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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI MANJUNATHA. G & SHRI MANOMOHAN DAS
PER MANOMOHAN DAS, J.M: Aforesaid appeal by Assessee for Assessment Year (AY) 2010- 11 arises out of the order of learned Commissioner of Income Tax (Appeals), Chennai [hereinafter “CIT(A)”] dated 23-08-2018 in the matter of assessment framed by Ld. Assessing Officer [AO] under section143(3) r.w.s. 147 of the Income Tax Act, 1961 [hereinafter “the Act”] on 30-11-2017. The grounds urged in the appeal read as under:
2 -: "1. The order passed by the learned Assistant Commissioner of Income Tax OSD, Corporate Range-1, Chennai 34 is against the facts of the case and principles of natural justice.
2. The learned Commissioner of Income Tax (Appeals) 1 failed to understand the fact that removal of property from the block of fixed asset was not for any consideration but by reversal of a jourmal entry wherein a property belonging to the director was incorporated in the block of asset for commercial use as the proposal did not fructify the same was reversed.
3. The learned Commissioner of Income Tax (Appeals) - 1 also failed to appreciate the fact that the removal of asset does not f all under the ambit of the provision of sec 2(47) of the Income Tax Act 1961 thus the same deserves to be deleted.
The learned Commissioner of Income Tax (Appeals) 1 made arbitrary addition of depreciation on the iscarded asset without understanding the depreciation calculation in the fixed asset schedule whereas the appellant had not claimed any depreciation on the discarded asset.
The learned Commissioner of Income Tax (Appeals) - 1 also erred in not acknowledging the fact the appellant was already subject to assessment u/s 143(3) of the income tax act 1961 wherein these issues were already discussed and accepted the learned assessing officer then. For these and other reasons that may be adduced during the course of hearing it is hereby sincerely prayed that the additions may kindly be deleted and thus render justice."
The brief facts of the case are that the assessee is a private limited company and is engaged in the business of trading of computer peripherals, networking and other high-end products. It filed its return of income on 14-10-2010 admitting a total income of Rs. 76,37,770/- and the same was processed under section 143(1) of the Act. The case was selected for scrutiny and assessment was completed under section 143(3) of the Act on 11-02-2013 by accepting the return of 3 -: income as was filed by the assessee. Subsequently, the assessment was reopened under section 147 of the Act by noticing that there was an escapement of income. Accordingly, notice under section 148 of the Act was issued to the assessee after recording the reasons thereon and obtaining approval from the Ld. Principal Commissioner of Income Tax-1, Chennai. The assessee responded to the notice issued to him and filed the details as called for. The Ld. Assessing Officer considered the submission of the assessee and completed the assessment by making addition Rs. 6,94,565/- to the total income of the assessee. The Ld. Assessing Officer observed that there was a short time capital gain to the assessee due to sale of a house property.
Being aggrieved, the assessee filed 1 appeal before the Ld. CIT(A) who vide order 23-08-2018 dismissed the appeal of the assessee.
Aggrieved further, the assessee filed the present appeal before the Tribunal.
Heard both the parties and perused the materials on record.
During the- reassessment proceeding, the Ld. Assessing Officer observed that as per block of assets as disclosed in the balance sheet of the assessee, a sum of Rs. 30,10,397/- was shown as Coimbatore property as on 1-4-2009. However, during the financial year 2009-10 the fixed assets schedule of the assessee showed that the said asset
4 -: was transferred and an amount equivalent to the written down value of Rs. 30,10,397/- was shown as a deletion during the year. At the same time, it was also observed by the Ld. AO that the Director of the assessee company had shown a flat purchased at Coimbatore at the value of Rs. 37,04,962/- in his return of income. Therefore, the Ld. AO came to a conclusion that the assessee had transferred its property during the year and brought to tax the sum of Rs. 6,94,565/-, being the difference between the written down value of the property of Rs.30,10,397 and the value for the same as recorded in books of the director i.e. Rs. 37,04,962/-.
4. The submission of the assessee before the Ld. CIT(A) was that, Mr. Shanti Lal Jain, Director of the assessee company was a creditor of the assessee company. The assessee company by a resolution decided to repay by way of making payment for the purchase of Coimbatore property by the said Director, Shanti Lal Jain. As the assessee made payments on behalf of the Director, the said transaction was incorporated in the fixed assets schedule of the assessee company. There was an intention to use that property for the assessee company's operations. But that intention of the assessee company did not fructify and therefore, the fixed asset incorporation entry in its books was revered. It was also submitted that there was no 5 -: transfer of the asset as per the meaning of section 2(47) of the Act and the reverse entry was without any actual change of ownership of the property. A copy of the construction agreement was also placed before the Ld. CIT(A) in respect of the Coimbatore property which is in the name of the Director, Shanti Lal Jain.
5. The Ld. CIT(A) did not accept the aforesaid submission of the assessee and vide order dated 23-08-2018 has dismissed the appeal of the assessee. While dismissing the appeal, the Ld. CIT(A) read as under:
"6. The appellant's contentions are considered. A reference to the loan agreement indicates that the appellant company had made substantial payments on behalf of the director against the outstanding loan account. Al the payments made by the appellant company on behalf of the director have been reflected as a debit to the loan account. The fixed asset appearing in the Balance sheet of the appellant company is sought to be explained by the appellant as arising out of the very same payments that have been debited to the loan accOunt. However, this contention of the appellant that having made the payments towards the purchase of the flat on behalf of the director, the same was incorporated as a part of the appellant's fixed asset is not acceptable. A paynment which has been made by debit in the loan account of the director cannot be simultaneously explained as the payment towards investment in the fixed asset. Hence, the appellant's contention in this regard is rejected as the same is devoid of any merit. The ground of appeal is dismissed".
6. We have carefully considered the submission of both the parties and findings of the lower authorities and observe that, the lower authorities have failed to consider that no immovable property can be 6 -: transferred by a person to another person without executing a proper conveyance deed as per provisions of the Transfer of Property Act, 1872. Further, where the value of the immovable property is Rs. 100/- or more, such immovable property can only be transferred by a registered conveyance deed only. The lower authorities did not discuss and mention about the aforesaid statutory conditions for making a transfer of an immovable property. That means, there is no conveyance deed in the transaction and in absence of conveyance deed, immovable property cannot be transferred. Accordingly, no question will arise for making any capital gain by the assessee in the matter. Therefore, as there was no conveyance deed executed by the assessee company in favour of the Director, Shanti Lal Jain in respect of the Coimbatore property, no question of short term/long term capital gain will arise thereon. The lower authorities have failed to consider the absence of a conveyance deed. Therefore, we have to hold that, the assessee did not make any capital gain. Accordingly, we set aside both the reassessment orders dated 30-11-2017 passed by the Ld. AO as well as the order of the Ld. CIT(A) dated 23-08-2018. Thus, we decide the appeal of the assessee in his favour. Order accordingly.
7 -: 7. In the result, the appeal of the assessee is allowed.
Order pronounced on 16th June, 2023.