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Facts
The assessee's case was reopened under Section 148 for the assessment year 2016-17 due to transactions involving a proposed property purchase that did not culminate. After civil and criminal litigation, the assessee received certain properties as compensation through a compromise deed. The Assessing Officer (AO) treated these properties as capital gains, making an addition of Rs. 15,49,35,939/- which was challenged before the DRP and subsequently before the ITAT.
Held
The Tribunal dismissed the appeal, upholding the AO's findings and the DRP's decision. It ruled that the assessment proceedings were not without jurisdiction or barred by limitation. It affirmed that the properties received through the compromise deed represented a relinquishment of rights and therefore constituted a transfer of a capital asset, taxable as capital gains as calculated by the AO.
Key Issues
Whether the reopening of assessment proceedings under Section 148 was valid and within limitation; and whether the properties received by the assessee through a compromise deed in settlement of litigation are taxable as long-term capital gains.
Sections Cited
147, 148, 144C, 151, 143(2)
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Income Tax Appellate Tribunal, DELHI BENCHES : D : NEW DELHI
Before: DR. B.R.R. KUMAR & SHRI ANUBHAV SHARMA
ORDER
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the final assessment order dated 23.05.2023 passed by the Asstt. Commissioner of Income Tax, International Taxation, Circle 2(1)(2), New Delhi (hereinafter referred to as the Ld. AO) u/s 147 r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The facts, in brief, are that the case of the assessee was reopened by a notice u/s 148 of the Income Tax Act 1961 ( hereinafter mentioned as ‘the Act’) and the Assessing officer (AO) examined certain transactions of proposed purchase of property by the assessee which had not culminated followed by the civil and criminal litigation and in pursuance of which by way of compensation the assessee had received certain properties. The AO considered the transactions to be in the nature of capital gains and calculated the same which was challenged before the DRP by filing objections, but, the DRP had sustained the findings of the AO and, accordingly, the final assessment order was passed against which the following grounds are raised:-
1. That under the facts and circumstances, invoking of Sec. 147 and consequential proceedings u/s. 148 culminating into Asstt Order U/s. 147 / 144C is without Jurisdiction, illegal and unsustainable in law as well as on merits.
2. That in the absence of prior approval as required u/s. 151, the whole proceedings are without jurisdiction.
3. That without prejudice the approval of appropriate authority, if do not show the application of mind while granting approval, such approval should not be taken as a valid approval, so as to allow the AO to proceed for initiating further proceedings u/s. 147 and notice u/s, 148
4. That the proceedings U/s, 147 / 148 are without jurisdiction and bad in law
5. That the impugned order is bad in law for non service of notice U/s 143(2) within statutory time limit.
6. That the impugned order is barred by limitation.
7.1 That under the facts and circumstances of the case, the Id. AO had erroneously made an addition of Rs. 15,49,35,939/- as long term capital gain. However, no asset/ property was sold during the year under consideration. Without prejudice, it is highly objected that how the Id, AO has presumed that the properties in question has been sold and has subsequently mentioned in para 21 of the impugned order as “Sale value of the Property (assessee’s share) Rs.18,37,12,495/-" and has further mentioned in the same para 21 as "Long Term Capital Gain Rs.15,49,35939/-.” The said findings are absolutely wrong illegal and bad in law as well as on merits and facts of the case. 7.2 That under the facts and circumstances, the Id. AO has not followed directions of Hon'ble DRP whereby the Hon'ble DRP directed the Ld. AO to pass a speaking order, however, the ld AO has not passed a speaking order and has just copied the old draft order. Without prejudice, the Ld. AO has not even mentioned the statutory section(s) of Income Tax Act, 1961 under which he is proposing the said addition(s). 7.3. That in the absence of DVO report the Ld. AO has made addition of the properties by taking prices of the same from some third party websites which are not mandated in the eyes of law or is authorised under the Income Tax Act, 1961. The Ld. AO has gone beyond the statutes of Income Tax Act 1961 in taking help of private websites in getting cost of properties which websites are operated by private entities for profit making purposes. Nowhere in the statues it is allowed or written that in the absence of DVO report the Ld AO can take support of third party websites. The Ld, AO erred in law in not taking any steps for getting the DVO report in time 7.4. The Ld. AO grossly erred in taking entire sale consideration of 1property at Rs.15,62,43,720/- as sale consideration received by the assessee, however, the same is registered in the name of RNG Enterprises Pvt. Ltd. (which is a separate income tax assessee/ entity). Therefore, the said addition outrightly should be deleted on this sole ground. 7.5. The Ld. AO grossly erred in not giving the indexation benefit of entire payment made to the vendors. 7.6. The Ld. AO grossly erred in computing the sale value of property at Rs.18,37,12,495/- as assessee share. 3
8.1. That under the facts and circumstances of the case, the Ld AO had erroneously made an addition of Rs. 9,53,342/-. 8.2. The Ld. AO grossly erred in treating the payment made for credit card as perquisites.”
At the time of hearing the appeal on 03.04.2024, the ld. AR of the assessee had argued only on the question of irregular exercise of jurisdiction by the AO as there was no service of notice u/s 143(2) within the statutory time limit and assessment was not completed in due time. However, what comes up is that the assessee had filed return on 10.03.2022 in response to notice u/s 148 of the Act, since the assessee had not filed the return of income for the relevant year. The notice u/s 143(2) was issued on 08.09.2022. The assessment order shows that a reference was made to the District Valuation Officer on 29.03.2022 for determining the fair market value of properties. Thus, the due date of completion of assessment by 31.03.2022 stood extended till 30.09.2022 and the AO had passed draft assessment order on 28.09.2022.
Thus, on these facts, the Bench was of the considered view that there is no question of irregular exercise of jurisdiction or that the assessment order is passed beyond the period of limitation. Accordingly, the matter was fixed up for clarification, to hear the arguments on merits of the case on 04.06.2024 and as the arguments were heard, a single statement argument was made by the ld. AR that the assessee is a purchaser of immovable property and, still, he has been subjected to capital gains. Reference was not made to any part of the assessment order or the DRP order or the paper book.
However, as the impugned orders of the tax authorities below and the paper book is examined, the contention of the ld. AR seems to be not correct and what transpires is that the AO had examined the fact that in the year 2006- 07 and 2009-10 the assessee had entered into a Memorandum of Understanding with Shri Bhushan Shiv Anand Kadam & Anr. for purchase of certain piece of land in Goa and Karnataka and paid Rs.1,20,00,000/- on 04.08.2007, Rs.1,01,31,081/- on 22.08.2007 and Rs.30 lakhs on 06.04.2009. However, this vendor was not found to be having title in these properties and, accordingly, the assessee initiated civil and criminal cases which was compromised by executing a compromise deed and in furtherance of which the Hon’ble Delhi High Court had quashed the criminal cases also which helped these accused get the bail.
The AO observed that as in consequence to the compromise deed the assessee has received certain properties, thus, considering it to be a form of capital gains, possibly arising out of relinquishment of an interest out of MOUs, had show-caused the assessee. The copy of show cause notice dated 17.09.2022 is available at pages 62-63 of the paper book and it will be beneficial to reproduce the contents of this notice to understand as to what issue the AO was actually examining. The content is as follows:-
It further comes up that by letter dated 21.09.2022, the assessee had replied to this notice and in regard to the transactions being examined by the AO, the assessee had replied as follows:- “Sir, In continuation to our earlier replies we have to state as under. We are in safe receipt of your above referred show cause notice (in short SCN) and in reply to the same we have to state as under: 1. BRIEF FOR PROPERTY REGISTERED DURING THE YEAR IN LIEU OF COMPROMISE DEED (a) The assessee alongwith 2 other persons namely M/s. Hotel Country India Pvt. Ltd. and M/s. Lex Land Securities Pvt. Ltd. entered into an Memorandum of Understanding dtd. 02.03.2007 with Mr. Bhushan Kadam and Mr. Atul Kadam for purchase of properties as under for total sale consideration of Rs.17,04,00,000/-:- 6
- Islands along with 3 sheds constructed thereon situated at Majal Village of Savantwada Circle in Carwar Taluka of North Karnataka. - 84,000 Sq. Mtrs at Majal Village of Savantwada Circle in Carwar Taluka of North Karnataka. - 1,28,000 Sq. Mtrs at Majal Village of Savantwada Circle in Carwar Taluka of North Karnataka. - Property at Valsao, South Goa (measuring 2590 * 2300 sq. mtrs) - 21 acres of Island situated in North of Karnataka (b) The assessee alongwith other co-owners had made payment as under:- - Cheque No. 0553323 dated 15.12.2006 drawn on Standard Chartered Bank for Rs. 2 crores (paid by Hotel Country India Pvt. Ltd.) - Cheque No. 0152330 dated 16.03.2007 drawn on Standard Chartered Bank for Rs. 3,01,00,000/- (paid by Hotel Country India Pvt. Ltd.) - Bank Transfer on 04.08.2007 from Standard Chartered Bank for Rs.1,20,00,000/- by assessee - Transfer from Crosswood Ltd. ,UK through its director Charnesh Kapoor (assesse) on 22.08.2007 amounting to Rs. 10,31,081/- - Cheque No. 0642228 dated 31.08.2007 drawn on HDFC Bank for Rs. 10,00,000/- (paid by Lex Land Securities Pvt. Ltd.) - Cheque No. 0642231 dated 12.12.2007 drawn on HDFC Bank for Rs. 1,00,00,000/- (paid by Lex Land Securities Pvt. Ltd.) - Cheque No. 0642244 dated 28.01.2008 drawn on HDFC Bank for Rs.1,34,00,000/- (paid by Lex Land Securities Pvt. Ltd.) - In cash Rs. 5,60,000/- (c) In part performance of the obligation in respect of MOU dtd. 02.03.2007 the property at Valsao, South Goa was transferred vide sale deed dtd. 18.12.2007 for a consideration of Rs. 30,00,000/-. However, the area sold by the seller was 2975 sq. mtr whereas as per records they purchased only 2590 sq. mtr which in turn resulted that the assessee alongwith other co¬owners were not able to take possession of the property. (d) Thereafter, another Memorandum of understanding was executed on 02.03.2009 in substitution of earlier MOU dtd. for a consideration of Rs. 13,72,00,000/-. All properties to be purchased remained the same except for property mentioned in Para - (c ) above. (e) . It was revealed that properties at 7
- 84,000 Sq. Mtrs at Majal Village of Savantwada Circle in Carwar Taluka of North Karnataka. - 1,28,000 Sq. Mtrs at Majal Village of Savantwada Circle in Carwar Taluka of North Karnataka. Were meant to be consolidated, sea facing and located only in one village i.e. Majali Village of Savantwada Circle in Carwar Taluka of North Karnataka but it was revealed that lands were not only scattered but in fact situated in 4 different villages namely Bargal, Shirve, Mallapur and Majali. (f) It was further revealed that the seller of property namely Mr. Bhushan Kadam and Mr. Atul Kadam had applied for mutuation of property at Islands along with 3 sheds constructed thereon situated at Majal Village of Savantwada Circle in Carwar Taluka of North Karnataka in their favour on the basis if General Power of Attorney (GPA), however, the Ambi family raised objections that the said GPA were forged and fabricated since the executors of GPA namely Ambi Chimani and Ambi Jyogi Omano died on 29.04.1996 and 28.05.1985 respectively much before the execution of GPA and that even the revenue authorities had alrwady rejected the said mutation application. (g) That pursuant to two MOU a total payment of Rs. 9,86,91,081/- was made to Bhushan Kadam by the assesse and other 2 entities namely Lex Land Securities Pvt. Ltd. And Hotel Country India Pvt. Ltd. It is to be strongly submitted here that the assesse only paid /t.f.d. Rs. 2,5131,081/- to Bhushan Kadam and the balance was given by the other two entities i.e. Lex Land Securities Pvt. Ltd. And Hotel Country India Pvt. Ltd. Respectively. (h) An criminal complaint was filed before Economic Offence Wing on 24.05.2010 stating all above facts. (i) An FIR was registered on 26.11.2011. (j). That an Writ Petition bearing No. W.P. (CRL) 2406/2014, CRL M.A. 18525/2014, CRL M.A. 9012/2015 & CRL M.A. 9521/2015 was registered in Hon’ble Delhi High Court. (k). That during the pendency of the matter before the Hon’ble Delhi High Court an compromise deed dtd. 28.05.2015 was executed between the seller of property and assesee alongwith the other co- owners. (1). The Hon’ble Delhi High Court vide order dtd. 13.07.2015 had recorded the terms of Compromise deed dtd. 28.05.2015 and has held that in view of compromise deed the Writ petition is disposed off.
(m). Compromise deed dtd. 28.05.2015 has been executed by assessee alongwith M/s. M/s. Hotel Country India Pvt. Ltd. and M/s. Lex Land Securities Pvt. Ltd. (n). That Compromise deed dtd. 28.05.2015 was later modified vide Deed of Compromise dtd. 03.07.2015. (o) That pursuant to Deed of Compromise the accused had transferred the property in favour of assessee and other 2 co-owners or their nominees. (p) That it has been specifically mentioned in all sale deed that Vendor and Purchaser had entered into a compromise deed wherein the total amount to be paid by the Vendor to the Purchaser was Rs. 14.50 crores. Under the said compromise the Vendor in partial discharge of its liabilities has agreed to transfer the said property in the name of the Purchaser. (q). Thus, no actual transfer of sale consideration has taken place while registration of sale deed in favour of assessee or its nominees. (r). Without prejudice, the assessee share in the properties awarded is only to the tune of payment made by assesse (i.e. around 25%) and rest belongs to other co-owners. Thus, properties awarded in lieu of compromise deed /High Court order should not be taxed.”
7.1 Further, by letter dated 27.09.2022, copy of which is placed at pages 187- 200 of the paper book, the assessee had made further assertion as follows:- “B. Further, some important points are submitted hereunder: > The assessee is a purchaser / awardee in the land/ properties in question, therefore, there is no question of receiving any amount. > The properties in question are being transferred to assesse without any real payment being made by assessee, therefore, no payment / consideration has been occurred in the present financial year, therefore, there is no question of any income earned / unexplained income of the assessee in the present financial year. > All the payments made by the assessee and other parties to the accused in earlier years are not declined by accused, therefore, there is no doubt that assessee and other entities has made payments to accused. The said fact is apparent from Court Order dated 13.07.2015 in W.P. (CRL) 2406/ 2014, where the Court has mentioned that “…… The complainants are stated to have paid a sum aggregating to Rs.10 crores 86 lakhs from time to time to the petitioners. I”. The said fact is not disputed by the accused (Bhushan Singh Kadam & Anr.) > In view of above facts and circumstances, it is clear that there is no real payment made by the assessee to Bhushan Kadam and the transfer of property is only account of a compromise between assessee & other entities with Bhushan Kadam (accused). For effecting the compromise Bhushan Kadam (accused) transfer the properties to assessee and other entities without receiving any payment from assessee in the current financial year. > Therefore, it is the case of the assessee that when no real payment has been made by the assessee in the current financial year then how the same can be treated as ‘income’ / ‘unexplained income’ of the assessee in the present financial year. > The assessee requests your gooself to drop the addition as the same is not legal on facts as well as on merits of the present case. > Any addition / disallowance made in a assessment has to be made on a reasonable basis. In the present case there is no reasonable basis on account of which addition can be made in the hands of assessee. > The assessee has supplied ample number of documents and information as asked for from time to time. In case, the same are not upto the satisfaction of .your goodself, in that case, the same be made known to the assessee for his further reply / explanation. The assessee also requests your goodself that the basis for not accepting the explanation of the assessee be also made known to the assessee i.e. legal provisions invoked, documents with your goodself any other relevant material ought to be used against the assessee. It is a settled legal preposition of law that no addition can be made on the back of the assessee and it is always necessary that all incriminating material/ information ought to be used against the assessee should be made available to the assesee for his reply and explanation.”
Thus, going through the case of the AO as stands approved by the DRP, the only contention of the ld. AR that the assessee is a purchaser, therefore, capital gains cannot be taxed has no substance. It is specifically admitted that the properties were received in furtherance of the compromise to get quashed the criminal proceedings against Bhushan Shiv Anand Kadam and without assessee paying anything. The AO had examined the dispute by also lifting the corporate veil and giving a finding that the properties acquired by other entities were also in fact received by the assessee only. The AO has considered the value of different properties received by the assessee as income. The AO has taken into account the sale consideration mentioned in the sale deeds as the value of the property earned in lieu of compromise of the cases and release of accused on bail. Further considering the fact that the assessee had established to have paid Rs.1,20,00,000/- on 04.08.2007 and Rs.30 lakhs on 06.04.2009, to acquire this right of compensation as cost of acquisition of the rights, calculated the capital gains as follows:-
“Sale value of the property (assessee’s share) Rs.18,37,12,495/- Less: Indexed cost of acquisition: (1,20,00,000 x 254/129) for payment made in F.Y. Rs.2,36,27,907/- 2007-08 (30,00,000 x 254/148) for payment made in F.Y. Rs.51,48,649/- 2009-10 Long Term Capital Gain Rs.15,49,35,939/- “ 9. The show cause notice dated 17/09/2022, which is reproduced above in para six, shows that AO had show caused the assessee to explain, “ why the value of different properties you received because of compromise deed should not be taxed in your hand as income as per the provisions of Income Tax Act 1961.” It seems there was no response to same to satisfaction of AO, so the AO treated relinquishment of rights under compromise as transfer of capital asset. Capital gains are calculated by the AO on the basis of value of land received in lieu of relinquishment of rights in litigation. Nothing was submitted before us, to allege, that on facts and law same is not sustainable. In the light of the aforesaid discussion, the single line argument of the ld. AR that capital gains have been calculated in spite of the assessee being a purchaser of the immovable property is not factually correct and nor admitted by Revenue. The orders of tax authority cannot be interfered. Thus the grounds as raised are accordingly not sustainable.