Assistant Commissioner of Income-tax v. Baldev Raj Charla

ORDER - BY THE BENCH

There are four appeals of the Revenue in respect of four different assessees and four cross-objections by the separate assessees which are directed against four separate orders of learned CIT(A)-VIII, New Delhi, dated 16th Jan., 2007 in the case of Shri Baldev Raj Charla and dated 24th Jan., 2007 in the remaining three cases i.e., Shri Atul Charla, Smt. Shashi Charla and Smt. Jyoti Charla. Since one of the issues involved is common in all the four cases, all these appeals and cross-objections were heard together and are being disposed of by this common order for the sake of convenience.

2. Ground No. 1 of the appeal in the case of Baldev Raj Charla in IT(SS) No. 93/Del/2007 reads as under:

"On the facts and in law and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 52,25,000 and directing the AO to take the value of acquisition of the property No. C-101, Mayapuri Industrial Area, Phase-II, New Delhi, as decided by the Government valuer instead of nil as taken by the AO."

3. Only one similar ground is raised by the Revenue in the case of Smt. Shashi Charla and Smt. Jyoti Charla and ground No. 1 in the case of Shri Atul Charla is also identical.

4. Briefly stated, the facts are that there was a search carried out by the Department on 24th Sept., 2002 in Stic-Charla Group at various premises. It is noted by the AO that pp. 4, 5 and 6 of Annexeure A-1, seized from the residential premises of Shri B.R. Charla and others located at 45/201, Heritage City (Unitech), Gurgaon, gives the details regarding transaction with respect to property No. C-101, Mayapuri Industrial Area, Phase-II, New Delhi. It is noted by the AO that as per these documents, half portion of the building at C-101, Mayapuri Industrial Area, Phase-II, New Delhi, measuring plot area about 1,400 sq. yds. was sold in three parts of about 470 sq. yds. for a total consideration of Rs. 249 lakhs as per the terms and conditions of the agreement to sell and purchase dated 24th Feb., 1999. The AO has further noted regarding various receipts of money on account of these transactions as per which, Shri B.R. Charla and others have received Rs. 199 lakhs and the balance amount of Rs. 50 lakhs remained payable. It is also noted by the AO that these four persons have received payment of Rs. 21 lakhs by cheque. It is further noted by the AO that p. 9 of the Annex. A-6 seized from B-27, Mayapuri Industrial Area, is the agreement dated 29th Nov., 1999 between Ambitious Gold Nib Manufacturing Co. (P) Ltd. (for short "AGNMCPL") and same purchasers as per which there was agreement to reduce the sale consideration from Rs. 249 lakhs to Rs. 209 lakhs for the reason that the company had not been able to get the leasehold property converted into freehold property. This aspect is not in dispute because the AO has also made the assessment on the basis of sale consideration of Rs. 209 lakhs. It is also noted by the AO that in the regular return of income filed by these four assessees for asst. yr. 2000-01, no income was declared on account of these transactions but in the block return filed, each of the four assessees has declared long-term capital gain of Rs. 3,49,547. This long-term capital gain has been worked out after deducting indexed cost of acquisition of land to the extent of Rs. 1,93,69,477 and cost of building of Rs. 1,32,336 from sale consideration of Rs. 209 lakhs and in that manner, total long-term capital gain was worked out to Rs. 13,98,187 which has been divided in the hands of all these four persons equally. The AO has completed the block assessment on the basis that the entire amount of sale consideration received by each of the persons is to be assessed in the hands of these assessees as undisclosed income because there was no cost of acquisition of the property in the hands of these four assessees. Being aggrieved, all these assessees carried this matter in appeal before learned CIT(A). Regarding this aspect of the matter that whether there is any cost of acquisition or not, learned CIT(A) has decided the issue in favour of the assessees but it was held by him that value of property as on 1st April, 1981 as per the report of the registered valuer, Shri A.P. Saxena, cannot be accepted. An order has been passed by learned CIT(A) under section 250(4) as per which the AO has been directed to get this property valued through DVO. Learned CIT(A) directed the AO vide these impugned orders that the AO should work out incidence of capital gains by taking that value of property which is reported to him by the DVO. It is also held by him that the capital gains thus worked out will be the income of these four assessees i.e. Shri B.R. Charla, Shri Atul Charla, Smt. Shashi Charla and Smt. Jyoti Charla. Now, the Revenue is in appeal before us.

5. Learned Departmental Representative of the Revenue supported the assessment order on this issue. It was also submitted by him that cost of acquisition has rightly been adopted by the AO at Rs. nil because section 49(1) has no application in the present case. An alternate contention was raised by him that it has to be seen as to whether any depreciation was claimed and allowed to the company, i.e., AGNMCPL and, if so, the income on the sale of this property has to be assessed as short-term capital gain as per the provisions of section 50(2) of the Act.

6. As against this, learned Authorised Representative of the assessee supported the orders of learned CIT (A). It was submitted by him that property in question was acquired by the company i.e., AGNMCPL from DDA as per perpetual lease dated 17th Oct., 1966. It was submitted by him that copy of perpetual lease deed is appearing on pp. 39 to 46 of the paper book. It is also submitted that entire assets and liabilities belonging to this family consisting of two groups i.e . K.K. Charla Group and B.R. Charla Group consisting of four members in each group were distributed between these two groups as per family arrangement dated 1st Sept., 1997 which was effective from 31st July, 1992. It is submitted that this declaration of family arrangement is available on pp. 25 to 36 of the paper book and this declaration was also found in the course of search and hence this is not an afterthought. It is submitted that as per this family arrangement only these four assessees have acquired rights over the impugned property on the sale of which this amount of Rs. 209 lakhs was received and hence section 49(1) is applicable in the present case. Reliance was placed on the judgment of Hon'ble Madras High Court rendered in the case of CIT v. Minor Shanthi Chandran [2000] 158 CTR (Mad.) 112 : [2000] 241 ITR 371 (Mad.) in support of this contention that the family settlement is analogous to a partition. It was submitted that since in the present case, the properties were acquired by these four assessees as per this family settlement, section 49(1) is applicable in view of this judgment of Hon'ble Madras High Court. He submitted a copy of valuation report as per the registered valuer Shri A.P. Saxena as per which the impugned property was valued at Rs. 99,58,600 for entire area of 2,926 sq. yds. out of which these four assessees of Shri B.R. Charla Group have 50 per cent share and hence value of that portion is Rs. 49,79,300. He also submitted a copy of valuation report dated 31st Aug., 2007 as per which, the same properties have been valued by the DVO at Rs. 43.13 lakhs including cost of structure valued at Rs. 18.23 lakhs and cost of land 2,926 sq. yds. valued at Rs. 24.90 lakhs. An alternate contention was raised that as per judgment of Hon'ble apex Court rendered in the case of CIT v . B.C. Srinivasa Setty [1981] 21 CTR (SC) 138 : [1981] 128 ITR 294 (SC) ,capital gain is not liable to tax where the cost of acquisition is nil and since as per the AO, there was no cost of acquisition of the assessees, no capital gain tax is assessable in the hands of these four assessees. In support of the same contention, reliance was also placed on the judgment of Hon'ble Bombay High Court in the case of Cadell Weaving Mill Co. P. Ltd. v. Commissioner Of Income-Tax [2001] 166 CTR (Bom.) 7 : [2001] 249 ITR 265 (Bom.) .He strongly supported the order of learned CIT (A).

7. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below and the judgments cited by learned Authorised Representative of the assessees. We find that the dispute before us in the present cases is limited i.e. whether any deduction is allowable to the assessees towards indexed cost of acquisition while computing long-term capital gains. We find that no income on this account was declared by these four assessees in the regular return of income but in the block return, these assessees have declared long-term capital gains on this account to the extent of Rs. 3,49,547 in each case i.e. Rs. 13,98,187 in these four cases. The same has been worked out as under :

"Details of long-term capital gain

8. So far as the sale consideration of Rs. 209 lakhs is concerned, there is no dispute because this very figure has been adopted by the AO also. The dispute is regarding deduction claimed by the assessees on account of indexed cost of acquisition of land and building to the extent of Rs. 195.02 lakhs. This cost has been claimed by the assessees on the basis of fair market value of land as on 1st April, 1981 which has been adopted by the assessee as per the valuation report of the registered valuer to the extent of Rs. 49,79,300 and the same was indexed to Rs. 193.69 lakhs. We have to decide whether this claim of the assessee is acceptable or not. Learned CIT (A) has decided this issue in favour of the assessee on the basis that facts in details of family settlement were available well before search and have been found in the seized material. It is also held by learned CIT(A) that family settlement did not take into account only the said property of land but also involved various other assets like stock, property and other things belonging to the group. We find that a copy of family settlement deed is available on pp. 25 to 36 of the paper book and in the same, in addition to the impugned land at C-101. Mayapuri, Industrial Area, Phase-II, New Delhi, various other assets and liabilities belonging to the family were also settled such as machines, tools and dyes used by nib division and ball pen division of AGNMCPL, equipment of tool rooms, stocks of nib division and ball pen division of the same company, power connection in the name of AGNMCPL and also in the name of Pioneer Stationery Mart. The liabilities of this company along with the brand name logo were also distributed assets and liabilities of other concerns such as Ambitious Export, Ambitious Enterprises, Pioneer Stationery Mart, Metal Corporation, etc. were also partitioned as per this family settlement. It is a matter of record. Ultimately, the sale deed was executed by the company AGNMCPL and still the sale consideration was received by these four assessees. The assessees have also declared income on this account in their hands and the same has been accepted by the AO except rejecting the claim of the assessees regarding deduction of indexed cost of acquisition. But for the family settlement, the sale proceeds of the impugned land standing in the name of the company AGNMCPL cannot be taxable in the hands of these four individuals. The right over these properties has been acquired by these individuals only in terms of this family settlement. On the one hand, the Department is accepting this family settlement by assessing the impugned income on sale of this property in the hands of these four individuals but on the other hand, the Department is not accepting this family settlement while deciding the issue regarding granting of deduction on account of indexed cost of acquisition on the basis of fair market value of the property as on 1st April, 1981. We are of the considered opinion that this dual stand of the Department cannot be approved. For deciding the issue in hand, the provisions of section 49(1) are relevant and hence the same are reproduced below:

"Sec. 49.(1) .-Where the capital asset became the property of the assessee; (i) on any distribution of assets on the total or partial partition of a HUF;

(ii) under a gift or will;

(iii) (a) by succession, inheritance or devolution, or

(b) on any distribution of assets on the dissolution of a firm, BOI, or other AOP, where such dissolution had taken place at any time before the 1st day of April, 1987, or

(c)on any distribution of assets on the liquidation of a company, or

(d) under a transfer to a revocable or an irrevocable trust, or

(e) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa ) or clause (vica) or clause (vicb) of section 47;

(iv) such assessee being an HUF, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969.

The cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner of the assessee, as the case may be.

Explanation : In this sub-section, the expression 'previous owner of the property' in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iv) of this sub-section."

9. From the above, it can be seen that section 49(1) may be applicable in this case only if it is found that the impugned asset is received by these assessees on distribution of assets on total or partial partition of a HUF. In the present case, legal ownership of this impugned asset was with the company i.e., AGNMCPL. The claim of the assessees that the amount in question i.e., Rs. 209 lakhs was received by these four assessees on sale of this property and distributed equally among these four persons belonging to B.R. Charla Group on the basis of family settlement dated 1st Sept., 1997 effective from 31st July, 1992 has been accepted by the AO also because this total amount of Rs. 209 lakhs has been assessed equally in the hands of these four persons, who are belonging to B.R. Charla Group. Otherwise also, this amount can be assessed in the hands of these four assessees in the light of this family settlement only because otherwise the sale consideration of this property is assessable in the hands of the company i.e., AGNMCPI who is the legal owner of this property. The AO has also proceeded to assess this receipt in question of Rs. 209 lakhs in the hands of these four individuals and this goes to show that this position has been accepted by both sides that as per this family settlement dated 1st Sept. 1997 effective from 31st July, 1992, these four persons have acquired ownership of this portion of the impugned property. Once this position is accepted, we feel that the issue in the present case is covered in favour of the assessee by this judgment of Hon'ble Madras High Cour rendered in the case of Minor Shanthi Chandran ( supra). It was held in this case that the family settlement is analogous to a partition. If the family settlement is held to be analogous to a partition, clause ( i) of section 49(1 is directly applicable and in that situation, the cost of acquisition in the hands of the previous owner has to be considered for working out capital gains in the hands of these assessees. The relevant para of this judgment in the case of Minor Shanthi Chandran (supra) is reproduced below:

"In a partition, the consideration for the partition is the mutual relinquishment of the rights of the parties in the joint family properties in which each has a share. The fact that the daughters have a right to maintenance and marriage expenses and would have been entitled to; share at a partition does not render the value of the shares allotted to them under a settlement deed, the price for which they had sold or relinquishment their right over the properties of the family. The family settlement in this context is analogous to a partition. It is the cost to the previous owner that is to be taken into account as the cost of acquisition of shares and not the amounts mentioned in the family settlement deed by the settlor."

10. In the present case, it is an admitted position that the impugned property was acquired by these four persons as per this family settlement dated 1st Sept., 1997, and hence this judgment of Hon'ble Madras High Court becomes directly applicable and hence respectfully following the same, we hold that in the present case, section 49(1) is applicable am accordingly deduction has to be allowed for indexed cost of acquisition by taking into account the fair market value of the property as on 1st April 1981. Learned CIT(A) has directed the AO to allow deduction to the assessees on this account on the basis of valuation report of the DVO for the value of impugned property as on 1st April, 1981. In view of above discussion, we find no reason to interfere in the order of learned CIT(A) on this issue and hence we uphold the same because we find that no ground is raised by the assessees in their cross-objections regarding this direction of learned CIT(A) that the report of the DVO should be adopted in place of report of registered valuer submitted by the assessees. This ground of the Revenue is rejected in the cases of these four assessees.

11. There is no other ground raised in the appeal of the Revenue in the cases of Smt. Jyoti Charla and Smt. Shashi Charla.

12. Ground No. 2 raised by the Revenue in the case of B.R. Charla in IT(SS)A No. 93/Del/2007 reads as under :

"On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 8,08,000 out of total addition of Rs. 23,39,200 made by the AO of account of unexplained cash deposit in the bank accounts."

13. Similar ground is raised in the case of Shri Atul Charla in IT(SS)A No. 95/Del/2007 except the difference in the amount which is Rs. 42.45 lakhs instead of Rs. 8.08 lakhs in the case of Shri B.R. Charla. For the sake of convenience, this issue in both these cases is decided as per below.

14. Learned Departmental Representative of the Revenue supported the assessment order whereas the learned Authorised Representative of the assessee supported the orders of the authorities below.

15. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below. We find that in the case of Shri B.R. Charla, an addition of Rs. 23,39,200 was made by the AO as unexplained cash deposit in the bank account of the assessee in asst. yrs. 1997-98, 1998-99 and 1999-2000. The same has been deleted by learned CIT(A) except the amount of Rs. 2.58 lakhs. While deleting this addition partly, learned CIT(A) has referred to the detailed remand report of the AO dated 17th Feb., 2006. It is noted by learned CIT(A) that except five amounts noted at serial Nos. 3 and 15 to 18 totalling Rs. 2.58 lakhs, all other deposits out of total cash deposit of Rs. 15,31,200 are received from the assessee's partnership firm, Ambitious Writing Instruments (AWI) and these entries have been verified by the AO in remand proceedings and stated to be correct. Regarding the balance amount of Rs. 8.08 lakhs, it is noted by learned CIT(A) that this is deposited by way of cheques and the report of the AO is quite clear and he has stated that all entries have been verified and therefore there is no case for disallowance of the same. Under this factual position, we are of the considered opinion that the deletion of this amount by learned CIT(A) is on reasonable basis that no addition can be made on account of deposits by way of cheques to the extent of Rs. 8.08 lakhs. We, therefore, confirm this finding of learned CIT(A) in the case of Shri B.R. Charla.

16. Regarding Shri Atul Charla, we find that the AO has made an addition of Rs. 42.45 lakhs as unexplained cash deposit in the bank account of the assessee in asst. yrs. 1998-99 and 1999-2000. The same has been deleted by the learned CIT(A) in full by making the following observations:

"I have examined these entries from copies of bank account and books of appellant and it is clear that each of the deposit is linked to the withdrawal made on the same day i.e. , there is no time gap at all in any of these cases, Once again AO's comment is absolutely misplaced. It seems he has mechanically written the word 'DO' without really meaning to say that there was a time gap. Therefore, for serial Nos. 3 to 9 the comments of the AO has to be disregarded and the explanation of the appellant will have to be accepted. Accordingly, the addition of Rs. 42,45,000 in this case stands explained and the same is hereby deleted."

17. No specific defect could be pointed out by the learned Departmental Representative of the Revenue in the finding of learned CIT{A) that each of the deposit is linked to the withdrawal made on the same day i.e. there is no time gap at all in each of these cases. In view of this, we find no reason to interfere in the order of learned CIT(A) on this issue and hence we uphold the same. This ground of the Revenue is rejected in both these cases.

18. In the result, all these four appeals of the Revenue are dismissed.

19. Now, we take up the cross-objections filed by the assessees. Ground No. 1 of the cross-objection in the case of B.R. Charla in CO. No. 240/Del/2007 reads as under:

"Whether the learned AO has erred in law and circumstances of the case in making the addition of proportionate share of sale consideration amounting to Rs. 52,25,000 instead of computing the income in accordance with the provisions of capital gains."

20. Similar ground is raised by the remaining three assessees in their respective cross-objections.

21. It was agreed by both sides that if the appeal of the Revenue is decided in favour of the assessee, this ground in each of the four persons' cross-objections will become infructuous. Since the appeals of the Revenue in all these four cases were dismissed by us, this ground of the assessees in all these four cross-objection have become infructuous and no separate adjudication is called for.

22. There is no other ground in the three cross-objections of Smt. Jyoti Charla, Smt. Shashi Charla and Shri Atul Charla.

23. Ground No. 2 of the cross-objection in the case of Shri B.R. Charla reads as under:

"Whether the learned CIT(A) has erred in law and facts of the circumstances of the case in disallowing a relied of addition made by the AO on account of bank deposits amounting to Rs. 2,58,000 out of total deposits amounting to Rs. 23,39,200 ?"

24. It is submitted by learned Authorised Representative of the assessee that learned CIT(A) was not justified in confirming the addition to the extent of Rs. 2.58 lakhs out of total deposits amounting to Rs. 23,39,200. It is submitted by him that for serial No. 3 regarding deposit of Rs. 31,000 on 14th June, 1996, amounts were withdrawn from AWI to the extent of Rs. 10,000 on 3rd April, 1996; Rs. 10,000 on 24th April, 1996; Rs. 6,000 on 6th May, 1996; Rs. 5,000 on 21st May, 1996; Rs. 17,000 by withdrawal from SBI, Mayapuri on 17th May, 1996 and hence the addition made by the AO and confirmed by learned CIT(A) is not correct.

25. Regarding deposit of Rs. 1,27,000 on 28th June, 1997, Rs. 22,000 on 18th Sept., 1997, Rs. 26,000 on 3rd Oct., 1997 and Rs. 52,000 on 7th Nov., 1997, it was submitted that for these deposits also, the withdrawals were made by the assessee from AWI and although there is some time gap between these withdrawals and subsequent deposits with the bank, the explanation of the assessee cannot be rejected without pointing out any other user of these withdrawals by the assessee.

26. Learned Departmental Representative of the Revenue supported the orders of the authorities below.

27. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below. We find that this explanation of the assessee was found correct that against these five deposits on dated 14th June, 1996, Rs. 31,000; 21st July, 1997, Rs. 1,27,000; 18th Sept., 1997, Rs. 22,000; 4th Oct., 1997, Rs. 26,000 and on 7th Nov., 1997, Rs. 52,000 there were sufficient cash withdrawals from AWI and from SBI, Mayapuri, but this addition has been confirmed by learned CIT(A) on the basis that there is time gap between the assessee's withdrawals from his own partnership AWI or from his own bank. There is finding recorded by the learned AO or by learned CIT(A) that apart from depositing these cash into bank as explained by the assessee, there was any other user by the assessee of these amounts and in the absence of that, simply because there was a time gap, the explanation of the assessee cannot be rejected and hence the addition confirmed by the learned CIT(A) is not correct. We, therefore, delete the same. This ground of the assessee is allowed.

28. In the result, the cross-objection of the assessee in the case of Shri B.R. Charla is partly allowed whereas the remaining three cross- objections are dismissed.

29. In the combined result, all the four appeals of the Revenue are dismissed along with three cross-objections and one cross-objection in the case of Shri B.R. Charla is partly allowed.

* Also Baldev Raj Charla & Ors. vs. Asstt. CIT (C.O. Nos. 240 to 243/Del/2007; Block period 1st April, 1996 to 24to Sept. 2008.