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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI SANJAY GARG
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 06.05.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.
The assessee has taken the following grounds of appeal: “On the facts & the circumstances of the case, the Ld. CIT (A) - 33 erred in : -
1. confirming an addition of Rs. 50 Lacs under the head 'Income From Other Sources' as against under the head 'Income From Long Term Capital Gains' as offered by the Appellant.
2 confirming the above addition of Rs. 50 Lacs under the head 'Income From Other Sources' without identifying the source thereof.
not accepting the fact that the above amount of Rs. 50 lacs was received by the Appellant on surrender of its rights in property at Apti.
observing that eventhough the Hon'ble tribunal in the case of Carlton Coats Pvt. Ltd. (ITA No. 5432/MUM/2015 dated 18.3.2016 'C' Bench) had 2 Shri Amol C. Shah (HUF) observed that the Apti property was under occupation of the Appellant, nowhere the Hon'ble Tribunal had given any finding that any right/title was vested with the Appellant with respect to the property, the sale of which had given rise to long term capital gains in the hands of the appellant.
Your Appellant craves leave to add, alter, modify or delete all or any of the grounds of appeal.”
3. The brief facts of the case are that the return of income for the year under consideration was filed by the assessee on 28.07.2009 declaring total income of Rs.42,000/-. The assessment was completed under section 143(3) on 23.12.2011 making an addition of Rs.50,00,000/- on account of income from other sources. According to the assessee, the amount represented compensation for vacating tenancy rights on the property at Apti Khalapur from M/s. Carlton Coats Pvt. Ltd. The entire amount was invested in capital gain bonds and deduction u/s.54EC was claimed out of capital gains. The Assessing Officer (hereinafter referred to as the AO) treated the amount received on surrender of tenancy right as income from undisclosed sources and deduction u/s.54EC was not allowed. The assessee filed appeal before the Ld. CIT(A) who also confirmed the order of the AO stating that in the absence of any legal agreement confirming any right or interest of the assessee in the property, it cannot be accepted that assessee has received Rs.50 lakhs from M/s. Carlton Coats Pvt. Ltd. on account of sale of any capital asset and rejected the claim of exemption u/s.54EC of the Act as there was no income earned as capital gain. The assessee filed appeal before the ITAT and the ITAT, considering that it has already remitted the matter back to the AO in the case of the payer-company M/s. Carlton Coats Pvt. Ltd., where the amount of Rs.50 lakhs paid to the assessee was disallowed, restored this appeal back to the file of the AO by observing that:- "In view of this subsequent development, we only consider it fit and proper to, as was also the common contention of the parties before us, with this issue, i.e. nature of payment of Rs 50 lakhs received from the said payer- company in its' (assessee's) hands, being the sole matter arising in this appeal, restore the same back to the file of the Assessing Officer, who had in fact assessed this sum as unexplained credit u/s. 68 for a de novo consideration, to be decided, keeping in view of the facts and circumstances of the case, including the 3 Shri Amol C. Shah (HUF) findings in the case of the said company (which, it was brought to the notice is assessed under a different word), in accordance with the law, per a speaking order and after affording due opportunity of hearing to the assessee, even as pronounced on the conclusion of the hearing. We are conscious, we may clarify, that the two assessing authorities i.e. having jurisdiction over the payee assessee and the payer company, are independent of each other, so that one cannot possible bind the other. At the same time, the need for consistency in, apart from that of proper consideration of, the matter cannot be overemphasized. In fact, the Revenue in being not consistent would only be acting to its own detriment. Again, needless to add, that we have not examined the issue at all, and may not be construed as having expressed any opinion on merits, even prima facie, in the matter. On the contrary, our passing any order on merits would amount to setting at naught the order by the tribunal in the case of the payer-company, so that our order is consistent therewith. We decide accordingly.”
4. In the set aside proceedings, the AO again observed that there was no tenancy rights by the assessee HUF and hence the nature of receipts was not capital gains but was the income from other sources. He, therefore, held that when there was no capital gains, there was no justification in allowing exemption under section 54EC of the Act. He further observed that the amount received by the assessee HUF was without any consideration. He also observed that there was no double taxation as the amount received in the hands of the company M/s. Carlton Coats Pvt. Ltd. was taxed in the hands of the company and the amount of Rs.50 lakhs received by the assessee was just an income received without any consideration and has to be considered as income from other sources. He therefore treated the nature of receipts of the assessee as income from other sources and denied the claim of deduction under section 54EC of the Act to the assessee. Being aggrieved by the above order of the AO, the assessee preferred appeal before the Ld. CIT(A).
The Ld. CIT(A), however, confirmed the findings of the AO and dismissed the appeal of the assessee observing that the assessee had no capital rights in the property in question and that the receipts in the hands of the assessee was just an income from other sources. The Ld. CIT(A) also considered the decision of the Tribunal dated 18.03.16 in ITA 4 Shri Amol C. Shah (HUF) No.5432/M/2015 in the case of the payer M/s. Carlton Coats Pvt. Ltd. The relevant part of the findings of the Ld. CIT(A) are reproduced as under: “9. 1 have carefully considered the submissions of the appellant, observations of the Hon'ble ITAT in its order dated 10.06.2013, findings of the AO in the impugned assessment order, conclusion arrived at by the Ld. CIT(A) in the order dated 11.02.2013 and facts on record. My observations are as under:
The issue to be decided has been summarized by the Honble Tribunal in para 2 of the order dated 10-06-2013, which is assessability to tax of the sum of Rs. 50 laos received by the assessee. In para 3 of the said order, Hon'ble Tribunal has made an important observation to the effect that when the Hon'ble bench enquired as to whether the assessee had any evidence to establish occupancy and/ or occupancy rights in the property, rent receipts, etc. vis-â-vis the impugned sum received, the AR of the appellant admitted before the Hon'ble Tribunal that no such material (proof) was adduced by the appellant, although the MOU bears the reference to such rights.
During the current appellate proceedings before the undersigned, the appellant has consistently taken the plea that during the set a-side assessment proceedings before the AO, it has produced additional evidences in the form of returns of income of earlier years of the HUF, where income from activities carried out from the property sold, was reflected. But the AO has not considered these additional evidences while concluding the assessment & treating the receipt of Rs. 50 lac from investment from other sources". However, I find this plea of the appellant without any basis. The returns of income of the HUF of prior period cannot be considered as additional evidences before the AO during set aside assessment, as during the original assessment proceedings itself the copies of returns of income of the HUF was submitted and the AO took cognizance of the same in the following words- "A perusal of I.T. Returns of the assessee-HUF for assessment years 2008-09, 2007-08 and 2006-07 also shows that the assessee HUF has not any business from the premises owned by the said company where Shri Amol C Shah is director and other directors are his family members. In the returns, the assessee HUF has merely disclosed income from "Other Sources". In response to notice u/s 142(1), during the course of assessment proceedings, the assessee has stated that the Income shown under the head "Income from Other Sources" is the income the assessee has earned from staking and stocking of paper rolls and paper packing labour work from the Industrial Units within the nearby locations of Khalapur."
5 Shri Amol C. Shah (HUF) In the light of the above, the AO came to the conclusion that the appellant was not able to prove with any documents that it held ownership/right/title in the property sold. Even during the set aside assessment proceedings, the AO has taken note of the above findings of the AO made in the original assessment order. It is pertinent to note here that the above findings of the AO was already before the Hon'ble Tribunal. However, the AR of the appellant admitted before the Hon'ble Bench that no proof was adduced by the appellant before the AO to establish occupancy and/ or occupancy rights in the property, rent receipts, etc. implying that such past period returns of income and income shown therein cannot be treated as documentary evidences. Therefore, I find no merit in the argument of the appellant that the AO did not take into account the additional evidences in the form of prior period returns of income of the HUF. Apart from that there is nothing new in the argument of the appellant before the undersigned vis-à-vis that made during the first round of appellate proceedings before the Ld. CIT(A).
It is further observed that the Ld. CIT(A) in her order dated 11.02.2013, after analyzing the factual matrix of case, made the following observations before coming to the conclusion that the receipt of Rs.50 lac will be "income from Other Sources".
“(i) The relevant property was purchased by M/s. Carlton Coats Pvt. Ltd. on 1.7.2002 from Maharashtra State Financial Corporation Mumbai. In this purchase agreement there is no mention of the appellant HUF as a eo-buyer. Even there is no reference of appellant having any right, interest or title in this property. If appellant had any legal right in that property, the same should have been mentioned in the legal agreement.
(ii) In the sale agreement dated 18.7.2008 entered between M/s. Carlton Coats Pvt. Ltd. and M/s Valison & Company also there is no mention of the claim of the appellant having any right or interest in the property. Even if for the sake of argument, it is accepted that after the purchase of the property appellant has acquired some rights and interest in the property in that case any payment which in made in lieu of surrendering rights and interest in the property would definitely had reflected in the registered sale agreement. It is not a small amount and appellant has received Rs.50,00,000/- from the M/s.Carlton Coats Pvt. Ltd. on the pretext of surrendering its rights in this property. In such a case, should there have been a mention in the sale agreement about this fact that in lieu of surrendering its rights and interest in the property, appellant HUF was to be paid Rs.50,00,000- by M/s. Carlton Coats Pvt. Ltd. The only docu men t o n wh ich appellan t is relyin g is the (iii) Memorandum of Understanding entered between appellant and M/s. Carlton Coats Pvt. Ltd. on 2.72007. It is important to note that Karta of 6 Shri Amol C. Shah (HUF) HUF is also Director in the M/s.Carlton Coats Pvt. Ltd. Therefore, this MOU is entered between Group concern only and it has to be categorized as a self-serving document.
(iv) There is no details when and how appellant acquired the rights in the property. There is not a single legal agreement which can prove that at one stage of time appellant had acquired any legal right in the property. Once appellant has not acquired any legal right in the property how it can sell or surrender this non- existent right to any person. The two documents on which appellant has relied are notice issued by Chief Judicial Magistrate Alibaugh, Raighad and summons issued by Alibaug Court. As stated in the assessment order, these notices and summons have been issued to Shri Amol C. Shah in his individual capacity and not in HUF capacity. Shri Amol C Shah is a Director in the company named M/s. Carlton Coats Pvt. Ltd and the notices were actually addressed to him in his capacity as a Director of the company which is apart from the fact that they were dressed to Shri AmoI C. Shah, occupier of M/s Canton Coats Pvt. Ltd. These notices and summons were related to a fatal accident which occurred in factory premises of M/s Carlton Coats Pvt. Ltd. and in which one worker died in addition to Shri Amol C. Shah these notices/summons were also addressed to Shri RPA Noudiyal, who was the Manager of M/s. Carlton Coats Pvt. Ltd. All these facts only prove the existence of factory premises of M/s. Carlton Coats Pvt. Ltd. on this property. From no angle these evidences can be used to prove that the appellant HUF was having the possession of any part of relevant property.
(vi) During appellate proceedings, appellant has again relied on few judgments. Ongoing through these judgments it is seen that in these cases the issue was whether surrender of tenancy rights is liable to capital gains tax, in the case of the appellant, appellant has not acquired any tenancy rights over the property. In the cases cited by appellant there have been legal agreements like leave and licence agreement giving tenancy rights to the assessee. Therefore, the case of the appellant cannot be said to be covered by these cases. In the case of the appellant there is no legal agreement, which can prove that appellant has, at any point of time acquired any rights in this property. Neither during the course of assessment proceedings nor appellate proceedings appellant has been able to tell the date since when appellant had any right over this property. In the absence of any legal agreement confirming any right or interest of the appellant in the property, it is clear that appellant has not received Rs.50,00,000/-from M/s Carlton Coats Pvt. Ltd. on account of sale of any capital asset.
(vii) Appellant's object that Assessing Officer first issued show cause proposing addition uls.68 and later on added income as 7 Shri Amol C. Shah (HUF) investment from unexplained sources is not relevant. Though the addition cannot be made as investment out of unexplained sources but the fact remains that appellant has received Rs. 50,00,000/-/- from M/sCarlton Coats PvtLtd which were not related to any transfer of capital asset by the appellant. Accordingly, as per the provisions of section 54EC of the l.T.Act appellant cannot claim any exemption u/s 54 as there is no income, which has been earned as capital gain. Therefore, Assessing Officer was justified in not allowing deduction u/s 54EC of the IT. Act."
I find no change in the facts of the case in the present appellate proceedings vis-a-vis that before my predecessor Ld.CIT(A) notwithstanding an opportunity given by the Hon'ble Tribunal to the appellate to submit before the AG-any proof or evidence in support of its claim of occupancy and/ or occupancy rights in the property, rent receipts, etc. vis-à-vis the impugned sum received. It is clear that since the appellate did not have any evidence to support its claim, it has given the shape of already submitted evidences in the first round of assessment as additional evidences during the current round of assessment proceedings. In fact during the present appellate proceedings, the AR of the appellant has admitted before the undersigned that he does not have any further evidence to support his claim.
Looking to the overall facts and circumstances, in my considered opinion, the observations of the Ld. CIT(A) in para no. 12 (i)-(vii) still holds true. Therefore, taking a consistent stand it is held that Rs. 50,00,000/- is definitely a receipt from M/s Carlton Coats Pvt. Ltd. in the hands of the appellant. However, the appellant has failed miserably to establish that this is a receipt related to sale of capital assets whether in the form of any rights or interest in the said property owned & sold by M/s Carlton Coats Pvt. Ltd. It is further observed that Hon'ble ITAT, 'C' Bench, Mumbai in the case of Canton Coats Pvt. Ltd Vs. ITO (ITA No.5432/Mum/2015 dated 18/03/2016) has allowed the appeal of the company by observing in para 11 that since the impugned amount has already been assessed in the hands of Amol C. Shah (HUF) vide assessment order dated 03/03/2015 Rs 50 Iakhs will be deductable u/s 48(i) of the Act in the case of Carlton Coats Pvt. Ltd. The Hon'ble ITAT in para 10 of the said order has also observed that this property was under occupation of Amol C Shah(HUF). However, no where Hon'ble Tribunal has given any finding that any right/title was vested with the assessee HUF with respect to the property, the sale of which has given rise to LTCG in hands of the appellant. Therefore, the receipt of Rs. 50,00,000/- can only be treated as "income from Other Sources" & will be taxed accordingly in the hands of the appellant. Further, the appellant will be eligible for deduction u/s 54 EC of the IT. Act. Thus all the grounds of appeal appended in the appeal memo are dismissed.
8 Shri Amol C. Shah (HUF) 15. In result, appeal of the appellant is dismissed.” 6. Being aggrieved by the above order of the Ld. CIT(A), the assessee has come in appeal before us.
We have heard the rival contentions and have also gone through the records and also the order of the Tribunal dated 18.03.2016 (supra). The assessee HUF has claimed that it has got capital rights in the shape of tenancy rights in the premises in question and that it has got the consideration of Rs.50 lakhs for surrender of those tenancy rights and hence the income in the hands of the assessee was in the nature of capital gains.
We have put a specific query to the Ld. A.R. whether there was any evidence to show that the assessee was inducted as a tenant in the premises but the Ld. A.R. could not show us any such evidences. Further, a query was raised whether the assessee had ever paid any rent to M/s. Carlton Coats Pvt. Ltd. but the Ld. A.R. has been fair enough to admit that there was no evidence of any payment of rent by the assessee to M/s. Carlton Coats Pvt. Ltd. The Ld. A.R. has also failed to explain as to what was the nature of the rights of the assessee in the property in question. He simply has stated that the same was occupancy rights. However, there is no evidence on the file as to under what circumstances and under what right or contract the assessee has come into possession of the property in question. It is pertinent to note here that the karta of the assessee HUF namely Mr. Amol C. Shah is also the director of the payer company M/s. Carlton Coats Pvt. Ltd. along with another director Mr. Milind C. Shah. The entire stress of the assessee has been on the copy of memorandum of understanding vide which the company has agreed to pay Rs.50 lakhs to Mr. Amol C. Shah (HUF) wherein it has been mentioned that the said Mr. Amol C. Shah (HUF) claims share right title and interest on certain portions of the said property. It has also been mentioned that the assessee HUF is in the possession of the property in question since the original 9 Shri Amol C. Shah (HUF) purchase of the property by M/s. Carlton Coats Pvt. Ltd. However, there is nothing mentioned in the copy of the agreement that what was the nature of possession in the property in question of the assessee HUF and how or under what rights the assessee HUF come into the possession of the property. The other evidence relied upon by the assessee is regarding the income tax return wherein it has been claimed that the address of the assessee HUF mentioned in the income tax returns is that of the premises in question. We have perused the copies of the income tax returns and have found that the assessee had shown certain income from the activity of stacking/cutting/cloning of papers at Apti Khalapur. However, it is not sufficient to prove that the said address is of the property in question at Apti Khalapur. There may be any other property being used by the assessee HUF at Apti Khalapur. Moreover, even otherwise, if we assume that M/s. Carlton Coats Pvt. Ltd. had allowed the assessee to operate from its premises that itself is not sufficient to hold that the assessee had gained any capital rights in the said property. In the absence of any evidence to show that the assessee had ever been a tenant in the said property or the nature of rights and possession in the property in question; the assessee at the most can be said to be the licensee in the said property who has to vacate the premises at the will of the licensor. No capital rights under such circumstances can be held to be owned by the assessee in this respect. Even otherwise as observed above, the karta of the assessee HUF is the director of the payer company and under such circumstances the heavy burden is cast upon the assessee to prove that the above transaction is not a sham transaction. The assessee has miserably failed to prove that it was owning any capital rights in the property in question which was purchased by the company. Under such circumstances, we do not find any infirmity in the order of the Ld. CIT(A) in upholding the additions made by the AO.
So far as the reliance of the assessee on the order of the co-ordinate bench of the Tribunal in the case of the company M/s. Carlton Coats Pvt. Ltd. 10 Shri Amol C. Shah (HUF) is concerned, we find that the Tribunal has allowed the claim of deduction of expenditure in the case of M/s. Carlton Coats Pvt. Ltd. observing that the said amount of Rs.50 lakhs has already been taxed in the case of the assessee HUF and further that it was proved that such a payment was made by the M/s. Carlton Coats Pvt. Ltd. to the assessee HUF. However, we find that what will be the nature of income on account of receipt of the said amount in the hands of the assessee HUF is to be examined independently. In our view, the amount received by the assessee HUF is not in lieu of surrender of any capital rights but its income from other sources.
10. In view of our observations made above, we do not find any merit in the appeal of the assessee and the same is accordingly dismissed.
Order pronounced in the open court on 24.08.2016.