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TMI Blog2020 (5) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... rected the department to produce the assessment records of the assessee to adjudicate the legal issue. Today when the assessment records were produced by the department (on the date of hearing), the Ld. AR inspected the assessment records and does not want to press the aforesaid legal issues. So, we dismiss these legal issues raised before us. 4. Coming to the main grievance of the assessee which is against the action of Ld. CIT(A) in confirming the action of AO in making addition of Rs. 1,25,42,334/- as Long Term Capital Gain (hereinafter LTCG) from sale of property when, according to assessee, there was diversion of income due to overriding title. 5. Briefly stated facts of the case as emanating from the assessment order passed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the "Act") are that in this case notice u/s. 142(1) was issued calling for submission of return, since the assessee did not file his return of income for this assessment year. The said notice u/s. 142(1) was served upon the assessee on 25.03.2010. In response, the assessee filed the return of income for the AY 2008-09 which was received by the office of the AO on 04.05.2010. In the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot claim deductions of any bad debts. The copy of statement had no supporting evidences or particulars of having carried any business activity during the year or any previous years. Even after proper perusal it was found that the calculation of indexation in VIP road land is inaccurate. There were enough reasons for reopening. Thus the assessing officer had reasons to believe that the assessee has furnished inaccurate particulars and has reasons to believe that income chargeable to tax has escaped assessment for the AY 20-08-09. It is a fit case for issuance of notice u/s. 148 for proceedings u/s. 147 of the Income Tax Act, 1961." 8. Finally, a show cause notice was issued to the assessee and asking him to explain the following: i) What are the business activities that the assessee had carried out in the previous years? ii) What are the business losses that the assessee had to incur in his own business being the sole proprietor, owner of such business activity? iii) What are the bad debt losses that the assessee incurred during the year in contention in having conducted any loss as being the owner/proprietor? iv) The balance sheet of M/s. Pragati Printers Pvt. Ltd. al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ld.AR the brief facts of the issue before us is that the assessee an individual who was the owner of the immovable property at Berabarihad mortgaged the same as secured asset (refer page 69-72) with the SBI (lender of loan) since the assessee stood as guarantor for the loan taken by a corporate entity M/s. Pragati Printers Pvt. Ltd. Further, according to ld.AR, when the loan taken by M/s. Pragati printers Ltd. was classified by the lender as a non-performing asset, the lender bank i.e. SBI issued notice dated 04.01.2007 u/s. 13(2) of Securitization & Reconstruction of Finance Asset and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFESI Act" and proceeded to take possession of theassessee's immovable property at Berabari and sealed the same by SBI (refer to page 79 of paper book). Since the assessee had leased the said immovable property to the M/s. Pragati Printers Pvt. Ltd. the same (lease) was surrendered back by M/s. PPPL to assessee on 31.05.2007 (refer pages 74 to 84 of paper book). And according to ld. AR, since the interest rate on the loan given to the M/s. PPPL was rising day by day and the immovable property of assessee at Berabarimortgaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition in the following words: "But, section 48 shows that the transfer that is contemplated by section 45 is a transfer as a result of which consideration is received by the assessee or accrues to the assessee. Section 48 provides the mode of computation of capital gains by enacting that the income chargeable to tax as capital gain shall be computed by deducting from the "full value of the consideration received or accruing as a result of the transfer of the capital asset" the following amounts, namely: (i) expenditure incurred wholly and exclusively in connection with such transfer; and (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. The amounts specified in clauses (i) and (ii) are to be deducted from the "consideration received or accruing as a result of the transfer of the capital asset" for the purpose of determining the profits or gains chargeable to tax. It is, therefore, clear that the transfer of a capital asset, in order to attract the capital gains tax, must be a transfer as a result of which consideration is received by the assessee or accrues to the assessee. If there is no consideration received or accruing to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest in the property by way of mortgage and, therefore, there was expenditure incurred for the purpose of transferring the full owner hip right in the property". Against these findings of the Tribunal the revenue took up the matter in reference to Hon'ble Kerala High Court. The revenue, inter alia, contended that the assessee was not entitled to the deduction of the amount paid to Kerala Financial Corporation for discharge of mortgage as deduction under section 48(1)(a)(z) of the Act from the sale consideration because such deduction was impermissible in the light of earlier Hon'ble Kerala High Court's decision in the case of Ambat Echukutty MenonVs. CIT (1978) 111 ITR 880 and the Hon'ble Supreme Court decision in the case of CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622. The Hon'ble Kerala High Court observed that the Tribunal appeared to have been proceeding in wholly unnecessary direction of statutory provisions relating to the deduction from the full value of the consideration by resorting to section 48 of the Act. The Hon'ble High Court held that Kerala Financial Corporation was acting on the basis of the overriding title resulting into assessee receivin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards the Allahabad Bank in respect of one of the firms. It appears that there was but one sale comprising the assets of both the firms and the bid of one Ganesh Prasad at Rs. 3,51,00,000 was accepted as the highest bid and that the payment towards the same was made in driblets from time to time." 12. After considering the arguments of the parties Hon'ble Calcutta High Court delivered their verdict in the following words: "The decision in S.R. V. Press and Publications (P.) Ltd. [2000] 241 ITR 626 (Ker.), cited by Mr. Som is also distinguishable and would have no manner of application in the present case in view of the fact that the amount was sent in that case after the receipt of the consideration by the liquidator to discharge the liability of the assessee in respect of finance received from the Karala Finance Corporation on the security of the property which was created after acquisition in the course of a winding up proceeding. There was nothing from which it would be held that such payment was absolutely necessary. On the other hand, learned counsel for the assessee in that case had conceded that section 48 of the Act had no application to the facts of the said case. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inters PvtLtd (PPPL) to SBI as a collateral security against loans taken by the said PPPL, was sold. The assessee being a shareholder and a director handed over the title deeds of the land to the said company M/s PPPL and allowed it to mortgage the land to the SBI. When M/s PPPL was unable to repay the dues being loan and interest accrued thereon, the land was sold by the bank. The Ld AR submitted that the sale proceeds were collected by the bank directly from the buyer and appropriated towards the dues from M/s PPPL, thus, the sale proceeds never reached the hands of the assessee resulting into the real income being diverted at source. 15. We note that in the case of CIT vs Sunil J. Kinariwala, 259 ITR 10 ( SC), it was held that when a third person becomes entitled to receive the amount under an obligation of the assessee, even before the assessee could lay a claim to receive it as his income, there would be a diversion of income by way of overriding title. However, when the same is passed on to a third person in discharge of the obligation of the assessee after the receipt of such amount, it is application of income. 16. We also note that the Hon'ble Apex Court in CIT vs Sitald ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We further note that the case laws relied upon by the authorities below and the Ld. DR are distinguishable on facts. In V.S.M.R. Jagadishchandranvs CIT, 227 ITR 240 (SC), it was held that where the mortgage is created by the assessee himself, benefit of cost of acquisition won't apply. Here the mortgage was created for the assessee's own benefit and the issue of diversion of income by overriding title was neither raised nor considered. 19. We also note that in the case of R.M. Arunachalamvs CIT 227 ITR 222 (SC) deals with the case of deductibility of estate duty as cost of acquisition or cost of improvement. And in the case of CIT vs. Attili N Rao, 252 ITR 880 (SC), the Hen 'ble Supreme Court held that since the immovable property belonged to the assessee, the capital gains is to be charged on the entire amount. This case is different from the case at hand as in that case the mortgage had been created to discharge the liability of the assessee himself whereas in the case at hand, the assessee has mortgaged his property to discharge the liability of the third party. 20. We also note that all the above three decisions were considered by the Tribunal in Glad Investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of CIT vs. Smt. Thressiamma Abraham (supra) would be applicable. Be that as it may be. 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. 23. In the interest of justice, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the land. According to Ld. AR, the Fair market value of the land was determined by the Certified ValuerRs. 8,30,000/- , which was taken to be the cost of acquisition by the assessee in his revised computation of income. It was submitted 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. However, according to Ld. AR, the AO has taken the cost of acquisition of the property at VIP Road as Rs. 1122, without considering the provisions of clause (b) of section 55(2) of the Income Tax Act and has indexed it by taking the indexation base at 406. Such cost inflation index purported to the F.Y. 2000-01. And it was pointed out by the Ld. AR that the AO's contention that - "the assessee has himself shown an amount of Rs. 1,122/- as purchase price of the landed property in his balance sheet for the previous year, it would be reasonable to take such price as the actual price of purchase for that landed property on the date of purchase of 25.04.2000." is bad on facts and law. 26. Thus, it was contended by the Ld. AR that the AO went wrong on facts itself, since the property was not purchased on 25.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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