SHRI VIJAY KUMAR,JAIPUR vs. INCOME TAX OFFICER, WARD-4-1, JAIPUR

That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) grossly erred in sustaining an addition of Rs. 3,29,302/- as short term capital gains from sale of property.

In this regard, the ld. AR submitted that the assessment was reopened by issuance of notice U/s 148 of the Act on the ground that the assessee has made time deposit of Rs. 10,00,000/-. The assessee vide letter dated 11.10.2017 had requested for a copy of reasons recorded by the Assessing Officer before the issuance of notice U/s 148 of the Act however, instead of providing copy of the signed reasons originally recorded by the then AO at the time of issue of notice U/s 148, a printout was provided by the incumbent Assessing officer which also contained queries raised by him. It was submitted that neither the reasons so recorded were provided to the assessee nor the same were reproduced in the reassessment order hence, the procedure laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Limited vs. ITO (2003) 259 ITR 19 was not followed by the Assessing Officer and the same is a jurisdictional defect and the entire reassessment framed deserves to be quashed as also held by Hon’ble Rajasthan High Court in the case of M/s KC Mercantile vs. DCIT in ITA No. 292/2016. It was further submitted that merely because time deposit was made by the assessee and the source of which needs to be verified, it does not lead to an inference that income has escaped assessment as there must be “reasons to believe” and not “reasons to suspect” that income chargeable to tax has escaped assessment. It was submitted that merely because a time deposit was made by the assessee, it does not automatically lead to an inference that income has escaped assessment as the assessee might have used his disclosed income for investment in the FDR. In support, reliance was placed on the Hon’ble Bombay High Court decision in case of CIT vs. Maniben Vilji Shah 283 ITR 453. It was further submitted that no independent enquiry/verification Shri Vijay Kumar vs. ITO was conducted by the AO and merely basis the borrowed AIR information, the assessment was reopened U/s 147 of the Act which cannot be a basis for reopening and hence, the notice u/s 148 and consequent reassessment proceeding should be quashed.

Per contra, the ld DR drawn our reference to the assessment order and submitted that there is no procedural irregularity as the reasons so recorded have been supplied to the assessee and thereafter, the assessee has chosen not to object to such reopening of assessment proceedings. It was further submitted that the Assessing officer had information that the assessee has placed time deposits of Rs 10 lacs with his bank and given that he has not filed his return of income, the assessment was reopened by issuance of notice u/s 148 of the Act. It was further submitted that material before the Assessing officer was relevant and affords a live link to the formation of prima facie belief that income chargeable to tax has escaped assessment and sufficiency and correctness of material need not be looked at the initial stage of reopening of the case. The ld DR accordingly supported the order of the lower authorities.

We have heard the rival contentions and pursued the material available on record. First contention of the ld AR is that the assessee vide letter dated 11.10.2017 had requested for a copy of reasons recorded by the Assessing Officer before the issuance of notice U/s 148 of the Act however, instead of providing copy of the signed reasons originally recorded by the then AO at the time of issue of notice U/s 148, a printout was provided by the incumbent Assessing officer which also contained queries raised by him and the same is in violation of the procedure laid down by the Hon’ble Supreme Court in case of GKN Drivehafts(supra). In this regard, we refer to the assessment order wherein the Assessing officer has acknowledged receiving the reply dated 11.10.2017 submitted by the assessee and has also stated that a copy of the reasons was also supplied to the assessee. We therefore find that where the 3 Shri Vijay Kumar vs. ITO reasons so recorded were duly supplied to the assessee even though not in the original format as recorded by the AO, there is no infirmity in the action of the Assessing officer. The essence and substance of the requirement as laid down by the Hon’ble Supreme Court is to allow the assessee to have access to the contents of the reasons so recorded for reopening the matter and where the assessee so desire, he has the liberty to submit his objections against such reopening. Therefore, in the instant case, we feel that the requirement of supplying the reasons has been duly complied with by the AO and thereafter, where the assessee has chosen not to object to such reopening after receiving the copy of the reasons so recorded, it has not caused any prejudice to the rights of the assessee and the contentions so advanced cannot be accepted.

Now, coming to the second contention of the ld AR wherein he has stated that the assessment was reopened on the ground that the assessee has made time deposit of Rs. 10,00,000/-. It was submitted that merely because time deposit was made by the assessee and the source of which needs to be verified, it does not lead to an inference that income has escaped assessment as there must be “reasons to believe” and not “reasons to suspect” that income chargeable to tax has escaped assessment. It was submitted that merely because a time deposit was made by the assessee, it does not automatically lead to an inference that income has escaped assessment as the assessee might have used his disclosed income for investment in the FDR. We find that in the instant case, the assessee has not filed any return of income and only pursuant to notice u/s 148, the return of income has been filed and the assessment proceedings for the impugned assessment year have been initiated. It is therefore a case of assessment and not-reassessment. Therefore, where the Assessing officer is ceased of the information that the assessee had made time deposit of Rs 10 lacs in his bank account and such time deposits remains undisclosed to the Revenue Shri Vijay Kumar vs. ITO authorities, there is clearly tangible information in the possession of the Assessing officer basis which a prima facie view has been formed that the income has escaped assessment. The assessee has not disputed the fact that he has placed time deposits of Rs 10 lacs with his bank and therefore, where there is credible information in possession of the Assessing officer which is not disputed by the assessee that the same relates to his own transaction with the bank, we believe that necessary nexus has been established between the information and formation of belief that the income has escaped assessment. What is the ultimate source of such deposit and to what extent, the assessee is able to offer his explanation and what would be the quantum of income which would finally be assessed is a matter of examination during the assessment proceedings and the same cannot be the basis to challenge the opening of the assessment proceedings by issuance of notice u/s 148 of the Act. In the result, the ground of appeal is dismissed.

It was further submitted that a registered family settlement and relinquishment dated 07.01.2010 was entered amongst the family members, wherein Krishna Kumari (mother of the assessee) and Anita Kumari (sister of the assessee) relinquished their respective portion in the property in favor of the appellant and his brother Ajay Kumar. The assessee sold his portion of the property vide registered sale deed dated 20.01.2010 and declared long term capital gains in return filed in response to notice u/s 148.

Regarding the cost of acquisition/improvement and deduction claimed u/s 54, there is no dispute and the ld. AO has accepted them after due verification.

It was submitted that the limited controversy which arose in the present case is whether the capital gains on sale of property is entirely long term capital gains (as computed by the assessee in the return filed u/s 148) or is partly long term capital gains on appellant’s portion/share in property Shri Vijay Kumar vs. ITO inherited from father and partly short term capital gains on portion/share of property received from mother and sister by way of relinquishment without consideration (as computed by the ld. AO in the impugned reassessment order).

In this regard, it was submitted that relinquishment without consideration between relatives tantamount to gift as held by Hon’ble Supreme Court in the case of Kuppuswamy Chettiar Vs. ASPA Armugam Chettiar and another reported in 1967(001)-SCR-0275-SC wherein it was held that transfer of a property by a release deed without any consideration is a gift. This judgment has also been referred in the case of Tehmi Jimmy Cooper Vs. ITO decided by Pune Bench of the Tribunal in decided on 06.08.2012.

It was further submitted that in case of relinquishment of asset, cost & period of holding of previous owner has to be considered while computing capital gains and the ld. A.O. grossly erred in interpreting the provisions of taxation of capital gains in case of inherited assets. It was submitted that where the provisions of sections 2(42A), 47(ii), 48, 49(1) and 55(2)(b)(ii) are cumulatively and harmoniously read, then in case of succession, the date of acquisition, cost of acquisition and period of holding is to be computed with reference to the acquisition of capital asset by the previous owner. If only for the purpose of computing indexed cost of acquisition, the date of acquisition by the previous owner is excluded, then it will lead to absurd results. Such interpretation will be against the intent and object of the enactment and will be against the overall scheme of taxation of capital gains in case of inherited assets. The cardinal principles of interpretation of statutes is that if literal meaning of the statute leads to an absurdity, the statute should be interpreted in a manner which will result in harmonious interpretation which Shri Vijay Kumar vs. ITO avoids absurdity and promote the objective of an enactment. In the case of Tehmi Jimmy Cooper Vs. ITO decided by Pune Bench (supra), it was held that in case of relinquishment of asset, period of holding of previous owner has to be considered for computation of capital gains and not the date of relinquishment. Reliance was also being placed in case of Smt. Mina Deogun Vs. ITO reported in 19 SOT 183 (2008) wherein Kolkata Bench of the Tribunal held as under :- • The date of succession will be immaterial in such cases for the purposes of determination of the cost of acquisition in the hands of the successor. • Indexation is to be allowed in respect of holding of the asset and not in relation to the individuality of the assessee. • Period of holding of the capital asset is to be taken as 01.04.1981 and hence cost inflation index applicable for F.Y. 1981-82 is to be applied instead of the cost inflation index of the year of succession.

We have heard the rival contentions and pursued the material available on record. Firstly, regarding the preliminary objection raised by the ld AR that the assessment was reopened on the ground that the assessee has made Shri Vijay Kumar vs. ITO an investment in time deposit however, no such addition was finally made and the addition was made towards capital gains and income from other sources. It was submitted that the AO cannot assess other escaped income where the AO did not assess the income for which he has reopened the assessment and in respect of which the notice u/s 148 was issued. In this regard, we refer to the assessee’s submission dated 8.12.17 filed before the Assessing officer. In the said submission, the assessee has submitted that he has sold a residential house property for Rs 13,50,000/- out of which Rs 950,000/- was received in Urban Co-operative Bank Ltd and out of some old savings lying with him along with financial help from the family members, he has deposited cash in his bank account and out of the payments so received and deposited, he has invested a sum of Rs 10 lacs in time deposit. Further, the assessee has filed his return of income in response to notice u/s 148 wherein he has disclosed capital gains on the sale of the property and interest on time deposits. We therefore find that where the source of time deposit has been declared by the assessee as sale of the property and where transaction relating to capital gains has been offered in the return of income and ultimately, brought to tax by the Assessing officer, the latter is well within his jurisdiction to assess such capital gains as the same has been suo-moto offered to tax by the assessee in the return of income filed in pursuance to notice u/s 148 and secondly, what was intended to be brought to tax is the source of deposit of such time deposits which remain unexplained prior to issuance of notice u/s 148 of the Act and once, the assessee has offered the source of such deposits as consideration on sale of property to capital gains tax in the return of income, there is no way, it can be held that the AO has exceeded his jurisdiction in taxing the same. Similar is the position regarding amount brought to tax under the head “income from other sources”. We therefore donot find any merits in the contentions so raised by the ld AR and the same cannot be acceded to. Shri Vijay Kumar vs. ITO 17. On merits, the issue under consideration is whether the capital gains on sale of property is entirely long term or is partly long term on assessee’s portion/share in the property inherited from his father and partly short term on portion/share of property received from his mother and sister by way of relinquishment without consideration. 18. There is no dispute that after the death of his father, the assessee got 1/4th share in the property and thereafter, as per the family settlement and relinquishment deed dated 7.01.2010, his mother and sister relinquished their respective shares in the property in favour of the assessee. Therefore, as on the date of the sale of the property, the assessee was in possession of 65.26 sq. yds of property, half of which has been received through inheritance and other half through relinquishment of rights by his mother and sister. There is also no dispute that the property was originally purchased by the assessee’s father in the year 1967 and thereafter, improvements have been carried out in year 1985 and 2001. The Assessing officer has therefore accepted the original cost in the hands of the previous owner (deceased father) and improvements thereto. The indexation benefit however has been restricted to the share of the property inherited from his father and which has finally been assessed as long term capital gains. The remaining half share of the property which has been acquired by the assessee by way of relinquishment on 7.1.2010 and thereafter, where the property has been sold on 20.01.2010, the Assessing officer has not allowed the indexation of such cost of acquisition and improvement and such gains have been brought to tax as short term capital gains. In our view, the relinquishment of share of the property in favour of the assessee without any consideration pursuant to family settlement deed amounts to transfer of the share of the property through gift. Where the property has been acquired through one of the modes as prescribed under section 49(1) of the Act which includes acquisition through gifts, the capital gains liability has to be computed by considering that Shri Vijay Kumar vs. ITO the assessee held the said share in the property from the date it was held by the previous owner and the same analogy has to be applied in determining the indexed cost of acquisition and indexed cost of improvement which is linked to the period of holding such asset. In the instant case, the previous owner is the deceased father of the assessee who had initially purchased the property in the year 1967, therefore, the assessee shall be liable to tax on the share of the property, acquired through relinquishment of rights by his mother and sister, as long term capital gains after providing requisite indexation of cost of acquisition and cost of improvement on similar lines as done in case of share of property acquired through inheritance and will be chargeable to tax as long term capital gains. We find that similar view has been taken by the Coordinate Bench in case of Tehmi Jimmy Cooper (supra) wherein the relevant findings read as under:

In the result, the ground of appeal is allowed.

It was further submitted that the assessee had discharged its onus of establishing the identity (proved through the family settlement and relinquishment deed which was registered, ITR of Mr. Ajay Kumar, capacity (gift amount is small) and genuineness (close relatives can gift amount, moreover, property has also been relinquished during the year under consideration) and reliance was placed on the Hon’ble Rajasthan High Court decision in case of M/s Aravali Trading Co. vs ITO reported in (2008) 8 DTR 199. The onus shifted on the Assessing Officer to prove that the alleged transactions were bogus, however, he grossly failed in discharging his onus.

The ld DR submitted that assessee’s mother and sister are non- assessee and gifts made out of past savings remain unverified. Further, in respect of gift from assessee’s brother, though he is an existing assessee but having low income and thus his creditworthiness is also doubtful. It was accordingly submitted that there is no infirmity in the order of the lower authorities and the same should be confirmed.

We have considered the rival submissions and perused the material available on record. The assessee has deposited a sum of Rs 7 lacs in his bank account and the source of the same has been explained as gifts received from his brother, sister and mother and in support, has submitted affidavits from his family members, family settlement and relinquishment deed and copy of return of income filed by his brother, Shri Ajay Kumar and his bank statement.

We find that an amount of Rs 6 lacs has been shown as gift received by assessee from his brother which is an existing income tax assessee and in the affidavit so submitted, he has explained that he has gifted the said amount to the assessee for purchase of residential property and the source of such money is income from his business, past savings, etc. Further, he has explained that he has withdrawn an amount of Rs 5.78 lacs from his bank account on 8.5.2009 and 4.02.2010 and the same has been gifted to the assessee. We therefore find that the assessee has substantially discharged the initial onus cast on him and in absence of any contrary material on record, the source of deposit to the extent of Rs 5.78 lacs is duly explained. Further, in respect of remaining deposit of Rs 1.22 lacs, the source of the same has Shri Vijay Kumar vs. ITO been explained as gift received from assessee’s mother and sister supported by their respective affidavits. Given the quantum of amount involved and the fact that household savings by the women in our society is a norm rather than an exception, we believe that the assessee has reasonably discharged the onus cast on him in terms of explaining the nature and source of such deposit as received from his mother and sister. Therefore, the addition so sustained by the ld CIT(A) is hereby directed to be deleted and the matter is decided in favour of the assessee and against the Revenue. In the result, the ground of appeal is allowed.