Shri Janardan R Kapse, Nashik, Nashik vs Assessee

ी आर. के. पांडा, लेखा सद य, एवं ी वकास अव थी, या#यक सद य के सम$। BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM

आयकर अपील सं. / ITA No. 163/PN/2009 Block Period: 1997-98 to 2003-04

Mrs. Aruna J. Kapse, .......... अपीलाथ / Classic Arcade, Saigram, Appellant Cidco Ambad Link Road, Ambad, Nashik-422010

PAN : ANGPK 2783 B

बनाम V/s.

Dy. Commissioner of Income Tax, .......... यथ / Central Circle - 1, Nashik Respondent

आयकर अपील सं. / ITA No. 164/PN/2009 Block Period: 1997-98 to 2003-04

Shri Janardan R. Kapse, .......... अपीलाथ / Classic Arcade, Saigram, Appellant Cidco Ambad Link Road, Ambad, Nashik-422010

PAN : ABPPK 7293 K

बनाम V/s.

Dy. Commissioner of Income Tax, .......... यथ / Central Circle - 1, Nashik Respondent

अपीलाथ क ओर से / Appellant by : Smt. Deepa Khare

यथ क ओर से / Department by : Shri B.C. Malakar

ु वाई क तार ख/ Date of Hearing सन :13-05-2015 घोषणा क तार ख /Date of Pronouncement :10-07-2015 2 ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

आदे श / ORDER

PER VIKAS AWASTHY, JM:

The appeals have been filed by the assessees impugning the order

of Commissioner of Income Tax (Appeals)-I, Nagpur dated 29-08-2008 for

the block period 1997-98 to 2003-04 u/s. 158BD r.w.s. 143(3) of the

Income Tax Act, 1961 (hereinafter referred to as "the Act"). Since, facts

and issues involved in both the appeals are identical, the appeals are

taken up together for adjudication.

2. The brief facts of the case as emanating from records are : The

assessees are husband and wife. The assessees were Directors in M/s.

Vastukrupa Construction (India) Pvt. Ltd., holding 400 shares each

having face value of Rs.100/- per share. The company was engaged in

the business of land development and construction of residential and

commercial complex. The company had authorized share capital of

Rs.5,00,000/- and paid up share capital of Rs.80,000/-. A search and

seizure action u/s. 132 was conducted in the case of Laddha Group on

09-10-2002. During verification of materials found in search, it

transpired that Laddha Group had acquired entire paid up shares of M/s.

Vastukrupa Construction (India) Pvt. Ltd. from the assessees. Shri

Prakash Laddha in his statement recorded u/s. 132(4) on 11-10-2002

admitted that he and his wife have taken over the shares of Vastukrupa

Construction (India) Pvt. Ltd., Nashik from the assessees. For verification

of the facts, notice u/s. 131 was issued to the assessees. The assessees

vide letter dated 09-08-2004 submitted, that Vastukrupa Construction

(India) Pvt. Ltd. was incorporated in 1991. The main objects of the

company were land development, construction of residential and 3 ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

commercial complex etc. The authorized share capital of the company is

Rs.5,00,000/- and the paid-up capital is Rs.80,000/-. Both the

assessees are Directors of the company. Out of the total paid up share

capital, the assessees were having 400 shares each having face value of

Rs.100/- each. The assessee in ITA No. 163/PN/2009 (Mrs. Aruna J.

Kapse) sold her 400 shares for consideration of Rs.13,00,000/-. The

assessee in ITA No. 164/PN/2009 (Shri Janardan R. Kapse) sold his 400

shares at Rs.32,00,000/-. The total sale consideration of the company

was fixed at Rs.45,00,000/-. Out of the total sale consideration of

Rs.45,00,000/-, the assessees have received Rs.5,00,000/- each by

cheques from Shri Prakash Laddha. For remaining amount of

consideration, Shri Prakash Laddha had issued post dated cheques that

were dishonoured.

3. On the basis of the documents seized and information collected,

notice u/s. 158BD was issued to the assessees. During the block

assessment proceedings, the assessees submitted that the amount due

from Shri Prakash Laddha on account of dishonoured cheques has not

been received by the assessees till date and the cases are pending before

the District Court, Nashik. The actual amount received by the assessees

is Rs.5,00,000/- each, which is less than the amount of investment made

by them in the company, therefore, there is no question of any tax

liability. The assessee further claimed that they had spent collectively a

sum of Rs.17,49,617/- for improvement of site. The Assessing Officer did

not accept the contentions of the assessee. The Assessing Officer held

that since, both the assessees were having equal number of shares in

Vastukrupa Construction (India) Pvt. Ltd., therefore, the consideration for

sale of shares received by the assessees should be equally divide between 4 ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

both the share holders. The Assessing Officer computed Long Term

Capital Gain on the sale of shares by giving the benefit of indexation. The

Assessing Officer further rejected the claim of the assessees with respect

to the amount of unsecured loan given for improvement of sites.

Aggrieved by the assessment order dated 21-11-2006 passed in the

respective cases of the assessees, both the assessees filed appeals before

the Commissioner of Income Tax (Appeals). The Commissioner of Income

Tax (Appeals) rejected the contentions of the assessees and confirmed the

findings of the Assessing Officer.

Now, the assessees have come in second appeal before the Tribunal

against the order of Commissioner of Income Tax (Appeals).

4. The assessees have raised following grounds before the Tribunal:

1. On the facts and in law the CIT(A) has erred in adopting sale consideration for transfer of 400 shares at Rs.22,50,000/- as against Rs.5,00,000/-.

2. On the facts and in law the CIT(A) has erred in not appreciating the fact that the consideration for transfer of 400 shares was Rs.5,00,000/- as per copy of share transfer form seized in action u/s. 132(4), statement of Mr. Prakash Laddha u/s. 132(4) and statement of cross examination of Mr. Prakash Laddha.

3. On the facts and in law the CIT(A) has erred in accepting part of the contents of the letter filed by the appellant beneficial to the revenue and rejecting part of the contents of the same letter, which is not beneficial to the revenue against the proposition of law laid down by hon'ble Pune ITAT, in the case of Chandramohan Mehta Vs. ACIT, 71 ITD 245.

4. On the facts and in law the CIT(A) has erred in taxing the consideration of Rs.27,00,000/- towards expenditure incurred by the appellant for site development of the land during 1990-91 to 31/3/2000 Rs. 13,37,745/-.

5. On the facts and in law the CIT(A) has erred in not appreciating the fact that no consideration towards expenditure incurred by the appellant for site 5 ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

development of the land was received and the purchaser is also not willing to pay the same and litigating the same in Nashik Court.

6. On the facts and in law the CIT(A) has erred in not considering cost of land development etc. incurred by the appellant at Rs. 13,37,745/- while arriving at taxable capital gain.

Except for amounts, the grounds raised in both the appeals are

identical.

5. Smt. Deepa Khare appearing on behalf of the assessees submitted

that the authorities below have erred in invoking jurisdiction u/s. 158BD.

During the search proceedings in the case of Laddha Group no

incriminating material was found against the assessees. The ld. AR

submitted that there was no undisclosed income as the entire income was

accounted for and reflected in the balance sheet for the impugned

assessment years. The amounts which have not been received on

account of litigation cannot be taxed. The ld. AR contended that the

authorities below have arbitrarily divided the sale consideration equally in

the hands of both the assessees. The assessee in ITA No. 163/PN/2009

was to receive Rs.13,00,000/- in lieu of her transfer of shares, whereas

the assessee in ITA No. 164/PN/2009 was to get Rs.32,00,000/-. Both

the assessees have collectively received Rs.10,00,000/-. The remaining

consideration of Rs.35,00,000/- was never received by the assessees as

the cheques issued by Shri Prakash Laddha were not honoured. The

assessees have filed criminal complaints against Shri Prakash Laddha

under Negotiable Instrument Act which are sub-judice before the District

Judge, Nashik. The ld. AR further submitted, that the authorities below

have erred in not considering the amount given by assessees for

development of sites as unsecured loan to be part of sale consideration. 6

ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

To support her submissions, the ld. AR placed reliance on the following

decisions:

i. CIT Vs. Shyamlal Balram Gurbani; 249 ITR 501.

ii. CIT Vs. Vikram A Doshi; 256 ITR 129.

iii. CIT Vs. R.M. Patel (HUF); 298 ITR 274.

6. On the other hand Shri B.C. Malakar representing the Department

vehemently defended the impugned orders. The ld. DR submitted that

notice u/s. 158BD was issued after recording satisfaction. The assessees

did not file block return despite repeated notices. Incriminating material

was found during the search operation conducted at the premises of Shri

Prakash Laddha, therefore, notices u/s. 158BD were issued to the

assessees. Both the assessees had equal number of shares and the face

value of shares were same. However, the assessees divided the

consideration of shares Rs.32,00,000/- in hands of assessee in ITA No.

164/PN/2009 and Rs.13,00,000/- in the hands of the assessee in ITA No.

163/PN/2009 in an arbitrary manner and without any basis. No valid

explanation whatsoever was given for such unequal distribution of the

sale consideration. The ld. DR further contended that the assessees have

claimed site development expenses as part of consideration. However, no

such expenses are allowable when the consideration is for sale of shares.

The ld. DR prayed for dismissing the appeals of the assessees and

sustaining the impugned orders.

7. We have heard the submissions made by rival sides and have

perused the orders of the authorities below. The first argument raised by

the ld. AR is with respect to validity of proceedings u/s. 158BD. We find

that the assessees had neither raised this ground before the 7 ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

Commissioner of Income Tax (Appeals) nor this ground has been taken in

the grounds of appeal before the Tribunal. The ld. AR for the first time

has assailed the invoking of jurisdiction u/s. 158BD in oral arguments

before the Tribunal. The ld. DR has strongly objected to the same. It is a

well settled law that the appellant can raise fresh legal ground before the

Tribunal even if it is not taken before the First Appellate Authority.

However, the appellant has to make an application for raising such

additional ground. National Thermal Power Corp. Ltd. v. CIT 229 ITR

383 (SC). De`hors the fact that invoking of jurisdiction u/s. 158 BD has

been challenged without any formal application for admitting additional

ground, we are deciding this issue.

8. During the course of search proceedings in the case of Laddha

Group, documents relating to sale of shares of Vastukripa Construction (I)

Pvt. Ltd. were found and seized. Sh. Prakash Laddha and his wife Smt.

Aruna P. Laddha had purchased 400 shares each in Vastukripa

Construction (I) Pvt. Ltd. from the assesses in Financial year 1999-2000.

In statement recorded u/s. 132(4), Sh. Prakash Laddha admitted the

purchase of shares. For verification of facts, assesses were summoned

u/s. 131. On the basis of documents seized, verification of case records

and the statements recorded, it transpired that assesses have not

returned the capital gains on sale of shares in their respective return of

income.

In the back drop of these facts notice u/s. 158BD was issued to the

assessees. The provisions of section 158BD can be invoked where the

Assessing Officer is satisfied that any undisclosed income of a person

other than one against whom search was conducted is reflected in the

books of accounts/documents of the person searched. We find that after 8 ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

recording of satisfaction notice u/s. 158BD was issued to the assessees

by the Assessing Officer on 29-09-2004. The ld. AR of the assessees has

contended that the entire income has been accounted for and is reflected

in the balance sheet of the assessees. However, no documentary evidence

has been placed on record in support of such contentions. Further, the

ld. AR has not been able to show that the assessees have disclosed

Capital Gains on sale of shares in any of the impugned assessment years.

Thus, we are not inclined to accept the contentions of the assessees that

invoking of jurisdiction u/s. 158BD is unjustified. Accordingly, we reject

the same.

9. It is an undisputed fact that the assessees have sold entire paid up

share holding in Vastukrupa Construction (India) Pvt. Ltd. to Shri

Prakash Laddha and his wife. As per assessees own admission, the

consideration for transfer of shares and the company is Rs.45,00,000/-.

The contentions of the assessees is that they have received only

Rs.10,00,000/- and the remaining amount of Rs.35,00,000/- has not

been received by the assessees from Shri Prakash Laddha till date. The

post dated cheques issued by Shri Prakash Laddha for the payment of

remaining amount were dishonoured. Further, the stand of the assessees

is that Shri Janardan R. Kapse had incurred expenses to the tune of

Rs.13,37,745/- and Mrs. Aruna J. Kapse had incurred expenses to the

tune of Rs.4,11,872/- for improvement of site. The aforesaid amounts

aggregating to Rs.17,49,617/- was in the nature of unsecured loan to the

company. The consideration of Rs.45,00,000/- included this amount of

unsecured loan. A perusal of records show that 800 shares having face

value of Rs.100/- each have been transferred in the name of Shri Prakash

Laddha and his wife consequent upon the payment of Rs.10,00,000/-. 9

ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

We do not concur with the submissions of the assessees that the

consideration of Rs.45,00,000/- is towards transfer of shares and

repayment of cost of improvement of site. The assessees till date have not

brought on record any document to show the terms and conditions and

the allocation of consideration for transfer of company from assessees to

Laddha Group. In the absence of any documentary evidence the only

inevitable inference that can be drawn is that Rs.45,00,000/- is sale

consideration for transfer of shares alone. To treat Rs.17,49,617/- as

part of sale consideration is nothing but an attempt to reduce the capital

gains arising on sale of shares.

The assessees have transferred the ownership of the company to

Laddha Group by transferring their entire share capital in the names of

Shri Prakash Laddha and his wife Mrs. Aruna P. Laddha. In the course of

transfer of shares, the assessees have earned Long Term Capital Gain. It

is a well settled law that when the ownership/title in the asset is

transferred, the capital gain arising on transfer of such asset is liable to

be taxed in the year of transfer. It is immaterial whether the sale

consideration is received in full or in part in that particular assessment

year. The income has to be taxed in the year of accrual. In other words,

once the ownership in the capital asset is transferred, long/short term

capital gain as the case may be arising on the said transaction is liable to

be taxed in the year of transfer of title. In the instant case the shaes

stand transferred in the name of Shri Prakash Laddha and Mrs. Aruna P.

Laddha in assessment year 2000-01.

10. During the course of arguments the ld. AR of the assessee has

drawn our attention to the cross-examination of Shri Prakash Laddha by

Shri Janardan R. Kapse, the assessee. A perusal of the cross- 10

ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

examination shows that Shri Prakash Laddha has admitted the purchase

of shares of M/s. Vastukrupa Construction (India) Pvt. Ltd. for

Rs.5,00,000/- and equal number of shares in the name of his wife, Mrs.

Aruna P. Laddha for similar consideration. We observe, that there is no

reference of the remaining consideration in the entire cross-examination.

11. A copy of the assessment order for the block period 1997-98 to

2003-04 passed u/s. 158BD r.w.s. 143(3) in the case of Shri Prakash P.

Laddha and the order of the Commissioner of Income Tax (Appeals)-I,

Nashik dated 28-12-2006 u/s. 158BD r.w.s. 143(3) has been placed on

record. A perusal of the assessment order and the order of First Appellate

Authority in the case of Shri Prakash P. Laddha shows that an amount of

Rs.41,50,000/- has been paid by Shri Prakash P. Laddha to Shri

Janardan R. Kapse in cash. The relevant extract of the letter dated

18-10-2004 by Shri Prakash P. Laddha submitted during the course of

assessment proceedings is as under:

"By letter dated 18-10-2004 - Para 5 -

As regards the refusal of receipt by Shri. J.R. Kapse of Rs.41,50,000/-, I have to point out that this refusal does not have any effect on determination of my UDI. In the financial statements for UD1 transactions, Rs.9,29,000/- and Rs. 8,60,000/- have been shown in F.Y. 1999-00 & 2000-01 respectively as paid to Shree. J.R. Kapse. Further, in F.Y 2001-02 Rs.23,21,000/- have been shown as received against "Plot Advance Paid"

in the regular books of Accounts for which corresponding source is UDI financial transactions, this did not actually represent any transaction/transfer of funds. Thus, for Rs.23,21,000/- in F.Y 2001-02 neither any amount was paid nor any amount was received. However, the amount of Rs.40,000/- was paid to Shree. J.R. Kapse against purchase of shares. Therefore, in view of the refusal by Shree. J.R. Kapse, the amount standing in his name be treated as use of name of Shree J.R. Kapse to park UDI."

11

ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

12. A perusal of the above letter of Shri Prakash P. Laddha shows that

an amount of Rs.40,000/- was allegedly paid to Shri Janardan R. Kapse

against purchase of shares. The claim made by the assessee and the

statement given by Shri Prakash P. Laddha are not congruent. Shri

Prakash P. Laddha during the course of assessment further admitted that

payment to the extent of Rs.17,89,000/- in cash and Rs.40,000/- by

cheque out of the total of Rs.41,50,000/- as appearing in seized

documents. Thus, in view of seized documents and the admission of Shri

Prakash P. Laddha regarding the payment of consideration and also the

fact that share of M/s. Vastukrupa Construction (India) Pvt. Ltd. have

been transferred in the name of Shri Prakash P. Laddha and his wife, we

are of the considered opinion that the entire sale consideration has to be

taxed in the hands of the assessees as Long Term Capital Gain.

13. The contentions of the ld. AR that the assessees have received only

Rs.10,00,000/- out of total sale consideration of Rs.45,00,000/- and the

remaining amount of Rs.35,00,000/- is under litigation is not

sustainable. As pointed out earlier, once the capital asset is transferred,

the assessees is liable for long/short term capital gain tax arising from

the transfer of such asset. The income accrues to the assessee in the

year of transfer, irrespective of the fact whether entire sale consideration

is received or not.

14. The ld. AR of the assessees in support of his submissions has

placed reliance on certain decisions of the Hon'ble High Courts.

14.1 In the case of CIT Vs. Vikram A. Doshi (supra) one the issue raised

before the Hon'ble High Court was with respect to recording of 12 ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

transactions. The Hon'ble High Court held that since the transactions

were disclosed in the returns which were the subject matter of regular

assessment therefore provisions of section 158BD cannot be invoked.

The transactions were subject matter of regular assessment. The Hon'ble

High Court gave the finding in the facts and circumstances of that

particular case. In the present case, the assessees have not been able to

show that the capital gain arising from the sale of shares was ever

disclosed by the assessees in their return of income. 14.2 In the case of CIT Vs. Shyamlal Balram Gurbani (supra) the

Tribunal found that the income which was allegedly not shown in the

return of income was in fact reflected in the Schedule to the audited

balance sheet of the firm in the impugned assessment year. The Tribunal

further found that the return of undisclosed income filed before the

Assessing Officer under Chapter XIV-B also indicated that income had

been disclosed, the tax deducted at source, advance tax has been paid.

In the facts of the case the Tribunal held the there was no reason for

treating the said total income as undisclosed for the purpose of Chapter

XIV-B. Since, the issue was decided on the facts the Hon'ble High Court

dismissed the appeal of the Revenue.

14.3 In the case of CIT Vs. R.M. Patel (HUF) (supra) the issue was,

whether material relating to assessee was found during search? The

Hon'ble High Court in the facts and circumstances of that case held that

the seized materials did not relate to the assessee therefore, it was not

proper to proceed against the assessee u/s. 158BD.

All the above cases cited by the ld. AR were decided on the

particular facts of each case. The facts in the present case are entirely at 13 ITA Nos. 163 & 164/PN/2009, B.P. 1997-98 to 2003-04

variance therefore, we are of the view that the aforesaid cases will not

help the cause of assessees.

15. We find no infirmity in the order of Commissioner of Income Tax

(Appeals), the same is upheld. The appeals of the assessees are

dismissed being devoid of any merit.

Order pronounced on Friday, the 10th day of July, 2015 at Pune

Sd/- Sd/-

(आर. के. पांडा / R.K. Panda) ("वकास अव#थी / Vikas Awasthy) ACCOUNTANT MEMBER JUDICIAL MEMBER

पुणे/Pune; %दनांक/Dated : 10th July, 2015 RK/PS

आदे श क) *#त,ल प अ-े षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आयु'त (अपील)/ The CIT(A)-I, Nagpur

4. आयकर आयु'त /The CIT(Central), Nagpur

5. "वभागीय ,त,न-ध, आयकर अपील य अ-धकरण, "बी" ब2च, पुणे / DR, ITAT, "B" Bench, Pune

6. गाड@ फाईल /Guard file.

"पत //True Copy// आदे शानस ु ार/ BY ORDER,

#नजी स चव /Private Secretary, आयकर अपील य अ धकरण, पुणे/ITAT, Pune