2013 (1) TMI 756 - AT - Income Tax

Tribunal dismisses appeals on payments to nieces, upholds addition under IT Act, allows deductions for sisters and REC Bonds

The Tribunal dismissed both the assessee's and the Revenue's appeals. It upheld the disallowance of Rs. 15 lakhs paid to nieces and the addition of Rs. 20 ... Disallowance of deduction u/s 48(i) - amount paid to 3 nieces towards settlement of their interest in the property - Held that:- Considering the decision of Ashok SOI vs. CIT [2004 (10) TMI 34 - DELHI High Court] for the proposition that when an assessee paid certain amounts to someone to settle the claims, who had no right, title or interest in the properties in question, they cannot be considered to have been paid wholly and exclusively in connection with the transfer of property and the amount cannot be claimed as deduction u/s 48(i) of the Act. The ratio is applicable in the instance case as the three nieces to whom the assessee had paid an amount of ₹ 15 lacs did not have any legal claim over the property and therefore, the amount paid to them cannot be said to have been made in connection with transfer of the property. The decision relied upon by the assessee in the case of CIT vs. C.V. Soundararajan [1983 (8) TMI 14 - MADRAS High Court] has no application as there is no relinquishment of any right for which the amount is claimed to have been paid. Therefore, we are of the considered opinion that the decision of CIT (A) in upholding the disallowance made by the AO does not call for any interference. - Decided against assessee. Addition made by AO u/s 69 - Held that:- As extracted from the orders of the CIT(A) and AO provide that it is the assessee’s own submission that the sum of ₹ 20 lakhs was paid in cash and the same in support of his claim of deduction u/s 54 of the Act. Agreement to sale is a valid document and the assertions of the parties relating to cash payment of ₹ 20 lakhs is true considering their signatures in the presence of the witness. We are in agreement with the views of the CIT(A)/AO and the contents of the clause relating to manner of payment have to be either correct or incorrect and they cannot be partly correct (condition (ii); and partly incorrect (condition (i) as being attempted by the assessee. Will the flat-seller sign on any agreement affirming the receipt of cash of ₹ 20 lakhs when they same is not actually received by him? In our opinion, the answer is negative. Therefore, we are of the opinion that the order of the CIT (A) on this issue needs no interference. Regarding the argument that the addition if any has to be considered only for the AY 2008-09, the same does not pertain to the year under consideration and the shall be examined as when the ground is raised in appropriate AYs. In any case, it is a settled principle that the same amount of ₹ 20 lakhs cannot be added twice in two different AYs when the flat in question is singular in number - Decided against assessee. Deduction claimed u/s 48(i) - CIT(A) allowed claim - Held that:- It is true that the three sisters of the assessee possess residuary rights in the property, which was sold by the assessee and therefore, they are entitled to the part consideration and therefore, the said payments of ₹ 45 lakhs made to three sisters at the rate of ₹ 15 lakhs each, is the expenditure wholly and exclusively in connection with the transfer of the property. Considering the above settled position in the judgment of Hon’ble jurisdictional High Court in CIT vs. Shkuntala Kantilal [1991 (3) TMI 123 - BOMBAY High Court] we are of the opinion that the order of CIT (A) does not call for any interference. Accordingly, ground no.1 raised by the Revenue is dismissed and the issue is decided in favour of the assessee. Deduction claimed u/s 54EC - investment in purchase of Capital Gain Bonds of Rural Electrification Corporation Ltd. - CIT(A) allowed claim - Held that:- As per assessee, he could not invest in REC Bonds within the stipulated period of six months because of non-availability of REC Bonds till 27.1.2007. In our opinion, assessee was prevented by a reasonable cause from purchasing the REC Bonds within six months period from the date of sale consideration by a reasonable cause of non-availability of Bonds. Therefore, we upheld the order of the CIT (A) on this issue and the decision of CIT (A) does not call for any interference - Decided in favour of the assessee. Issues Involved:1. Disallowance of Rs. 15 lakhs paid to nieces claimed as deduction under Section 48(i) of the IT Act, 1961.2. Addition of Rs. 20 lakhs under Section 69 of the IT Act, 1961.3. Deduction of Rs. 45 lakhs paid to sisters claimed under Section 48(i) of the IT Act, 1961.4. Deduction of Rs. 22 lakhs invested in Capital Gain Bonds under Section 54EC of the IT Act, 1961.Detailed Analysis:Issue 1: Disallowance of Rs. 15 lakhs Paid to NiecesThe assessee claimed a deduction of Rs. 15 lakhs paid to his three nieces under Section 48(i) of the IT Act, 1961, which was disallowed by the AO and upheld by the CIT (A). The Tribunal noted that the nieces had no legal claim over the property as per the will of Smt. Kamlabai Moghe. The payments made to the nieces were considered a mere application of income and not in connection with the transfer of the property. The Tribunal upheld the disallowance, referencing the Delhi High Court judgment in Ashok SOI vs. CIT, which stated that amounts paid to settle claims without any legal right, title, or interest in the property do not qualify for deduction under Section 48(i).Issue 2: Addition of Rs. 20 lakhs Under Section 69The AO added Rs. 20 lakhs under Section 69 of the IT Act, 1961, based on the 'Paid by cash' clause in the sale agreement dated 7.7.2006. The assessee argued that the amount was not paid during the assessment year 2007-2008 but in April 2007, relevant for AY 2008-2009. The Tribunal found the assessee's explanation unconvincing, noting the agreement's clear mandate for cash payment and the absence of any date against the payment. The Tribunal upheld the addition, emphasizing that the assessee's conduct and subsequent events indicated an afterthought to avoid tax liabilities. The Tribunal agreed with the CIT (A) that the addition pertains to AY 2007-2008 and should not be considered for AY 2008-2009.Issue 3: Deduction of Rs. 45 lakhs Paid to SistersThe assessee claimed a deduction of Rs. 45 lakhs paid to his three sisters under Section 48(i) of the IT Act, 1961, which was allowed by the CIT (A). The Tribunal upheld this decision, noting that the sisters had a residuary right in the property as per the will of Smt. Kamlabai Moghe. The payment was considered necessary to obtain a clear title for the property transfer, aligning with the Bombay High Court's decision in CIT vs. Shkuntala Kantilal. The Tribunal agreed that the payment was an expenditure incurred wholly and exclusively in connection with the transfer of the property.Issue 4: Deduction of Rs. 22 lakhs Invested in Capital Gain Bonds Under Section 54ECThe assessee invested Rs. 22 lakhs in REC Bonds beyond the six-month period due to non-availability of the bonds. The AO disallowed the deduction, but the CIT (A) allowed it, citing a reasonable cause for the delay. The Tribunal upheld the CIT (A)'s decision, referencing the Bombay Tribunal's decision in Celle Plast vs. DCIT, which supported the allowance of the deduction due to the non-availability of bonds. The Tribunal agreed that the delay was justified and upheld the CIT (A)'s order.Conclusion:Both the assessee's and the Revenue's appeals were dismissed. The Tribunal upheld the disallowance of Rs. 15 lakhs paid to nieces and the addition of Rs. 20 lakhs under Section 69. It allowed the deduction of Rs. 45 lakhs paid to sisters and Rs. 22 lakhs invested in REC Bonds under Section 54EC. The judgment emphasized the importance of legal claims and the necessity of payments in connection with property transfers.