ASST CIT 9(2)(1), MUMBAI vs. BHASKAR GOPICHAND GUPTA, MUMBAI

2.1. The return was processed under section 143(1) of the act, and was selected for scrutiny. Subsequently, notice under section 143(2) of the act was issued along with, notice under section 142(1) on 24/07/2013. In response to statutory notices, the representatives of the assessee appeared before the Ld.AO and furnished requisite details as called for. 2.2. From the details furnished by the assessee the Ld.AO noted that, the assessee is director in Blink Hotels Pvt. Ltd and earned remuneration there from during the year under Shri Bhaskar Gopichand Gupta consideration. The Ld.AO noted that, the assessee surrendered tenancy rights in flat no.5 on the 5th floor in Kalpavruksha Heritage for consideration of ₹7,12,79,000/-, against which he claimed brokerage paid of ₹8,21,000/-. The assessee disclosed long-term capital gain of Rs.3,77,12,333/- after reducing the index cost of acquisition at ₹3,35,66,667/-. 2.3. The Ld.AO noted that, the assessee did not declare net LTCG of ₹3,27,12,333/- after claiming deduction of ₹ 50 lakhs under section 54EC of the act which was invested in REC bonds. The Copy of the letter dated 12/03/2011 surrendering tenancy rights by the assessee for Rs.7.21 crores is scanned and reproduced in the assessment order. 2.4. The assessee was called upon to explain the purchase and sale of flat at Kalpavruksha Heritage Mumbai. From the details filed by the assessee, it was noted that, the assessee purchased this property by entering into a joint deal with the outgoing tenant and the builder/owner. The assessee entered into a tripartite agreement with M/s. Aryanish Finance and Investments Pvt. Ltd., the outgoing tenant and M/s. Southville Developers Pvt. Ltd. It was also noted that he purchased tenancy rights of the outgoing tenant for sum of ₹ 50 lakhs, paid by cheque on 15/12/2015 and tenancy agreement was entered into on 30/12/2005 on which stamp duty was paid on 29/12/2005. 2.5. The Ld.AO noted that no agreement was entered into between the assessee and the developer, but allotment letter Shri Bhaskar Gopichand Gupta was issued by the developer on 15/12/2005, confirming allotment of Flat number 5 on the 5th floor of Kalpavruksh Heritage, of the new building, which is to be constructed having area admeasuring 1700 ft² of carpet corresponding to 2300 ft² built up for total sale consideration of ₹1.80 crores and brokerage is said to have paid on purchase at Rs.4,63,620/-. The Ld.AO noted that assessee made payment of ₹78.75 lakhs to M/s. Southville Consultancy Services Pvt. Ltd., and ₹30 lakhs to M/s. Southville Developers Pvt. Ltd. 2.6. The Ld.AO subsequently noted that other than the assessee the builder had also sold the same flat to following persons: 1. Unnati Reniwal and 2. Shripal P. Shah and Purnima S Shah. 2.7. On verification from the above parties, the Ld.AO was of the opinion that Unnati Reniwal proved her tenancy rights by producing registered tenancy agreement, which was not available in the hands of the assessee, and no details with regard to the brokers were provided by the assessee. It was also noted by the Ld.AO that there was no litigation initiated by the assessee between 2005 till 2011 and no stamp duty or registration charges was paid on the document executed for surrender of tenancy rights.

Shri Bhaskar Gopichand Gupta 2.8. The Ld.AO observed that, the date of allotment letter by the builder was before the date of tenancy agreement and therefore the Ld. AO came to the conclusion that it is a sham transaction. Further the Ld. AO noted that builder was renamed as M/s. Southville Developers Pvt. Ltd., only on 13/04/2006, whereas the allotment letter was issued to the assessee in the name of Southville Developers Pvt. Ltd. on 15/12/2005. For all the above reasons the Ld.AO rejected the submissions of the assessee denied the LTCG claimed by the assessee and was of the opinion that the money so generated amounting to ₹ 7.21 crores was nothing but assessee’s own income from undisclosed sources. As a consequence, the claim of ₹ 50 lakhs under section 54 EC was stood rejected. Aggrieved by the order of the Ld. AO assessee preferred appeal before the Ld. CIT(A).

“2.3.1 Vide grounds of appeal no. 1, 2 the action of the AO of assessing the income of Rs. 7,21,00,000/-under the head income from undisclosed sources has been challenged and Vide grounds of appeal no. 10 it has been stated that the receipts from sale of rights in flat are capital receipts. All the grounds of appeal are being disposed off together as these are interlinked to the issue that whether the receipt is taxable and if so under what head of income it is liable to be charged to tax.”

2.3.2 The above said controversy stands resolved by the latest judgment of the Hon'ble Gujarat High court in the case of CIT vs. Shilpa Dyeing & Printing Mills (P) Ltd. (2013) 39 Taxmann.com 3 and the relevant part of the findings of their lordships is reproduced as under:- “9………. Suffice it to state that the Act does not envisage taxing any income under any head not specified in section 14 of the Act….” 2.3.3 Further the Hon'ble Apex Court in the case of CIT vs. D. P. Sandu Bros. Chembur (P) Ltd. 142 Taxman 713 it has been held that:- "Section 56 provides for the chargeability of income of every kind which has not to be excluded from the total income under the Act, only if it is not chargeable to income-tax under any of the heads specified in section 14 items A to E. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of section 56. [Para 15]" 2.3.4 Hence the only logical conclusion which can be drawn from the ratio decided in the judgments, supra, is that once it is decided that if the appellant has received the amount from sale of rights in flat the same shall be taxable under the head capital gains and if it is proved that it is a sham transaction the same shall be taxable under the head income from other sources and not under any other head. Hence the grounds of appeal no. 1 & 2 are treated as allowed but the grounds of appeal no. 10 that the receipt is not taxable is dismissed for statistical purposes. 2.3.5 Vide grounds of appeal no. 3 to 9 has challenged the action of the AO of treating the receipts from transfer of tenancy rights by the appellant declared as long term capital gains under the head capital gains as a sham transaction. 2.3.6 The findings of the AO as discussed in detail in the assessment order has been reproduced supra to appreciate the facts of the case. 2.3.7 The crux of the finding of the AO is that the appellant was never a tenant of the property the tenancy right of which has been surrendered by the appellant and the income which has been offered under the head long term capital gains is liable to tax as income from undisclosed sources (para 11). The AO has discussed multiple reasons for recording this categorical finding in para 28 of the assessment order. 2.3.8 The A/R of the appellant has filed point to point rebuttal on the findings of the AO and as stated above the order of the AO and the written submissions of the A/R of the appellant has been reproduced verbatim to come to a logical conclusion.

2.3.9 The crux of the rebuttal filed by the A/R of the appellant is that all the payments for acquisition of tenancy rights have been made through banking channel on 15.12.2005 and the appellant has proved the tenancy rights by producing documentary evidence and has further brought out the facts on record to clarify that why the agreement for transfer of tenancy rights was signed on 30.12.2005 when the allotment letter was issued on 15.12.2005. He has relied on the tripartite agreement dated 30.12.2005 which has been executed on stamp paper of 30.12.2005 which has not been doubted by the AO for the reasons best known to him. He has also reconciled the alleged discrepancies in the acounts of the appellant and in the accounts of the builder as brought out by the AO on page 29 of the assessment order. The clarification that why the name of the developer was mentioned on the allotment letter dated 30.12.2005 as Southville Developers Pvt. Ltd. despite the fact that the name of the developer was changed from South Consultancy (P) ltd w.e.f. 13.04.2006, was also brought on record vide letter dated 14.02.2014 furnished during the course of assessment proceedings. The explanation that the change of name was proposed to ROC earlier but the name was changed by ROC on 13.04.2006 has been discussed in the assessment order but no reason has been given by the AO that why the same was not acceptable. The A/R of the appellant has also brought on record that the appellant both at the time of allotment of flat and at the time of sale of rights in subject property paid Rs. 4,63,620/- and Rs. 8,21,000/- as brokerage through cheques which has been supplied to the AO alongwith the copies of the bank statement during the course of assessment proceedings. It has been further stated by the A/R of the appellant that the payment of Rs. 7,21,00,000/- received on account of surrender of rights in flat has been received through cheques for which confirmation of the builder has been filed. Regarding the fact discussed by the AO in the assessment order that the flat for which rights have been surrendered by the appellant was also allotted to Smt Unnati Reniwal, the explanation of the appellant and builder has been rejected by the AO. It has been stated by the appellant that if the developer has allotted the flat for second time to Smt. Unnati Reniwal the appellant has nothing to do with such illegal action. Similarly on the issue of allotment of same property to third party ie. to one more allottee viz Shri Pal P Shah and Purnima Shah, it has been stated by the A/R of the appellant that the appellant has to do nothing with such illegal action of the builder. 2.3.10 From a careful perusal of the assessment order and the written submissions filed by the A/R of the appellant it is clear that the existence of tenancy rights dated 15.12.2005 stands established from the allotment letter because the payments have been given through banking channel and the tenancy is evidenced by the agreement executed after paying stamp duty of Rs. 24,500/- on 30.12.2005. Similarly the surrender of tenancy rights on 12.03.2011 also stands established from the surrender of allotment letter and confirmation of the same by the developer vide letter dated 31.03.2011. The receipt of payment of Rs. 7,21,00,000/- through banking channel also strengthen the contention of the appellant. Although the AO has given categorical finding that there was no tenancy rights which has been transferred. (Page 27 of the assessment order) and the whole of the transaction of acquisition of tenancy rights and sale of rights in flat has been declared as sham transaction (Page 26 of the assessment order). But both the above said findings of the AO stands rebutted from the documentary evidence on record on which reliance has been placed by the A/R of the appellant. 2.3.11 Keeping in view the fact that it is settled that the appellant has acquired the tenancy rights and sold his rights in flat which was allotted to him, the receipt thereof is taxable under the head capital gains for which the A/R of the appellant has rightly relied on the judgment of Bombay High Court in the case of CIT vs. Tata Services Ltd. (1980) 122 ITR 594. Further the appellant is entitled to get Shri Bhaskar Gopichand Gupta reduction of brokerage and indexed cost of acquisition of the asset. Hence the grounds of appeal no. 3 to 9 are treated as allowed. 2.3.12 Vide grounds of appeal no. 11 the appellant has challenged the action of the AO of disallowing the deduction claimed u/s 54EC. 2.3.13 The AO although has given a categorical finding that there is no original asset and hence the question of transfer of the same does not arise but at the same time has recorded the finding that since the original asset has been transferred on 22.04.2010 the investment was required to made by the appellant for claiming deduction u/s 54EC upto 21.10.2010. Hence the deduction has been disallowed. 2.3.14 But according to the A/R of the appellant the allotment letter was surrendered on 12.03.2011 and the investment in REC bonds has been made on 15.03.2011, the appellant is entitled to deduction u/s 54EC. 2.3.15 On account of the detailed findings given while deciding the issue of acquisition of tenancy rights and sale of rights in flat, supra, since the date of surrender of rights in flats has been taken as 12.03.2011 i.e. the date of surrender of allotment letter, the AO is directed to allow the deduction claimed u/s 54EC by the appellant. Therefore, the grounds of appeal no.11 is allowed. “2.3.16 Since it has been held that the receipts of Rs. 72100000/- is taxable under the head capital gains as long term capital gains and the appellant is entitled to deduction on account of brokerage and the indexed cost of acquisition, the grounds of appeal no. 12 & 13 being the alternative grounds of appeals does not require adjudication.” Aggrieved by the order of the Ld. CIT(A) the revenue is in appeal before the Tribunal.

4.1. The Ld.AR submitted that, the assessee brought on record allotment letters obtained by him from the developer and also the acceptance of surrender of rights against, which the assessee paid brokerage of ₹ 4,63,620/- and ₹8,21,000/- respectively. He relied on copies of the bank statements substantiating the fact that the payments were made through banking channel during the course of the assessment proceedings that has not been rejected by the Ld. AO. The Ld.AR submitted that except raising doubts the Ld. AO himself is unable to establish the same.

4.2. The Ld.AR submitted that, the transaction cannot be treated to be sham as all the payments made by the assessee as well as received from the developer upon surrender of tenancy rights was through banking channels, and there is no other evidence brought on record by the Ld. AO to substantiate the allegations so raised. It is submitted that the assessee entered into bona fide transaction to purchase the flat for the reason that the hotel owned by him was near the residence that he intended to purchase in Kalpavruksh Shri Bhaskar Gopichand Gupta Heights. As he was staying in south Bombay, it was difficult for assessee to travel to the place of his employment. It was with such bona fides belief that the assessee had entered into agreement with the builder and the outgoing tenant without realizing the fraudulent intention of the part of the builder.

4.3. The Ld.AR submitted that the allegation of Ld.AO regarding not taking any legal steps against the builder till 2011, it was submitted that as a prudent person, assessee was proposed with a solution amicably by recovering the monies he invested. The Ld.AR submitted that it is upon recovery of the money in 2011, the assessee initiated complaint against the builder for his fraudulent act.

4.4. The Ld.AR emphasized that assessee was absolutely unaware about the fraudulent act of the developer wherein allotted was made in respect of same flat to two more persons. He referred to various complaints that was filed by the assessee before the consumer forum and orders passed which are placed in the paper book filed for this Tribunal. The Ld.AR placed on record newspaper cuttings against the proprietor Prakash Mehta, of the developer emphasizing the fraudulent activity carried on by him by selling flats to multiple persons. It is submitted that, the said proprietor was arrested and put behind bars, that further emphasizes the fact that assessee was absolutely oblivious of the fraudulent act by the developer.

4.5. On the contrary to the Ld.AR vehemently supported the orders passed by the Ld. AO, however could not controvert the evidences filed by the assessee which has been considered for the purpose of allowing the claim of assessee by the Ld. CIT(A).

We have perused submissions advanced by both sides in the light of records placed before us.

5.1. It is also not doubted by the Ld. AO that, the payments made by the assessee as well as received by him are through banking channels that further strengthens the contentions of the assessee. Apart from considering the transaction to be sham transaction only for the reason that there were 2 other allottees to whom the builder allotted the same flat amongst whom 1 of them had entered into tenancy agreement with the developer, this alone will not hold the transaction by the assessee to be colourable device. There is nothing brought on record to emphasize that the assessee had rooted his own money amounting to ₹ 7.1 crores except for the bald allegations by the Ld. AO.

Shri Bhaskar Gopichand Gupta 5.2. Before us the Ld.AR submitted the fact that, there was about 2 more allottees to the same flat, same to the knowledge of assessee during the assessment proceedings and therefore it could not be challenged before the National consumer 4. It is very pertinent to note that, the Ld. AO categorically observed that the builder was engaged in fraudulent selling of flats to more than one persons and that the intention of the builder was malafide. Once such observation is made by the Ld. AO, and then to consider the assessee’s transaction to be sham, without substantiating such allegation with proper documents/evidences, cannot be accepted.

On the basis of above submission, in the absence of any corroborative materials brought out by the revenue, we do not find any reason to interfere with the view taken by the Ld. CIT(A) and the same is upheld. Accordingly the grounds raised by the revenue stands dismissed. In the result, appeal filed by the Revenue stands dismissed.

Order pronounced in the open court on 28-10-2024. Sd/ Sd/- Sd/- - (RENU JAUHRI) (BEENA PILLAI) Accountant Member Judicial Member 28.10.2024 Mumbai Shri Bhaskar Gopichand Gupta *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT BY ORDER,