2020 (1) TMI 966 - AT - Income Tax

Chargeability to tax of long term capital gains - sale of land to assessee's husband which was not disclosed by assessee in return of income filed with Revenue - HELD THAT - Assessee has brought on record documents such as Vardhamanam Deed, Settlement Deed and affidavit to contend that this entire sale was sham with a view to bring on record market value of said land so that compensation from Government at market value can be claimed. The guideline value of the said property is also higher as against compensation awarded by Government for compulsory acquisition of assessee property being 40.5 cents of land , as we have detailed above . The assessee has filed petition with District Collector for enhanced compensation. The details are elaborated in preceding para of this order. Certain additional evidences are also brought on record by assessee for the first time before tribunal which are even post appellate order passed by learned CIT(A) viz. registered settlement deed dated 12.05.2014 executed by her husband settling this property in favour of assessee. The affidavit is also filed contending that the entire sale transaction of sale of 25 cents of land to husband was sham transaction. These documents including additional evidences filed before tribunal including fresh contentions made by assessee before tribunal for the first time , need verification by authorities as these are fact finding exercise which requires investigation of facts to unravel truth Assessee deserves one more opportunity and the matter need to be remitted back to the file of the AO for fresh framing of assessment denovo after considering all the explanations/evidences filed by the assessee in its defense including customary law applicable to assessee and her husband which has attained force of law and is not in conflict with specific provisions of 1961 Act and investigation of facts. We clarify that it is the assessee who is contending that sale transaction executed by her through registered sale deed in favour of her husband is a sham transaction , and thus the onus is on the assessee to prove that it was a sham transaction and it is for the assessee to rebut the presumption that transfer was complete when registered sale deed was executed by assessee and possession handed over to husband of the assessee , by cogent evidence in de novo assessment proceedings before AO. The AO shall allow assessee to file evidences/explanations in her defense in set aside assessment proceedings which shall be admitted by the AO in the interest of substantial justice and then the issue be adjudicated on merits in accordance with law. Needless to say that the AO shall give proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law in denovo assessment proceedings - Appeal filed by assessee allowed for statistical purposes.

Issues Involved:
1. Chargeability to tax of long-term capital gains on the sale of land by the assessee to her husband.
2. Validity of the sale deed and whether it is a sham transaction.
3. Application of Section 50C of the Income-tax Act, 1961.
4. Consideration received and whether the contract is void ab initio.
5. Interpretation of the transaction as a sale or a gift.
6. Additional evidences and their verification.

Detailed Analysis:

1. Chargeability to Tax of Long-Term Capital Gains:
The primary issue in this appeal is the chargeability to tax of long-term capital gains on the sale of 25 ½ cents of land by the assessee to her husband. The Assessing Officer (AO) observed that the assessee did not declare the long-term capital gains arising from this sale in her return of income. The AO computed the long-term capital gains at ?47,72,821 by invoking Section 50C of the Income-tax Act, 1961, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Validity of the Sale Deed and Whether it is a Sham Transaction:
The assessee contended that the sale deed was a sham transaction, as the full consideration was not received. Only ?5,43,000 was received, and the remaining ?28,00,000 was covered by an unexecuted promissory note. The assessee argued that the contract was void ab initio due to the lack of consideration and that the transaction should be viewed as a gift between husband and wife. The CIT(A) disbelieved these contentions, noting that the property was conveyed through a registered sale deed.

3. Application of Section 50C:
The AO applied Section 50C, which considers the guideline value of the property as the full value of consideration. The guideline value was ?48,99,520, and the AO computed the long-term capital gains accordingly. The assessee did not challenge the invocation of Section 50C but argued that the sale deed was a sham.

4. Consideration Received and Whether the Contract is Void ab Initio:
The assessee provided evidence, including bank statements, to show that the ?5,43,000 received was refunded to her husband. She argued that the promissory note for ?28,00,000 was never realized, making the contract void ab initio. The Tribunal noted that the assessee needs to prove that the transaction was a sham and that the onus is on her to rebut the presumption of a complete transfer.

5. Interpretation of the Transaction as a Sale or a Gift:
The assessee argued that the transaction should be viewed as a gift between husband and wife, which would not attract capital gains tax. However, the CIT(A) and the Tribunal noted that the transaction was executed through a registered sale deed, and the property was conveyed absolutely.

6. Additional Evidences and Their Verification:
The assessee presented additional evidence, including an affidavit, Vardhamanam Deed, and a registered settlement deed executed after the appellate order. The Tribunal observed that these documents and the new contentions need verification by the authorities. The case was remitted back to the AO for a fresh de novo assessment, allowing the assessee to present all explanations and evidence.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remitting the matter back to the AO for a fresh assessment. The AO is directed to verify all the evidence and explanations provided by the assessee and adjudicate the issue on merits in accordance with the law, giving proper opportunity to the assessee to be heard. The onus is on the assessee to prove that the sale transaction was a sham.

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