CHANDRASINH DAMODAR KAPADIA (HUF),MUMBAI vs. ACIT 25(2), MUMBAI

The assessee is aggrieved by the decision of Ld CIT(A) in upholding the assessment of Rs.1.22 crores as income of the assessee under the head Income from other sources.

The assessee is a HUF and it filed its return of income declaring a total income of Rs.1,08,70,000/-. The AO noticed that the assessee has declared capital gains on transfer of rights over a plot No.CSCT S10 at Magathane village admeasuring 1572.50 sq.mts to M/s Giriraj Builders and Developers. The AO asked the assessee to prove the ownership of the land and also to furnish copy of deed of transfer. The AO also made enquiries with M/s Giriraj Builders who confirmed that they paid a sum of Rs.1.22 crores and further stated that due to unforeseen circumstances the deal was not finalised. The above said company also furnished a copy of Power of Attorney executed in its favour by the assessee.

On a perusal of Power of Attorney, the AO noticed that the right over the property has not been transferred. Enquiries made with sub-registrar officer also revealed that no sale transaction has taken place. Accordingly the AO took the view that the assessee has failed to prove how his HUF has got any right and interest in the impugned property. Further the sale transaction also was not proved. Hence he took the view that the capital gain is not acceptable. Since the assessee has received the above said sum of Rs.1.22 crores without any consideration, the AO assessed the same as income of the assessee under the head Income from other sources u/s 56(2) of the Act. The Ld CIT(A) dismissed the appeal of the assessee and hence the assessee has filed this appeal before us.

At the time of hearing, the ld A.R submitted that the transfer has not taken place and the assessee has wrongly offered the capital gains in its return of income. He submitted that the amount received by the assessee was only an advance for sale of property and hence the same cannot be assessed as income of the assessee.

On the contrary, the Ld D.R submitted that the assessee has not proved the ownership and transfer of property. At the same time the assessee has also given power of attorney to the developer. Since the assessee has not proved the ownership of land, the assessing officer has assessed the consideration as income of the assessee under the head income from other sources.

We have heard rival contentions and perused the record. The main submission of the assessee is that the assessee has inherited the land and hence it belongs to HUF. Even if it is considered as his individual property, he is having only 1/3rd share in the property. The Ld A.R submitted that the assessee has only received advance for sale of property and the assessee has declared capital gain by ignorance. Accordingly he submitted that the impugned receipt is not taxable at all, since there was no sale of property. He submitted that the assessee has inherited the property, but the same has been disbelieved by the tax authorities. He has submitted that the view taken by the AO is against the facts available on record.

We notice that M/s Giriraj Builders and Developers has confirmed the payment of money to the assessee and they have further stated that the same was in connection with purchase of land. It is also stated that the payment was made on oral agreement. It has also stated that the deal could not be finalised till the date of finalisation of assessment. We notice that the AO has taken the view on the basis of facts available on the date of assessment.

We notice that the assessee has given Power of attorney in favour of M/s Giriraj Builders and Developers. The AO has recorded that the Power of Attorney has been registered with the Sub-registrar. Under these set of facts, we are of the view that the subsequent events that took place after the completion of assessment would help to determine the nature of transactions entered between the assessee and M/s Giriraj Builders and Developers. Further the assessee has claimed to be the Kartha and the deal was entered in his capacity as Kartha. We notice that this claim has been rejected without recording cogent reason. If that is not accepted, the assessee claims that he is having 1/3rd share only in the property. These alternative contentions of the assessee also require examination by making enquiries with other co-owners. Under these set of facts, we are of the view that entire issue requires fresh examination at the end of the AO. Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore the matter to the file of the AO for fresh examination with the direction to afford adequate opportunity of hearing to the assessee and take appropriate decision in accordance with the law.

In the result, the appeal filed by the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Court on 17.11.2016