PUSHPA VEDPRAKASH AGARWAL,MUMBAI vs. AO WARD 19(1)(5), MUMBAI

In the instant case, the Assessee filed her return of income on 01.11.2021, declaring a total income of ₹11,97,260/-. The case was selected for complete scrutiny under CASS, inter alia, for verification of the substantial deduction claimed under section 54 of the Act. Accordingly, statutory notices were issued to the Assessee, in response to which the Assessee furnished various submissions and documentary evidence.

During the year under consideration, the Assessee sold Flat No. 17/B, Manek Building, 11, L.D. Ruparel Marg, Nepean Sea Road, Mumbai, along with the garages and corresponding shares in the co-operative society, for a consideration of ₹25,00,00,000/-. The Assessee treated the said property as a long-term capital asset inherited from her deceased husband, claimed indexed cost of acquisition amounting to ₹10,46,51,605/- and deduction of ₹14,53,48,395/- under section 54 of the Act on account of investment made in another residential property.

The Assessee claimed before the AO that her deceased husband, Shri Ved Prakash Agarwal, was the sole, legal and absolute owner of the aforesaid property and, upon his demise, the property devolved upon her. Consequently, the gain arising from its sale was offered under the head “Capital gains” and deduction under section 54 of the Act was claimed against the investment made in the new residential property.

The AO, however, observed from the documents placed on record that the property had originally been purchased by M/s. Transport Corporation of India Private Limited from M/s. Great Eastern Shipping Company Limited in the year 1973 for a consideration of ₹5,03,000/-. The AO further observed that since the co-operative society was unwilling to admit the company as its member, the flat, garages and shares were recorded in the name of the Assessee’s deceased husband, who was then a director of the said company.

The AO also relied upon a declaration dated 09.09.1974 allegedly executed by the Assessee’s deceased husband, wherein he had stated that the property was acquired by the company in his name under peculiar circumstances and that he held the same on behalf of the company. The AO further examined the purported deed of transfer dated 23.04.1974 relied upon by the Assessee and, noticing discrepancies in the signatures and other surrounding circumstances, held the said document to be unreliable.

On the basis of the aforesaid documents, the AO concluded that the Assessee’s deceased husband was merely a benamidar or nominee of M/s. Transport Corporation of India Private Limited and was never the beneficial owner of the property. Consequently, the AO held that neither the deceased husband nor the Assessee owned the property as a capital asset.

The AO, therefore, on the aforesaid reasons, rejected the Assessee’s computation of long-term capital gain, denied the indexed cost of acquisition amounting to ₹10,46,51,605/- and the deduction of ₹14,53,48,395/- claimed under section 54 of the Act and ultimately treated the entire sale consideration of ₹25,00,00,000/- as income from other sources under section 56 of the Act.

The AO also assessed rental income amounting to ₹4,05,000/- earned from the said property under the head “Income from other sources”.

Accordingly, the AO determined the total income of the Assessee at ₹25,16,02,260/-, as against the returned income of ₹11,97,260/-, vide assessment order dated 30.12.2022 passed under section 143(3) read with section 144B of the Act.

Thus, the Assessee being aggrieved by the aforesaid assessment order and disallowances, preferred the first appeal before the Ld. Commissioner. 3

Thus, the Assessee being aggrieved by the assessment order preferred the first appeal before the Ld. Commissioner and contended that the deed of transfer dated 23.04.1974, the correspondence exchanged with the co-operative housing society, the share certificate, the will of her deceased husband and the other documents placed on record clearly established the ownership of the property in the hands of her deceased husband and, subsequently, in her hands.

The Ld. Commissioner, however, affirmed the findings of the Ld. AO principally on the ground that the consideration for the original purchase of the property had been paid by M/s. Transport Corporation of India Pvt. Ltd. and that the declaration dated 09.09.1974 established that the Assessee’s deceased husband merely held the property on behalf of the company. Accordingly, the Ld. Commissioner upheld the addition of ₹25,00,00,000/- under section 56 of the Act and dismissed the Assessee’s appeal.

Thus, the Assesse being aggrieved with the impugned order has preferred this appeal. Before us, the Ld. Counsel for the Assessee reiterated that the property had stood in the name of the Assessee’s deceased husband for several decades and that the relevant flat, garages and shares in the co-operative housing society had been transferred in his name. The deceased husband had exercised the rights of ownership over the property and, upon his demise, the same devolved upon the Assessee under his will. The rental income arising from the property had also been offered to tax by the Assessee.

The Ld. Counsel further submitted that the deed of transfer dated 23.04.1974 specifically recorded the transfer of all rights and interests in the property to the Assessee’s deceased husband. The Ld. AO rejected the said document merely on suspicion and on the basis of a visual comparison of signatures, without obtaining any expert opinion or making any 4 independent inquiry from the concerned company, seller or co-operative housing society.

The Ld. DR, on the other hand, vehemently relied upon the orders passed by the authorities below.

We have heard the parties and considered the rival submissions and perused the material available on record. It is an undisputed fact that the flat, garages and corresponding shares in the co-operative housing society stood in the name of the Assessee’s deceased husband. The Assessee also placed on record the deed of transfer dated 23.04.1974, the correspondence addressed by the original seller to the co-operative housing society and the other supporting documents to demonstrate that the rights in the property had been transferred to her deceased husband. The property subsequently devolved upon the Assessee and was ultimately sold by her during the year under consideration.

The Ld. AO, though doubted the authenticity of the deed of transfer dated 23.04.1974 on the basis of an apparent difference in the signatures, however, neither referred the document for examination by any handwriting expert nor conducted any independent inquiry from M/s. Transport Corporation of India Pvt. Ltd., M/s. Great Eastern Shipping Company Ltd. or the concerned co-operative housing society. No material was brought on record to demonstrate that the company had, at any point of time, asserted ownership over the property or claimed any right over the sale consideration received by the Assessee.

Further the declaration dated 09.09.1974, relied upon by the authorities below, could not by itself be treated as conclusive of the continuing beneficial ownership of the company, particularly when the property, the corresponding shares and the rights of membership had remained in the name of the Assessee’s deceased husband for several decades. The said declaration was required to be considered in conjunction 5 with the deed of transfer, the correspondence of the original seller, the society records, the subsequent conduct of the parties and the absence of any claim by the company over the property.

Further, the conclusion of the Ld. AO suffers from an inherent contradiction. Having held that the property did not belong to the Assessee or her deceased husband, the Ld. AO could not have treated the entire gross sale consideration of ₹25,00,00,000/- as the Assessee’s income from other sources merely because the same was received by her. A receipt arising from the transfer of an immovable property could not be treated as taxable income under the residuary head without first establishing its character as income chargeable to tax under the Act.

The findings recorded by the authorities below were thus based primarily on suspicion and an unverified comparison of signatures, whereas the documentary evidence relating to the title, possession, society membership, inheritance and subsequent sale of the property supported the Assessee’s claim. Suspicion, howsoever strong, could not substitute cogent evidence.

Thus, in view of the above, we are unable to sustain the conclusion that the property was never a capital asset in the hands of the Assessee or her deceased husband. Consequently, the sale consideration received by the Assessee was liable to be assessed under the head “Capital gains” and not under the head “Income from other sources”.

Accordingly, the addition of ₹25,00,00,000/- made under section 56 of the Act and the consequential addition of ₹4,05,000/- are deleted.

Resultantly, the Ld. AO is directed to compute the long-term capital gain in accordance with law and allow the Assessee’s claim under section 54 of the Act, as per the computation furnished by her, subject to verification of the arithmetical correctness thereof. 6

Thus, the impugned order passed by the Ld. Commissioner is set aside and the grounds raised by the Assessee are allowed.