ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU vs. HIREHAL JAIRAJ BALRAM, BENGALURU

Per Laxmi Prasad Sahu, Accountant Member : This is an appeal filed by the assessee against the Order passed by the learned CIT(A) - 15, Bangalore, vide DIN :ITBA/APL/M/250/2024- 25/1067958580(1) dated 26.08.2024. 2. Briefly stated facts of the case from the Assessment Order are that assessee is a proprietor of M/s. Cargo of India. Assessee has filed his revised return of income under section 139(5) of the Act on 31.05.2017 declaring total income of Rs.34,02,060/-. Return was processed under section 143(1) of the Act. The case was reopened under section 147 of the Act for escaped income chargeable to tax. Subsequently notice under section 148 of the Act, dated 26.03.2021 was issued and served on the assessee. Assessee did not file return Page 2 of 30 of income in pursuance to notice under section 148 of the Act. Thereafter, show cause notices were issued to the assessee on different dates. In spite of giving opportunities assessee did not file his return of income and another opportunity was given to the assessee before completing assessment under section 144 of the Act. From the information available with the Income Tax Department it was noticed that assessee has sold non agricultural land bearing survey Nos.17/1, 17/4 measuring 5 acres each and survey No.29/6 measuring 14 guntas situated at Kunikeri Village of Koppal Taluk and District on 10.08.2015 for a total consideration of Rs.58,00,000/-. However, as per Sale Deed, the guidance value is Rs.1,50,00,000/- and assessee was given show cause notice as to why guidance value should not be considered for computation of capital gain income as per section 50C of the Act. However, assessee did not make any submission against show cause notice issued. It was verified from the return of income filed by the assessee that sale consideration declared by the assessee was only Rs.58 lakhs. Accordingly assessee opted claiming indexation cost has declared LTCG of Rs.2,67,705/-. However TDS for the above mentioned properties was deducted at Rs.1,50,000/- that was claimed as tax credit. AO applied section 50C of the Act since there was difference between guidance value of the registered property and value offered for computation of capital gain. Accordingly AO made addition of Rs.92 lakhs and completed assessment under section 144 of the Act. 3. Aggrieved from the above Order, assessee filed appeal before learned CIT(A). The learned CIT(A)after considering the detailed submission observed that AO has rightly applied section 50C of the Act for computing capital gain and rejected all the pleas taken by the assessee. Page 3 of 30 4. Feeling aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel reiterated the submissions made before the lower authorities and has filed written submissions which is as under: 1. The appellant most respectfully submit as under: 1.1 That the appellant has filed the subject appeal challenging the order dated 26.08.2024 passed by the Learned Commissioner of Income Tax (Appeals) 11- Bengaluru. u/s 250 of the Income Tax Act 1961 upholding the order of re- assessment dated 28.03.2022 for the assessment year 2016- 17 passed by the learned assessing officer u/s 147 r w s 144 of the Income Tax Act 1961 making an addition of Rs 92,00,000/- under section 50C of the Income Tax Act 1961; 1.2 That the learned Commissioner of Income Tax (Appeals) has unjustly rejected the appellant’s claim that the alleged sale was only a transaction of gift between relatives and the initial mistake of executing a sale deed on 10.08.2015 was duly corrected by way of a deed of cancellation dated 21.03.2022 and that the appellant had neither received any consideration from his father in law nor he had handed over the possession of the subject land and consequently there was no transfer as defined under section 2(47) of the Income Tax Act 1961. 2. FACTS IN BRIEF: 2.1 The appellant had filed his return of income for the A.Y 2016-17originally on 05.08.2016 and which was subsequently revised on 31.05.2017, declaring his total income at Rs. 34,02,060/- which included an offer of a long- term capital gains relating to a gift of immovable property made by the appellant in favour of his father -in- law, wrongly documented and registered as a transaction of sale by the document writer. 2.2 The learned assessing officer had initiated re-opening proceedings u/s.147 of the Income Tax Act 1961 relating to the said sale deed dated 10.08.2015 determining the appellant’s total income at Rs 1,26,02,060/- making an Page 4 of 30 addition of Rs. 92,00,000/- vide re-assessment order dated 28.03.2022, under section 50C of the Income Tax Act 1961, impugned in the subject appeal. 2.3 That though the Appellant had corrected the mistake by way of a cancellation deed dated 14.03.2022 which the learned lower authorities have unjustly rejecting the same by observing that; (i) The said cancellation deed was as an afterthought; (ii) That it required an order of a competent court, contrary to facts and law on the issue; (iii) Even if the consideration was not actually received the sale deed would trigger capital gains u/s 50C and further; (iv) That the neither receipt of consideration NOR handing over the possession were relevant for the purpose of section 50C of the Income Tax Act 1961. 3. Present proceedings: Being aggrieved for the above orders of the learned lower authorities, the appellant has filed the subject appeal challenging the above orders, urging the followings grounds: (1) That the impugned order is highly arbitrary, unjust and contrary to facts and circumstances of the case and the settled law on the issue under agitation. (2) That, in the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals ) 11, Bengaluru is not justified to have dismissed the appeal in a mechanical manner without proper appreciation of the fact and circumstances of the Appellant’s case. (3) That in the facts and circumstances of the Appellant’s case the learned Commissioner ought to have appreciated that the alleged sale deed executed on 10th August 2015 between the appellant and his father-in-law Mr. Nandakumar Obaleppanavar had been erroneously documented by the document writer and hence was not a valid document under law for want of “consensus ad idem” (4) That in the facts and circumstances of the Appellant’s case Page 5 of 30 the learned Commissioner ought to have appreciated that the basic ingredients for a valid sale transaction Viz., (i) payment of the consideration by the vendor to the appellant; (ii) handing over of the possession of the immovable property in favour of the vendor were absent and hence there was no “transfer” within meaning of section 2(47) of the Income Tax Act 1961 and consequently the said transaction could not be subject taxation under long term capital gains as computed by the learned assessing officer. (5) That, in facts and circumstances of the case, the Learned Commissioner of Income Tax ought to have appreciated that the alleged transaction was between relatives i.e. between son –in-law and father – in – law and that the intension of the parties was to effect a deed of gift by the appellant to his father –in – law and not effect a sale as erroneously documented by the document writer (6) That, in the facts and circumstances of the case, the learned Commissioner is not justified in holding that the cancellation deed dated 14.03.2022 was not valid in law for want of a court order failing to appreciate that so far as the appellant’s case is concerned, the same being a consented cancellation, requirements of an order of a competent court order were not applicable. (7) That, in the facts and circumstances of the case, the learned Commissioner ought to have appreciated that the case law relied upon by the learned assessing officer was distinguishable from that of the appellant’s case in that there were no disputes between the Appellant and the Vendor and the cancellation deed had been executed between them total mutual consent duly recording the erroneous documentation done originally. (8) That, in the facts and circumstances of the case, the Learned Commissioner ought to have appreciated that the Karnataka Stamp Act 1957, specifically permits cancellation of documents under Article 14(a) and the said Article does not envisage any order from the competent court to execute a deed of cancellation and hence the deed of cancellation was a valid and legally binding document. 4. Appellant’s submissions in support of the grounds urged Page 6 of 30 as above: 4.1 Withdrawal of ground numbers 1&2: It is most respectfully submitted that the Appellant is not pressing ground Nos 1& 2 and the same kindly may be treated as withdrawn 4.2 In support of ground No 3& 4: 4.2.1 It is most respectfully submitted that apart from the legal validity of the deedof cancellation dated 14.03.2022, as submitted hereunder, it is also submitted that the original sale deed dated 10.08. 2015 had not resulted in any transfer of the land in question in favor of the appellant’s father-in-law as defined u/s 2(47) of the Income Tax Act 1961 in view of the following facts and circumstances:  The appellant had not received any sale consideration from his father-in-law relating to the sale deed dated 10th August 2015.  The appellant had not handed over the possession of the land in question to his father-in-law and the appellant continues to enjoy the physical possession of the land. ( Kind reference is invited to the Affidavit in page No 158 of the Additional Paper book).  That the appellant, even otherwise, couldn’t have handed over the land in question to his father in law since certain manufacturing facilities (Co-gen plant) of the appellant’s family owned the steel manufacturing company i.e. ILC Iron and Steel Pvt Ltd has been setup on the said land and which is still in operation.  Accordingly, in the absence of any consideration being received and also not handing over the possession of the land in the question therewas no transfer of the land in question in favor of the appellant’s father-in-law as defined u/s 2(47) of the Income Tax Act 1961 and consequently the said transaction could not be subject to tax u/s 45 of the Income Tax Act 1961. Page 7 of 30 4.2.2 It is further submitted that the impugned addition made by the learned assessing officer u/s 50C of the Income Tax Act 1961 had resulted in subjecting a “hypothetical income” to tax which is not permissible under law and which mandates at only the “real income” can be subjected to taxation under the Income Tax Act 1961. 4.2.3 In support of our above submission the appellant rely upon the following decisions and the ratios of which are squarely applicable to the issue under agitation. (i) Shri Sriniva Pampati Vs ITO (ITAT-HYD) (iii) Sunil Kumar, Vs Income Tax Officer, - ITAT – Delhi Relevant paras of the above decisions are extracted below for kind and ease of reference: The expression “enabling the enjoyment of” takes color from the earlier expression “transferring”, so that it is clear that any transaction which enables the enjoyment of immovable property must be enjoyment as a purported owner thereof.1 The idea is to bring within the tax net, transactions, where, though title may not be transferred in law, there is, in substance, a transfer of title in fact. 23. A reading of the JDA in the present case would show that the owner continues to be the owner throughout the agreement, and has at no stage purported to transfer rights akin to ownership to the developer. At the highest, possession alone is given under the agreement, and that too for a specific purpose -the purpose being to develop the property, as envisaged by all the parties. We are, therefore, of the view that this clause will also not rope in the present transaction. 24. The matter can also be viewed from a slightly different angle. Shri Vohra is right when he has referred to Sections 45 and 48 of the Income Tax Act and has then argued that some real income must “arise” on the assumption that there is transfer of a capital asset. This income must have been received or have “accrued” under Section 48 as a result of the transfer of the capital asset. Page 8 of 30 25. This Court in E.D. Sassoon & Co. Ltd. v. CIT, (1955) 1 SCR 313 at 343 held: “It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro; See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [(1946) 1 AER 532 at p. 539], and Webb v. Stenton, Garnishees [11 QBD 518 at p. 522 and 527]. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.” 26. This Court, in Commissioner of Income Tax v. Excel Industries, (2014) 13 SCC 459 at 463-464 referred to various judgments on the expression “accrues”, and then held: “14. First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. ShoorjiVallabhdas and Co. [CIT v. ShoorjiVallabhdas and Co., (1962) 46 ITR 144 (SC)] it was held as follows: (ITR p. 148)“… Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a ‘hypothetical income’, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.” Page 9 of 30 15. The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word “accrue” and held that income can be said to accrue when it becomes due. It was then observed that: (SCC p. 454, para 11) … the date of payment … does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately.” 16. This Court further held, and in our opinion more importantly, that income accrues when there “arises a corresponding liability of the other party from whom the income becomes due to pay that amount”. 17. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 18. Insofar as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement passbook, there was no corresponding liability on the Customs Authorities to pass on the benefit of duty-free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is, therefore, not the income of the assessee.” 27. In the facts of the present case, it is clear that the income from capital gain on a transaction which never materialized is, at best, a hypothetical income. It is admitted that, for want of permissions, the entire transaction of development envisaged in the JDA fell through. In point of fact, income did not result at all for the aforesaid reason. This being the case, it is clear that there is no profit or gain which arises from the transfer Page 10 of 30 of a capital asset, which could be brought to tax under Section 45 read with Section 48 of the Income Tax Act. 28. In the present case, the assessee did not acquire any right to receive income, inasmuch as such alleged right was dependent upon the necessary permissions being obtained. This being the case, in the circumstances, there was no debt owed to the assessees by the developers and therefore, the assessees have not acquired any right to receive income under the JDA. This being so, no profits or gains “arose” from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act. 29. We are, therefore, of the view that the High Court was correct in its conclusion, but for the reasons stated by us hereinabove. The appeals are dismissed with no order as to costs. (ii) Shri Srinivas Pampati, Income Tax Officer, Ward-2- ITAT- HYD 7. We have heard both the parties and perused the material available on record. We have also carefully examined para no.10 of the JDA placed at page no.44 of the paper book, which is to the following effect : “ 10. That the First Party land owners have granted license to the Second Party to enter the land under development to the Second Party developers for the limited purpose of carrying on the construction activity in accordance with terms mentioned herein, and the possession of land for all practical and administrative purpose be deemed to have been given only at the time of passing of consideration in the form of built up area handed over to the landowners i.e., the First Party. However the First Party Land Owners shall not be entitled to interfere in the construction activity in any manner or obstruct the Second Party developers in connection with the process of construction or in taking any decision, in appointing the employees, labourers, contractors etc., in execution of the construction work. However the land owners are at liberty to make inspection of the construction work during the course of the work at all reasonable times and shall not cause any hindrance or obstructions to the construction work.” 8. On perusal of above, it is evident that the developer was permitted to enter the land only for the limited purpose of carrying out construction activity in accordance with the terms of the JDA. It is further stipulated that possession for Page 11 of 30 all practical and legal purposes would be deemed to have been given only upon handing over of the built-up area to the landowners by the developer. The fact that no consideration was received by the assessee during the year under consideration further strengthens the conclusion that there was no transfer in the year within the meaning of section 2(47)(v) of the Act. In such circumstances, the essential conditions of transfer having not been satisfied, there can be no charge of capital gains under section 45(1) of the Act in this assessment year. 9. We also note that during reassessment proceedings, the assessee had submitted photographs showing that the project was still under construction, which substantiates that the transaction was not complete. Therefore, we hold that the addition of Rs.1,71,13,333/- made by the Ld. AO and sustained by the Ld. CIT(A) is unsustainable. The same is directed to be deleted. (iii) Sunil Kumar, Vs Income Tax Officer, - ITAT – Delhi 2. Heard and perused the record. The issue arises out of addition of Rs.1,40,00,000/-, being consideration amount mentioned in conveyance deed, executed by late Sunil Kumar, as received, from his wife Mrs Bimila Devi, who was alleged purchaser. Ld. AO treated same as undisclosed income on account of capital gain on transfer of immovable property to spouse. The assessee, deceased now represented through son, is an individual who filed his original return of income on 19.06.2013 declaring total income of Rs. 1,98,030/. The assessee was suffering from kidney ailments and has expired on 15.04.2025. The case of the assessee was reopened under section 147 of the Income Tax Act, 1961 on account of transaction of transfer of immovable property for consideration of Rs. 1,40,00,000/-. Due to COVID - 19 pandemic and bad health the assessee could not comply with the notices issued under section 142(1) of the Act. Final show cause notice dated 07.09.2021 was issued to the assessee proposing to make an addition of Rs. 1,40,00,000/- on account of capital gain being sale consideration for transfer of immovable property to submit response by 13.09.2021. The assessee filed response on 13.09.2021 submitting that he had transferred immovable property A- 14, Nehru Ground, NIT, Faridabad (Haryana) to his wife Smt. Bimla Devi on 30.11.2012 and he had not received any consideration towards the transfer of property. The Page 12 of 30 consideration amount of Rs. 1,40,00,000/- mentioned in the conveyance deed was for the purpose of payment of stamp duty to facilitate the transfer of property in revenue records only and no money consideration had exchanged hands on account of the transfer of said property. The assessee filed copies of bank accounts to substantiate the fact that no consideration was received towards the transfer of property. Same are also relied before us. The assessment was framed ex parte by the National Faceless Assessment Centre vide order dated 15.09.2021 and ld. ClT(Appeals) sustained the addition of Rs.1,40,00,0000/- holding that: “5.1.2...... the claim of the assessee that the said transfer was effected without any receipt of sale consideration is also found to be incorrect as it has been clearly mentioned in the sale deed that entire sale consideration has been received by the assessee and nothing is pending to be paid by his wife on the date of execution of sale deed. Therefore, the AO is found to be correct in his action of charging a sum ofRs. 1,40,00,000/- as capital gains to the Total Income of the assessee as no details about the purchase consideration for the impugned Property has been brought on record by the assessee." 3. Ld. AR has submitted that the transaction of transfer of immovable property was between the husband and wife without a consideration and was, in fact, compelled due to the bad health of the assessee and on going family disputes over the property existing on the date of transfer which is substantiated by the fact that the disputes were settled through family settlement on 30.10.2018 copy of which is pages PB 45 to 50. The consideration amount of Rs. 1,40,00,000/- was mentioned in the conveyance deed for the purpose of payment of stamp duty only and to facilitate the transfer of property in revenue records. In reality no money had exchanged hands for transfer of the property resulting into earning of capital gain. The copies of bank accounts submitted by the assessee before the Assessing Authority & CIT(Appeals) also substantiate the fact that no consideration was received by the assessee towards execution of conveyance deed in favour of his wife. 4. Though ld. DR has defended the impugned additions and submitted that if there was family settlement there was no need for sale deed and the defence is after thought story. Page 13 of 30 However, what is relevant is that in the conveyance deed it is mentioned and verified by the sub-