Surajkumar & Sons Vs ITO (ITAT Mumbai)
ITAT Mumbai held that the assessee not entitled to deduction u/s 48(i) of the Act for repayment of the mortgage debt which was incurred subsequent to the acquisition of the property and not for the purpose of acquisition.
Facts- The assessee is a partnership firm and has not filed its return of income during the impugned year for the reasons that it did not have taxable income. The assessee’s case was re-opened after duly recording the reasons for re-opening u/s. 147 of the Act vide notice u/s. 148 dated 31.03.2017 and notice u/s. 142(1) dated 13.06.2017 were issued and served on the assessee.
The assessee raised the objections to the reasons for re-opening stating that it had not received any notice u/s. 148 and that the re-opening was time barred. The assessee has also raised objection that it had not purchased any property during the year under consideration and the reasons for re-opening was hence bad-in-law.
AO dealt with the objections raised by the assessee and passed the assessment order dated u/s. 143(3) of the Act determining total income at Rs. 10,03,53,900/- as being the Long Term Capital Gain (LTCG) on sale of property. CIT(A) upheld the order of Ld. AO.
Conclusion- Held that the assessee cannot taken advantage of the error committed by the AO in the reasons for reopening when there are genuine reasons where it is evident that income has escaped assessment. We are of the considered opinion that this ground of appeal raised by the assessee does not hold merit and the same is dismissed.
Held that the payment of loan availed in the banks by invoking the SARFAESI Act was not diversion of sale proceeds by overriding title and was merely an application of the sale proceeds towards discharge of outstanding of loan liability of the sale assessee. Also, held that assessee was not entitled to claim deduction of such payment for the purpose of computing capital gain as per the provision of section 48 of the Act.
Held that the assessee was not entitled to deduction u/s 48(i) of the Act for repayment of the mortgage debt which was incurred subsequent to the acquisition of the property and not for the purpose of acquisition.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been filed by the assessee challenging the order of the Ld. Commissioner of Income Tax (Appeals) -33, Mumbai [hereinafter referred to as (‘Ld. CIT(A)’) passed under section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) pertaining to the Assessment Year (AY) 2010-11. The assessee has challenged the assessment order passed under section 147 of the Act and has also challenged the disallowance of Rs. 4,79,89,606/- towards the cost of improvement and the consequential index cost thereof. The assessee has also challenged the order of Ld. CIT(A) in holding Rs. 6,50,00,000/- paid to the Bank for the purpose of collateral securities on the ground that the same should have been allowed as cost while computing the capital gains raising from the sale of property or according to the assessee was to be excluded from the sale proceeds as the said amount was not received by the assessee and was thus diverted by overriding title.
2. Brief facts of the case are that the assessee is a partnership firm and has not filed its return of income during the impugned year for the reasons that it did not have taxable income. The assessee’s case was re-opened after duly recording the reasons for re-opening under section 147 of the Act vide notice under section 148 dated 31.03.2017 and notice under section 142(1) dated 13.06.2017 were issued and served on the assessee.
3. The assessee raised the objections to the reasons for re-opening vide letter dated 13.09.2017 stating that it had not received any notice under section 148 and that the re-opening was time barred. The assessee has also raised objection that it had not purchased any property during the year under consideration and the reasons for re-opening was hence bad-in-law. The Ld. AO dealt with the objections raised by the assessee and passed the assessment order dated 27.12.2017 under section 143(3) of the Act determining total income at Rs. 10,03,53,900/- as being the Long Term Capital Gain (LTCG) on sale of property.
4. The assessee was in appeal before the Ld. CIT(A) challenging the impugned assessment order passed by the AO. The Ld. CIT(A) then upheld the order of Ld. AO.
5. Further aggrieved, the assessee is in appeal before us challenging the order of Ld. CIT(A).
6. Ground No.1 raised by the assessee challenged the assessment order passed under section 147 of the Act as being bad-in-law and barred by limitation.
7. It is observed that the AO has re-opened the assessment in the case of assessee for the reason that as per the individual transactions statement of the assessee, the assessee is said to have purchased a property amounting to Rs. 10,50,00,000/- for which the source was undisclosed and since prima facie it is observed that income has escaped assessment due to the failure on the part of the assessee in disclosing fully and truly all material facts necessary for its assessment. The reasons for re-opening has been extracted here-in-under for ease of reference:
“Reasons recorded for issue of notice u/s 148(2) of the IT Act, 1961.
1. The assessee has not filed Return of Income for A.Y. 2010-11.
2. On perusal of the Individual Transaction Statement of the assessee, it is seen that during the year under consideration the assessee has purchased a property amounting to Rs. 10.50,00,000/- sources of the same remain undisclosed.
3. In view of the above, I am satisfied and also I have reason to believe that income more than Rs 1,00,000/- has escaped assessment due to the failure on part of the assessee in disclosing fully and truly all material facts necessary for its assessment. Accordingly, the case of the assessee required to be reopened u/s 147 of the I.T. Act, in order to frame assessment in its proper perspective and to bring to tax appropriate income of the assessee including under stated income, as discussed above. It is therefore, necessary to reopen the case u/s 147 of the Act.
Issue Notice u/s 148 of the I.T. Act.”
8. The Ld. AR for the assessee contended that notice under section 148 dated 13.09.2017 was not issued to the assessee as alleged by the lower authorities and that the assessee was in knowledge of the re-assessment proceedings only through notice issued under section 142(1) of the Act which was emailed to the Chartered Accountant of the assessee after 31.03.2017. The Ld. AR also contended that the reasons recorded for re-opening was for purchase of immovable property and that there was no such purchase made by the assessee during the year under consideration. The ld. AR further contended that the lower authorities has failed to establish the fact that the said notice under section 148 was delivered to the assessee through Speed Post on or before 31.03.2017 thereby holding the assessment order to be invalid and bad-in-law.
9. The ld. AR relied upon these decisions of the Hon’ble Apex Court in the case of CIT Vs. Major Tikka Khushwant Singh 80 Taxman 88 (SC), R.K. Upadhyaya Vs. Sanabhai Patel 166 ITR 163 (SC) and Kanubhai M. Patel (HUF) vs. Hiren Bhatt 202 Taxman 99 (Guj) for the preposition that notice under section 148 of the Act was barred by limitation.
10. On the other hand, the Ld. DR controverted the said facts and stated that the assessee in its Paper Book had filed the copy of notice under section 148 dated 31.03.2017 and the same was duly signed by the Ld. AO. The Ld. DR further stated that the copy of reasons recorded for re-opening was also filed by the assessee which was presumably issued before the date of notice under section 148 of the Act. The Ld. DR further contended that even otherwise there was time period provided under section 149 of the Act holding the assessment order to be valid. The Ld. DR relied on the decision of the Tribunal in Ambica Steels Ltd. v/s DCIT (2009) 118 ITO 116 (Del)
11. The Ld. DR on the issue of the reasons for re-opening contended that the AO had merely mistaken the sale of property to be purchase of property which apparently was a mistake curable under section 292B of the Act. The ld. AR brought our attention to the fact that being a partnership firm the assessee was under obligation to file its return of income even otherwise. The Ld. DR relied on the order of the lower authorities.
12. We have heard the rival submissions and perused the material available on record. The assessee has contended that it had not received notice under section 148 of the Act as alleged by the AO that the same was served through Speed Post on 31.03.2017. It is evident that the assessee vide its letter dated 13.09.2017 had filed its objection to the re-opening stating that it had not received notice under section 148 of the Act and that the reason for re-opening is said to be bad-in-law and time barred. It is also evident that the assessee had received the reasons recorded for re-opening dated 27.03.2017 prior to notice under section 148 of the Act whereas the assessee had filed its objection only on 13.09.2017 alleging that it had not received notice under section 148 of the Act.
13. We do not find any other communication from the assessee to the Ld. AO stating that it had not received the notice since the reasons for re-opening was served. It is also evident that the AO had again dispatched copy of the said notice vide letter dated 13.09.2017 subsequent to the assessee’s letter dated 13.09/2017. Apart from the bare allegation, the assessee has not furnished any details substantiating its allegation that the notice was not received when there were other options of seeking RTI from the Department to prove the service of notice. Hence, we find that the assessee has not substantiated enough to prove the fact that notice under section 148 was not served to the assessee. On identical facts the Tribunal in the case referred by the ld. DR has held in Ambica Steels Ltd. (supra) that when the requirement of service of notice u/s 148 of the Act was duly complied with by the Ld. AO and when the assessee has no grievance on this the same will not vitiate the reassessment proceedings. With regard to the contention that the reasons recorded for re-opening was wrong as the assessee did not make any purchase during the year under consideration, we find that there was merit in the submission of the Ld. DR in stating that it was merely a mistake on the part of the Ld. AO to have specified purchase instead of the sale transaction, nevertheless the fact that the assessee has made transaction of Rs. 10,50,00,000/- during the year under consideration and has not filed its return of income during the year under consideration according to us, is a sufficient reason for re-opening the assessment of the assessee. The assessee cannot taken advantage of the error committed by the AO in the reasons for reopening when there are genuine reasons where it is evident that income has escaped assessment. We are of the considered opinion that this ground of appeal raised by the assessee does not hold merit and the same is dismissed.
14. The assessee has challenged the computation of the capital gain on sale of property at Rs. 10,03,53,900/- for which the assessee has claimed deduction for cost of improvement & alleged that the diverted amount at source by overriding title never reached the assessee and further had claimed indexed cost and cost of transfer.
15. It is observed from the facts that the assessee being a partnership firm was formed by 5 partners namely Tina Tejraj Gowani, Minoo Tejraj gowani, Sandeep Agarwal, Premkanta Agarwal and Sudha Agarwal in which Tina Gowani & Minoo Gowani had by way of capital introduced Flat no. 1207, 1208 on 12th Floor & 1304 on 13th Floor of Eldorado Building at Prabhadevi, Mumbai as capital to the firm. The assessee contended that these flats were made a one unit and various renovation works was carried out to fetch a good price of the said property. Subsequently Tina Gowani & Minoo Gowani resigned from the assessee firm and the remaining partners continued to be partners in the firm. It is also observed that firm was maintaining credit facility with BOI, Mahalaxami branch for which the assessee firm was one of generator of the above mentioned properties were mortgaged with BOI. Due to losses incurred by the firm the account of the assessee’s firm become NPA on 30.06.09 and on negotiations with the bank, the partners decided to sell the property for better price themselves and to pay the outstanding dues from the sale consideration. The property was then sold for Rs. 10,50,00,000/- which is as per the index-II where the market price was only Rs. 4,76,16,434/-. During the assessment proceedings the assessee was asked to submit details of expenses incurred on construction/renovation/repair of any along with documentary evidences for calculating LTCG. The AO had also sought for the deed of retirement of partners from the Assessee’s firm. The assessee has claimed the total expenses at the time of assessment proceedings as tabulated below:
