TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2050
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..... 27,03,01,900/- in the computation of long-term-capital-gain. The relevant facts qua the levy of penalty are that the assessee firm is a partnership came into existence in the year 1975. Prior to that it was proprietary concern of Shri Pyarali Dholakia which was converted into a partnership firm by admission of his daughter Natasha Almas and son, Mateen Dholakia as partners. Later on, there was change in the partners and his son Mateen and wife, Mrs. Pravin Dholakia were taken as partners in 1983. An immovable property situated at Chakala, Andheri (East), Mumbai was owned by Shri Pyarali Dholakia in his proprietorship concern, later on, the said property was converted into property of partnership firm in year 1975. A part of the property was owned by Mrs. Pravin Dholakia, who entered into a Memorandum of Understanding with the assessee firm granting of her share of property to the partnership in 2003, for a consideration of Rs. 35,05,000/-. This consideration was neither paid nor transferred to Mrs. Pravin Dholakia during her lifetime (she passed away on 26th November, 2006). On 8th May, 2006 the partnership firm entered into joint venture agreement for the development of the prop....
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....nt treasury from its own account. In the return of income, while computing the long-term-capital-gain, the assessee claimed the deduction of Rs. 17,74,22,070/- on the ground that the transfer of price in the land to legal heirs on retirement from Joint Venture, was due to testament of the "will" of the father and family arrangement, hence it amounts to diversion by overriding title to the three legal heirs of Mr. Pyarali Dholakia. 3. However, the Assessing Officer held that, payment made to the legal heirs of the partner, Shri Pyarali Dholakia & Mrs. Pravin Dholakia cannot be allowed to be reduced from the gross consideration received, as the same belongs to the partnership and the entire amount should have been shown in the hands of the firm. The reason given by him has been elaborately discussed from pages 10 to 13 of the assessment order. The relevant observation and the finding of the Assessing Officer are as under :- "On the basis of the facts highlighted above and in view of the show cause and its response dated 26.12.2011 and 28.12.2011 by the assessee, it can be seen that the assessee is primarily relying on the fact that the family members are legal heirs of the partners....
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....uld only be in the hands of the firm. xi. Payment to family members is only an application of income and cannot be considered as an allowable expense/deduction prior to computing the consideration for capital gain computation in the hands of the firm". "In view of the above, it is established that the capital asset which was transferred was owned by the firm and not by the legal heirs of the partners. Thus, the long term capital gain arising out of transfer of such capital asset would only be taxable in the hands of the assessee firm and not in the hands of legal heirs of the partners. Any payment out of gross consideration received/receivable to the legal heirs of the partners can be best be considered as application of income but such payment cannot be reduced from the gross consideration while computing the long term capital gains. As the absolute rights in the capital assets were only vested in the firm; the long term capital gain arising out of transfer of such capital asset would only and entirely accrue in the hands of the assessee firm M/s Goldfilled Mercantile Co". Accordingly, the entire gross sale consideration dated 21st May, 2008, of Rs. 70 crore was taken as sale....
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.... be held to be reasonable explanation, because at the threshold, legal heir do not have the right on sale consideration, which can be said to have been diverted by overriding title. He also noted the fact that the amount paid to the legal heirs were out of the amounts standing in the credit of father and mother which to be paid as part of the family settlement amongst the legal heirs and this had no connection whatsoever with the taxability on the sale of the assets on which the capital-gains had accrued to the assessee. Under no circumstances, the amount paid to the legal heirs could have been claimed by the assessee as deductible u/s 48. Regarding assessee's plea that taxes has already been paid by the legal heirs at the same rate, therefore, there was no mala fide intention to evade taxes is not tenable, because as per the law, the taxes are required to be paid by the person to whom income has accrued. The assessee has claimed wrong deduction to which it was not eligible at all. Thus, he rejected the assessee's contention on all counts. Besides this, he has also discussed various case laws, including that of Supreme Court decisions in the case of Dharmendra Textiles Processors R....
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....n (P.) Ltd. [2010], reported in 327 ITR 510 (Del) and placed reliance upon the decision of Hon'ble Bombay High Court in the case of CIT vs Dychem, in Income-tax Appeal No.1346 of 2013, order dated 06.07.2015 wherein, Hon'ble High Court has taken note of Zoom Communications. Thus, he submitted that penalty levied in the case of the assessee should be deleted. 7. On the other hand, Ld. DR, after referring to the relevant observation and finding given in the penalty order as well as the impugned order of the CIT(A), submitted that there was never an dispute about, who will pay the taxes and whose liability it is. Assessee had filed the computation of long-term-capital-gain and thereby had claimed huge deduction of Rs. 17 crores from such computation by reducing the sale consideration. It is only when the matter was taken-up during the scrutiny proceedings, the assessee was forced to withdraw the claim of deduction and showed the correct income in the hands of the assessee. Thus, it was assessee who was liable to pay tax on its own account, because it is purely application of an income. Even the assessee's explanation kept on changing. Before the Assessing Officer, it was submitted th....
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....ughters from the funds available from the firm from the sale of the property including the amount that the firm may receive on the retirement from the Joint Venture of the Developer. Thereafter, Retirement Deed was signed on 21.05.2008, whereby, a joint venture was ended and the Developer agreed to pay sum of 70 lakhs to the other Members of the AOP i.e. the partnership firm in view of the surrender of rights and interest in the land. Not only that, a Deed of the confirmation of the same date was also entered by legal heirs so that there is no legal claim by the legal heirs. Post this event, the partnership firm paid the amount to the three legal heirs (daughters) sum of Rs. 4.50 crores each and over and above, tax amount of Rs. 1,31,40,690/- each was paid by the assessee. Given as per the details incorporated above. Thus, the taxes were paid by the assessee-firm though on account of / on behalf of the legal heirs. Thereafter, the assessee in the return of income, declared the long-term-capital-gain received from the Developer under the Retirement Deed and claimed deduction of Rs. 17,74,22,707/- paid to legal heirs. In the course of the assessment proceedings, the Assessing Officer....
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....nation has not been found to be false. The assessee may give an explanation and substantiate with his bona fide belief that the claim made at the time of filing of return of income was based on materials and factors favourable to the assessee at that time. The explanation merely raises a rebuttal presumption, which could be discharged in a given case by pointing out the factors and materials in favor of the assessee. It is from this stage the burden shifts upon the revenue. Here in this case, as discussed above, the assessee had no intention even remotely to evade the taxes by claiming the deduction of the amount given to the legal heirs which is evident from the fact that assessee firm acted bonafidely that the amount was to be paid to the legal heirs of the partners and the assessee has paid more taxes though on behalf legal heirs which should have been paid through its own account. The main surviving partner, Mr. Mateen Dholakia (Son of late Mr. Pyarali & Mrs Pravin Dholakia), had tried to discharge his obligation as per the 'Will' of his parents and also by the family arrangement that out of the sale proceeds from the land originally belonging to his father, (later on converted....