SHRI OM PRAKASH SHARMA,INDORE vs. THE ITO 3(4), INDORE

आदेश / O R D E R

Per B.M. Biyani, A.M.:

Feeling aggrieved by appeal-order dated 20.04.2015 passed by learned Commissioner of Income-Tax (Appeals)-I, Indore [“CIT(A)”], which in turn arises out of assessment-order dated 23.03.2015 passed by learned ITO, 3(4), Indore [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2012-13, the assessee has filed this appeal.

Page 1 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

assessee. Subsequently, the assessee filed M/A No. 6/Ind/2020, the said

M/A was decided by ITAT, Indore Bench vide order dated 24.11.2022

wherein the Order dated 14.08.2019 was re-called and original appeal with

same registration number was re-stored. Accordingly, this appeal has come

before us for hearing.

36 but subsequently filed ‘Revised Grounds’ through a separate application

dated 13.10.2023. It is submitted that the Revised Grounds are merely

reframed by changing the language and no additional ground has been

raised. With the consensus of both sides, the Revised Grounds were taken

for adjudication. These grounds read as under:

assessee-individual filed original return of income of AY 2012-13 on

29.03.2013 declaring a total income of Rs. 2,87,160/- from salary and other

sources which was processed u/s 143(1) of the Act. Subsequently, the case

Page 2 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

was selected for scrutiny under “CASS” system and statutory notices u/s

143(2)/142(1) were issued to assessee from time to time. Ultimately, the AO

completed assessment u/s 143(3) after making certain additions and

determining total income at Rs. 2,90,19,565/-. Aggrieved by additions made

by AO, the assessee carried matter in first-appeal but did not get any relief.

Still aggrieved, the assessee has come in next appeal before us on two

grounds as re-produced in preceding paragraph; we proceed to adjudicate in

in seriatim.

Ground No. 1:

2,53,98,000/- made by AO on account of capital gain and upheld by CIT(A).

proceeding, the AO collected details u/s 133(6) from the office of Sub-

Registrar indicating that during the relevant year the assessee executed a

sale-deed of an immovable property for Rs. 1,80,00,000/- (valued at Rs.

2,61,83,000/- for stamps duty purpose) in his individual name and

individual PAN. The AO confronted assessee vide notice dated 05.03.2015 as

to why the capital gain arising from transaction had not been declared in his

return. The AO also supplied to assessee a proposed working of taxable gain

taking into account the deemed full value of consideration at Rs.

2,61,83,000/- as per section 50C. In response, the assessee filed a reply

which is re-produced by AO in Para 5 of assessment-order. The crux of

Page 3 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

assessee’s submission was two-fold i.e. (a) the property belonged to HUF, it

was a case of partition of HUF and the distribution of assets by a HUF to its

members on partition of HUF is excluded from transfer u/s 47(i); and (b) the

impugned property was basically a devolved property bequeathed by his

deceased father by way of will (Point No. 1, Page No. 5 of assessment-order).

After death of father, when the assessee wanted to leave family and the

matter prolonged for a long time between assessee and his brothers, the

assessee decided to give up his share in favour of family members and

executed sale-deed. Thus, it was a mere devolution of property-cum-forced

sale to family members. With these twin-submissions, the assessee claimed

before AO that neither the impugned transaction would be taxable nor the

deeming provision of consideration u/s 50C would apply. Additionally, the

assessee also made a submission that the consideration received under

sale-deed had been re-invested in certain properties, therefore the assessee

would be entitled to exemption u/s 54/54F which would also reduce taxable

gain to Rs. Nil. The AO considered assessee’s reply in Para 6 to 9 of

assessment-order and upon consideration rejected the same. He observed

that the assessee received impugned property from his father in individual

capacity. He noted that the assessee also made sale in individual capacity

which is evident from sale-deed wherein the assessee’s individual name and

PAN have been mentioned and there is no mention of assessee’s HUF or

HUF’s PAN. Therefore, the capital gain was earned by assessee in individual

capacity and taxable in his individual assessment. The AO rejected

Page 4 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

assessee’s claim of benefit of section 47(i) available to partition of HUF. The AO also invoked section 50C and adopted full value of consideration at Rs. 2,61,83,000/- (stamps authority valuation) for computation of capital gain as against the actual sale consideration of Rs. 1,80,00,000/- declared in sale-deed. The AO also rejected assessee’s claim of exemption u/s 54/54F. Ultimately, the AO made addition by concluding thus in assessment-order:

“9. पूंजीगत लाभ म� वृ�� – करदाता �वारा भमौर� दुबे तहसील व िजला इंदौर म� ि�थत जमीन व इस पर �न�म�त शेड �. 1800000/- म� �व�य क� गई । िजसक� वत�मान गाइड लाईन मू�य उपपंजीयक �वारा �. 26183000/- �नधा�रत क� गई है । इस�लए धारा 50सी के इस संपि�त का �व�य मू�य पूंजीगणना, के उ�े�य म� �. 26183000/- माना जाता है । �नधा�रती �वारा ये संपि�त के खर�द के सा�य म� कोई भी �माण ��तुत नह�ं �कये है इस�लए आयकर �नर��क �ी रामलखन यादव क� �रपोट� के आधार पर �दनांक 01.04.1981 का मू�य �. 100000/- �नधा�रत �कया जाता है । िजसका सूचकांक लागत �. 785000/- �नधा�रत �कया जाता है इस �कार �. 25398000/- द�घ�काल�न पूंजीगत लाभ �नधा�रत �कया जाता है एवं करदाता �वारा HUF के नाम से खर�दा गया रहवाह� �लाट (िजस पर आयकर �नर��क क� �रपोट� के आधार पर �दनांक 08.03.2015 तक कोई �नमा�ण काय� नह�ं �कया गया) एवं अपनी प�नी के नाम से जमीन म� रा�श �व�नयोग क� गई है । �क�तु करदाता �वारा अपने �वयं के नाम से धारा 54/54F के अंतग�त छूट लेने हेतु रहवासी संपि�त (मकान) म� कोई भी रा�श �व�नयोग नह�ं क� गई है और ना ह� �व�नयोग के संबंध म� कोई सा�य ��तुत �कया गया है िजससे यह �तीत हो �क करदाता �वारा रहवासी संपि�त म� �व�नयोग �कया गया है । अतः �. 25398000/- द�घ�काल�न पूंजीगत लाभ मानते हुए �. 25398000/- द�घ�काल�न पूंजीगत लाभ के �प म� करदाता क� आय म� जोड़ा जाता है । साथ ह� आयकर अ�ध�नयम क� धारा 271(1)(सी) क� शाि�त काय�वाह� आरंभ क� जाती है । 7. During first-appeal, the CIT(A) upheld AO’s order by observing thus:

Page 5 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 6 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 7 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

“�व�ेताप� यह �व�यप� �ेता प� के �हत म� �न�न शत� एवं दा�य�व� के अधीन �न�नानुसार �लख देतै है �क :- यह �क �ाम भमौर� दुबे तहसील व िजला इंदौर म� ि�थत सव� नंबर 263/2 रकबा 1.00 एकड एवं सव� नंबर 263/3 रकबा 0.86 एकड होकर कुल रकबा 1.86 एकड़ भू�म व उस पर �न�म�त शेड मेसस� भागीरथ एंड �दस� के �वा�म�व एवं अ�धप�य का है । सव�थम उपरो�त व�ण�त संपि�त मेसस� भागीरथ ए�ड �दस� (भागीदार� फम�) म� पंजीकृत �व�य प� �मांक 1अ/1606/�दनांक 13.03.1970 के �वारा �य क� है । उ�त फम� के भागीदार �ी भागीरथ शमा� का �वग�वास �दनांक 12.06.1990 को हो गया होने से उपरो�त व�ण�त संपि�त म� से उनका एक �तहाई अ�वभाजीत �ह�सा �व�ेताप�, �ेताप� एवं �ीमती गंगादेवी प�त �व.�ी भागीरथजी शमा� एवं हंसा �पता �व.�ी भागीरथजी शमा� को उनके वैधा�नक उ�तरा�धकार� नाते �ा�त हुआ है । �व�ेता प� इस �व�यप� �वारा �ेता प� को मेसस� भागीरथ ए�ड �दस� क� संपि�त अथा�त �ाम भमौर� दुबे तहसील व िजला इंदौर म� ि�थत सव� नंबर 263/2 रकबा 1.00 एकड एवं सव� नंबर 263/3 रकबा 0.86 एकड होकर कुल रकबा 1.86 एकड़ भू�म व उस पर �न�म�त 20000 वग�फ�ट शेड के एक �तहाई भाग म� से अपना अ�वभािजत भाग अथा�त 4501 वग�फ�ट भू�म उस पर �न�म�त 1111 वग�फ�ट शेड (िजसे इस लेख म� "उ�त संपि�त" कहा गया है ) �व�य कर रहे है । वत�मान म� उ�त संपि�त �व�ेताप� के �वा�म�व एवं आ�धप�य क� है तथा �व�ेताप� को उसे �व�य करने का पूण� अ�धकार �ा�त है । उ�त संपि�त �यवसा�यक �े� म� ि�थत होकर औ�यो�गक उपयोग क� है । �व�ेताप� ने उ�त संपि�त के अ�त�र�त इस �व�य प� �वारा अ�य �कसी संपि�त का �व�य नह�ं �कया है ।”

Page 8 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Referring to this para, Ld. AR submitted that the sale-deed executed by

assessee clearly mentions that there was a property consisting of 1.86 acres

of land and 20,000 square feet of shed constructed thereon owned by one

M/s Bhagirath & Brothers, a partnership firm [hereafter referred as

“firm/partnership firm”]. That the said property was purchased by

partnership firm vide purchase-deed dated 13.03.1970. That Shri Bhagirath

Sharma, one partner of the said firm (who was father of assessee) was

having ‘1/3rd undivided share in property’. That Shri Bhagirath Sharma

expired on 12.06.1990 and his ‘1/3rd undivided share in property’ devolved

upon 6 legal heirs, namely assessee (son of late Shri Bhagirath Sharma

mentioned as “seller” in the sale-deed); Shri Kailash Sharma, Shri Ashok

Sharma & Shri Mool Chand Sharma (3 brothers of assessee and sons of late

Shri Bhagirath Sharma mentioned as “purchaser” in the sale-deed); 2 other

family members Smt. Ganga Devi (mother of assessee and wife of late Shri

Bhagirath Sharma) and Smt. Hansha (sister of assessee and daughter of late

Shri Bhagirath Sharma). Accordingly, the assessee being one of the legal

heirs out of 6 legal heirs had share measuring 4,501 square feet in land and

1,111 square feet in constructed-shed. To clarify the calculation of

assessee’s share, we may mention that the partnership firm owned 1.86

acres of land (1 acre = 43,560 square feet, therefore 1.86 acres = 81,021

square feet) and 20,000 square feet of construction. Therefore, 1/3rd share

of assessee’s father comes to 27,007 square feet of land and 6,666 square

feet of construction and assessee’s 1/6th share in father’s share comes to

Page 9 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

4,501 square feet of land and 1,111 square feet of construction. The

assessee, described as “Seller” in the sale-deed, sold his share, namely

4,501 square feet of land and 1,111 square feet of construction to his 3

brothers described as “Purchaser” in the sale-deed [The CIT(A) has in

advertently mentioned 2 brothers in place of 3 brothers]. Ld. AR that the

sale-deed itself clearly mentions the status of property i.e. the property was

actually owned by firm M/s Bhagirath & Brothers and not by assessee’s late

father. The assessee’s father only had 1/3rd undivided share in the property

of firm which upon his death devolved upon 6 legal heirs (including

assessee). Ultimately, the assessee executed sale-deed to transfer/relinquish

his own undivided share in father’s 1/3rd undivided share in the property

owned by firm. Ld. AR submitted that although a sale-deed has been

executed by assessee with his individual name and PAN but there is no

taxable income earned by assessee-individual because of two alternative

reasons mentioned below:

(i) The first reasoning advanced by Ld. AR is such that the impugned

sale-deed had been executed by assessee as a part of a ‘family settlement’

agreed between assessee and his family members, therefore it was not a sale

in fact. To prove existence of ‘family settlement’, Ld. AR drew our attention

to a “Memorandum of Family Settlement” dated 30.05.2011 on stamp paper

of Rs. 100/- made between all 6 legal heirs (including assessee), which is

filed by assessee as an “additional evidence” under Rule 29 of Income-tax

(Appellate Tribunal) Rules, 1963 on 21.06.2017 and also re-filed at Page No.

Page 10 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

87-91 of the “Written-Submission” filed by assessee on 13.10.2013.

Referring to this document, Ld. AR tried to demonstrate that there was a

‘family settlement’ arrived at between family members (including assessee)

under which the assessee agreed to relinquish/transfer the impugned

undivided share in property of firm and it is only in furtherance of such

‘family settlement’ that the assessee executed sale-deed. Then, relying upon

certain judgements copies filed in Paper-Book, Ld. AR submitted that the

‘family settlement’ does not entail any taxation under Income-tax, therefore

the present case of assessee being a situation of ‘family settlement’, there

arises no taxability.

(ii) The second plank of reasoning advanced by Ld. AR is such that the

impugned property was actually owned by partnership firm and the

assessee’s late father had no right in the property. When the assessee’s

father had no right, the assessee cannot have any right. Therefore, even if a

sale-deed had been executed by assessee for whatever reason, it cannot give

rise to any income or taxable income in the hands of assessee. To explain as

to why the assessee’s father had no right in the said property, Ld. AR relied

upon section 14 of The Indian Partnership Act, 1932 which prescribes thus:

“14. The property of the firm - Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm; and includes also the goodwill of the business.

Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.”

Page 11 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Then, Ld. AR invited our attention to a commentary given by an author on aforesaid section 14, filed at Page No. 34 of the Paper-Book, reading as under:

“7. No part of property of the firm or a definite share belong to any partner individually – It may be said that the rule adopted by English Courts is that real estate intended by the partners to constitute a part of the partnership property or treated by them as belonging to the partnership is regarded in equity as converted in to personality for all purposes and also for the settlement of the claims of the partners inter se. The law in India is not different. Secs. 14 and 15 of the Indian Partnership Act, 1932, speak about what would constitute the property of a firm and declare that such property shall be held and utilized for the purpose of the partnership thereby indicating that so long as the partnership continues no part of the assets of a partnership assets could be utilized for a purpose other than that of the partnership. A partner, therefore, seeking to get his share could not get his share in species in the movable and immovable properties but only after the assets have been converted into money, debts and liabilities discharged and it is only in the residue that he could get his proportionate share. The statute enjoins this process being gone through before a partner gets a share in the assets of the partnership and it is governed by Secs. 46,48 and 49 of the Partnership Act. It would, therefore, follow that a partner cannot predicate of a definite share in immovable property which he could transfer or give up. The concept of realty distinguished from personally under the English Law and by the English lawyers and jurists is not always identical with what the Indian Law and lawyers understand. The idea of ownership or real estate by a Hindu coparcenery is unique. To some measure an immovable property owned by a partnership is skin to, such a property belonging to a Hindu Joint Family. The ownership vests in each member of the coparcenary but there is a restriction on his power of disposal. The coparceners may agree not to partition the joint property and that will be binding upon them through their heirs may not be bound by such agreement. Similarly during a partnership the partners cannot take away their property that they may put into the stock of partnership. The individual owner becomes a joint owner with other partners. He retains an interest in that immovable property. Partnership is only the relationship between the partners. The firm is only an alias for the partners. When a firm is said to own a property, it is same as saying that the partners jointly own the property. Though in the mercantile world the firm is used as a quasi corporation, for sake of convenience, it is really not so. It is different from an Incorporated company, private or public. According to the definition of immovable property in the General Clauses Act any profit arising from land is also immovable property. An interest in the future sale-proceeds of an immovable property was held by the Judicial Committee to be immovable property. A partner’s interest or share in the firm’s assets is his proportion of partnership after payment of the firm’s debts and liabilities out of the assets. In that sense his interest in the partnership may be taken to be an interest in the immovable property belonging to the firm. Many of cases, both English and Indian, undoubtedly held such interest of partners not to be immovable

Page 12 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

property. But that view is not consistent with the Indian concept of realty and ownership, or the view of the Judicial Committee referred above. Thereafter, Ld. AR relied upon decision of Hon’ble Supreme Court in

Addanki Narayanappa and Another Vs. Bhaskara Krishtappa and 13

others (1966) SCC Online SC 6 : (1966) 3 SCR 400 : AIR 1966 SC 1300;

we quote below the paras referred by Ld. AR during hearing:

Page 13 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

property of the firm. The subject of dissolution of a firm and the consequences are dealt with in chapter VI, sections 39 to 55. Of these the one which is relevant for this discussion is section 48 which runs thus: "In settling the accounts of a firm after dissolution the following rules shall, subject to agreement by the partners, be observed: (a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order :- (i) in paying the debts of the firm to third parties: (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; (iii) in paying to each partner rateable what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits."

From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing, to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in cl. (a) and sub-clauses (i), (ii) and (iii) of clause (b) of section 48. It has been stated in Lindley on Partnership, 12th ed. at p. 375: "What is meant by the share of a partner is his proportion of the partnership assets after they have been ill realised and converted into money, and all the partnership debts and liabilities have been paid and discharged. This it is, and this only which on the death of a partner passes to his representatives, or to a legatee of his share .......... and which on his, bankruptcy passes to his trustee."

Page 14 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated, his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges. It is true that even during the subsistence of the partnership a partner may assign his share to another. In that case what the assignee would get would be only that which is permitted by section 29(1), that is to say, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners. There are not many decisions of the High Courts on the point in the few that there are the preponderating view is in support of the position which we have stated. 8. We may also refer to the decision of a Full Bench in Ajudhia Pershad Ram Pershad v. Sham Sunder & Ors. in which Cornelius J., has discussed most of the decisions we have earlier referred to in addition to several others and reached the conclusion that while a partnership is in existence no partner can point to any part of the assets of the partnership as belonging to him alone.” Thus, Ld. AR contended that the law of partnership is very clear. Even the

Hon’ble apex Court has interpreted and held that a partner does not have

any right in any specific asset of partnership firm; the partner’s right

extends only to share profits during continuity of firm and to share residual

assets in the event of dissolution. Therefore, according to Ld. AR, the

assessee’s father late Shri Bhagirath Sharma did not have any right or

interest in the impugned property which in law was owned by firm. Ld. AR

went on submitting that it is a settled principle of law that “no one can

confer a better title than what he himself has”. Therefore, when assessee’s

late father had no legal title in the impugned property, how can assessee

have? Hence, even if the assessee has executed a sale-deed to transfer

undivided interest in the impugned property owned by firm, there cannot be

any income or taxable income in the hands of assessee.

Page 15 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

made by Ld. AR. He submitted that the assessee has sold his share in

property through a registered sale-deed to his brothers for a consideration of

Rs. 1,80,00,000/- and in fact received a total consideration of Rs.

60,00,000/- from each of the 3 brothers through cheque. He submitted that

the assessee has himself replied to AO that he acquired ownership right by

way of will of his father (Point No. 1 / Page No. 5 of assessment-order). He

submitted that it is a clear-cut sale of right/asset by assessee for a

consideration which now the assessee is trying to cover under ‘family

settlement’. Ld. DR further submitted that the ‘Memorandum of family

settlement’ filed by assessee bears the date of 30.05.2011 and the sale-deed

was also executed on the very same date of 30.05.2011; therefore it is a case

of sale under the guise of ‘family settlement’. He submitted that in any case,

the assessee has sold his share in father’s asset/right, received hefty

consideration and thereby earned de facto income which cannot remain

untaxed. Therefore, the AO has rightly assessed and the CIT(A) has also

rightly upheld the AO’s action. Ld. DR prayed that no interference is

required with the orders of lower-authorities.

settlement” has been made on the very same day on which the sale-deed

was made because nobody wants a time-gap in such matters. Therefore, no

adverse inference should be taken based on date of execution.

Page 16 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

orders of lower-authorities as well as the material held in case file. The

controversy before us is whether the AO was right in assessing capital gain

in the hands of assessee? The admitted undisputed facts are such that (i)

the assessee executed a registered sale-deed on 30.05.2011 in favour of his

3 brothers, (ii) the sale-deed was executed by assessee as “seller” in his

individual name and individual PAN, and (iii) the assessee received a total

consideration of Rs. 1,80,00,000/- from 3 brothers (Rs. 60,00,000/- from

each one). There can hardly be any dispute on the point that if a person

sells a property/right in divided or undivided property for a consideration,

the resultant gain is taxable. But, in the present case, the assessee is

claiming certain factual-cum-legal propositions to plead that the transaction

done by him did not give rise to any taxable income. We would discuss those

propositions one by one in subsequent paras.

HUF, that it was a case of partition of HUF and the distribution of assets by

a HUF to its members on partition of HUF is excluded from transfer u/s

47(i). Taking cognizance of this claim of assessee before AO, then Bench of

ITAT, Indore, asked the assessee to file document to prove the partition of

HUF. The assessee filed “additional evidences” under an application in terms

of Rule 29 of Income-tax (Appellate Tribunal) Rules, 1963 on 21.06.2017; we

re-produce below the application filed by assessee alongwith Annexure-B

and C referred therein for an immediate reference:

Page 17 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 18 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 19 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 20 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 21 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 22 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 23 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 24 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 25 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 26 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 27 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

On perusal of these documents filed by assessee himself, we find that the

“Partition-Deed” has been filed as “Annexure-C”. A careful reading of

“Partition-Deed” reveals that the HUF had only movable property in the form

of certain unsecured loans given to parties which were partitioned. The deed

also makes it clear that there is no immovable property in HUF. Thus, the

claim of transfer of impugned property under ‘partition of HUF’ as projected

by assessee before AO, stands unproved. It seems that realizing this

eventuality, the assessee has himself mentioned on Page No. 2 of the

application under Rule 29 “family arrangement or partition”, “Family

Settlement”. Needless to mention that the Ld. AR, during hearing before us,

has also not made any pleading qua the claim of ‘partition of HUF’. We may

also mention here that even if we assume that there was a partition of HUF

then also the exclusion from ‘transfer’ u/s 47(i) is available only to HUF at

the time of distribution of assets to its members on partition; the said

exclusion is not available to a member who transfers his share/right in

divided or undivided property. The act of transferring any share/right in

property by a member to other members would be a posterior event to the

partition of HUF and such act does not fit in section 47(i). Therefore, the

assessee’s claim of ‘partition of HUF’ and thereby exclusion from taxation is

an unproved claim besides being untenable in section 47(i); we are rejecting

the same.

us as narrated in foregoing para 8(i) and 8(ii). The first claim is such that

Page 28 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

the assessee executed sale-deed as part of ‘family settlement’ and ‘family

settlement’ is not taxable under Income-tax. We find that the assessee has

never claimed before lower-authorities the factum of “family settlement”

although the assessee claimed “partition of HUF”. As stated earlier, the

theory of “family settlement” has been pushed for the first time in the

application under Rule 29 by mentioning “family arrangement or partition”,

“Family Settlement”. Further, in the “additional evidences” filed under Rule

29, the assessee has filed “Memorandum of Family Settlement” alongwith

“Partition-Deed” because the “Partition-Deed”, as mentioned earlier, does

not support assessee’s stand. Further, the Ld. AR for assessee has also

refrained from making any pleading qua ‘partition of HUF’ claimed by

assessee before lower authorities. Instead, Ld. AR harped on ‘family

settlement’. We may mention that in the reply filed to AO, the assessee

mentioned that it was a case of forced sale to his family members but there

also the assessee did not talk of ‘family settlement’, the assessee only tried

to get out of taxability by claiming income of HUF or claiming partition of

HUF. Now in such a situation, if we allow the claim of ‘family settlement’ at

this stage, it would amount to upsetting the whole proceeding done by

lower-authorities and giving concession to assessee to set up a new case. We

are afraid that we can do this. Therefore, without going into the merit of the

additional evidence titled “Memorandum of Family Settlement” filed by

assessee, we are straightaway rejecting the assessee’s claim of “family

settlement’ itself. Rejected thus.

Page 29 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

father/assessee did not have any right in the property which was owned by

partnership firm and therefore there is no income earned by assessee even if

a sale-deed has been executed, the bench instantly enquired from Ld. AR as

to whether the partnership firm existed after death of assessee’s father? In

reply, Ld. AR accepted that the firm existed. So far as the provisions of

partnership law are concerned, we agree with Ld. AR that a partner does not

have any right in specific asset of a partnership firm. There cannot be any

quarrel on this interpretation held by Hon’ble Apex Court. But the present

case of assessee is quite different and involves a different controversy. Here

the case is such that the assessee’s father was having 1/3rd share in

partnership firm and after death of father, there were 6 legal heirs including

assessee. Accordingly, the assessee sold his 1/6th share in ‘1/3rd share of

assessee’s father in undivided property of firm’ to his 3 brothers. To

materialize this, the assessee executed a sale-deed and received actual

consideration of Rs. 1,80,00,000/- from his brothers through cheques. This

is a transaction inter-se between assessee and his brothers. The partnership

firm is nothing to do with this transaction of sale. As admitted by Ld. AR for

assessee, the firm continued even after death of assessee’s father. Therefore,

it seems that the entire property continued intact in the books of firm and

remained unaffected by the transaction of sale made in-between the

assessee and his brothers. The assessee as seller and his 3 brothers as

purchasers have acted upon the sale-deed and essentially the assessee’s

Page 30 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

right became right of brothers for a consideration. Therefore, when a de

facto transaction of sale by assessee has been made and the assessee has

received a hefty consideration of Rs. 1,80,00,000/- for transfer of his right,

it would attract taxability and it is nothing to do with the provisions of

section 14 of the Indian Partnership Act. The department is not asking to

pay tax on any kind of ‘notional’ transfer, the revenue’s case is such that the

assessee has made an actual sale which is taxable. Needless to mention that

the assessee is also claiming to have utilized the sale consideration of Rs.

1,80,00,000/- for making investments in newer properties (it is a different

point that the assessee claimed exemption u/s 54/54F on the basis of those

newer investments but the AO has disallowed exemption on a different

premise). Therefore, we do not find any merit in the second claim of assessee

argued by Ld. AR too. The same is hereby rejected.

Ground No. 1 raised by assessee is found to be devoid of any merit and the

same is hereby dismissed.

Ground No. 2:

33,23,700/-made by AO on account of unexplained cash deposits in bank

a/c and upheld by CIT(A).

Para 10 of assessment-order, on the premise that the assessee did not

Page 31 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

explain the source of cash-deposits made in bank a/c. During first-appeal,

the CIT(A) has merely confirmed AO’s observation in his own wording. Ld.

AR submitted that during assessment-proceeding, when the AO questioned

the assessee on this issue vide notice dated 16.03.2015 u/s 142(1), the

assessee filed a cogent reply with a copy of cash-book. The assessee’s reply

is filed at Page No. 154 of the Paper-Book and copy of cash-book is also filed

at Page No. 158-162 of Paper-Book. The cash-book contains all entries of

inflow and outflow which also includes many entries of cash withdrawals

from bank as well as salary/funds received by assessee from M/s Bhagirath

Coach (another firm where assessee was an employee). Thus, the entries of

deposits in bank a/c and the sources thereof are adequately proved from

Cash-Book submitted by assessee. Despite this, the AO has made a wrong

observation that the assessee did not make any submission. Ld. AR has also

filed a detailed note in his Written-Submission at Page No. 18-20; the same

is re-produced below:

Page 32 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 33 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 34 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Page 35 of 36

Shri Om Prakash Sharma,Indore vs. ITO,3(4), Indore. ITA No. 629/Ind/2015 – AY 2012-13

Placing reliance on above submission, Ld. AR prayed that the addition has been wrongly made/upheld at lower level and it must be deleted.

Order pronounced in open court on 18.01.2024.

sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक /Dated : 18.01.2024. CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar, Income Tax Appellate Tribunal, Indore Bench, Indore

Page 36 of 36