PADMINI CHAND, HYDERABAD,SECUNDERABAD vs. ACIT, CIRCLE-6(1), HYDERABAD, HYDERABAD

At the outset, it is seen that there is a delay of 194 days in filing of the appeal by the assessee Ms. Padmini Chand and 202 days by the assessee Ms. Rajini Chand. Respective assessee’s have filed applications for condonation of delay and have filed their affidavits explaining the reasons for the delay. The reasons stated by each of the assessee’s are the same. In the affidavits, it is stated that the order of the CIT (A) was passed on 22.03.2016 and the due date for filing of the appeal before the ITAT was 20.05.2016 but the appeal was filed with a delay of 192 days and 202 days respectively. It is stated that they were not aware of the appellate proceedings and did not have the back records or the assessment orders as these were given to their representatives but they were not returned to them. They also recited their personal loss of their mother and the dispute with their father and various disputes in relation to various properties pending in various Civil Courts, to be the reasons for not being able to file the appeal on time. They also recited the steps taken by them in approaching various Counsels for proper advice as one of the reason for the delay. The learned Counsel for the assessee, thus prayed for condonation of delay and adjudication of the issue on merits.

The learned DR, however, opposed the condonation of the delay.

Considering the reasons mentioned by the assessee, I am satisfied that the assessee’s were prevented by reasonable cause in filing of the appeals in time and therefore, condone the delay in filing of the appeals by both the assessee’s.

Brief facts relating to the merits of the case are that the AO received the information that both the assessee’s, daughters of one Mr. Mahesh Chand, were joint owners of property bearing No.3-6-161 at Hyderguda, Hyderabad and that they executed a sale deed, vide registered document No.398/2004, dated 13.02.2004 in relation to the above property in favour of one Shri B. Janardan Reddy for a sum of Rs.14,22,000 but market value of Rs.36.00 lakhs. On perusal of the records, the AO observed that the assessee’s did not submit the returns of income for the A.Y 2004-05. In view of the same, the case was reopened u/s 147 by issuance of a notice u/s 148 of the Act. The assessee’s, on receipt of the notice, requested for grounds for reopening of the assessments, vide letters dated 21.04.2010. The assessee’s were supplied with the reasons and in response to the said notice, assessee’s filed their returns of income on 13.09.2010. It was also submitted that as per the judgment of the Hon'ble Andhra Pradesh High Court, the assessee’s have received an amount of Rs.25.00 lakhs each from their father towards their marriage expenses. Regarding the sale of the property at Hyderguda, they submitted that they have filed the partition suit against their father, Shri Mahesh Chand and meanwhile, they were approached by Shri B. Janardan Reddy, a family friend who promised to look after all the suits including partition suit and other Court matters and claimed 10% commission on the total value. It was submitted that Shri B. Janardan Reddy, claimed to have spent a lot of money in pursuance of the legal matters and hence got transferred by way of registration, some properties including the present property in his name and in the name of his associates as a security. They submitted that they did not receive any money on execution of the sale deed nor was the possession given to him and that they have also filed suit for cancellation of the sale deed in relation to the above property before the Chief Judge, City Civil Courts, Hyderabad and therefore, there was no transfer of the property and there was no capital gains to them.

During the course of the assessment proceedings, the assessee also filed another letter dated 3.11.2010 stating that the property at D.No.3-6-161, Hyderguda, belongs to one Commercial and Industrial Finance Pvt. Ltd and that the assessee and others have filed petition with the City Civil Court, Hyderabad for injunction and the Court has granted injunction restraining the respondents therein from alienating, mortgaging etc., and the suit filed before the Hon'ble High Court by the Commercial & Industrial Finance Pvt. Ltd ordered, the status quo with regards to the alienation of the property and therefore, the assessee requested to keep the assessment in abeyance till the disposal of the suits. The AO however, was not convinced with the assessee’s contentions. He observed that the assessee’s have sold the property to Shri B. Janardan Reddy for a consideration of Rs.14,22,000 as against the market value adopted by the SRO at Rs.26,14,400. He observed that the registered sale deed executed by the assessee’s is a valid document and therefore, the transfer is to be deemed to be complete u/s 2(47) of the I.T. Act. He therefore, computed the Long Term Capital Gain on the property and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A), who confirmed the order of the AO and both the assessee’s are in second appeal before us. In the case of Ms. Padmini Chand, the following grounds of appeals are raised: “1. The order of the learned Commissioner of Income Tax (Appeals}-9, Hyderabad (CIT(A) in confirming the assessment of L.T.C.G. at Rs.4,47,149 is wholly erroneous and is unsustainable both on facts and in law. 2. The CIT (A) failed to note that the reassessment proceedings arising out of reasons recorded has no nexus with income escaping assessment and therefore the entire reassessment proceedings are invalid, bad in law and without jurisdiction. 3. The CIT(A) erred in sustaining the addition of long term capital gain without considering the fact that the premise for levy of tax under capital gain is 'transfer' and the appellant had clearly brought out the fact that then~ was no transfer. 4. The CIT (A) failed to consider the declaration made by Mr. B.Jainardhan Reddy wherein he has mentioned that no consideration was paid and that there was no transfer as confirmed by Mr. B.Janardhan Reddy. 5. Without prejudice to the above, the CIT(A) failed to note that the date of acquisition of the property should have been related back on the basis of sale value and adopt for registration purposes”.

The grounds raised by Ms. Rajini Chand are also identical.

The learned Counsel for the assessee while reiterating the submissions made by the assessee’s before the authorities below, argued that the re-assessment proceedings u/s 148 are not valid. He drew our attention to the reasons recorded for the reopening of the assessment placed at page 78 of the Paper Book, to argue that even though the reopening of the assessment is after the expiry of four years from the end of the relevant A.Y, there is no mention of escapement of income. He drew our attention to section 149(1)(b) of the I.T. Act to argue that it is necessary to record a satisfaction that the income has escaped assessment to apply the necessary monetary limits for exercise jurisdiction by the respective Officers. He placed reliance upon the following decisions in support of his arguments on the validity of the re- assessment proceedings: i) Hon'ble ALLAHABAD HIGH COURT in the case of Amar Nath Agrawal Versus Commissioner of Income Tax & Another [2015] 371 ITR 183 (All.) ii) Hon'ble Supreme Court in the case of CIT vs. Kelvinator India 320 ITR 561 (S.C)

He further submitted that while the assessee’s did not file their returns of income, they have filed the returns in response to the notice u/s 148 on 23.3.2010, on 13.09.2010 whereas the suit for cancellation of the sale deed was filed as far as back as 2005 and therefore, it cannot be considered as an afterthought. He also drew our attention to page No.16 of the Paper Book wherein the alleged purchaser, Shri B. Janardan Reddy, has given a declaration that the cash and cheque payments shown in the sale deed were only nominal and no such amount, has in fact, been paid by him and that he has taken blank cheques from Smt. Shantabai and her children and further that the sale deed, agreement of sale, GPA obtained from Smt. Shantabai and others are only for the purpose of solving all the disputes relating to the property and are to be cancelled and given back to Shantabai and others after such disputes are settled. He also stated that he will not make any claim in respect of the said property on the basis of the said document. Declaration is given on 20.05.2004 and is a registered document. Therefore, according to him, there is no transfer of property and no LTCG has arisen to the assessee’s before us.

The learned DR, on the other hand, supported the orders of the authorities below and submitted that since the sale deeds are registered, the transfer is complete and unless and until they are set aside by the Hon'ble Courts, the sale deeds have become final and hence the LTCG has arisen to the respective assessee’s. The learned DR objected to the learned Counsel for the assessee’s argument against the reopening of the assessment stating that the assessee has never objected before the authorities below nor have they filed any application for admission of the additional grounds of appeal before the ITAT and hence the oral arguments by the learned Counsel for the assessee’s should not be entertained.

In rebuttal, the learned Counsel for the assessee submitted that this being a legal ground, the assessee can raise it at any point of time and that a ground can also be raised orally.

Having regard to the rival contentions and the material on record, I find that the assessee’s have never objected to the reopening of the assessment either before the AO or before the CIT (A). The assessee’s have also not raised any grounds of appeal in writing much less the additional grounds of appeal against the reopening of the assessment. Rule 27 of the ITAT Rules, only permits the respondents to support the orders appealed against any of the decision against him and Rule 29 also provides that the parties to the appeal shall not entitled to file additional evidence either oral or documents before the Tribunal unless it is required by the Tribunal or if the Income Tax authorities have decided the case, without giving sufficient opportunity to the assessee, to adduce evidence either on points specified by them or not specified by them. In these circumstances only, the Tribunal may allow such documents to be produced or witnesses to be examined or affidavit to be filed. The assessee’s are the petitioners/appellants before us and not the respondents. Further, they cannot raise a ground orally at the time of final hearing, as it would be against the principles of natural justice as the Revenue would not be in a position to defend itself again without proper records. In view of the same, I am not inclined to accept the argument of the assessee against the reopening of the assessment u/s 148 of the Act.

As regards the LTCG being brought to tax by the AO, we find that the vendee himself has given a declaration, by a registered deed, that the sale deeds have been executed only in order to enable him to safeguard the properties and to settle all the legal disputes and that they shall be cancelled thereafter. In fact the assessee’s have also filed the suits for cancellation of the sale deed which are pending before the Hon'ble Civil Courts. In such circumstances, I am of the opinion that the transfer is not complete and the capital gain therein will not arise. However, the outcome of the civil suits will determine the question of transfer and if the Civil Courts hold the transfer to be final, then in that year, the assessee’s will be liable to pay the tax on the capital gain. In view of the same, I am inclined to allow the assessee’s appeals with the above observations.

In the result, assessee’s appeals are allowed.