KARNAIL SINGH vs. THE ASSISTANT DIRECTOR OF INCOME TAX, CHANDIGARH

“That the notice issued under section 153A and the assessment completed under section 153A are illegal, bad in law and without jurisdiction. The additions made are also illegal, bad in law, as the same are not based on any material found during the alleged search.

That Ld. Commissioner of Income Tax (Appeals) has, in view of facts and circumstances of the case, grossly erred in law in upholding A.O.'s action in issuing notice and framing assessment u/S.153A. The alleged authorization U/s.132 and the notice issued U/s.l53A was unauthorized, illegal and unlawful and therefore, the assessment made U/s.l53A is also unjust, unlawful and bad in law and the same has been wrongly upheld by the Ld C.I.T (Appeals). 3. That alleged warrant of authorization U/s.132 was unauthorized, illegal and unlawful. The alleged execution on 09.03.2012 in case of Sh. Karnail Singh, Joginder Singh Nijjar and Investac Ltd. was also unauthorized, illegal and unlawful. The prohibitory restraint U/s.132 (3) on Bank Account Numbers 1339000500011991 & 1339000100012112 was also unauthorized, illegal and bad in law and it was also wrongly served. 4. That in view of the facts and circumstances of the case, the CIT(A) has erred in law and on facts in upholding the action of the AO in making addition/disallowance to the extent of Rs. 77,428/-. 5. That the appellant had no place of residence or any office in India and no search had taken place and the provisions of Section 153A were not applicable and the alleged notice issued U/s.l53A was unauthorized, illegal and unlawful and, therefore, the assessment made U/s.l53Ais also unjust, unlawful and bad in law.

That in any case, the alleged statement of Karnail Singh recorded on 09.03.2012 could not be treated as search executed on Karnail Singh.

That the income was rightly declared as Rental Income under the head House Property and the Statutory Deduction of 30% was rightly claimed. The Ld. Assessing Officer has grossly erred in law and on facts in assessing the income as Assured Return under the head Other Sources without allowing the statutory deduction of 30% as claimed. Income has been wrongly computed and wrongly assessed. The Ld. C.I.T.(A) has wrongly upheld the same.

That, without prejudice, even on the basis of stated facts, the assured return should have been assessed as income from Investment U/s. 115C of the I.T. Act and tax should have been charged @20%. This provision of the act has not been correctly interpreted and has been wrongly ignored for assessment.

That, without prejudice, the provisions of Double Taxation Avoidance Agreement between India and U.K. has been wrongly interpreted. Even on the basis of stated facts and observations made by the Ld. A.O., the income was assessable under the head Interest Income and chargeable to tax @15% accordingly. The Ld. C.I.T. (A) has wrongly upheld the income assessed by the A.O.

That the Lower Authorities have further grossly erred in law and on facts in not allowing the deduction of Interest paid on the capital borrowed for acquiring the Immovable Property. The interest claimed has been wrongly disallowed. In any case, the interest paid on the borrowed capital was allowable deduction from the income whether assessed as Rental Income or assessed under the head other sources.

That the deductions claimed by the Appellant have been wrongly disallowed. The observation made by the Ld. A.O. are against facts and are based on surmises & conjectures and do not afford legal justification to the income assessed. That the explanations filed and the evidence placed on record have not been properly considered and judicially interpreted and the deductions have been wrongly disallowed. The Ld. C.I.T. (A) has wrongly upheld the same. 12. That in any case, the income has been wrongly computed and wrongly assessed at higher amount than the income declared and the same has been wrongly upheld by the Ld. C.I.T. (A).

That the Interest U/s.234A, 234B & 234C have been wrongly charged.”

Under the circumstances, it cannot be said that the assured return was any return from the property in respect of which the assessee had paid the amount. Even as per the clause 23 of the allotment letter as discussed above, even for making the investment, the payment of the advance money at the rate of 95% of the agreed price, the assessee did not get right of lien in the proposed property. The assessee, under the circumstances, had a claim of debt against the Omaxe Ltd, which means the assessee had advanced money to the Omaxe Ltd. which was nothing but a debt claim till the proposed property is constructed, possession handed over to the assessee and the conveyance deed executed and registered. In our view, it was a financial transaction and the assured money return received by the assessee was nothing else than the interest received by the assessee on the finances made by the assessee to the Omaxe Ltd to be used for the construction of the property. Therefore, the Omaxe Ltd had rightly deducted the tax @ 15% of the interest / assured return paid to the assessee. Even the assessee on being asked to file the return has also treated the said receipts as interest income. However, subsequently, the assessee changed his stand and come with a plea that the assured return is only in the nature of capital receipt. The assessee in this respect has placed reliance on several decisions of the High Courts and Supreme Court. Without referring to each of the decision, we may point out that the decisions referred to by the assessee are not applicable to the facts and circumstances of the case e.g. in the case of ‘CIT Vs. Saurashtra Cement Ltd (2010) 325 ITR 042 (SC) : 192 taxman 300 (SC), the assessee in that case had received liquidated damages for delay in supply of plant and machinery. The Hon'ble Supreme Court held that the damages were directly and intrinsically linked with the procurement of the capital assets i.e. cement plant. 12. Similarly in the other case laws relied upon by the Ld. Counsel for the assessee, it was held that if any expenditure is incurred such as interest paid for acquiring assets, the same will be added to the cost of the assets. However, none of the case laws relied upon by the assessee as discussed above, are applicable to the facts and circumstances of this case. Neither any damages were paid by the Omaxe Ltd. to the assessee for late delivery of the possession of the commercial floors in question nor any advance money was paid by the assessee to get the commercial floors at some concessional rate or on an early date rather as discussed above, as per the clause of the agreement, even after payment of 95% of the price, the assessee did not get right or lien in the property and as discussed above, this was a financial transaction between the assessee and Omaxe Ltd. In view of this, we hold that the assured return received by the assessee was in the nature of interest and the assessee has rightly returned / offered the same as interest income. 13. In view of this, we do not find any justification on the part of the lower authorities in treating the receipts of the assessee as ‘income from other sources’. We, accordingly, set aside the impugned order and direct that the assessee in this case has rightly paid the taxes as India – U.K. DTAA. No further addition is warranted. However, the claim of the assessee that it is a capital receipt not liable for taxation is rejected. The appeal of the assessee is, therefore, treated as allowed.”