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TMI Blog2022 (12) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... -owners including assessee have substantive holding/controlling interest and on the other hand the same land is said to be developed under a JDA with one party Ramanaiyam. The same land has been sold in the year under consideration giving rise to long term capital gains to the three co-owners who have attempted to minimize their taxability on the said gains by resorting to the two arrangements relating to the impugned land with SAE BJT and Ramanaiyam, respectively. Claims by the assessee under the arrangements made tantamount to diversion of sale proceeds to which we do not ascribe our views favorably considering the facts and circumstances of the case as discussed above. Thus we set aside the order of ld. CIT(A) and uphold the disallowance made by the ld. AO in respect of claim of deduction made by the assessee towards payment of compensation to SAE and BJT and to Ramanaiyam towards interest for clearance of encumbrance.Appeal of the revenue is allowed. - ITA No.1737/CHNY/2019 - - - Dated:- 19-8-2022 - SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER Appellant by : Shri Suhrith Parthasarathy, Advocate Respondent by : Shri AR V S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year in question. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the AO restored. 3.1 Ld. Sr. DR placed a written submission containing three pages along with copies of judicial precedents relied on vide submission dated 30.03.2022. We also note that Ld. Counsel for the assessee made elaborate written submission along with paper book containing 307 pages, all placed on record. 4. Brief facts as culled out from records are that assessee is an individual and filed his return on 20.08.2016 reporting total income of Rs.1,34,53,470/-, deriving income from sale of land which was offered as long term capital gain. The property sold during the year comprised of a piece and parcel of land to an extent of 6.50 acres situated at Sholinganallur Village, Saidapet Taluk, Chengapattu District which is jointly owned by the assessee along with his mother Smt. Hansa Jayapal and sister Smt. P. K. Banumathi. The said land property was sold vide registered sale deed dated 15.12.2014. Total sale consideration for the same was received at Rs.71.50 Cr. out of which, share of the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,30,11,920 (vii) Compensation paid to BJ Textiles Company Ltd. in AY 15-16 1,70,11,500 TOTAL 14,38,71,535 Net consideration 7,72,17,965 Less: Indexed cost of Acquisition 11,70,551 Less: Indexed cost of improvement 1,41,03,943 1,52,74,494 Taxable LTCG 6,19,43,472 6. In the assessment completed by Ld. AO u/s. 143(3) of the Act, claim of deduction made by the assessee towards interest paid on security deposit to Ramaniyam for clearing the encumbrance and compensation paid to SAE and DTZ were disallowed. Ld. AO recomputed the long term capital gain after considering the disallowance made by him which is tabulated in para 2.5 of the impugned order and is reproduced as under: Sl. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the same three persons. All the three co-owners including the assessee computed the long term capital gain on the sale of land for their respective shares in the sale consideration of the impugned property and offered it to tax in their respective returns of income. The computation of LTCG is reproduced as under: 9. For the disallowance made by the Ld. AO, assessee went into appeal before the Ld. CIT(A) and claimed that interest paid on security deposit to Ramaniyam for an amount of Rs.2,55,57,417/- was in respect of clearing the encumbrance owing to cancellation of the Joint Development Agreement (in short JDA ) which was entered into with Ramaniyam for the purpose of development of the impugned property. It was claimed by the assessee that the JDA was cancelled owing to specific condition warranted by the purchaser of the impugned land. It was submitted by the assessee that Ramaniyam was the agreementholder and was interested in continuing the development project whereas the land owners including the assessee had to make their obligations and were hard pressed for funds since an enquiry to purchase outright had come before them with good price factor and cancelling t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the impugned property. He further observed that since the new purchaser of the land insisted on vacant and un-encumbered possession as part of the conditions for purchase of land, the compensation so paid for obtaining the un-encumbered land is an allowable expenditure in connection with the transaction. 9.2 Aggrieved, the revenue is in appeal before the Tribunal. 10. Ld. Sr. DR, by referring to his written submission placed on record along with judicial precedents mentioned therein, strongly submitted that there is diversion of sale proceeds towards redeeming the interest of related parties i.e. SAE and BJT and that of Ramaniyam and, therefore, the amount so diverted is exigible to capital gains tax. Ld. Sr. DR reiterated the facts relating to the compensation of SAE and BJT as also the fact of JDA set up with Ramaniyam. Ld. Sr. DR pointed to the fact that out of total amount of Rs.24.52 Cr. claimed to have been paid to SAE, Rs.20 Cr. had been paid by August, 2012. Similarly, Rs.2.5 Cr. had been paid to BJT by August 2012. He thus, submitted that on the plea of the assessee that minority shareholder may tarnish the image of the management, these amounts were paid much pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t so diverted was not liable to capital gains tax? 4. The property had been offered as collateral security in a loan obtained by M/s. M.O. Hassan Kuthoos Maricar Pvt. Ltd., from State Bank of India, Pondicherry, to an extent of Rs.3.75 Crores, and the assessee and the other two co-owners stood as guarantors, for the said loan. Mortgage was by deposit of title deeds. No registered mortgage deed was executed. Since the loan was not repaid, the assessee and the other two co-owners consented for sale of the property by Bank to realize its dues. This was purchased by M/s. Royal Park, Tiruchirapalli, for a total consideration of Rs.1,96,18,200/-. The sale was effected during the Assessment Year 1995-1996. The total sale consideration was paid to the Bank by the purchaser M/s. Royal Park, Tiruchirapalli. 27. In the present case, to reiterate the facts, the assessee Smt. D. Zeenath along with two other co-owners, namely, Smt. S. A. Kathija Nachial and Smt. Zubaida had originally purchased land measuring 43,596 sq.ft. at Saram Village, Pondicherry by two sale deeds dated 11.07.1980 and 04.02.1981 for a total consideration of Rs.2,01,000/-. They had offered the said property as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appeal filed by the Assessee has no merits and consequently has to be dismissed. 10.3 He thus, strongly submitted that the order of Ld. CIT(A) is ought to be set aside and disallowance made by the Ld. AO be upheld. 11. Per contra, ld. Counsel for the assessee reiterated the submissions made before the authorities below which have already been noted in the above paragraphs. 12. We have heard the rival contentions and given our thoughtful consideration on the submissions made before us. Admittedly, it is a fact on record that long term capital gain which is the subject matter of present appeal, SAE and BJT are related parties vis- -vis the assessee who are conducting their business operations from the land which has given rise to long term capital gains. The three co-owners of the land including assessee, holds substantial and significant share in the two entities controlling the entire affairs of SAE and BJT. It is also an undisputed fact that the share of the assessee in the sale transaction is of 30.93% who has computed the long term capital gain by taking into consideration his proportion of expenses which are claimed to have been incurred wholly and exclusively i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards payment of compensation to SAE and BJT, we note that ld. Counsel of the assessee contended that compensation has been paid to the two entities to cover up their loss of business for vacating the land. Assessee has furnished charts giving details of return of income and the profits as also their net-worth for the years ending on 31.03.2012 to the year ending on 31.03.2018 which are placed in the paper book at pages 36 and 63, both of which are reproduced as under: 12.4 From the perusal of the above two charts, we note that prior to the impugned year AY 2015-16, in the two immediately preceding years ending on 31.03.2013 and 31.03.2014, the net profit reported in both the entities is that of a loss scenario. Both the entities had already been gone into losses prior to the date of sale of land in the impugned year and, therefore, the contentions made by the ld. Counsel of the assessee that sale of land by the co-owners including the assessee would lead to suffering of business losses to the two entities does not stand correct on the strength of verifiable facts placed in the two charts reproduced above. 12.5 In respect of claim of interest paid to Ramaniyam, ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing at the documents produced before them they were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents....The apparent must be considered as real only it is shown that there are reasons to believe that the apparent is not the real and that too taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probability.... Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and tribunals have to judge the evidence before them by applying the test of human probabilities. 13.1 The conclusions flowing from the explanations and evidences furnished by the assessee in the present case are leading us to consider the doctrine of preponderance of human probabilities and the surrounding circumstances in respect of the claims made. Instead of adopting superficial approach, claim of the assessee is to be examined in the light of real life probabilities which have been so done by the ld. AO. In respect of impugned land on which computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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