023 (7) TMI 900 - AT - Income Tax

Deduction of expenses from capital gain - Amount paid to avoid to litigation, claimed as deduction against the short-term capital gain - sham transaction or not - HELD THAT - There is no allegation of the revenue based on the documentary evidence that the payment made by the assessee has come back to the assessee in any form directly or indirectly. Besides the company namely Frontline Financial Services Ltd has also given undertaking to the assessee that it will be solely responsible for the tax liability on the payment received by it. All these facts discussed above were very much available before the authorities below. Despite that no proceeding against the company has been initiated by the revenue by issuing a notice u/s 148 - It is not out of the place to mention that there are certain loopholes in the transaction carried out by the assessee with the company namely Frontline Financial Services Ltd but the same cannot be used against the assessee. It is also important to note that the company namely Frontline Financial Services Ltd by virtue of the MOU dated 15 April 2008 got the right which could have been enforced by way of suit for specific performance. Thus, it appears the assessee has made the payment to the company avoid such litigation. The assessee cannot be subjected to tax for the capital gain on the amount mentioned in such memorandum of understanding - Decided in favour of assessee.

Summary

Issues Involved:
The appeal against the order of the Learned Commissioner of Income Tax (Appeals) regarding the assessment order under the Income Tax Act 1961 for the Assessment Year 2009-10.

Grounds of Appeal:
1. The Assessing Officer's order under Section 147 r.w.s. 143(3) of the I.T. Act is challenged as void.
2. Dispute over the short term gain assessment and gross sale consideration.
3. Challenge to the finding that the transaction is sham.
4. Grievance against the charging of interest under sections 234A, 234B, and 234C of the Act.

Issue 1 - Void Order:
The appellant contended that the order under Section 147 r.w.s. 143(3) is void and should have been quashed by the Learned Commissioner of Income Tax (Appeals).

Issue 2 - Short Term Gain Assessment:
The appellant disputed the AO's assessment of short term gain at Rs. 9200000 instead of Rs. 228700 shown in the return, arguing for the assessment to reflect the return amount.

Issue 3 - Gross Sale Consideration:
The appellant challenged the AO's assessment of gross sale consideration at Rs. 10400000, claiming that the entire amount should not be taxed in their hands, as detailed in the impugned assessment order.

Issue 4 - Transaction Validity:
Dispute arose over the finding that the transaction was sham, with the appellant asserting that the income should be assessed as per their return.

Issue 5 - Interest Charges:
The appellant raised concern over the Assessing Officer's decision to charge interest under sections 234A, 234B, and 234C of the Act, urging for a review of this decision.

Factual Background:
The appellant, an individual, declared income under various heads, including capital gain, in response to a notice under Section 148 of the Act. The transaction involved the purchase and subsequent transfer of a property, leading to a dispute over the tax implications.

Judgment:
The Appellate Tribunal considered the payment made by the appellant to Frontline Financial Services Ltd. of Rs. 8900000 against short-term capital gain. While lower authorities viewed the transaction as an attempt to avoid tax liability, the Tribunal noted that the payment was made through proper banking channels and accepted by the company.

Decision Rationale:
The Tribunal found no evidence that the payment returned to the appellant or that the appellant was liable for the tax on that amount. The company also undertook responsibility for any tax liability arising from the transaction. Despite certain transactional irregularities, the Tribunal concluded that the appellant should not be taxed for the capital gain amount as per the memorandum of understanding.

Legal Precedent:
Referring to a relevant case, the Tribunal emphasized the capital nature of the rights acquired in such transactions, leading to the decision to delete the addition made by the Assessing Officer. Consequently, the appeal of the assessee was allowed.

Conclusion:
The Tribunal set aside the findings of the Learned Commissioner of Income Tax (Appeals) and directed the Assessing Officer to delete the addition, ultimately allowing the appeal of the assessee.