Income Tax Appellate Tribunal - Pune
Pritam Laxman Walvekar, Pune vs Assessee on 10 April, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.755/PN/2013
Assessment Year : 2007-08
Shri Pritam Laxman Walvekar,
Flat No.101, Plot No.17,
Kashinath Apart., Walvekar Nagar,
Pune - 411 009.
PAN: ABGPW5416K .... Appellant
Vs.
The Income Tax Officer,
Ward 11(4), Pune. .... Respondent
Appellant by : S/Shri Ajay R. Singh &
Ramesh N. Rao
Respondent by : Shri B. C. Malakar
Date of hearing : 29-01-2015
Date of pronouncement : 10-04-2015
ORDER
PER SUSHMA CHOWLA, JM:
This appeal filed by the assessee is against the order of CIT(A)-I, Pune, dated 15.01.2013 relating to assessment year 2007-08 against order passed under section 147 r.w.s. 143(3) of the Income Tax Act, 1961.
2. The assessee has raised the following amended grounds of appeal:-
"I. Asst. Order bad in law :
1. The Id. CIT(A) erred in upholding the asst. order passed u/s, 143(3). Which was based on provisional valuation report without appreciating that there cannot be an asst. on presumption and furnishes, therefore the asst. order is bad in law liable to be quashed.
2. The Id. CIT(A) failed to appreciate that though the power of CIT(A) are coterminous with that of the AO but do not extend to make a invalid asst. in to valid one.
2ITA No.755/PN/2013
II. Capital Gain :
3. The learned CIT(A) erred in confirming the order of the Assessing Officer in computing and taxing the LTCG of Rs.85,08,270/- in the relevant year without appreciating that the possession of the property was not handed over due to litigation amongst the co-owner and ultimately the transaction was not materialised, therefore transfer had not taken place in the relevant year n/s. 2(47) of the Act.
4. The Id. ClT(A) failed to appreciate that due to right of pre-emption purchase available with co-owners the assessee could not have sold/transferred the property to third party, more so when the application in the final decree of CS 543 of 1989 was pending in court for partition by metes and bounds, therefore there could not be any transfer of undivided share.
III. Valuation:
5. The learned CIT(A) erred in accepting the valuation report dated 30-01-2012 valuing the assessee's 1/24th share at Rs.1,67,000/- as on 1-4-1981 for the purpose of computing LTCG without providing adequate and proper opportunity of hearing.
6. The Id. CIT(A) failed to appreciate that reference to Asst. Valuation Officer (AVO) for valuation a property beyond Rs.10 lacs is bad in law, the matter ought to have been referred to DVO, therefore the reference was bad in law.
7. The Appellant craves leave to add, amend, alter, or delete any or all the above grounds of appeal."
3. At the time of hearing, the ground of appeal Nos.1 and 2 raised by the assessee are not pressed and the same are being dismissed as "Not Pressed".
4. The issue arising vide ground of appeal Nos.3 and 4 is in relation to the computation of log term capital gains.
5. The brief facts relating to the issue are that the Assessing Officer had received information from the Investigation Wing, Pune that the assessee had issued an irrevocable Power of Attorney to one Mr. Sanjay Datatray Kakade in 3 ITA No.755/PN/2013 connection with the property situated at Survey No.1611, Shivaji Nagar, Pune in respect of his 1/24th share i.e. 1875 sq.ft. in the property. Pursuant to the received information, reasons were recorded for reopening of the assessment and notice under section 148 of the Act was issued. In consequent thereto, assessee clarified that he was a salaried person earning a monthly salary of Rs.7,000/- from one M/s Rahul Enterprises and since his income for the year under consideration was below the taxable limit, no return of income was filed. Further, claim of the assessee was that he has not transferred any property during the year under consideration. However, he had entered into a sale agreement which could not be completed due to litigation in Court. As per the agreement, out of the total consideration of Rs.93,75,000/- for sale of the property, the assessee had received a sum of Rs.60,00,000/- on the date of agreement. The explanation of the assessee in this regard was that the other family members who were the co-owners of the property had filed a suit in the local court for stay on the sale of the property as the assessee had not taken their consent before entering into the agreement to sell the property and balance consideration was not received. The assessee was asked to submit the relevant documents i.e. a copy of the sale deed dated 17.01.2007 along with the index No.II and copy of valuation report and also the copy of the court order for stay of the said sale and the copies of the FDs made against the part consideration of Rs.60,00,000/-. The assessee before the Assessing Officer furnished the relevant documents. The Assessing Officer show-caused the assessee to explain as to why the sale consideration of Rs.93,75,000/- be not adopted for computing long term capital gain in the hands of the assessee in view of the provisions of section 53A of the Transfer of Property Act, 1882 and also in view of clause (v) of section 2(47) of the Act. In reply, the assessee explained that the provisions of section 2(47)(v) of the Act are applicable in case of the transfer of immovable property which includes giving possession of 4 ITA No.755/PN/2013 immovable property under part performance. However, it was explained by the assessee that the possession of the property could not be handed over to the transferee. Reference was made to para 4 of the show-cause notice issued by the Assessing Officer, under which the court order dated 18.02.2008 is referred to. It has been ordered that Shri Sanjay Dattatray Kakade who was purchaser of the said property was restrained from taking the possession of the suit property without adopting due process of law, till disposal of the suit. The Assessing Officer rejected the explanation of the assessee in view of the fact that assessee had executed an irrevocable Power of Attorney in favour of the purchaser which as per the Assessing Officer established that the "transfer was definite and the possession is as good as handed over to the purchaser". The Assessing Officer also referred to para 4 of the show-cause notice and pointed out that it was show-caused to the assessee that the contract circuit as per the Indian Contract Act was complete, that the assessee had received the consideration against the sale transaction of the property under consideration. Further, reliance was placed on the Memorandum of Understanding (MOU) executed between Shri Pradeep Shankarrao Walvekar along with his family and the purchaser Shri Sanjay Dattaraya Kakade executed on 06th September, 2006 with respect to the permanent conveyance of their share in the said property under consideration for an amount of Rs.3 crores plus. The MOU also mentioned that the individual share of each of the co-owner in the said property under consideration and the decree passed by the Civil Court, refers to individual shares in the said property. As per the Assessing Officer, the filing of the suit by other family members against the sale under consideration of the assessee's 1/24th share in the property was just a stunt due to afterthought, and a cunningly Mastered arrangement between the family members, in order to save the assessee from the clutches of the income tax. The Assessing Officer, thus, in view of the provisions of Income Tax Act and section 53A of the 5 ITA No.755/PN/2013 Transfer of Property Act, 1882 held that the sale consideration received by the assessee comes under the ambit of definition of transfer and therefore the sale consideration is to be considered for computing the capital gains tax. Vide para 10 of the assessment order, the Assessing Officer referred to decree and pointed out that though the court has restrained the purchaser from the taking possession temporarily upto the final disposal of suit and also stated that he can adopt the procedure of law to take the possession but since the assessee had executed an irrevocable Power of Attorney in favour of the purchaser, Shri Kakade, signified that the possession was already given in favour of the transferee. The Assessing Officer also made a reference to the Assistant Valuation Officer (AVO) under section 55A of the IT Act and thereafter computed the income from capital gain in the hands of the assessee at Rs.85,08,270/-.
6. The CIT(A) referred to the significance of events vis-à-vis the inheritance of the property and thereafter the devolvement of the property on various share- holders including the assessee who had 1/24th share in the property. The property was decreed on 07.06.1994 following an out of court settlement in which distinctive share in the property of each of the family members was determined. Compromise decree is reproduced by the CIT(A) under para 7.1 at pages 29 to 32 of the appellate order. The CIT(A) referred to the decree order of Civil Judge dated 18.02.2008 vide Special Civil Suit No.503/89 filed by some of the family members against the other family members including the assessee and the purchaser, Shri Sanjay Dattaraya Kakade. As per the said decree and as noted by the CIT(A) though the share in terms of the ratio/percentage of each family members were defined, there was no physical demarcation of the property by metes and bounds. It was also noted by the CIT(A) that the Civil Judge held that the members of joint family were entitled to sell their undivided share to third person subject to right of presumption i.e. the first offer having 6 ITA No.755/PN/2013 been given to the family members to purchase the same. It was further decreed that the third party had no right to step into the shoes of the members who sold his undivided share and enjoy the joint shares with other members. The only course available to the purchaser was to file suit for general partition and to obtain possession of undivided share sold to him. Till then the purchaser was not entitled to disturb the joint possession of the other members. Accordingly, the Civil Judge vide order dated 18.02.2008 held that final decree / application for partition of the suit property by metes and bounds was pending and the purchaser was restrained by taking possession of the suit property, without adopting due process of law till the disposal of the suit.
7. The CIT(A) vide para 7.5 after applying the provisions of section 2(47)(v) of the Act and section 53A of the Transfer of Property Act, 1882 pointed out that there must be an agreement for sale and part performance of contract covered by section 53A of the Transfer of Property Act, 1882 by giving the possession of the property. It was noted by the CIT(A) that "In the present case, there is admittedly a registered sale deed but there is no possession given to the purchaser/transferee. As such, clause (v) of section 2(47) which has been invoked by the Assessing Officer is clearly not applicable in the present case". The CIT(A) made reference to the ratio laid down by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai vs. CIT reported in 156 ITR 509 (SC) and the Hon'ble Gujarat High Court in the case of CIT vs. Hormasji Mancharji Vaid reported in 250 ITR 542 (Guj.) and held as under :-
"7.7. Thus, the Full Bench of the Gujarat High Court held that transfer is complete in view of the fact that the vendor is not entitled in law to dispossess or question the title of the vendee. Though the case relates to transfer of lease rights, the ratio of this decision with reference to effective date of transfer would apply with equal force equally to the facts of the present case. Here the transferor-appellant has put transferee (Shri Sanjay Kakade) in effective possession but in view of the court direction, it is said that the transferee is not the owner of the property though for all practical purposes transferee acts as the owner, in view of irrevocable power of attorney. The entire sale consideration stands received by the appellant. The sale deed has been executed transferring 7 ITA No.755/PN/2013 all rights in the property. There is a compromise decree passed by Senior Civil Judge Pune in Special Civil Suit 503/39 as per which respective undivided shares in the suit property were determined, including that of the appellant. The only issue that remain is that the purchaser is restrained by virtue of a court order dated 18.2.2008 from taking possession of the property without adopting due process of law. It is to be noted that the court has not cancelled the agreement which is the issue of the present appeal. The court has merely directed that the purchaser Shri Sanjay Kakade should await the final decree application pending in respect of CS 543 of 1989 for partition by metes and bounds and to thereafter obtain possession of the undivided share sold to him. Thus a reading of the Civil Judge's order in CS No. 613/2007 dated 18.2.2008 shows that during such time that the properties partition by metes and bounds the purchaser is not entitled to disturb the joint possession of other members who are occupying the property."
8. The CIT(A) concluded by holding as under :-
"7.11. The decision of the Civil Judge, Pune dated 18.2.2008 does not amount to cancellation of the sale deed executed by the appellant. It has only postponed the factum of actual handing over of physical possession of the property to the vendor till the time that the final decree in Special Civil Suit 503/89 has been ordered. A perusal of the application for interim injunction in Special Civil Suit No.613/2007 by the other family members shows that they are interested in the Court directing the vendor to join in execution of such sale deeds in favour of the other family members also, since he has purchased the shares of the other family members (including the appellant) with full knowledge of the right of pre- emption. The sale is final in the eyes of the appellant (para 7.2 refers) as per the Civil Court order. Hence, by virtue of section 2(47) r.w.s 45(1), the capital gains is deemed to be income in the hands of the appellant in the relevant F.Y. 2006-07 i.e. A.Y. 2007-08. This is also in line with the concept of accrual of income as per section 5 of the Income tax Act. Thus, keeping in view all these factors and also the judicial precedents referred to in the preceding paragraphs, it has to be held that capital gains u/s 45(1) has arisen from the transfer of the capital assets. Grounds No.7 to 11 are thus, dismissed."
9. The assessee is in appeal against the order of CIT(A).
10. The Ld. Authorized Representative as well as the Ld. Departmental Representative made their arguments in support of their stands.
11. We have heard the rival contentions and perused the record. The issue arising before us is in relation to the alleged transfer of share of the assessee in property situated at Survey No.1611, Shivaji Nagar, Pune. Admittedly, the assessee was a co-owner of the property and had 1/24th share in the said 8 ITA No.755/PN/2013 property. The assessee did enter into an agreement with Shri Sanjay Kakade for sale of his share in the property and the consideration was fixed between the parties at Rs.93,75,000/-. In furtherance to the said contract, assessee received Rs.60,00,000/-, however the balance amount was not received by the assessee. The family members had approached the civil court to restrain the assessee from selling the property without offering them the right to purchase. The learned Authorized Representative for the assessee has emphasized that the civil court vide its order dated 18.02.2008 restrained the assessee from going ahead with the sale. On this basis, the case set up is that the sale has not indeed fructified and therefore, no capital gain required to be taxed. It is also submitted at the time of hearing that the proceedings in the civil court are yet continuing. To support the proceedings in the civil court, the following documents were annexed in the form of Paper Book:-
1. Copy of Affidavit dated 07.02.2013 by Plaintiff in Special Civil Suit No.613/2007 along with list of Documents;
2. Copy of Extract of Property Register card of Suit Property dated 15.07.2006 along with English translation;
3. Copy of Will executed by Mr. Balaji Bhavansa Walvekar dated 27.09.1996 along with English transaction;
4. Copy of Will executed by Smt. Chandrabala Balaji Walvekar dated 02.09.1996 along with English translation;
5. Copy of Decree in Special Civil Suit No.503/1989 dated 16.05.1994 along with English translation;
6. Copy of letter issued by some of the Plaintiffs and Defendant to the Plaintiff No.1, dated 06.05.2005 along with English translation;
7. Copy of Notice published by Plaintiff in daily Sakal dated 29.09.2005 along with English translation;
8. Copies of correspondence i.e. Notices issued by Advocate for Defendant Nos.1, 4, 7 and another to Plaintiff Nos.1 and 2 dated 28.10.2005 and interim reply to Notice/s dated 28.10.2005 issued by the Advocate for Plaintiff Nos.1 and 2.
9. Copy of Notice reply dated 10.11.2005 issued by Advocate for Plaintiff Nos.1 and 2 to Notice dated 28.10.2005 issued by Defendant No.1 and 7;9 ITA No.755/PN/2013
10. Copy of Notice reply dated 10.11.2005 issued by Advocate for Plaintiff Nos.1 and 2 to Notice dated 28.10.2005 issued by Defendant No.4;
11. Copy of Notice reply dated 19.11.2005 issued by Advocate for Plaintiff Nos.1 and 2 to the Advocate Krishna Kelkar;
12. Counter Reply dated 20.11.2005 issued by Advocate Krishna Kelkar;
13. Copy of Reply dated 03.12.2005 given by Defendant Nos.1 and 10 to final Decree application No.503 of 1989;
14. Copy of Written Statement dated 03.04.2006 given by Defendant Nos.1 and 10 in final Decree application No.503 of 1989.
12. We find that the aforesaid documents, which bring out in detail the dispute is pending in the civil court, has been furnished before the Tribunal and it was not available before the lower authorities. In our considered opinion, the points raised by the assessee is quite significant because if assessee is able to demonstrate that the sale agreement could not be fructified in view of the pendency of civil suit in question, obviously, no cognizance of the same can be taken for assessing any income from such an agreement till the outcome of the civil proceedings crystallized. However, in order to come to a concrete finding on this aspect, it would be necessary to verify the factual position based on the documents now being furnished by the assessee. For the said reason, we deem it fit and proper to set-aside the order of CIT(A) and restore the matter back to the file of Assessing Officer to make an assessment afresh with regard to the transaction in question. Needless to say, the Assessing Officer shall afford an opportunity of hearing to the assessee before making assessment afresh. The grounds of appeal Nos.1 to 4 raised by the assessee are thus, allowed for statistical purposes.
13. In view of our setting aside the order of CIT(A) to the file of Assessing Officer, the grounds of appeal Nos.5 and 6 are also set-aside to the file of 10 ITA No.755/PN/2013 Assessing Officer, who shall afford reasonable opportunity of hearing to the assessee and decide the issue in accordance with law.
14. In the result, the appeal of the assessee is partly allowed.
Order pronounced on this 10th day of April, 2015.
Sd/- Sd/-
(G.S. PANNU) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, Dated: 10 th April, 2015.
Sujeet / GCVSR
Copy of the order is forwarded to: -
1) The Assessee;
2) The Department;
3) The CIT(A)-I, Pune;
4) The CIT-I, Pune;
5) The DR "B" Bench, I.T.A.T., Pune;
6) Guard File.
By Order
//True Copy//
Assistant Registrar
I.T.A.T., Pune