ASST. COMMISSIONER OF INCOME TAX, CIRCLE-9(1), HYDERABAD vs. VEDULA VENKATA RAMANA, L/R OF LATE SMT. V. RAJYALAKSHMI,, HYDERABAD

Brief facts of the case are that the assessee is an individual and practising advocate, deriving income from profession. For the assessment year 2009-10, he filed the return of income on 29/09/2009 declaring an income of Rs. 39,11,390/-. It was processed under section 143(1) of the Income Tax Act, 1961 (for short “the Act”).

Subsequently, the learned Assessing Officer noticed that one late Smt. V. Rajyalakshmi sold agricultural land at Rs. 1 crore, but its market value would at Rs. 12,16,74,000/-. She did not declare any income. He further noticed from the contents of the sale deed that Shri Vedula Venkata Ramana, assessee received the entire sale consideration of Rs. 1 crore in his bank account. The said Smt. V. Rajyalakshmi died about five years ago. In these circumstances, learned Assessing Officer while recording the reasons, issued notice under section 148 of the Act to the assessee in his capacity as a legal heir of late Smt. V. Rajyalakshmi.

It could be seen from the record that the assessee replied stating that his original return of income filed on 29/09/2019 may be treated as return filed in response to the notice under section 148 of the Act. 5. During the assessment proceedings, it was contended by the assessee that he did not receive any amount being the legal representative of late Smt. V. Rajyalakshmi, but it was only as ‘nominee’ and, therefore, notice under section 148 to him is bad in law. He further contended that there was a long litany of litigation behind the land that was sold under the sale deed dated 08/03/2009, his mother Smt. V. Rajyalakshmi did not purchase the land, but she got the assignment rights having purchased decretal rights in a pending civil suit and while adjusting equities, she along with others was allotted three acres of land. According to the assessee, no money was received by her as a part of sale consideration in the financial year 2008-09 and, therefore, she rightly did not file any return of income, declaring the sale. He further contended that the land that was sold was an agricultural land and, therefore, no capital gains arise. He also referred to the imperfection of the title of the three vendors under the sale deed, but stressed the point that his mother did not receive any amount towards consideration for her relinquishing the rights in the property in question.

Learned Assessing Officer obtained information from other sources also. He concluded the assessment by order dated 30/12/2016 passed under section 143(3) read with section 147 of the Act, adding the amount of Rs. 12.16 crores in the hands of the assessee in his individual capacity, which the assessee challenged before the learned CIT(A).

Assessee contended before the learned CIT(A) that no notice under section 148 of the Act was issued to the assessee in his individual capacity, but having issued such notices to the assessee in his capacity as ‘Legal Representative’ of late Smt. V. Rajyalakshmi, the learned Assessing Officer concluded the assessment on the assessee in his individual capacity, which is bad under law. Assessee contended that for re-opening the proceedings under section 148, issuance of notice under section 148 of the Act to the assessee in his individual capacity is mandatary for concluding such assessment against him in his individual capacity. Assessee further contended before the learned CIT(A) that initiating the re-assessment proceedings for taxing the Legal Representative on late Smt. V. Rajyalakshmi and making addition in the hands of the assessee in his individual capacity renders the entire proceedings invalid. It was further contended by the assessee that there was no escapement of income since in the year under consideration, the assessee did not receive anything relating to the sale transaction.

Learned CIT(A), having perused the reasons recorded and also the contentions raised by the assessee, agreed with the assessee and held that the assessment of income had to be assessed in the hands of the legal heirs as a representative-assessee as distinguished from the individual status of the legal heir and, therefore, the status of the assessee was obfuscated which makes the assessment invalid in the eye of law. Learned CIT(A) further held that the reply of the assessee to treat his individual return as the return filed in response to notice under section 148 of the Act per se does not empower the learned Assessing Officer to complete the assessment in the hands of the assessee in his individual capacity, because, the very reasons recorded by the learned Assessing Officer can show that the escapement of income relates to late Smt. V. Rajyalakshmi and the notice under section 148 of the Act was issued to the assessee in his capacity of representative-assessee. For these reasons, learned CIT(A) allowed the appeal.

Revenue is, therefore, aggrieved and filed this appeal, stating that the assessment was made in the status of Legal Heir, but not in the status of individual of the assessee since the assessment order was passed in the name of Sri Vedula Venkata Ramana, L/R of late Smt. V. Rajyalakshmi. It is contended by the learned DR that the assessee is a legal luminary and he understood the notice issued to him under section 148 of the Act while replying that his return of income filed on 29/09/2019 may be treated as the return filed in response to notice under section 148 of the Act. Since the assessee understood the nature of proceedings and participated in the proceedings he cannot question the legality of the order at this stage. In all fairness, the assessee knowing that the proceedings were relating to his mother, he should have obtained a PAN in his status as Legal Representative and file a proper return under section 147 of the Act. According to the learned DR, section 50C of the Act properly invoked by the learned Assessing Officer and in the absence of any information, the cost of acquisition was rightly adopted as Rs. 1 lakh and indexation was granted from the financial year 1981-82. Since the assessee himself replied that his original return may be treated as the return filed in response to section 148 of the Act, the learned Assessing Officer rightly added the capital gains to the income returned by the assessee in his individual capacity.

Per contra, submissions of the learned AR are twofold. Firstly, that having initiated the reopening proceedings against the assessee in his representative capacity, and having not initiated the re-opening proceedings against the assessee in his individual capacity, it is not permissible to assess the alleged income of the mother of the assessee in his hand in his individual capacity. The second limb of argument of the learned AR is that the sale deed referred to by the learned Assessing Officer in the assessment order clearly shows that there were three co- sharers in the alleged property that was sold. He further contended that the reasons recorded also clearly show that apart from the assessee, there was another legal heir to late Smt. V. Rajyalakshmi. Learned AR submitted that there is another sister, who is also a co-sharer.

In these circumstances, while placing reliance on the decision of the Hon'ble Madras High Court in the case of CIT vs. Muthukarupan (2007) 290 ITR 154, it was submitted that it would be travesty of justice, if the assessee, one of the co-owners, is solely picked out and an enhanced income is attributed in his hands for the same property. Learned AR submits that this decision is applicable to the facts of the case since under sale deed there were three co-sharers and even for one of such co-sharers, there are three Legal Representatives and, therefore, leaving all others, if the entire enhanced income is attributed to assessee himself, it cannot be permitted.

We have gone through the record in the light of the submissions made on either side. For the sake of completeness, we deem it just and necessary to extract the reasons recorded by the learned Assessing Officer, which read as follows:

It could be seen that the notice dated 18/03/2016 issued to the assessee also reads that such notices was issued to “Shri Vedula Venkata Ramana, legal heir of late Smt. V. Rajyalakshmi”. However, the notice under section 148 of the Act and subsequent notices issued under section 143(2) of the Act read the PAN card number as ABHPV1213E, which is the PAN of the assessee in his individual capacity, thereby prompting the assessee to reply that the original return of income may be treated as the return of income in response to the notice under section 148 of the Act. As rightly observed by the learned CIT(A), the status of the assessee is obfuscated from the inception. Learned Assessing Officer recorded the reasons that the assessee had to account for the capital gains in the capacity of a Legal Representative of his mother and as a matter of fact, the notice under section 148 of the Act also reads the same. But in all the communication, the PAN of the assessee is referred to the PAN in his individual capacity. In these circumstances, the assessee seems to justify his request to treat the original return of income as the return of income in response to section 148 notice.

Even if the learned Assessing Officer passed the assessment order by showing the assessee as the Legal Representative of late Smt. V. Rajyalakshmi, but he considered the return of income filed with PAN- ABHPV1213E and took into consideration the professional income returned by the assessee. In these circumstances, we find it difficult to hold that the learned CIT(A) committed any error.

Apart from this, the sale deed clearly shows that there were three vendors under the same. Learned Assessing Officer did not make any enquiry about the other two persons. Further, the sale deed itself reads that the amount was deposited in the bank account of the assessee as a nominee of the vendors, but not as the Legal Representative of late Smt. V. Rajyalakshmi alone. Needless to say that nominee cannot appropriate the amount for himself de-hors the pre-existing rights of others. There is no finding of the learned Assessing Officer that exclusion of other two vendors, the assessee received such amount.

Furthermore, the reasons recorded themselves show that the assessee is not the sole Legal Representative of late Smt. V. Rajyalakshmi and according to the reasons there is another brother by name, Vedula Srinivas. Learned AR submits that there is another sister also. Learned Assessing Officer did not disturb the returns of income of any of the vendors under the sale deed or the Legal Representatives of late Smt. V. Rajyalakshmi.

Hon'ble Madras High Court in the case of CIT vs. Muthukarupan (supra) upheld the findings of the Tribunal that it would be travesty of justice if one of the co-owners is solely picked out and an enhanced income for the same property is attributed in his hands. Similar view taken by the Hon'ble Madras High Court in the case of CIT vs. Kumararani Smt. Meenakshi Achi (2007) 292 ITR 624. This view is followed by the Tribunal in the case of Sri Hemanth B. Motadu vs. ITO, dated 30/05/2017. This decision applies on all fours to the facts of this case also. 18. Respectfully following the view taken by the Hon'ble Madras High Court in the case of CIT vs. Muthukarupan and CIT vs. Kumararani Smt. Meenakshi Achi (supra), followed by the Co-ordinate Bench of this Tribunal in the case of Sri Hemanth B. Motadu vs. ITO (supra), we hold that it would be a travesty of justice if the assessee is one of the co-owners is solely picked out and an enhanced income is attributed in his hands, for the same property.

With this view of the matter, we do not find anything illegality or irregularity in the findings of the learned CIT(A) and, therefore, decline to interfere with the same and the appeal is accordingly dismissed.