Jadav Devi Dangayach, Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 302/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2007-08 Income Tax Officer, cuke Jadav Devi Dangayach Ward 1(4), Jaipur. Vs. 903, Baba Harish Chandra Marg, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABXPD 5266 F vihykFkhZ@Appellant izR;FkhZ@Respondent

vk;dj vihy la-@ITA No. 162/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2007-08 Jadav Devi Dangayach cuke Income Tax Officer, 903, Baba Harish Chandra Vs. Ward 1(4), Jaipur. Marg, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABXPD 5266 F vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.)

lquokbZ dh rkjh[k@ Date of Hearing : 07/05/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 22/05/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M. These are the cross appeals filed by the revenue as well as the

assessee arise against the order dated 30/01/2012 passed by the 2 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

learned CIT(A)-I, Jaipur for A.Y. 2007-08. The respective grounds of

both the appeals are as under:-

Grounds of revenue's appeal

On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals)-I, Jaipur has erred in:-

"Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in not appreciating the facts of the case and thus erred in deleting the addition of Rs. 13,60,088/-."

Grounds of assessee's appeal

1. The Ld. Commissioner of Income Tax (Appeals) has erred on the facts and in law in upholding the validity of order passed U/s 147/148.

2. The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the addition of Rs. 2,42,44,000/- made by A.O. by treating the amount received by the assessee at the time of reconstitution of firm as non compete fee U/s 28(va)(a) assessable as business income.

2.1 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in not accepting the claim of assessee that the said amount, paid by firm to assessee on her retirement is towards the value of land contributed by her to firm when she become partner in the firm during the year and therefore same is assessable as capital gain U/s

45."

2. Firstly we will take the assessee's appeal. The first ground of

assessee's appeal is against upholding the validity of order passed U/s

147/148 of the Income Tax Act, 1961 (in short the Act). In this case, 3 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

the Assessing Officer observed that the return of income was filed on

30/10/2007 at Rs. 1,90,390, which was processed U/s 143(1) of the

Act. The Assessing Officer recorded the reasons U/s 147 as under:-

"Smt. Jadav Devi Dangayach was a partner in M/s Sequin Real Estate, 310 City Plaza, Jhotwara Road, jaipur. This registered firm was formed on 06.06.2006. All the partners contributed land to the firm and according the contribution of Smt. Jadav Devi Dangayach was 15,120 square yards. The firm was formed to carry on the business of construction of residential flats and sale of the same on the land contributed by the partners. However, vide supplementary partnership deed executed on 15.03.2007, Smt. Jadav Devi Dangayach withdraw from the partnership.

On the retirement, the terms was decided mutually and compensation of Rs. 2,42,44,000/- was paid to Smt. Jadav Devi Dangayach through cheque on 15/03/2007 as none competition fee.

As Smt. Jadav Devi Dangayach has relinquished her right on the land contributed to firm measuring 15,120 square yards and has received non competition fee at Rs. 2,42,44,000/-. The said non competition fee received for non competing in the business therefore, liable to tax under section 28(Va) of the I.T. Act, 1961.

4 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

The assessee has filed her return of income for A.Y. 2007- 08 on 31/10/2007 and no such non competition fee of Rs. 2,42,44,000/- is shown. Thus, a sum of Rs. 2,42,44,00/- has escaped income being non competing fee. Therefore, notice U/s 147/148 is issued for A.Y. 2007-08."

Accordingly he issued notice U/s 148 of the Act on 20/11/2009. In

response to notice U/s 148, the assessee submitted reply and claimed

that original return filed should be treated as a return filed U/s 148 of

the Act. The assessee was allowed to go through the reasons recorded

by the Assessing Officer. The assessee filed objections vide various

letters. The Assessing Officer held that these letters were without any

specific objection, even which was disposed of vide his office letter

dated 3731 dated 26/2/2010, which has been reproduced by the

Assessing Officer on pages 2 to 4 of the assessment order. The

assessee challenged the issue of notice U/s 148 before the ld CIT(A),

who had confirmed the reopening by observing that the assessee's

contention was wrong that Assessing Officer was not having copy of

return with him before recording the reasons. The Assessing Officer

intimated by the ACIT, Cirlce-3, Jaipur regarding the transaction

entered between firm and assessee on which notice U/s 148 of the Act

was issued is also not found correct as claimed by the assessee. The ld 5 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

Assessing Officer has recorded the reasons and initiated a proceeding

independently. There was information from the ACIT, Circle-3, Jaipur

but on verification of return it was found that information given by the

ACIT was not verifiable from the return filed by the assessee, therefore,

the Assessing Officer had reason to believe that income has been

escaped assessment. He further relied on the decision in the case of

CIT Vs. Abdul Khader Ahmed (2006) 156 Taxman 206 (Ker) on direction

of superior officer but the Assessing Officer had independently applied

his mind. The assessee's objection on the basis of two letters given to

the assessee that the Assessing Officer was not sure about reasons but

the ld CIT(A) has held that some and substance of both the letters were

that compensation received from M/s Sequin Real Estate of Rs.

2,42,44,000/- as not competition fees liable to be taxed U/s 28(va). The

curtailment of the time prescribed U/s 156 is also not valid reasons to

challenge the reopening. Therefore, he confirmed the reopening U/s

147 and issue of notice U/s 148 of the Act.

3. Now the assessee is in appeal before us. The ld AR for the

assessee reiterated the arguments made before the ld CIT(A) during

the course of hearing. He further drawn our attention on Section 147 of

the Act and argued that on 20/11/2009, the ld Assessing Officer did not 6 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

have copy of return with him. Therefore, the assessee filed copy of

return and computation on 29/1/2010. The ld CIT(A) has sidetracked

this vital issue only by stating that AO has asked for the return of the

assessee in a routine manner which does not imply that he did not have

the return filed by the assessee while issuing the notice u/s 148. It may

be noted that at Para 2 of the remand report AO has only stated that

the return was with him before initiating the proceedings u/s 148 but he

has not given any reason that if the return was with him why he has

required the copy of income tax return from the assessee. This issue

was also raised by the assessee in letter dated 17.02.2010 but no

comment is made by the AO in this issue in the assessment order. This

clearly proves that notice u/s 148 is issued without verifying the return

so as to come to a prima facie belief that income has escaped

assessment. As per the reason supplied by the AO vide letter dated 16-

02-2010 it is evident that the proceedings u/s 147 has been initiated as

per the intimation received from ACIT circle-3 who was assessing the

case of M/s Sequine Real Estate in which assessee was a partner where

she has contributed the land as her capital contribution. This fact is also

evident from the assessment order dated 11.12.2009 of M/s Sequin

Real Estate for A.Y. 07-08 where in the office note, it is stated by the 7 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

AO that information regarding receipt of non competition fee by Smt.

Jadav Devi is informed to the AO of the assessee on 01.12.2009 for

taking necessary action u/s 148. Therefore, how the AO can issue the

notice u/s 148 on 20.11.2009 when even the copy of the return of the

assessee was not available with him. Thus, it is evident that the AO of

the assessee has solely relied on the intimation received from the ACIT

Circle-3, without having any independent reason to belief of his own.

Hence, the initiation of reassessment proceeding in the present case is

on the basis of the borrowed satisfaction. Therefore, the notice issued

u/s 148 is bad in law. The ld. CIT(A) has not accepted this contention of

the assessee by stating that AO has not relied only on the information

received from ACIT, Circle-3 but he also checked the return filed by the

assessee before concluding that the information advanced by ACIT,

Circle-3 is not reflected in the return filed by the assessee. These

findings of CIT(A) is incorrect firstly for the reason that return was not

available with the AO at the time of issue of notice u/s 148 as stated

above and secondly the AO in the remand report has himself stated that

this information is available at Page 4/20 in Schedule AIR in the Code of

Transaction SI-7 (007) in the return of income. Therefore the reliance

placed by the CIT(A) on the decision reported in 156 Taxman 206 (Ker) 8 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

is not applicable as AO has not independently applied his mind. He

relied on the following case laws:-

(i) Commissioner of Income-tax Vs. Shree Rajasthan Syntex Ltd. 313 ITR 231 (Raj.)

(ii) CIT Vs. Smt. Sohan Devi Sodani 303 ITR 342 (Raj.).

(iii) CIT Vs. SFIL Stock Broking Ltd. 325 ITR 285 (Del.)

He, therefore, prayed to quash the reopening U/s 148 of the Act.

4. At the outset, the ld DR has vehemently supported the order of

the ld. CIT(A).

5. We have heard the rival contentions of both the parties and

perused the material available on the record. The assessee's case was

not scrutinized U/s 143(3) of the Act. The ld Assessing Officer recorded

the detailed reasons and he has reason to believe that no compete fees

received from the firm has been disclosed in the return, which is as per

his opinion was taxable U/s 28(va) of the Act. The A.O. issued notice

U/s 148 within years from the end of relevant A.Y. Information received

from the ld ACIT, Circle-3, Jaipur can be part of information as held by

the Hon'ble Supreme Court in the case of Associate Stone Industry

(Kota) Ltd. Vs. CIT (1997) 224 ITR 560 (SC). The A.O. had information

about non compete fee received by the assessee but same had not

been offered for taxation U/s 28(va) of the Act as business income.

Sufficiency of reasons cannot be challenged as held by the various 9 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

courts. He had given detailed reasons for reopening the case by

recording the reasons. The case law relied upon by the assessee are not

applicable squarely. Therefore, the proceeding U/s 147/148 of the Act

was as per law. Accordingly, we uphold the order of the ld CIT(A).

6. The second ground of assessee's appeal is against confirming the

addition of Rs. 2,42,44,000/- by treating the amount received by the

assessee at the time of reconstitution of firm as non compete fees U/s

28(va)(a) of the Act. The ld Assessing Officer observed that the

assessee is aged 90 years. She owned 5 bigha agricultural land khasra

No. 44/3 situated at village Beed, Tehsil Hathoj. Considering her old age

and other factors, assessee was interested in selling her agricultural

land. Accordingly, assessee has agreed to sale her agricultural land to

Shri Suresh Kumar Golya and Shri Ramesh Dangayach for Rs. 2.5

crores. Shri Ramesh Dangayach had advised the assessee to first enter

into partnership and then he will move the land papers for change of

land use and approval of plan. It was for the purpose to save the cost

of stamp duty. As soon as the land got converted, assessee existed

from partnership firm and received the remaining sale consideration of

agricultural land. At the time of entering into the transaction assessee

had received Rs. 7,56,000/- and thereafter on finalization of transaction 10 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

and transfer of land in the name of firm and change of land use,

remaining sale proceeds i.e. Rs. 2,42,44,000/- had been received by

assessee and transaction was completed. As per the assessee's

submission, it was a transaction of sale of agricultural land and not

entering into the business venture. The assessee also furnished various

evidences before the Assessing Officer, which had been reproduced by

the Assessing Officer at page Nos. 5 and 6 of the assessment order.

The assessee also submitted before the Assessing Officer that Rs. 2.5

crores had credited in the account of assessee by the partnership firm,

which was actually sale consideration received on account of transaction

of sale of agricultural land. The Assessing Officer considered the

detailed reply on non compete fee on page 7-8 of the assessment

order. Smt. Jadav Devi Dangayach (assessee) was a partner in M/s

Sequin Real Estate, 310 City Plaza, Jhotwara Road, Jaipur. This

registered firm was formed on 06/6/2006. All the partners contributed

land to the firm and according the contribution of Smt. Jadav Devi

Dangayach was 15,120 square yards. The firm was formed to carry on

the business of construction of residential flats and sale of the same on

the land contributed by the partners. However, vide supplementary

partnership deed executed on 15/3/2007, Smt. Jadav Devi Dangayach 11 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

withdrew from the partnership. On the retirement, the terms was

decided mutually and compensation of Rs. 22,42,44,000/- was paid to

Smt. Jadav Devi Dangayach through cheque on 15/3/2007 as non-

competition fee. As Smt. Jadav Devi Dangayach had relinquished her

right on the land contributed to firm measuring 15,120 sq. yards and

had received non-competition fee at Rs. 2,42,44,000/-. As per Assessing

Officer's opinion, it was taxable U/s 28 (Va) of the Income Tax Act,

1961 (hereinafter referred as the Act). The assessee had not shown

non-compete fees of Rs. 2,42,44,000/- in return, therefore, notice U/s

148 was issued. The Assessing Officer gave reasonable opportunity of

being heard on this issue. The assessee filed detailed reply, which has

been reproduced by the Assessing Officer in assessment order. The

Assessing Officer held that the assessee had entered into valid

partnership vide partnership deed dated 06/6/2007 and all legal

formalities were completed as a partner and in the process property

was transferred to the partnership firm without payment of stamp duty.

He further referred the non compete fees as per clause (8)(9) and (10)

of partnership deed dated 15/3/2007. Wherein in clause (9), it has been

made part of partnership deed that Smt. Jadav Devi Dangayach would

not compete the business and cooperate in land related matter for 12 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

which Rs. 2,42,44,000/- was paid through bank account cheque. This

payment was against all rights and benefit of the assessee. The ld

Assessing Officer further held that the assessee firm also avoided the

partnership firm from transfer of land by paying capital gain U/s 45(iv)

of the Act. Finally, he held that non compete fees paid by the firm to

the assessee at Rs. 2,42,44,000/- is taxable U/s 28(va) of the Act. M/s

Sequin Real Estate also deducted TDS at Rs. 13,60,088/- on payment of

Rs. 2,42,44,000/- being non compete fees.

7. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the ld CIT(A), who had confirmed

the addition by observing as under:-

"5.4 I have carefully perused the order of the A.O. and submissions of the AR and do not concur with the submissions of the AR on the following grounds:-

i) The appellant Smt. Jadav Devi Dangayach became a partner of the firm M/s Sequin Real Estate. This firm was constituted of 7 partners who brought in land as capital to the firm. On perusal of partnership deed it is seen that Smt. Jadav Devi Dangayach was represented by her son by Sh. Jugal Kishor Dangayach. She brought land measuring 15120 square yards which was valued at Rs. 7,56,000/- in the books of accounts of the firm, as per the partnership deed dated 10/05/2006.

13 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

ii) The appellant has signed a general Power of Attorney in favour of her son Sh. Jugal Kishore on 04/8/2006. Amongst other things her son has been authorized to perform the following acts on her behalf:-

"That the said attorney shall be authorized to conduct and manage my all affairs including all business affairs and the matters relating to my movable and immovable assets on behalf of me but he shall not authorize to execute any agreement or deed for sale or transfer of my immovable property. That the said attorney shall be authorized to conduct, manage and promote my business and to do all acts and things necessary for the development of the business and to do all acts and things necessary for the development of the business and shall also perform and manage acts, things, jobs for which the directions and instructions issued time to time by me."

iii) Subsequently the firm got the use of land converted U/s 90B for the purpose of building a housing project.

iv) Thereafter, the partnership was reconstituted on 08/3/2007 whereby the appellant exit the firm. It is pertinent to note that on page 2 of this partnership deed it was mentioned that Smt. Jadav Devi wanted to exit the firm on account of personal profits. On page 5 of the partnership deed in paras 8 & 9 it has been mentioned as follows:-

14 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

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v) The submission of the AR during the assessment proceedings and subsequently during the appellate proceedings that the intention of the appellant was to save the payment of stamp duty on transfer of this land is also not supported by the evidence on record. To verify the submissions made by the appellant from time to time and assessment records of M/s Sequin Real State were called for.

On perusal of these records it was seen that the appellant had presented the sale deed before the stamp and Registration Deptt. in the office of Sub-Registrar SR-4 (Annexure-4) for registration of the transfer of land by her to M/s Sequin Real Estate on 11/5/2007. The value of land had been evaluated at Rs. 58,39,703/- and the stamp duty payable had been determined at Rs. 4,03,840/-. It was 15 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

mentioned in this deed that a payment of Rs. 7,56,000/- had been made to her for the transfer of this land to the firm.

vi) Moreover, on perusal of the accounts of the firm it is seen that the firm has been sown land introduced as capital by Smt. Jadav Devi Dangayach at Rs. 7,56,000/- in its books of accounts and this is shown at the same value in its closing stock.

vii) On perusal of the file of M/s Sequin Real Estate Pvt. Ltd. it is seen that during the assessment proceedings they have filed a letter dt. 18/11/2009 wherein they have submitted that given the over whelming response to the housing project launched by the firm, the brand of the firm got established very quickly. Thereafter some differences arose between Jadav Devi and the other partners of the firm and she threatened to withdraw her portion of land and also wanted to start a competing project of the said portion of land. The action threatened by the appellant was likely to disturb the existing residential housing project of the firm. Since it had already received an amount of Rs. 415.44 lacs against the booking of 233 flats. So it took a conscious decision to negotiate terms of settlement with Smt. Jadav Devi for her peaceful exit and to pay a non competing fee of Rs. 2,42,44,000/-.

16 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

viii) The most damaging evidence against the appellant is that the fact that on the one had she has been stating all along that she signed the reconstituted partnership deed transferring her rights in the land to the firm to save on Stamp Duty and on the other hand has subsequently got the sale deed/conveyance deed registered with the Sub-Registrar as per annexure-A. Moreover, as per this document it is seen that the DLC rate of the land was Rs. 58,39,703/- so it is not understood why such a hefty payment of Rs. 2,42,44,000/- was paid/received by her over and above the DLC rate of the land determined by the Stamp Valuation Authority.

ix) I have carefully perused all the case laws relied on by the AR and find that the facts of these cases are distinct from the facts of the case of the assessee. In fact the findings of the Hon'ble High Courts & Tribunal in all these orders go against the contention made on behalf of the appellant. In all these judicial pronouncement, the Hon'ble High Courts and Tribunals have consistently held that as per section 45(3) for the purpose of section 48 the amount recorded in the books of the firm is to be deemed to be the full value of consideration received or accrued. In the case of the appellant, the full value of the land as recorded in the books of account of the firm is only Rs. 7,56,000/-. In fact, as per the registered sale deed it has been mentioned in para 12 that Rs. 7,56,000/- has been paid to the appellant vide 17 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

cheque No. 109430 dtd. 15/3/2007. Therefore, as per the case laws relied on by the AR the capital gains that accrued to the appellant were only of Rs. 7,56,000/-.

x) Regarding the reliance of the AR on the finding of the Hon'ble Delhi Tribunal in the case of DLF Universal Ltd., wherein it was held that subsequently if the asset is revalued or any other amount is credited in the account of the partner, it is to be considered as the amount recorded in the books of account for the purpose of capital gains tax on contribution of assets in partnership firm. The facts of the case are distinct in so far that the firm did not revalue the asset that is land contributed by the appellant in its books of account; the payment made was much more than the DLC rate determined by the stamp valuation authority; finally, the payment was made for severance of the partnership where it was clearly noted that the amount was paid to the appellant for not competing in business.

xi) Regarding repeated submissions by the AR that the appellant was not competent to compete by virtue of her age and lack of experience it is held that she had given a general power of attorney to her son Sh. Jugal Kishore Dangayach aged 58 years and had authorized him to look after her business interest. She was exercising her right of safeguard here 18 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

business interest through her son who was competed to do so.

xii) Regarding the submission of the AR that the case of the assessee was covered under the proviso to Section 28(va) it is held to be not tenable. The proviso clarifies that clause (a) of Section 28(va) shall not apply to any sum received on account of transfer of any right to carry on any business which is chargeable under the head capital gains. In the case of the appellant, the right to carry on any business chargeable to tax U/s 45(3) has been specified at Rs. 7,56,000/- as per discussion above. Any payment made over and above this amount would not be covered by the proviso and would fall with the provisions of section 28(va)(a). In view of the above discussion, it is held that the impugned income of Rs. 2,42,44,000/- is to be treated as income under section 28(va)(a) and the addition is confirmed."

8. Now the assessee is in appeal before us. The ld AR for the

assessee has submitted that the Hon'ble ITAT is to consider that Rs.

2,42,44,000/- is paid for non compete fees or towards the value of land

contributed by the assessee. He claimed that these receipts were

against the transfer of land in favour of the firm. As per Clause (6) of

the partnership deed dated 10/05/2006, land of the assessee was

contributed at Rs. 7,56,000/- the same was treated as capital of the 19 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

assessee. As per clause (7) of partnership deed each of the land owner

is responsible for any defect, disputed in the title land and would incur

the cost according to their share. The day to day responsibility of the

working of the firm was on Shri Suresh Kumar Golya and Shri Ramesh

Dangayach, they were only authorized to execute the agreement with

buyers and execution of lease agreement as per Clause (13) of the

partnership deed. The operation of bank account was allowed as per

partnership deed to Shri Suresh Kumar Golya and Shri Ramesh

Dangayach. The other major work is assigned to perform by the both

the partners as per clause (20) of the partnership deed dated

10/5/2006, the land contributed by the assessee could not

pledged/mortgaged by the firm for raising fund from banks/financial

institution till the retirement of assessee. This clause further provides

that the assessee shall not be responsible in respect of any loan raised

by the firm and she is having limited liability to the extent of capital

contribution recorded in the books of account i.e. Rs. 7,56,000/-. As per

clause (3) of the reconstituted partnership deed dated 15/3/2007, the

land contributed by the assessee and construction made thereon

become the property of firm and the assessee or her heir would not

make any claim. As per Clause (17) of this deed any liability arising in 20 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

respect of the land contributed by the assessee shall be responsible of

the assessee. The assessee was not in position to compete the firm as

she is 90 years old lady and not having any experience of real estate

business. During her lifetime, which can be verified from the return filed

by her from his past record, the assessee has shown rental income and

interest income in her return. The assessee was admitted in partnership

only for contribution of land. She is not the working partner of the firm.

She has not contributed any capital in monitory term, not operating the

bank account, she was not in position to interfere in the activity of the

firm. There was no activity by the firm between 10/5/2006 to

15/3/2007 except obtaining consolidated Patta from JDA and permission

for constructing the residential complex on the said land. The CIT(A)

has observed that as per letter dated 18.11.2009 filed by M/s Sequin

Real Estate before its AO, it has received an amount of Rs.415.44 lacs

against booking advance and the assessee threatened to start

competing project and therefore it was paid the non competing fees is

not borne out from the records in as much as neither the balance sheet

of the firm as on 31.03.2007 is provided to ensure that whether such

amount was received upto 15.03.2007 i.e. the date of the retirement of

the assessee from the firm or subsequent to her retirement. Further, no 21 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

evidence in form of any correspondence by the assessee with the firm

threatening to withdraw her portion of land or to start the competing

project was brought on record. It may be noted that the JDA has

approved the map of the project only on 25.07.2007 in response to

application dated 06.02.2007, then how the firm could have received

advance from booking of flats. Even the one page extract of the return

of the firm provided by CIT(A) do not reflect any booking advance of

415.44 lacs. Before CIT(A) assessee has specifically stated that this

claim of the firm is totally incorrect, false and misleading but not

addressed by the CIT(A). Therefore, the one sided view taken by the

CIT(A) that amount of Rs.2.42 crores paid by the firm to the assessee is

towards non compete fees is incorrect and without any material on

record. The CIT(A) has referred to the declaration dated 11.05.2007

(wrongly mentioned by her as sale deed) which was presented by the

firm before the Sub registrar. In Clause 13 of this declaration, it is

specifically mentioned that assessee who has contributed her land as

per partnership deed dt. 08.06.2006 has withdrawn herself from the

firm as per reconstituted deed & henceforth the said land would be

considered as the property of the firm. In this declaration, there is no

reference of amount of Rs. 2,42,44,000/- paid by the firm to the 22 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

assessee towards the alleged non compete fees but only reference of

Rs. 7,50,000/- which was initially credited to the account of the

assessee has been referred. This has been done with the ulterior motive

by the firm otherwise on registration of this document, stamp duty

would have been paid by the firm at the value of Rs. 2.50 crores.

From the bank account of M/s Sequil Real Estate, it can be noted that

two cheques of Rs. 7,56,000/- & Rs. 2,42,44,000/- dt. 15.03.2007 has

cleared from its bank account on 04.05.2007. Thus, when both the

cheques were cleared by the firm on 04.05.2007, the ulterior motive as

to why both the cheques were not referred by the firm in the

declaration which was registered with the Sub Registrar can be easily

perceived. Further, in spite of the request made to CIT(A) as to how the

entries were made in the books of the firm in respect of these cheques

is not provided to the assessee.

The ld AR further argued that it is evident from the transaction

that it was sale of land by the assessee to the firm liable for capital gain

tax U/s 45 of the Act. This was arranged through partnership deed not

to pay stamp duty on amount of Rs. 2.5 crores but only on the DLC

value of the land. He further referred definition of transfer given in

Section 2(47) of the Act. As per Section 45(3) if any partner transferred 23 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

his/her capital asset to the firm in which he/she become partner by way

of capital contribution or otherwise, shall be chargeable to tax as his

income of previous year in which such transfer takes place and for the

purpose of Section 48, the amount recorded in the books of account of

the firm as the value of capital asset shall be deemed to be the full

value of the consideration received or accruing as a result of transfer of

the capital assets. If initially the value of the land was recorded lower

amount and thereafter in the same financial year, the value is

increased. Such increased value is to be considered U/s 45(3) for the

purpose of computation of capital gain tax. In the present case, at the

time of entering in partnership deed, an amount of Rs. 7,56,000/- was

credited to the capital account of the assessee in respect of capital

assets contributed by her. Thereafter a further amount of Rs.

2,42,44,000/- was paid to her at the time of reconstitution of firm

whereby the assessee was retired, thus the full value of consideration

U/s 45(3) would be Rs. 2.5 crores/-. Therefore, capital gain on full value

of consideration Rs. 2.5 crores is to be calculated. He further relied on

the decisions in the case of Dharmshibhai B. Shah V. ITO 124 ITD

197/32 DTR 106 (Ahd.) (TM) (Trib.), DLF Universal Ltd. Vs Dy. CIT 123

ITD 1/34 DTR 105 (SB) (Trib) (Del), Nayanthara G. Agarwal 207 ITR 24 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

639 (Bom.) and CIT Vs. Gurunath Talkies 189 Taxman 271 (Kar.) and

prayed to delete the addition confirmed by the ld CIT(A) and assessed

these receipts under the head capital gain tax.

9. At the outset, the ld DR has vehemently supported the order of

the ld CIT(A).

10. We have heard the rival contentions of both the parties and

perused the material on record. The assessee is a 90 years old lady.

There is no past and subsequent experience in the line of

construction/real estate business. She only owned land which was taken

in the firm's account as a capital contribution made by her at Rs.

7,56,000/-, which was increased by Rs. 2,42,44,000/- and treated the

same as a capital contribution. The assessee firm has deducted TDS by

treating this amount as non compete fees but real nature of transaction

was that the assessee's land was got transferred to the partnership firm

i.e. M/s Sequine Real Estate and she was paid in total, amount of Rs.

2.5 crores through this partnership deed. The purpose of this transfer

through partnership deed was not to pay stamp duty on transfer of

immovable property on DLC rate. The assessee had disclosed these

receipts as capital receipts at Rs. 2.5 crores and after claiming of

indexation, the total capital gain had worked out at Rs. 2,42,05,334/-

25 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

claimed deduction U/s 54F, 54EC, U/s 54B at Rs. 2,42,05,334/- and had

shown net taxable capital gain NIL, which has not been verified by the

ld Assessing Officer at the time of assessment proceedings. We hold

that the nature of transaction is covered U/s 54(3) of the Act, therefore,

the Assessing Officer is directed to verify the deduction made by the

Assessing Officer from the capital gain disclosed by the assessee in her

return. The assessee's appeal on this ground is partly allowed.

11. The sole ground of revenue's appeal is against deleting the

addition of Rs. 13,60,081/-. The ld Assessing Officer observed that M/s

Sequine Real Estate had deducted TDS of Rs. 13,60,081/- on payment

of Rs. 2,42,44,000/- being non compete fees and the said payment was

deposited in the government account on 19/10/2007. The assessee had

not claimed deduction of same. The same was added in the income of

the assessee.

The assessee challenged this issue before the ld CIT(A), who had

allowed the appeal by observing that in fact credit has to be allowed to

the appellant of this TDS after due verification after determining the tax

liability of the appellant.

The ld DR supported the order of the Assessing Officer.

26 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

At the outset, the ld AR for the assessee submitted that the fact

of this ground is that M/s Sequin Real Estate suo moto deducted and

deposited Rs.13,60,088/- on 29-10-2007 with a interest of Rs.97,083/-

on the payment of Rs.2,42,42,000/- by alleging such amount as

payment towards non compete fees. At the time of payment no tax was

deducted at source. Even the TDS certificate was not issued. The AO

observed that the firm deducted a sum of Rs.13,60,088/- as TDS on the

payment of RS.2,42,44,000/- being non compete fees. The assessee

has not claimed the deduction of the same hence, no credit for TDS is

allowed. He further made an addition of this amount by holding that the

same is the income of the assessee. CIT(A) held that tax is deducted on

the payment of the non compete fees which is assessed to tax and

therefore the amount of TDS cannot be added to the income of the

assessee and credit of TDS be allowed to her after due verification. At

the time of payment no tax was deducted at source, and therefore no

TDS certificate was issued. Subsequently as an afterthought the firm

directly deposited the amount of tax deducted at source. No certificate

was issued to the assessee. The ld AO on the basis of this had assessed

this amount as business income u/s 28(va). Therefore, the AO is

allowed to credit for the same.

27 ITA 302 & 162/JP/2012_ ITO Vs. Jadav Devi Dangayach

After considering the facts of the case, the Assessing Officer is

directed tom verify the particulars of TDS and give the credit of tax

deducted to the assessee after verification. Thus, the appeal filed by the

revenue is dismissed.

12. In the result, the revenue's appeal is dismissed and assessee's

appeal is partly allowed.

Order pronounced in the open court on 22/05/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated 22nd May, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the Order forwarded to:

1. vihykFkhZ@The Appellant- The ITO, Ward 1(4), Jaipur.

2. izR;FkhZ@ The Respondent- Jadav Devi Dangayach, Jaipur.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr@ vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 302 & 162/JP/2012).

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar