V.S. Balasubramanyam vs Income Tax Officer

Dilip B. Bhosale, J.—We have heard learned Counsel for the parties. By consent, the appeal is heard for final disposal at the stage of admission. These two income tax appeals arise from the separate orders, both dated 21-9-2012, passed by the Income Tax Appellate Tribunal, Bangalore Bench ''B'' (for short, ''the Tribunal''), in ITA Nos. 189 of 2010 and 814 of 2011, pertaining to the assessment year 2005-2006.

The appellant-assessee in ITA No. 189 of 2010 and the appellant-assessee in ITA No. 814 of 2011 are husband and wife. The facts, against which the orders are passed by the authorities below including the Tribunal are common and hence, these appeals are being disposed of by the common order.

The appellant in ITA No. 404 of 2013 has formulated the following questions as substantial questions of law:

(A) Whether on the facts and in the circumstances of the case, the finding of the Tribunal that the partnership firm was not genuine and did not exist is perverse?

(B) Whether on the facts and in the circumstances of the case and in law the Tribunal was right in holding that the appellant transferred the capital asset during the previous year and hence, liable to tax?

The appellant in ITA No. 405 of 2013 has formulated the very same questions as substantial questions of law and in addition thereto, framed the following question as substantial question of law:

(C) Whether on the facts and in the circumstances of the case, the Hon''ble Tribunal was right in law in upholding the validity of the notice issued u/s 148 of income tax Act, 1961, for reopening the assessment?

The appellant in both the appeals (hereinafter shall be referred to as ''assessees''), or as ''assessee-husband'' and ''assessee-wife''.

The assessee-husband had purchased agricultural land measuring 4 acres 10 guntas in Sy. No. 125 situate at Hosakerehalli Village, Uttarahalli Hobli, for total consideration of Rs. 38,000/- under the registered sale deed dated 20-6-1980. At the same time, the assessee-wife purchased 5 acres 9 guntas in Sy. No. 43 situate at Ittamadu Village, Uttarahalli Hobli, for consideration of Rs. 38,000/- under the registered sale deed dated 20-6-1980. Both the assessees by executing power of attorney dated 23-12-1988 authorised L.K. Srihari Khoday to sell their landed property. On the same day, they also executed a partnership deed constituting the firm - ''M/s. Highland Enterprise'' showing the nature of its business being construction of building and to develop the land. The assessees claimed that they contributed the aforementioned landed properties as their capital contribution in the firm. The firm had three partners namely, the assessees and M/s. L.K. Trust and they had profit and loss sharing ratio of 3% for the assessees and 97% for the Trust. There does not appear to be any dispute that after execution of the partnership firm, the firm did not carry on any construction/development activity till the retirement-cum-reconstitution of the firm deed was executed on 22-5-2004. On execution of the deed of retirement, the assessees were paid Rs. 2.85 Crores and Rs. 2.9 Crores respectively, by the firm.

In the course of regular assessment of the assessee-husband in ITA No. 404 of 2013, the Assessing Officer noticed that the assessee-wife had also received a sum of Rs. 2.9 Crores during the financial year 2004-2005. This information he shared with the concerned Assessing Officer for the assessee-wife. The assessee-wife had filed her return of income for the assessment year under consideration, declaring total income of Rs. 1,37,990/- which was initially processed u/s 143(1) of the Act. It is in this backdrop, the assessment order was passed holding that the partnership was not a genuine firm and treated the amount received by both the assessee as capital gain.

Admittedly, the assessees did not place on record the original partnership deed or a Certificate of its Registration at any point of time. They claim that though the partnership firm was formed in 1988, it was registered with the Registrar of firms only in 2003 i.e., after the lapse of 15 years. Though they so claimed, they did not produce Certificate of Registration before the authorities below. It has come on record that subsequent to the retirement-cum-reconstitution deed of partnership dated 22-5-2004, the landed properties were transferred to M/s. Prestige Estate Project Private Limited by the firm vide agreement dated 23-12-2005. The agreement to sell in respect thereof dated 22-5-2004 however was executed not only by the firm but also by the assessees. Based on this material, the authorities below and the Tribunal rejected the claim of the assessees that they received the aforementioned amounts not as consideration for transfer of their lands but by way of retirement as partners in the firm. We do not find any reason to interfere with these findings of fact recorded by the authorities below. The first two questions framed by the assessees in the memorandum of appeals, in our opinion, do not arise for our consideration those being not substantial questions of law.

Insofar as the third question of law, which is raised by the assessee-wife in ITA No. 405 of 2013 is concerned, that also, in our opinion, does not arise for our consideration. It has come on record that the assessee-wife had declared her total income of Rs. 1,37,990/- for the assessment year 2005-2006 and it was processed u/s 143(1) of the Act. Thereafter, the Assessing Officer received information'' from his counter part in Ward No. 3(2), Bangalore, to the effect that during the course of the assessment proceedings in case of the assessee-husband it was noticed that the assessee-wife had also received a sum of Rs. 2,90,00,000/- during the assessment year 2004-2005 from Srihari Khoday as sale consideration for transfer of property situated at Sy. No. 43, Ittamadu Village of Uttarahalli Hobli. It is, on the basis of this information, notice u/s 148 of the Act was issued after recording the following reasons: An information was received from the ITO, Ward 3(2), Bangalore vide Letter No. AATPB8232E/ITO W-3(2)/09-10, dated 8-4-2009 that during the course of assessment proceedings, for the assessment year 2005-2006 in the case of Sri V.S. Balasubramanyam, it is noticed that Smt. Kalavathi, wife of Sri V.S. Balasubramanyam had received a sum of Rs. 2,90,00,000/-, during the financial year 2004-2005 from Sri Hari Khodey as sale consideration for the transfer of property bearing Survey No. 43, Ittamadu Village, Uttarahalli Hobli, Bangalore South. The property being non-agricultural measuring five acres nine guntas. It appears that Smt. Kalavathi has not disclosed this transaction to income tax. Hence, I have the reason to belief (sic) that the income has escaped assessment within the meaning of Section 147 of the income tax Act, 1961 issue notice u/s 148 of the Income Tax Act.

From bare perusal of the reasons recorded and the background facts, against which notice was issued u/s 148 of the Act, in our opinion, cannot be stated to be invalid as contended by learned Counsel appearing for the assessee-wife. In the circumstances, both the appeals are dismissed. No costs.