Income Tax Appellate Tribunal - Chennai
P.Madhurajan (Huf), Salem vs Assessee on 2 December, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH "A" CHENNAI
(Before Shri Abraham P. George, Accountant Member
and Shri George Mathan, Judicial Member)
.....
I.T.A. No. 256/Mds/2009
Assessment Year : 2002-03
Shri P. Madhurajan (HUF),
Prop. Baalaji Process, G.T. Garden, The Assistant Commissioner of
Kaliamman Koil Thottam, Income Tax,
v.
Magudanchavadi Via, Gudalur PO, Central Circle,
Salem District. Salem.
PAN : AAFHM7760L
(Appellant) (Respondent)
Appellant by : Shri G. Baskar
Respondent by : Shri Shaji P. Jacob
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by the assessee against the order dated 2.12.2008 of the Commissioner of Income Tax (Appeals), Salem, it has raised ten grounds in total. However, all the ten grounds relate to an addition of ` 68 lakhs made by the Assessing Officer under Section 69 of Income-tax Act, 1961 (in short "the Act"), being the 2 I.T.A. No. 256/Mds/09 value of property acquired by the assessee during the relevant assessment year.
2. Short facts apropos are that assessee engaged in money lending and textile processing business, had filed a return in pursuance of a notice under Section 153C read with Section 153A of the Act. Such notice resulted out of a search proceeding conducted in the residential and business premises of the assessee, in his individual capacity. In the return filed, assessee had admitted a loss of ` 20,317/- and agriculture income of ` 2,55,000/-. Assessee, in his individual capacity, was engaged in the business of cheque discounting through two partnership concerns, named Sree Venkatachalapathy Finance and Sree Venkatachalapathy Corporation. He was also closely connected to one Kalaivani Finance Corporation. As per the A.O., the assessee was in overall control of the above firms. During the course of search, as per the Revenue, it had unearthed copies of conveyance deed in respect of certain properties purchased by the assessee from one Shri P. Balasubramaniam and his two brothers, namely, Shri P. Venkatesan 3 I.T.A. No. 256/Mds/09 and Shri P. Gopalakrishnan and also a property purchased from the above persons held in joint names. As per the documents, the consideration was ` 33,98,000/-. However, the guideline fixed by the Registration Department was ` 67,86,000/-. Shri P. Balasubramaniam was examined by the Assessing Officer on 12.10.2004. As per the A.O., Shri P. Balasubramaniam had stated that he had taken loans from M/s Sree Venkatachalapathy Finance, M/s Sree Venkatachalapathy Corporation and M/s Kalaivani Finance Corporation during the years 2000-01 and by March, 2002, the total amount of loan had swelled upto ` 68 lakhs. These loans were taken on mortgage of the documents relating to the properties held by Shri P. Balasubramaniam, Shri P. Venkatesan and Shri P. Gopalakrishnan individually and also on the mortgage of one another property held by them in joint names. It seems Shri P. Balasubramaniam stated that he could not make repayment of the loans taken from assessee and its related concerns and was, therefore, pressed by the assessee to register the documents relating to mortgaged properties in the name of assessee and his son Shri M. Govindarajan. As per Shri P. Balasubramaniam, the property in the 4 I.T.A. No. 256/Mds/09 name of his brother Shri P. Venkatesan was registered in favour of Shri Govindarajan, whereas that in the name of Gopalakrishnan was registered in favour of assessee. The property which was held jointly by the brothers was registered in favour of both, i.e. the assessee and his son Shri Govindarajan jointly. It was mentioned by Shri P. Balasubramaniam that the fourth property mortgaged, which was in his name, still continued to be so. Certain other documents were also seized which contained financial dealings between the assessee and one M/s Devabala group which was owned by Shri P. Balasubramaniam and his relatives. As per the A.O., the books of Shri P. Balasubramaniam and Devabala group of concerns reflected only ` 22,60,000/- as loans taken from assessee and his related concerns. On a question to Shri P. Balasubramaniam as to how he gave the figure of ` 68 lakhs as the sum owed by him to the assessee, it seems Shri P. Balasubramaniam replied that the interest charged by the assessee and his concerns was 36%, out of which only 18% was paid and increase in the principal amount was due to compounding of the balance interest. Assessee was allowed to cross-examine Shri P. Balasubramaniam, whereupon Shri P. 5 I.T.A. No. 256/Mds/09 Balasubramaniam stated that he had not received even one pie against ` 34 lakhs sale consideration mentioned in the documents and only amounts due by him to the assessee was ` 22.60 lakhs and interest thereon. On further questioning, Shri P. Balasubramaniam stated that as per his books, and amount due to the assessee was ` 66 lakhs but he had evidence only for ` 22.60 lakhs. The balance, according to Shri P. Balasubramaniam, was interest.
3. Assessing Officer noted that the Registered Valuer had valued the property at ` 66,86,600/- and in addition to that stamp duty of ` 4,46,903/- was demanded from the assessee which was paid by him without demur. Further, as per the A.O., the return of income filed by the assessee in his individual capacity, did not reflect the purchase of the above property. Based on the above, the A.O. came to a conclusion that assessee was engaged in money lending business and was suppressing interest. As per the A.O., unaccounted income generated by this method was deployed in immovable properties. Further, as per the A.O., the assessee himself had admitted sale of such properties at ` 77.25 lakhs within four years of creation of 6 I.T.A. No. 256/Mds/09 mortgage. Hence, by all probability, the value of the land could be considered as ` 68 lakhs. As per the A.O., cogent evidence was available in the form of seized documents and statement of Shri P. Balasubramaniam which when considered along with the conduct of the assessee would go to prove that ` 68 lakhs was the amount owed by Shri P. Balasubramaniam and his related concerns to the assessee and such loans were squared through the sale of mortgaged properties to the assessee by said Shri P. Balasubramaniam and his brothers. He, therefore, considered ` 68 lakhs as value of investment in the property and brought it to tax as unaccounted income of the assessee under Section 69 of the Act.
4. In his appeal before the CIT(Appeals), argument of the assessee was that the admitted sale consideration was only ` 33.98 lakhs and this was the amount outstanding to the concerns related to the assessee. As per the assessee, such amount had become due from Shri P. Balasubramaniam and his brothers on account of cheque discounting done by the assessee on their behalf. As per the assessee, this position was confirmed by a letter written by M/s Rubi 7 I.T.A. No. 256/Mds/09 Mills (P.) Ltd. owned by Shri P. Balasubramaniam which was seized as Document No.54. Further, as per the assessee, Shri M. Govindarajan, son of the assessee was separately assessed and similarly the finance firms which had given money to Shri P. Balasubramaniam were all separate assessees with distinct P.A. Numbers. Ld. CIT(Appeals) after considering the arguments of the assessee, confirmed the addition made by the A.O. with the following observation:-
"15. The moot point is how the consideration has to be arrived at in the absence of availability of total financial transaction involving the purchase of the property. The major factors to be considered are:-
(i) There is no doubt that the property has been purchased in lieu of the loan transaction with M/s Devabala group. Therefore, the total amount outstanding to finance firms of Sri.P. Madhurajan represents the total consideration of the property. This would mean that the consideration represents the loan amount as well as the interest amount outstanding as on the date of transaction. On this aspect, there were rival claims. The claim made by Sri.P. Madhurajan is that the loan outstanding is only Rs.34,81,689/- whereas the person who has taken the loan ie. Sri.P. Balasubramaniam has stated that the outstanding amount is Rs.68,00,000/-. In such a situation, the point to be considered is that it would be most likely that the seller would not try to inflate the sale price of the property keeping in view the tax implications. The fact remains that 8 I.T.A. No. 256/Mds/09 the seller has indeed confirmed by way of sworn statement that the total amount owed by him to Sri.K.Madhurajan was Rs.68 lacs and he sold the property in full and final settlement of all the loans. This statement abundantly proves that the purchase consideration in the hands of Sri.P.Madhurajan is Rs.68 lacs irrespective of any other document evidencing lesser value.
(ii) In order to establish that whether Rs.68 lacs would represent reasonable value for the property purchased by the appellant, the only acceptable and verifiable proof that we can look for is the value fixed by the Department of Registration. This value would in all probability represent the guideline value which has been fixed by the Department of Registration after carrying out detailed scientific exercise and also keeping in view the prevalent market rate.
It would be difficult to disregard the rate fixed by the Registration Department.
(iii) The appellant could not produce any other evidence to suggest that the property indeed has been transacted at a price lower than what has been stated by the seller.
16. Considering the above, I am of the view that the AO is right in adopting the purchase consideration at Rs.68 lacs and the same is arising out of the unaccounted income of the appellant and to be assessed under section 69 of the I.T.Act. The appeal on this ground is dismissed."
5. Now before us, the learned A.R., assailing the orders of the authorities below, submitted that in the first place, there was no cash transfer, when the three documents were registered in favour of assessee and his son. As per the learned A.R., the amount of ` 34 9 I.T.A. No. 256/Mds/09 lakhs shown in the document more or less tallied with the amounts due from Shri P. Balasubramaniam and his related concerns to the concerns related to the assessee on account of bill discounting done. In any case, according to him, the loans were taken by Shri P. Balasubramaniam from M/s Sree Venkatachalapathy Finance, M/s Sree Venkatachalapathy Corporation and M/s Kalaivani Finance Corporation, which were distinctly different assessees. Hence, according to learned A.R., if there was any allegation that interest was not correctly accounted, then the addition should have been made in the hands of the said concerns only. According to him, even assuming that the value of land was ` 68 lakhs, assessee had not paid any amount since admittedly the settlement was through squaring up of loans taken by Shri P. Balasubramaniam and his related concens from M/s Sree Venkatachalapathy Finance, M/s Sree Venkatachalapathy Corporation and M/s Kalaivani Finance Corporation. Relying on statement given by Shri P. Balasubramaniam placed at paper-book pages 1 to 5, learned A.R. submitted that Shri P. Balasubramaniam had admitted loans having been raised by him from the concerns mentioned above and not from 10 I.T.A. No. 256/Mds/09 the assessee-HUF. Even otherwise, learned A.R. pointed out that the fourth property held by Shri P. Balasubramaniam was not conveyed to the assessee or his son. Again, learned A.R. pointed out that the property belonging to Shri P. Venkatesan was registered in the name of Shri M. Govindarajan and not in the name of the assessee at all. The property in the name of Shri P. Gopalakrishnan alone was registered in the name of the assessee, whereas, the third property was registered in the joint name of assessee and his son Shri M. Govindarajan. In any case, according to him, neither the loans were given by the assessee nor any interest ever accrued to him. Hence, as per learned A.R., application of Section 69 of the Act was not called for. In so far as sum of ` 34 lakhs mentioned in the sale deed was concerned, learned A.R. pointed out that this was the amount actually due from Shri P. Balasubramaniam and his brothers to the concerns related to the assessee. He, therefore, submitted that just because the property was valued by District Registrar at ` 66,86,600/- it could not be concluded that there was any unexplained investment made by the assessee.
11 I.T.A. No. 256/Mds/09
6. Per contra, learned D.R. submitted that assessee had suppressed interest on an amount of ` 22.60 lakhs advanced by him to Shri P. Balasubramaniam and his related concerns. According to learned D.R., assessee was accounting only 18% interest and balance 18% was accumulated to the principal. Therefore, when interest not accounted was also considered, sum of ` 68 lakhs mentioned by Shri P. Balasubramaniam in his disposition was absolutely correct. Hence, as per the learned D.R., Assessing Officer was duty bound to bring to tax such unaccounted money in the hands of the assessee, assessee having invested such unaccounted income by getting the property mortgaged by the debtors conveyed in his name.
7. We have perused the orders and heard the rival contentions. Two documents have been relied on by the Assessing Officer for making the addition. First is the valuation made by the District Registrar for the subject property which admittedly was ` 66,86,600/-. Second document relied on is the statement recorded from Shri P. Balasubramaniam on 12.10.2004. There is no dispute that the 12 I.T.A. No. 256/Mds/09 amount mentioned in the document as such was only ` 34 lakhs. If we look at Section 69 of the Act, it runs as under:-
"69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year."
The issue before us is to check whether application of Section 69 of the Act was called for in instant transactions conveying the property to the assessee. To resolve this, it is necessary to have a look at the disposition of Shri P. Balasubramaniam, which is the backbone of the addition. Relevant questions and answers starting from Question No.4 to Question No.9 are reproduced hereunder:-
Q. 4: Do you or your firms know Shri P. Madhurajan of Elampillai.
Ans. 4: For the period from 2000, I know Shri P. Madhurajan of Elampillai as Financier. We used to take loans from Shri P. Madhurajan or his finance concerns like Sree Venkatachalapathy Finance, Sree Venkatachalapathy Corporation. Through Shri P. Madhurajan we have taken loan in the name of Kalaivani Finance Corporation also.13 I.T.A. No. 256/Mds/09
Q. 5: What is the total amount of loan taken from Shri P. Madhurajan or his finance concern over the period of last 4 years i.e. from 2000 onwards.
Ans. 5: During the year 2000; 2001;; and upto March 2002 the loan amount taken is nearly ` 68 lakhs. This loan amount is taken in my name on behalf of the firms in which I was partner. This amount was taken both by cheque and cash.
Q. 6: What is the amount repaid so far? What is the rate of interest for the loan taken.
Ans. 6: The loan repayment details we recorded in our firm's regular books. I will submit the ledger copies within a day or two. The rate of interest was initially @ 36% but he was giving receipt for 18% only. The difference amount he was collecting in cash in small slips which are destroyed by him after collecting the interest. The interest rate was 8 paise per day per 100 rupees for the period during 2002.
Q. 7: What is the loan amount payable to Shri P. Madhurajan or his finance concerns as on date. Ans. 7: As on date the balance loan due is under dispute.
During the period, we have taken loan simultaneously we have given the property as mortgaged security to Shri P. Madhurajan. Since we made huge loss in our business we could not repay the amount of loan taken from Shri P. Madhurajan. Shri P. Madhurajan has compelled us to give registration in the name of himself and his son Shri M. Govindarajan. For the loan of ` 68 lakhs we have given 4 properties belonging to myself and my two brothers, namely, Shri P. Venkatesan, Shri P. Gopalakrishnan and the properties in the joint names of ourself were mortgaged. Out of the above 4 properties, the property in the name of my brother Shri P. Venkatesan was registered in the name of Shri M. Govindarajan. The property in the name of another brother Shri 14 I.T.A. No. 256/Mds/09 P. Gopalakrishnan was given registration in the name of Shri P. Madhurajan. The third property in our joint name was given registration in the joint names of Shri M. Govindarajan and Shri P. Madhurajan. The fourth property which is in my name is still under mortgage with Shri P. Madhurajan. The dispute is that Shri P. Madhurajan further demands interest part for release of the above documents.
Q. 8: What is the sale consideration for the three properties registered in the names of Shri P. Madhurajan and Shri M. Govindarajan.
Ans. 8: As a sale consideration we have not received any amount from Shri P. Madhurajan or Shri M. Govindarajan. The properties are (1) one vacant site measuring 4915 sq. ft. (2) one site measuring 5400 sq. ft. with incomplete structure measuring 2400 sq. ft. upto lintel structure. (3) Area measuring 6400 sq. ft. out of which 2400 sq. ft. incomplete lintel construction work was done. The three properties were surrounded by 13 feet height compound wall. Considering the market value of ` 400 per sq. ft. all the three properties value will definitely meet the loan liability of ` 68 lakhs. So I was requesting for the release of my fourth mortgaged property from Shri P. Madhurajan.
Q. 9: Have these loans and repayment interest payment are accounted for in the hands of you or your firms.
Ans. 9: Out of the loan amount of ` 68 lakhs, some of the loans are not accounted for which are used for our business purposes. The exact amount of accounted part, I will submit the ledger extract of the respective concerns.
From the above disposition, it clearly comes out that the amounts were taken not from the assessee but from the firms Sree 15 I.T.A. No. 256/Mds/09 Venkatachalapathy Finance, Sree Venkatachalapathy Corporation and Kalaivani Finance Corporation. It also comes out that assessee had acquired only two properties, one which was conveyed to him by Shri P. Gopalakrishnan and the other which was conveyed jointly to him and his son by Shri P. Balasubramaniam, Shri P. Venkatesan and Shri P. Gopalakrishnan again jointly. Thus if at all there any investment can be considered in the hands of the assessee, it is limited to these properties and not to the property held by his son Shri M. Govindarajan, who admittedly was a separate assessee.
8. Now coming to the issue whether there was any unexplained investment, the consideration for the conveyance was squaring up of the loans taken by Shri P. Balasubramaniam and his concerns from M/s Sree Venkatachalapathy Finance, M/s Sree Venkatachalapathy Corporation and M/s Kalaivani Finance Corporation. As per the A.O., substantial part of such loans were not accounted by the assessee. But, we wonder how the assessee could have accounted the interest at all, since loans were given by different entities, which were separately assessed. No doubt, assessee might be a partner and closely connected thereto. But, this would not, by itself, be a reason 16 I.T.A. No. 256/Mds/09 to consider any income suppressed or income arising to such concerns to be that of his. Shri P. Balasubramaniam clearly stated that nothing was received by him on conveying the property to the assessee except for squaring up of the loans. If that be so, can we say that assessee had made any investments which were not recorded in the books, if any maintained by him, and for which assessee had offered no explanation? Admittedly, the books of the assessee were not considered at all by the Assessing Officer since para 1 of the assessment order clearly mentions that no proper books were maintained. The question, therefore, whittles down to whether assessee had offered explanation for source of investment of the properties conveyed to him by Shri P. Balasubramaniam and his brothers. The disposition of Shri P. Balasubramaniam itself clearly gives the source and this, according to him, was nothing but the loans taken by him from the concerns related to the assessee. May be the interest was high or may be some part of the interest was not accounted but, nevertheless, loans were given by M/s Sree Venkatachalapathy Finance, M/s Sree Venkatachalapathy Corporation and M/s Kalaivani Finance Corporation and such interest 17 I.T.A. No. 256/Mds/09 suppressed or not suppressed had to be considered in the hands of these entities. Assessee was not duty bound to account any interest. A.O. had made the addition for a reason that interest was not properly shown by the assessee since the loan amount was only ` 22.80 lakhs. Even assuming this to be correct, the addition could not have been made in the hands of the assessee since the loans were not given by the assessee. In so far as assessee was concerned, he could not have been called to explain the source of investment of all the properties conveyed since he was not beneficiary of all such conveyances. The source of investment was clearly mentioned by the seller himself and this has never been disputed by the Assessing Officer. In so far as the valuation done by the Registration Department, which admittedly was ` 66,86,600/-, even if consider it as the correct value of the properties, we cannot say there was any unexplained investment since the sum squared up on account of the conveyancing was admitted by Shri P. Balasubramaniam to be ` 68 lakhs. In the above circumstances, we are of the opinion that there was no case for any unexplained investment being considered in the hands of the assessee on these transactions. The value of the 18 I.T.A. No. 256/Mds/09 property should not have been brought to tax in the hands of the assessee under Section 69 of the Act. The addition made, therefore, is deleted.
9. In the result, the appeal filed by the assessee stands allowed. The order was pronounced in the Court on 24th June, 2011.
sd/- sd/-
(George Mathan) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 24th June, 2011.
Kri.
Copy to: (1) Appellant
(2) Respondent
(3) CIT(A), Salem
(4) CIT, Salem
(5) D.R.
(6) Guard file