High Court Of Allahabad
M.R. Associates vs. Income-tax Appellate Tribunal
Assessment Year : 1995-96
Section : 147, 149
Devi Prasad Singh And Dr. Satish Chandra, JJ.
IT Appeal No. 1 Of 2007
August 17, 2011
Dr. Satish Chandra, J. – This appeal is filed by the assessee under section 260A of the Income-tax Act, 1961, against the judgment and order dated August 25, 2006, passed by the Income-tax Appellate Tribunal, Lucknow, in I.T.A. No. 285/Luc/04 for the assessment year 1995-96.
2. This court, vide order dated January 3, 2007, has admitted the appeal on the following substantial questions of law :
“A. Whether the second notice for reassessment dated March 28, 2002, under section 148 of the Income-tax Act could have been issued after four years from the relevant assessment year, i.e., 1995-96 had expired as provided under section 149 of the Income-tax Act ?
Q. Whether the income of Sri P.K. Mitra can be clubbed with the income of the appellant-firm even though the conditions prescribed under the provisions of Chapter V of the Income-tax Act are not established or fulfilled ?
I. Whether the Income-tax Appellate Tribunal, the Commissioner of Income-tax (Appeals)-I and the Assessing Officer could have passed orders dated August 25, 2004, and March 28, 2003, relying on Shri Kuldeep Mehra’s statement which was given during the assessment proceedings of Sri P.K. Mitra and not during the assessment proceedings of the appellant-firm ?.
K. Whether both the appellant-firm and Sri P.K. Mitra can be substantively assessed for the consideration paid to Sri P.K. Mitra for the sale of flats in the assessment year 1995-96 ?”
3. The brief facts of the case are that the assessee-appellant is a partnership firm, engaged in the business of construction, development and sale of buildings. The partners of the appellant-firm are Sri Mool Raj and Smt.Asha who have equal share in the profit or loss of the firm. The firm has its office at Madan Mohan Malviya Marg, 13, Jopling Road, Lucknow. Originally, the assessee-firm has filed the return of income for the assessment year under consideration on October 31, 1995, by showing the income of Rs. 2,670 after completing the building known as Asha Apartment I and II. The Assessing Officer was not satisfied, so, he has referred the matter pertaining to the Asha Apartments to the D.V.O who has submitted his report on August 20, 1996. On the basis of the report, a notice under section 148 was issued for the assessment year under consideration (1995-96). The Assessing Officer has passed the reassessment order on March 31, 1999, and estimated the total income of Rs. 33,28,590 but the same was substantially deleted by the Commissioner of Income-tax (Appeals) and the appellant-firm was finally assessed at Rs. 85,508, vide order dated January 4, 2000.
4. When the matter was in progress, separate reassessment proceedings under section 147 of the Act were initiated in the case of one Sri Pradeep Kumar Mitra (hereinafter referred to as Sri Mitra), resident of 19, Ram Mohan Rai Marg, i.e., the official address of the assessee. From the record, it appears that Sri Mitra entered into an agreement with the assessee-firm pertaining to purchase of land at 13, Jopling Road, Madan Mohan Malviya Marg presently known as Lajpat Rai Marg, Lucknow. Sri Mitra had entered into an agreement for purchase of the land and premises from Smt. Pramila Mehra, Smt. Raj Mehra and Sri Seva Ram who were the co-owners, each having one-third share in the land. The agreement was presented for registration on the same day. At the time of execution of the sale deed, Sri Mitra made the part payment to each co-owner. Hence, the second notice under section 148 of the Act was also issued to the assessee on March 28, 2002, for the same assessment year (1995-96).
5. The Assessing Officer passed reassessment order pertaining to the assessee-firm in response to the notice dated March 28, 2002, and it was found that Sri Mitra was not having any means and he was merely a benami holder of the assessee-firm. He was not having any existence in Lucknow so the address of the assessee-firm was given in his return of income which was filed in Lucknow. In Delhi, Sri Mitra was doing “dalali” business in the cloth market and was having meagre source of income. The Assessing Officer has finally observed that Sri Mitra received the payment of Rs. 3,03,435 only from the assessee-firm, so the Assessing Officer has disallowed 33.85 per cent. of the said amount and made an addition of Rs. 1,02,712. The said addition was not only upheld by the Commissioner of Income-tax (Appeals) but also by the Income-tax Appellate Tribunal. Being aggrieved, the assessee has filed the present appeal.
6. With this backdrop, Sri Mudit Agarwal, learned counsel for the assessee, submits that the notice under section 148 of the Act was wrongly issued. It was time barred and actual income was less than rupees one lakh so notice could not have been issued within a period of four years. On a special query by the Bench, he accepted that if the income is more than one lakh then the notice could have been issued as per the then law. For this purpose, he has drawn the attention of the court to section 149(1), which is reproduced hereunder :
“149.(1) No notice under section 148 shall be issued for the relevant assessment year,–
(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) ;
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year ;”
7. He further submits that the second notice dated March 28, 2002, issued under section 148 of the Act was proposed to assess the consideration paid to Sri Mitra by the appellant-firm. The short-term capital gain for the assessment year 1995-96 was accepted in the assessment order dated March 8, 2000, for Rs. 81,021. Hence, it is clear that the amount of income which has allegedly escaped assessment in the assessment year 1995-96 could not have been in excess of Rs. 1 lakh, since the Assessing Officer himself, vide order dated March 8, 2000, levied the short-term capital gain on the amount of Rs. 81,021. Lastly, he submits that the second notice issued under section 148 was ab initio void.
8. He also submits that the lower authorities wrongly relied on the statement given by one Sri Kuldeep Mehra which was recorded during the assessment proceedings of Sri Mitra and not in the course of the assessment proceedings of the appellant-firm. Thus, the statement of Sri Kuldeep Mehra was not admissible as a piece of evidence in the assessment proceedings of the appellant-firm. According to learned counsel for the assessee, the impugned order passed by the Assessing Officer is illegal and erroneous. Sri Mitra was not a benamidar of the appellant-firm hence, the payment made to him cannot be included in the hands of the assessee-firm. Thus, in reassessment proceedings, the Assessing Officer has changed his opinion and the same is not permissible. Since all the information, documents and records pertaining to the dealing between the appellant-firm and Sri Mitra were made available to the Assessing Officer at the time of the original assessment order dated March 31, 1999, was passed, so reassessment proceeding is not valid. Lastly, he made a request to set aside the impugned order passed by the Tribunal.
9. On the other hand, Sri D.D. Chopra, learned counsel for the Department, justified the impugned order.
10. On consideration of the rival submissions and a perusal of the record, it appears that Sri Mitra has filed the first time return at Lucknow by showing the address as 19, Ram Mohan Rai Marg, Lucknow, which is the official address of the assessee-firm. With the co-owner pertaining to the property of Jopling Road, it was Sri Mitra who entered into an agreement. It is pertinent to mention that notice under section 148 of the Act was issued to Mitra who has received a part of the sale consideration of the flats sold by the assessee at Asha Apartment II. Admittedly, during the financial year 1995-96 the assessee had paid a sum of Rs. 3,03,435 to Sri Mitra, therefore, 33.85 per cent. of this was Rs. 1,02,712 had escaped the assessment. It is pertinent to mention that the assessee has shown its sale consideration of Rs. 38,63,055 which implied that Rs. 12,87,685 had been diverted to Sri Mitra. It also appears that the assessee-firm on the basis of the development agreement, had made several payments aggregating to Rs. 26,48,899 in different financial years up to 2001-02 which included an amount of Rs. 3,03,435 paid by the assessee to Sri Mitra during the assessment year 1994-95.This amount has been taken as the basis for determining the escapement of income considering the share of Sri Mitra, therefore, prima facie there was escapement of more than Rs. 1 lakh during the assessment year under consideration and hence the reassessment proceedings were not hit by the provisions of section 149(1)(a) and (b) of the Income-tax Act. The order of the Tribunal in this regard needs no interference.
11. Thus, the answer to question No. 1 is in favour of the Department and against the assessee. Remaining the substantial questions are more or less pertaining to the issue whether Sri Mitra was a benamidar of the assessee-firm and his income was rightly clubbed with the income of the assessee-firm.
12. Learned counsel for the appellant submits that Sri Mitra was an independent assessee, so, his income cannot be clubbed in the hands of the assessee-firm. On the other hand, the learned counsel for the Department justified the impugned order.
13. After hearing the counsel of both the parties and a perusal of the record, it appears that the considerable development activity to the piece of land was continued for six years and accordingly the assessment has been made in different assessment years. However, the facts are linked together and, therefore, the development which took place even after the assessment year has to be taken into consideration in order to find out the true nature of transaction. The Assessing Officer has recorded the statement of SriMitra in the assessment year 1995-96 where it was admitted by Sri Mitra that he is a man of meagre income doing “dalali” in cloth business. He resides in a house in Delhi belonging to his brother-in-law and there is no movable assets or property either on his name or on the name of his family members. He has further admitted that he was not acquainted with Mool Raj, the partner of the assessee-firm prior to the signing of the builder’s agreement dated October 14, 1993, with the assessee-firm. He has even not visited Lucknow in his life prior to the aforesaid agreement. He also did not know anyone about the transaction made while purchasing the land or executing the builder’s agreement. He even could not remember the names of the persons to whom he had advanced loans on interest.
14. From the statement of Sri Mitra, it is clear that he is residing at Delhi only and is a man of meagre means. His family consists of himself, wife (house wife), mother and a younger brother. His only income was Rs. 30 to 40 thousand per annum from dalali business. He has given the loan from his bank account but to whom he has given the loan, he did not remember. In the assessment year 2002-03, the return was filed at Delhi.
15. Before considering the issue on the merits, we will first refer to the concept of benami transaction in order to appreciate as to whether the Revenue has been able to establish the requirements of benami transaction or not.
16. As per section 2(a) of the Benami Transactions (Prohibition) Act, 1988, a “benami transaction” means any transaction in which property is transferred to one person for a consideration paid or provided by another person. By applying the test of weighing the probabilities and by finding out the source of money and also the nature and possession of the property after the purchase, a conclusion as to whether a transaction is benami or not can be arrived. In the case of Bhim Singh v. Kan Singh, AIR 1980 SC 727, it was held that where a person buys a property with his own money but in the name of another person without any intention to benefit such other person, the transaction is called benami. In that case, the transferee holds the property for the benefit of the real owner. A benami transaction is different from a sham transaction wherein the owner of the property executes a conveyance in favour of another without the intention of transferring the title to the property thereunder. In the case of benami transaction, there is an operative transfer from the transferor to the transferee though the transferee holds the property for the benefit of the person who has contributed the purchase money. However, in the case of sham transaction there is no operative transfer at all and the title rests with the transferor notwithstanding the execution of conveyance.
17. In the above circumstances, it is not correct to say that Sri Mitra has received any interest on the loan given to others. Rs. 6 lakhs were deposited on January 20, 2004, before giving the loan. His claim that he had received the amount of his share of sale amount of flats from the assessee-firm to the tune of Rs. 1,97,000 and had been deposited at Delhi is not found credited in his account. He even could not state as to what happened to the amount which he gained out of this transaction. It is indeed surprising and unbelievable that a person of virtually no means would get life time gain of Rs. 8 lakhs and would not know where he has used/invested the money. It proves that he has no control over the source or destination of funds passing through his hands. Thus, he is a benamidar of the assessee-firm. Therefore, on the basis of the statement of Sri Mitra (supra) we are of the view that he was the benamidar of the assessee-firm and his income was rightly clubbed with the assessee-firm. Hence, the answer of all the three questions are in favour of the Revenue and against the assessee.
18. In view of the above discussion, the appeal has no merit, and we decline to interfere with the impugned order passed by the Tribunal as well as the lower authority which are hereby sustained. The answer to all the substantial questions is in favour of the Revenue and against the assessee-firm. The appeal is accordingly dismissed.
19. No costs.
[Citation : 340 ITR 293]