2024 (6) TMI 1273 - AT - Income Tax

Property transfer under HUF partition denied section 47(i) exemption due to lack of immovable assets in partition deed

ITAT Indore rejected assessee's claim that property transfer under HUF partition was exempt under section 47(i), finding the partition deed showed only ... Addition of capital gain - transaction had not been declared in his return - status of property i.e. the property was actually owned by firm OR assessee’s late father - claim of transfer of impugned property under ‘partition of HUF’ - crux of assessee’s submission was two-fold i.e. the property belonged to HUF, it was a case of partition of HUF and the distribution of assets by a HUF to its members on partition of HUF is excluded from transfer u/s 47(i) and the impugned property was basically a devolved property bequeathed by his deceased father by way of will - when assessee’s late father had no legal title in the impugned property, how can assessee have? HELD THAT:- A careful reading of “Partition-Deed” reveals that the HUF had only movable property in the form of certain unsecured loans given to parties which were partitioned. The deed also makes it clear that there is no immovable property in HUF. Thus, the claim of transfer of impugned property under ‘partition of HUF’ as projected by assessee before AO, stands unproved. It seems that realizing this eventuality, the assessee has himself mentioned on Page No. 2 of the application under Rule 29 “family arrangement or partition”, “Family Settlement”. Needless to mention that the Ld. AR, during hearing before us, has also not made any pleading qua the claim of ‘partition of HUF’. We may also mention here that even if we assume that there was a partition of HUF then also the exclusion from ‘transfer’ u/s 47(i) is available only to HUF at the time of distribution of assets to its members on partition; the said exclusion is not available to a member who transfers his share/right in divided or undivided property. The act of transferring any share/right in property by a member to other members would be a posterior event to the partition of HUF and such act does not fit in section 47(i). Therefore, the assessee’s claim of ‘partition of HUF’ and thereby exclusion from taxation is an unproved claim besides being untenable in section 47(i); we are rejecting the same. Assessee executed sale-deed as part of ‘family settlement’ and ‘family settlement’ is not taxable under Income-tax - We find that the assessee has never claimed before lower-authorities the factum of “family settlement” although the assessee claimed “partition of HUF”. As stated earlier, the theory of “family settlement” has been pushed for the first time in the application under Rule 29 by mentioning “family arrangement or partition”, “Family Settlement”. Further, in the “additional evidences” filed under Rule 29, the assessee has filed “Memorandum of Family Settlement” alongwith “Partition-Deed” because the “Partition-Deed”, as mentioned earlier, does not support assessee’s stand. Further, the Ld. AR for assessee has also refrained from making any pleading qua ‘partition of HUF’ claimed by assessee before lower authorities. Instead, Ld. AR harped on ‘family settlement’. We may mention that in the reply filed to AO, the assessee mentioned that it was a case of forced sale to his family members but there also the assessee did not talk of ‘family settlement’, the assessee only tried to get out of taxability by claiming income of HUF or claiming partition of HUF. Now in such a situation, if we allow the claim of ‘family settlement’ at this stage, it would amount to upsetting the whole proceeding done by lower-authorities and giving concession to assessee to set up a new case. We are afraid that we can do this. Therefore, without going into the merit of the additional evidence titled “Memorandum of Family Settlement” filed by assessee, we are straightaway rejecting the assessee’s claim of “family settlement’ itself. Rejected thus. Assessee’s father/assessee did not have any right in the property which was owned by partnership firm and therefore there is no income earned by assessee even if a sale-deed has been executed - Here the case is such that the assessee’s father was having 1/3rd share in partnership firm and after death of father, there were 6 legal heirs including assessee. Accordingly, the assessee sold his 1/6th share in ‘1/3rd share of assessee’s father in undivided property of firm’ to his 3 brothers. To materialize this, the assessee executed a sale-deed and received actual consideration of Rs. 1,80,00,000/- from his brothers through cheques. This is a transaction inter-se between assessee and his brothers. The partnership firm is nothing to do with this transaction of sale. As admitted by Ld. AR for assessee, the firm continued even after death of assessee’s father. Therefore, it seems that the entire property continued intact in the books of firm and remained unaffected by the transaction of sale made in-between the assessee and his brothers. Assessee as seller and his 3 brothers as purchasers have acted upon the sale-deed and essentially the assessee’s right became right of brothers for a consideration. Therefore, when a de facto transaction of sale by assessee has been made and the assessee has received a hefty consideration of Rs. 1,80,00,000/- for transfer of his right, it would attract taxability and it is nothing to do with the provisions of section 14 of the Indian Partnership Act. The department is not asking to pay tax on any kind of ‘notional’ transfer, the revenue’s case is such that the assessee has made an actual sale which is taxable. Needless to mention that the assessee is also claiming to have utilized the sale consideration of Rs. 1,80,00,000/- for making investments in newer properties (it is a different point that the assessee claimed exemption u/s 54/54F on the basis of those newer investments but the AO has disallowed exemption on a different premise). Therefore, we do not find any merit in the second claim of assessee argued by Ld. AR too. - Decided against assessee. Unexplained cash deposits in bank a/c - HELD THAT:- We find that the assessee has filed a Cash-Book during proceeding before AO in which the entries of cash-inflow, outflow and opening-closing balances are adequately reflected. We also find that the Written-Note filed by Ld. AR also gives a summarized picture of Cash-Book to show that the assessee was having sufficient cash balance for deposit in bank a/c. Ld. DR for revenue though dutifully supported the orders of lower-authorities yet could not contradict or rebut the submissions made by Ld. AR. Hence, we are inclined to accept that the assessee was having sufficient cash balance for making deposits as is demonstrated by Cash Book. The addition made by AO is therefore not warranted. The same is hereby deleted. This ground is thus allowed. Issues Involved:1. Addition of Rs. 2,53,98,000/- as capital gain.2. Addition of Rs. 33,27,700/- as unexplained investment under section 69 of the Income Tax Act.Detailed Analysis:Ground No. 1: Addition of Rs. 2,53,98,000/- as Capital Gain1. Background Facts:- The assessee filed a return for AY 2012-13 declaring an income of Rs. 2,87,160/-.- The case was selected for scrutiny, and the AO determined the total income at Rs. 2,90,19,565/- after making certain additions.- The assessee appealed against the additions, which were upheld by the CIT (A).2. Assessee's Arguments:- The property belonged to HUF and was a case of partition, excluded from transfer u/s 47(i).- The property was inherited from the father and sold to family members as part of a family settlement.- The sale consideration was reinvested in properties, claiming exemption u/s 54/54F.3. AO's Findings:- The property was received by the assessee in an individual capacity.- The sale deed was executed in the individual name and PAN of the assessee.- The AO invoked section 50C and adopted the stamp duty valuation for computation of capital gain.- Rejected the claim of exemption u/s 54/54F.4. CIT (A)'s Decision:- Upheld the AO's order, confirming the addition of Rs. 2,53,98,000/- as capital gain.5. Tribunal's Analysis:- The assessee executed a sale deed in favor of his brothers, receiving a consideration of Rs. 1,80,00,000/-.- The claim of partition of HUF was unproved as the partition deed only mentioned movable property.- The claim of family settlement was introduced late and was not substantiated by earlier proceedings.- The partnership law does not support the assessee's claim as the firm continued after the father's death, and the property remained in the firm's books.- The assessee's transaction was a de facto sale, attracting taxability.6. Conclusion:- The tribunal rejected the assessee's claims and upheld the addition of Rs. 2,53,98,000/- as capital gain.Ground No. 2: Addition of Rs. 33,27,700/- as Unexplained Investment1. Background Facts:- The AO made an addition of Rs. 33,27,700/- as unexplained cash deposits in the bank account.- The CIT (A) confirmed the AO's observation.2. Assessee's Arguments:- The assessee submitted a cash book during the assessment proceedings, showing entries of cash inflow and outflow.- The cash book included entries of cash withdrawals from the bank and salary received from M/s Bhagirath Coach.- The assessee claimed that the sources of cash deposits were adequately explained.3. Tribunal's Analysis:- The tribunal reviewed the cash book and found that the assessee had sufficient cash balance for the deposits.- The AO's observation that the assessee did not make any submission was incorrect.- The Ld. DR could not contradict the submissions made by the assessee.4. Conclusion:- The tribunal found the addition unwarranted and deleted the addition of Rs. 33,27,700/-.Final Order:- The appeal was partly allowed, with the addition of Rs. 2,53,98,000/- upheld and the addition of Rs. 33,27,700/- deleted. The order was pronounced in open court on 18.01.2024.