M/S CHANDIGARH BOTTLING CO.,CHANDIGARH vs. ACIT, CHANDIGARH

PER BENCH

Both these appeals have been filed by the assessee assailing the correctness of the separate orders dated 11/03/2011 and 17/09/2013 of CIT(A) Chandigarh passed in the quantum and penalty proceedings pertaining to 2006-07 assessment year. Since both were argued together, they are being decided by a common order for the sake of convenience. 2. In ITA 605/CHD/2011, the assessee has raised the following ground :

“1. That on facts and circumstances of the case the ld. CIT is not justified in upholding the decision of the ld. AO treating the transfer entries in land and building account in the books of the assessee as transfer of property and bringing the alleged capital gains to charge.”

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account of Sh. Jaspal Singh. Considering the reply of the assessee, the assessing officer was not in agreement that it was a mere book entry and in fact no transfer of capital asset took place as he was of the view that where possession of the property has been handed over, part performance of a contract is treated as a transfer for the purposes of capital gains tax. Accordingly, he held that the transfer of the property by the assessee into the personal account of Sh. Jaspal Singh is to be treated as transfer of capital assets and consequently would be subjected to capital gains tax. As a result thereof, he worked out a long term capital gain to be added into the hands of the assessee. 4. The issue was carried in appeal before the CIT(A) who was also not convinced with the submissions, leading to the filing of the present appeal before the ITAT. 5. The Ld. AR inviting attention to the assessment order submitted that in the facts of the present case the assessee has merely carried out corrective entries as the assessee was under a bonafide belief that by way of book entries the property could be transferred and acting on the belief, the assessee had carried out the book entries. It was his submission that on becoming aware that the transfer of immovable properties cannot be made in such a manner the assessee merely carried out corrective entries in its books. The property always stood as belonging to Shri Jaspal Singh. Thus, it was his submission that merely because the assessee ignorant of law carried out some entries which on becoming aware was incorrect appreciation of facts was put at rest by the assessee. The addition based on these facts has wrongly been made and sustained by the AO and the CIT(A) respectively. Inviting attention to assessment order page 2, it was submitted that the facts noted by the assessing officer are not in dispute. For ready reference, the relevant extract is reproduced from the assessment order :

The assessee has annexed schedule of fixed assets with the return of income. e relevant part showing (and & building is reproduced as under:- Depreciation Schedule Particulars Rate Total W.D.V.as on Before Less: W.D.V as on After 30.09.05 01.04.05 31.03.2006 01.10.05 Dep- reciation 16,42,870/- 7,80,72,760/- Land 7,88,72,760/- 7,69,23,600/- (4,93,710/-) Building 10 54,66,699/- (1,65,408/-) 53,01,291/- 42,276/- 52,59,015/-

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Note (iii) of the schedule is also reproduced as under:- 1. Figures in bracket represent transfer of commercial land (Rs. 4,93,710/-) & Building (Rs. 1,65,408/-) to the personal account. As per the depreciation schedule furnished with the return, the assessee during the relevant previous year has transferred commercial land of Rs. 4,93,710/- and building of Rs. 1,65,400/- to the personal Account of Sh. Jaspal Singh 5.1 Attention was invited to reply dated 07.07.2008 extracted in the assessment order. For ready reference the relevant reply is also extracted hereunder as heavy reliance is placed thereon : "At the time of last hearing of the case it was explained that the building during to the firm styled as M/s Paramount Distributors and Transporters was transferred by book entries to the books of the assessee firm and then from the books of account of the firm to Sh. Jaspal Singh, who is not a partner in the assessee firm. It is just rectification of mistake committed earlier as legal ownership in an immovable property of the value of Rs. 100/- or more can be transferred only by executing and registering a sale deed. Reliance for this proposition is placed on the decision of Hon'ble Supreme Court in the case of Nawab Sir Mir Usman Ali Khan V. CWT, reported in (1986) 162 ITR 888. Reliance is also placed on the decision of Hon'ble Kerala High Court in the case of CIT Vs. F.X. Per/era and sons (Travancore ) Pvt. Ltd. reported in (1990) 184 ITR 461 in which the decision of Hon'ble Supreme Court in the case of Alapati Venkataramiah V. CIT, reported in (1965) 57 ITR 185 was -3/so considered. Since none of the entries made are supported by any executed or registered instrument of transfer, the same are only corrective in nature, giving no rise to any income, under any head of income". As a result, assessee was asked to provide various documents pertaining to the sale and purchase of the given property. (emphasis supplied) 5.2. Considering these submissions the assessing officer, it was submitted appreciated the facts and the position of law in the following manner : Consequently, it clearly emerges from various submissions and documents filed by the assessee that the said property was transferred to the books of the assessee firm during the assessment year 1989-90 at Rs. 4,93,710/- (commercial land ) and Rs. 3,11,246/-( commercial building) respectively and later, during the A.Y. 2006- 07 there has been a transfer of the said property from the assessee to the personal account of Sh. Jaspal Singh. The fact that this transaction cannot be treated as a mere book entry but only as transfer of a capital asset is well supported by section 2(47) and section 47 of the Income Tax Act,1961 (emphasis supplied) 5.3. Attention was also invited to unnumbered page 4 of the assessment order wherein the issue was summed up by the assessing officer in the following manner : Further, w.r.t. the assessee's contention . "Since none of the entries made are supported by any executed or registered instrument of transfer , the same are only corrective in nature, giving no rise to any income, under any head of income", it is being stated that though transfer of an immovable property worth Rs. 100 or more is not complete without execution and registration of a conveyance deed. However, section 53A of the Transfer of Property Act envisages situations where under a contract for transfer of an immovable property, the purchaser has paid the price and has taken possession of the property, but the conveyance is either not executed or if executed it is not registered. In such cases the transferor is debarred from agitating his title to the property against the purchaser. (emphasis provided)

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5.4. Addressing the position of law on the said aspect, reliance was placed upon the decision of the Apex Court in 398 ITR 531 (SC) in the case of CIT V Balbir Singh Maini. Apart from that, it was his submission that the decision is contrary to the position of law as has been considered by the Courts variously. Specific attention was invited to 162 ITR 888 in the case of Nawab Sir Mir Vs CWT, 184 ITR 461 in the case of CIT Vs F.X. Periera & Sons. Referring to the said decision, it was submitted that the Lordships of the Kerela High Court have specifically examined the question, “whether the transfer can be said to comprehend both transferred by act of parties or by operation of law ?”. Thereafter, they have posed a question to themselves: that, “ is it enough to show that there is a transfer in the literal sense of that expression ?” The said question, it was submitted, has been answered in the negative. The Lordships thereafter have held that the title of the property stands passed from the purchaser in case if what is being considered as sold is immovable property only by a Registered Deed. Reading from the decision, it was submitted, that the Court has held that it should be established that the same was conveyed by registered deed. Relying upon the said decision it was his submission that it is the date of the execution of the registered deed, their Lordships have held to be the relevant date and not the date of delivery of possession that has been held to be relevant. Their Lordships, it was his submission, in very categoric terms have held that it is as on that date alone that it can be considered to be sold. While arriving at the conclusion, their Lordships, it was submitted, have relied upon the decision of the Apex Court in the case of Alapati Ventakaramia Vs CIT reported in 57 ITR 185 (SC). It was his submission that heavy reliance is being placed upon the said decision on behalf of the assessee also in the present proceedings. 5.5. Inviting attention to the impugned order it was his submission that the assessee’s arguments and submissions on facts and law have been extracted in para 11 of CIT’s order at pages 5 to 7 and in para 12 and 13 the findings of the assessing officer were confirmed holding as under : 12 I have carefully considered rival submissions and material on record and the case laws relied upon in this case. The assessee firm purchased Plot No. 379 in Sector 32-D with building constructed thereon during the Financial Year 1988-89 from M/s Paramount Distributors & Transporters, Chandigarh for Rs.311246/- (Building) and Rs. 493710/- (land). This immovable property was put to business use and depreciation on building was claimed every year till 31.3.06. The

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admitted claim of depreciation establishes a fact that the said building was being used for business. The appellant is wrong in saying to the contrary in this ground of appeal. The appellant was the owner of the building and the land even though registered deed was not executed. This issue stands covered by 3 decisions of the Hon'ble Apex Court reported in 226 ITR 625; 231 ITR 775 & 249 ITR 214, wherein it has been held that registered deed is not a prerequisite for ownership with reference to section 32(1) of the Income Tax Act, 1961. 13 Respectfully following the decision of Hon'ble Supreme Court, I hold that transfer of land & building to Sh. Jaspal Singh during the year under appeal was sold and the Assessing Officer was right in bringing to tax Long Term Capital Gain on the said sale. The appellant's claim that land & building as per record are still in the name of Sh. Jaspal Singh and the transfer was by mistake is rejected. The addition is therefore confirmed, dismissing this ground of appeal. 6. Reading from the order, it was submitted that at the outset, he would address the legal position relied upon by the CIT(A). It was submitted that whereas the first decision i.e. 226 ITR 625 (S.C) proceeds on facts which are not applicable to the issue at hand; the second decision relied upon by the CIT(A) namely 231 ITR 775 was not found in the ITR. Referring to the third decision, it was his submission, infact fully supports the case of the assessee and has been relied upon by the assessee. In the said background attention was invited to the relevant transfer entries carried out by the assessee and the Paramount distributors and transporters. In response to a query of the Bench, the Ld. AR filed a copy of the assessee firm wherein the partners are shown to be the mother, wife and son of Shri Jaspal Singh. In the said background it was the submission of the Ld. AR that the assessee under a mistaken belief of law though he had transferred a property belonging to Shri Jaspal Singh who was a partner in Paramount to the assessee firm by carrying out book entries and on realizing that the transfer of an immovable property in such a manner is not permitted under law he has carried out corrective entries and in fact there is no transfer. It was his submission referring to the record that the property was purchased in the name of Sh. Jaspal Singh and continues to be in the name of Shri Jaspal Singh even as on date. Thus, in the said background relying upon the provision of law, it was his submission that the tax authorities have wrongly concluded that the assessee was exigible to capital gains tax as in fact there was no transfer. 7. The Ld. Sr.DR relies upon the orders of the authorities below. She was in agreement on query that the second decision cited by the CIT(A) makes a reference to an order which is not found.

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11.1. Apart from this addition, it was submitted, the assessing officer has levied penalty upon the assessee also on the grounds that the assessee had shown rent receipts of Rs. 12.60 Lakh and had claimed statutory deduction u/s 24 of the Income Tax Act @ 30% on account of repairs and maintenance. The assessing officer has changed the head and held that the rental income is to be assessed as “income from other sources”. Reading from the order, it was submitted that as result thereof penalty was levied on account of change of head as once the statutory deductions are added back, the income stood enhanced by Rs. 3.60 lacs. As a result of this the assessing officer has levied penalty under Section 271(1)(c) which has been confirmed by the CIT(A). 11.2. Inviting attention to the material available on record, it was submitted that the assessee has returned rental income as income from house property under Section 24 and claimed the deduction thereunder and when the assessing officer confronted the assessee that it was to be treated as ‘income from other sources’ the assessee did not agitate the change of head and accepted the same. It was his submission that the correctness of the said decision is not being argued, he would only want to rely upon the decision of the Apex Court as has been relied on before the CIT(A) namely the decision in the case of Reliance Petro Products 322 ITR 158 (S.C) that it was a mere change of head and there was no concealment or filing of inaccurate particulars. Accordingly, penalty on this ground, it was his submission, may not be confirmed. 11.3 Addressing the impugned order it was his submission that the CIT(A) has granted part relief holding that it is not the entire rental income which should have been the basis for calculating penalty and it should be limited only to the extent of Rs. 1,80,000/- i.e. the statutory deduction claimed under section 24. The penalty order otherwise was confirmed. It was argued that since it was a mere change of head, penalty in the facts as they stand may not be sustained.

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13.1 Addressing the addition made as a result of change of head wherein the income stood enhanced by the statutory deductions claimed u/s 24 of the Income Tax Act in regard to the rental income, we are of the view that considering the peculiar facts and circumstances of the present case namely that the change of head by the AO was not contested by the assessee, the resultant addition to the income of the assessee by way of statutory deductions claimed u/s 24 came to be added to the assessee's income, in the peculiar facts and circumstances of the present case the said fact does not give cause to levy of penalty either on the grounds of concealment or of furnishing inaccurate particulars. It is well settled that penalty proceedings and quantum proceedings are separate and distinct. Accepting the bonafide explanation of the assessee and considering the record, penalty is directed to be deleted. 14. In the result, appeals of the assessee are allowed. Order pronounced in the Open Court on 29.08.2018.

Sd/- Sd/-

(Dr.B.R.KUMAR) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ‘Poonam’/AG Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR Asstt. Registrar ITAT,Chandigarh