Gangahanumaiah Vs ITO (ITAT Bangalore)
Conclusion: The ITAT while dismissing the assessee’s appeal observed that the assessee has transferred his share of right and interest over the property in favour of his father through relinquishment deed dated 14.10.2014, which is after entering into sale agreement on 28.1.2014 and as per section 2(47)(i) of the Income Tax Act, transfer in relation to a capital asset, includes, the sale, exchange or relinquishment of assets. Therefore, the Order of AO wherein it was held that the assessee could not claim any exemption on the capital gains was upheld.
Facts: For assessment year 2015-16 the assessee had filed his return of income on 01.10.2015 declaring total income of Rs. 2,65,678/-. The assessee’s case was selected for limited scrutiny under CASS for the purpose of verification of cash deposits in savings bank account. As per the AIR information, the assessee had deposited sum of Rs. 54,42,660/-in his bank accounts. In response to the AO’s query regarding the source of the cash deposits, the assessee submitted that the cash deposits inter alia, comprised a sum of Rs. 50,12,500/-received from his father out of sale consideration of Rs. 2,40,50,000/- received by the latter from sale of land. On being asked by the AO why he had not declared the amount of Rs.50,12,500/- in his return, the assessee stated that the land was agricultural land and hence exempt from taxation. The AO observed that neither the assessee nor his father had declared agricultural income for the preceding two years. Further, the land had been sold as residential plots, as evident from the registered sale deeds submitted and the land had lost its agricultural character. The AO also held that the said land fell within the BBMP limits and the area specified u/s 2(14)(iii)(b) of the Income-tax Act, 1961 and as the assessee had not constructed one residential house within the time stipulated u/s 54F, the AO held the assessee could not claim any exemption on the capital gains. Accordingly, the AO added the sum of Rs.49,86,132/- to the assessee’s income.
The Ld. CIT(A), observed that a combined reading of both the agreement to sell and the relinquishment deed indicates that the assessee enjoyed possession of the land that was eventually sold by the assessee’s father. The assessee, through the relinquishment deed, had relinquished his rights over the property. By doing so, he had transferred his rights in the property to his father. As such, the payment received by the assessee was in consideration of extinguishing his rights in the property and hence that constituted his capital gains. Accordingly, the Ls. CIT(A) upheld the orders of AO.
The ITAT after taking submissions of both sides into consideration observed that there is a relinquishment deed dated 14.10.2014 executed by assessee in favour of his father. Earlier to this, there was a sale agreement dated 28.1.2014 wherein assessee’s father, present assessee and his brothers together entitled to sale agreement for sale of said property for a consideration of Rs.2,40,50,000/-. Consequent to release deed by assessee in favour of the assessee’s father on 14.10.2014, the assessee’s father executed final sale deed in October, 2014 for a sale consideration of Rs.2,40,50,000/-, said sale consideration was divided namely assessee, assessee’s brothera. The contention of the Ld. A.R. is that assessee is not the owner of the property and this property is self-acquired property of assessee’s father does not hold any water as what is the necessity of executing the relinquishment deed in favour of the assessee’s father. Had it been property of assessee’s father, as a whole and absolute owner of the said property, he could have himself very well executed the absolute sale deed in favour of purchaser. Further had it been Ganga Hanumaiah was the absolute owner of the said property, what is the necessity of executing the relinquishment deed by the assessee and his brothers in favour of assessee’s father on 14.10.2014. Therefore, the said property cannot be said that self-acquired property of Ganga Hanumaiah as there was a relinquishment deed in favour of Ganga Hanumaiah by his children, it may be of property acquired by Ganga Hanumaiah by the common funds of the family. As such, there was execution of relinquishment deed in favour of Ganga Hanumaiah. AO brought into taxation, the assessee’s share of sale consideration into taxation and same is to be confirmed.
In the present case, the assessee has transferred his share of right and interest over the property in favour of his father through relinquishment deed dated 14.10.2014, which is after entering into sale agreement on 28.1.2014. As per section 2(47)(i) of the Act, transfer in relation to a capital asset, includes, the sale, exchange or relinquishment of assets. However, section 45 of the Act won’t apply in case of any distribution of capital asset on the total or partial partition of Hindu Undivided Family. It is also not a case of assessee that there was distribution of capital asset on total or partial partition of the Hindu Undivided Family. Hence, relinquishment deed dated 14.10.2014, wherein assessee released his right in favour of his father for which assessee received the impugned consideration, which has been taxed by the A.O. Co-owner can be through both inheritance or by purchase. The relinquishment of right over the property by present assessee to his father is a transfer as the assessee not able to establish that he is not having any right over the said property at the time of relinquishment of his right over the property. The relinquishment deed dated 14.10.2014 is not empty formality. Accordingly, the apparent has to be considered as real since the assessee failed to establish otherwise. In these circumstances, the lower authorities were justified in bringing to tax the capital gain in the hands of the assessee. Accordingly, the ground of assessee was dismissed.
In the result, the appeal filed by the assessee was dismissed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by assessee is directed against order of CIT(A) dated 28.3.2019 for the assessment year 2015-16. The assessee has raised following grounds of appeal:-
1. “The learned Assessing Officer had erred in passing the order in the manner passed by him and the Learned CIT (A) has erred in confirming the same. The order passed is bad in law and liable to be quashed.
2. In any case the learned Assessing officer had erred in making the addition on account of capital gains in the hands of the appellant which is beyond the scope of limited scrutiny that too without seeking prior approvals make the entire assessment proceedings bad in law and therefore the impugned order is liable to be quashed.
3. Without prejudice, the Assessing Officer had erred in holding that the appellant had transferred a capital asset and earned some long term capital gain, thereby liable for taxation u/s 45 of the Act and the learned CIT(A) has erred in confirming the same. On the facts and circumstances of the case and the law applicable, the appellant never owned the capital asset and therefore the question of transferring the capital asset and liability to be assessed u/s 45 of the Act does not arise at all. The conclusion drawn by the authorities below being wholly erroneous both on facts and law is to be rejected.
4. The learned Assessing officer had erred in computing the long term capital gain on sale of land at Rs.49,86,132/- and taxing the same under the head Capital Gains. The learned CIT(A) instead of deleting the addition made has erred in confirming the same. The action of authorities below being totally erroneous both on facts and law are to be negated and the addition made under the head long term capital gain is to be deleted.
5. In any case, the learned CIT(A) has erred in holding that:
i) the appellant acquired easementary rights in the said property
ii) such rights were relinquished by way of a release deed
iii) the amount received from the father of the appellant is in lieu of transfer of such rights.
iv) relinquishment of easementary rights amounts to transfer in terms of section 2(47) of the Act
v) the appellant is liable to be assessed under the head Capital Gains
vi) the appellant is not eligible for deduction u/s 54B/54F of the Act.
The conclusions drawn are contrary to both facts and law applicable are to be disregarded and the addition as made/confirmed is to be deleted.
6. In any case, the authorities below have erred in not appreciating the fact that
i) the appellant never owned the said property nor acquired any interest/rights therein
ii) the said property was acquired and sold solely by the father of the appellant
iii) the amounts received from the father of the appellant was not on account of transfer of appellant’s share of property
iv) in any case, The registered relinquishment deed was executed by the appellant as well as his brothers before the sale of the property, in to formally declaration any preexisting right, but for protecting the interest of the buyer.
on proper. appreciation of facts and the law applicable, no sum is assessable under the head capital gains in the hands of the appellant and same is to be accepted.
7. The appellant is also not liable to pay interest U/s. 234B and 234D of the Act. The interest having been levied erroneously is to be deleted.
8. In view of the above and on other grounds to he adduced at the time of hearing, it is requested that the impugned order be quashed or atleast the Long term capital gain as assessed in the hands of the appellant be deleted and interest levied be also deleted.”
2. The assessee has also raised additional grounds of appeal along with petitions as follows:-
1. “The Appellant in the above memorandum of appeal above, has raised several grounds of appeal wherein ground no. 2 reads as under:
‘”In any case, the learned Assessing officer had erred in making the addition on account of capital gains in, the hands of the appellant which is beyond the scope of limited scrutiny that too without seeking prior approvals make the entire assessment proceedings bad in law and therefore the impugned order is liable to be quashed”
2. This legal ground has not been raised before the first appellate authority and taken for the first time before the honourable Tribunal as additional ground.
3. The additional ground of appeal pertains to the legal issue of scope of limited Scrutiny and assumption of jurisdiction of the Assessing officer to consider the issues not covered by limited scrutiny without seeking prior approvals from higher authorities. It is submitted that all the facts relating to this additional ground of appeal are available on record.
4. In the facts and circumstances of the case and in the interest of justice, the appellant requests that the additional ground of appeal hereby enclosed, which goes to the very root of the matter, may please be admitted and adjudicated at the time of hearing.
5. The prayer may kindly be acceded to.”
3. We have heard the both the parties on admission of additional grounds. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional ground for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide.
4. Facts of the case are that for assessment year 2015-16 the assessee had filed his return of income on 01.10.2015 declaring total income of Rs. 2,65,678/-. The assessee’s case was selected for limited scrutiny under CASS for the purpose of verification of cash deposits in savings bank account. As per the AIR information, the assessee had deposited sum of Rs. 54,42,660/-in his bank accounts. In response to the AO’s query regarding the source of the cash deposits, the assessee submitted that the cash deposits inter alia, comprised a sum of Rs. 50,12,500/-received from his father out of sale consideration of Rs. 2,40,50,000/- received by the latter from sale of land. On being asked by the AO why he had not declared the amount of Rs.50,12,500/- in his return, the assessee stated that the land was agricultural land and hence exempt from taxation. The AO observed that neither the assessee nor his father had declared agricultural income for the preceding two years. Further, the land had been sold as residential plots, as evident from the registered sale deeds submitted and the land had lost its agricultural character. The AO also held that the said land fell within the BBMP limits and the area specified u/s 2(14)(iii)(b) of the Income-tax Act, 1961 [‘the Act’ for short].
4.1 The AO recorded the statement of the assessee u/s 131 of the Act on 08/11/2017, in which the assessee inter alia stated that he had received Rs.50,12,500/- as his share of the sale proceeds of Rs.2,40,50,000/- from the sale of sites pursuant to the agreement to sell dated 28/01/2014. The assessee purchased 3 sites using the above sale proceeds received by him. Two of the plots were purchased on 07/03/2015 and one plot on 03/12/2014 and the assessee had not constructed any house on date. The AO obtained the guidance value of the property sold as on 01/04/1981 which was Rs.5,000/- per acre and accordingly worked out the cost of acquisition and consequent capital gains at Rs.49,86,132/- as below:
