MYNENI SURESH,VISAKHAPATNAM vs. INCOME TAX OFFICER WARD(INTERNATIONAL TAXATION), VISAKHAPATNAM

PER DUVVURU RL REDDY, Judicial Member :

2 2. Brief facts of the case are that the assessee an individual offered one of his immovable properties as a collateral security against the loan availed by Jayanthi Steel Enterprises (I) Private Limited from Axis Bank, Gajuwaka Branch, Visakhapatnam.

Since the loan availed by Jayanthi Steel Enterprises (I) Private Limited has become Non-Performing Asset [NPA] the Axis Bank auctioned the property of the assessee for recovery of the loan given to Jayanthi Steel Enterprises (I) Private Limited. In the auction conducted by the Axis Bank which was held on 25/01/2018, the assessee’s property was purchased by M/s.

Bhashyam Educational Society being a highest bidder. The auction sale was contested by the assessee before the Ld. Debts Recovery Tribunal [DRT], Visakhapatnam and the sale was set- aside by the Ld. DRT vide its order dated 24/09/2019 by holding that the auction purchaser is not a bonafide purchaser of the schedule mentioned property since the Axis Bank conducted sale held on 25/01/2018 without following the Rules prescribed under SARFAESI Rules, 2002 and accordingly treated the sale held on 25/1/2018 is not maintainable. Against this order of the Ld. DRT, Axis Bank preferred an appeal before the Hon’ble Debts Recovery Appellate Tribunal, Kolakata [DRAT] and the appeal is still pending for adjudication. During the course of assessment

3 proceedings, the Ld. AO observed that the assessee has not filed his return of income for the AY 2018-19. Accordingly, the Ld. AO conducted the assessment proceedings U/s. 148A and issued notice U/s. 148 of the Act. In response, the assessee filed his return of income on 30/04/2022 declaring total income of Rs. NIL. Subsequently, notice U/s. 143(2) was issued electronically on 10/10/2022 calling for certain information in support of the return of income. Further, notices U/s. 142(1) of the Act were issued on 27/10/2022 and 15/11/2022 and called for the relevant information. Later on, the case has been transferred to ITO, Ward-International Taxation Vizag due to change of incumbency and a notice U/s. 129 was issued on 27/12/2022.

Thereafter, the Ld. AO called for the information from the Axis Bank, Gajuwaka Branch U/s. 133(6) of the Act on 27/12/2022 and called for the details ie., on auction sale whether the money received of Rs. 3,70,10,000/- and debited to loan account, the loan account statement from 1/4/2017 to 27/12/2022, whether the sale certificate got cancelled by bank authorities consequent to the Ld. DRT direction, whether any appeal was filed by the bank against the Ld. DRT order etc. In response, the Axis Bank has furnished the relevant details on 5/1/2023. Considering the reply from the Axis Bank, the Ld. AO issued another notice U/s. 4 142(1) of the Act on 25/01/2023 and called for the relevant details. In reply the assessee has filed written submissions, relevant documents and also uploaded the registered valuer’s report in support of the cost of acquisition of the building (disputed property). The Ld. AO also obtained details of market value construction rates for the property from the SRO by issuing a notice U/s. 133(6) of the Act and the SRO has furnished the details on 27/03/2023. Accordingly, the Ld. AO issued a final show cause notice on 27/03/2023 electronically. In response, the assessee filed its objections by way of written submissions dated 29/03/22023. However, the Ld. AO did not consider the objections filed by the assessee and accordingly the Ld. AO computed the Long Term Capital Gains at Rs. 43,70,373/- and assessed income was determined at Rs. 43,70,373/- in the order passed U/s. 144C(1) of the Act dated 30/03/2023. Aggrieved by the draft assessment order of the Ld. AO, the assessee filed its objections before the Ld. Dispute Resolution Panel-1, Bengaluru.

On the assessee’s petition U/s. 35A of the Act, the Ld. DRP dismissed the objections raised by the assessee vide their directions dated 30/11/2023 passed in F.No. 41/DRP- 1/BNG/2023-24 for the AY 2018-19. Thereafter, the Ld.AO passed the final assessment order on 5/12/2023 giving effect to the directions of the Ld. DRP and assessed the total income at Rs. 43,70,373/-. Against the final assessment order as well as the directions of the Ld. DRP, the assessee filed the present appeal by raising the following grounds of appeal:

“1. The order of the Hon’ble DRP is contrary to the facts and also the law applicable to the facts of the case.

3. Without prejudice to the above, the Hon’ble DRP ought to have directed the AO to delete the addition of Rs. 43,70,370/- made towards LTCG.

4. Without prejudice to Ground No.2 and Ground No.3, the Hon’ble DRP ought to have held that the Assessing Officer is not justified in adopting the cost of construction of the building at Rs. 1,27,76,050/- as per the values provided by the SRO as against the cost of construction estimated by the Registered Valuer at Rs. 1,96,77,000/-.

5. The Hon’ble DRP ought to have directed the AO to give credit for the TDS amount of Rs. 3,96,088/- deducted by the purchaser from the consideration paid to the bank. Any other ground may be urged at the time of hearing.” 6.

6 Bank. The Ld. AR further submitted that since the auction sale itself conducted by the Axis Bank was quashed by the Ld. DRT, legally, there is no sale of the property and accordingly the question of computation of capital gains in the hands of the assessee does not arise and there is no sale at all as on today.

However, the Ld. AO did not consider the above submission of the assessee and held that though the Ld. DRT allowed the appeal in favour of the assessee, since the Axis Bank preferred an appeal before the Hon’ble DRAT, Kolkata which is pending for adjudication, till such time there exists the sale conducted by the Axis Bank. Before the Tribunal, the Ld. AR reiterated the submissions made before the Ld. AO as well as the Ld. DRP and pleaded that the appeal filed by the assessee may be allowed.

7 24/01/2019. It is a fact that since the borrower Jayanthi Steel Enterprises (I) Private Limited has not repaid the loan availed from the Axis Bank, Gajuwaka, Visakhapatnam, the loan has become NPA and therefore on 25/01/2018 the Axis Bank has conducted the auction sale of the immovable property of the assessee which stood as collateral security against the loan given by the Axis Bank. Against this auction sale, the assessee preferred an appeal before the Ld. DRT and the Ld. DRT set-aside the sale vide its order dated 24/09/2019 which was challenged by the Axis Bank before the Hon’ble DRAT, Kolkata and the appeal is pending for adjudication. It is the view of the Ld. AO that since the sale was affected on 25/01/2018, the capital gains are assessable in the hands of the assessee for the AY 2018-19 for the sale of immovable property. The case of the assessee is that since the Ld. DRT set-aside the auction sale conducted by the Axis Bank itself vide its order dated 24/09/2019, there is no valid sale of the property even though the order of the Ld. DRT was challenged before the Hon’ble DRAT, Kolkata. I find merit in the argument of the Ld. AR that since the auction sale itself conducted by the Axis Bank was quashed by the Ld. DRT therefore legally there is no valid sale of the property as on today and accordingly the question of computation of capital gains in 8 the hands of the assessee does not arise and hence the grounds raised by the assessee are allowed. Considering the facts and circumstances of the case, I hereby allow the appeal of the assessee subject to the outcome of the decision of the Hon’ble DRAT. If the Hon’ble DRAT set-aside the orders passed by the Hon’ble DRT dated 24/09/2019, and uphold the auction sale conducted by the Axis Bank, then the Revenue is entitled to levy the tax on capital gains according to the outcome of the order of the Hon’ble DRAT. It is ordered accordingly.

Pronounced in the open Court on 28th February, 2024.

Sd/- (दु�वू� आर.एल रे�डी) (DUVVURU RL REDDY) �या�यकसद�य/JUDICIAL MEMBER Dated : 28/02/2024 OKK - SPS आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- 1. �नधा�रती/ The Assessee– Myneni Suresh, D.No. 24-111-41, Near Tempany School, Chinnagantyada, Gajuwaka, Visakhapatnam, Andhra Pradesh – 530026. 2. राज�व/The Revenue – Income Tax Officer, Ward (International Taxation), Income Tax Office, Infinity Towers, Sankaramatam Road, Visakhapatnam, Andhra Pradesh-530016.