1. This appeal has been filed by thje assessee against the order dated 30^th November, 2004 of the ld. CIT(A). The assessee had taken as many as 15 grounds of appeal at the time of filing the appeal. Revised grounds were latter filed as per Rule 8. As per the revised grounds of appeal six grounds have been taken.
2. The facts of the; case have been duly discussed by the lower authorities and, in brief, they are as under: The assessee filed the return of income on 20 September. 1997 declaring the loss of Rs. 1,81,783/-. This return was late by 13 months of the due date. The return of income was processed under Section 143(1)(a) of the Incoraetax Act, 1961. However, subsequently, a notice under Section 148 of he Act was issued on 13^th November, 2000 and the assessment was made under Section 143(3) lead with Section 147 of the Act as per order dated 28^th March, 2002 determining the capital gains at Rs. 72,28,175/- in respect of transfer of the theatre building by demolishing the same and constructing a commercial structure on that through one M/s.
Sapna Real Estates. Earlier one Cinema Hall in the name of "Cine E1 Dorado" was in existence and belonged to Mavany family. The dispute arose between the late Shri. Leelali Mavany and late Shri. Tajdin Mavany which was resolved by a family settlement reached on 8^th August. 1995. As per the family settlement, 70% of the share of the building of Cinema Theatre was allocated to Altai Leelali Mavany, legal heir of late Shri Leelai Mavany and 30% of shares were allocated to six legal heir of late Shri. Tajdin Mavany. These seven persons entered into a partnership agreement on 8^th August, 1995 determining the share ratio in proport on to their respective rights in the theatre property. On the very same day, a contract for restructuring, reconstruction, remodeling and development of the premises was also executed between the assessee firm and M/s. Sapna Real Estates (herein after called Developer), according to which, the Developer was to pay Rs. 66 lakhs to the assessee and 35% of the developed property in lieu of 65% of the developed property to be retained by it. The amount of Rs. 66 lakhs was taken by the 6 partners who are the legal heir of late Shri. Tajdin Mavany in their profit sharing ratios for retirement from the partnership. The partnership was reconstituted and the property was developed as per the terms of the contract between the asessee firm and the Developer. Power of Attorney was also executed in favour of the Developer to enable him to carry out the necessary activities for the development of the poperty. The Assessing Officer was of the view that 5.5% of the land area was transferred to the Developer in lieu of 35% of the developed area and Rs. 66 Lakhs paid by the builder and developers The fact that the amount of Rs. 66 lakhs was taken by the outgoing partners, the six partners being the legal heirs of late Shri. Tajdin Mavani, was considered internal arrangement of the firm and application of the fund received by it from the Developer as part of he transfer consideration. The AO also obtained the details from the Developer regarding the cost of construction of he project which was stated by them to Rs. 1,45,00,000/-. Since the assessee had received 35% of the total constructed area, the proportionate amount of Rs. 50,75,000/- in addition to Rs. 66,00,000/- was considered the total consideration for the transfer of 65% of the land area of theafore stated building to the Develeper. The transfer consideration was, therefore, taken at Rs. 1,16,75,000/- as against which the cost as per inflated index for the 65% of the land transferred to the Developer was taken at Rs. 44,46, 325/- and the AO determined the capital gains of Rs. 72,46,825/- in the case of the assessee for the assessment year 1996 -97 relevant to financial year 1995 -96 considering the 8^th August, 1995 as the date of transfer as per one agreement between the assessee and the Developer for the development of the site and constructions of the commercial complex. The claim of the assessee that Rs. 60 lakhs paid to the legal heirs of Late Shri. Tajdin Mavany in their profit sharing ratios for acquiring their rights in the property in question should be considered as the cost of the property while determining the capital gains, was rejected by the AO. The AO also held that as per the provisions of Section 2(47) of the Incometax Act. the transfer took place on 8^th August, 1995 i.e.
the date of contract beween the assessee and the builders cum developers, namely, M/s. Sapna Real Estates. The claim of the assessee that the transaction had resulted into capital loss of Rs. 13,78,795/- was also rejected.
3. On appeal, the d. CIT(A) confirmed the action of the AO and upheld the reopening of the assessment under Section 147 of the Act.
4. During the course of hearing before us, the ld. Counsel for the assessee reiterated the submissions taken before the lower authorities which are summarized below: (i) The sum of Rs. 66 lakhs paid by the Developer 1o the persons other than the assessee was consideration for their interest in the property agreed to be surrendered by them in favour of the Developer directly.
(ii) The AO estimated the cost of construction on enquiry which were extraneous to the fact: before him and no adequate opportunity was given to the assessee on this point.
(iii) the Theatre along with the land was not transferred within the meaning of Section 2(47) of the Incometax Act because no consideration or lawful possession was given to the assessee but they were allowed only acces to the property for its development etc.
(iv) The irrecvocable power of attorney was executed which did not permit the transfer of the property and, therefore, the transfer did not take place.
(v) The amount of Rs. 66 lakhs directly paid by the Developer to the legal heirs of Late Shri Tajdin Mavany in lieu of their rights in the theatre building was in accordance with the family settlement.
(vi) There could not be tax implication or transfer in view of the family settlement discussed a Dove.
(vii) The Builder and the Developer had a vested interest in over stating the high cost of construction because it reduced its tax liability and (viii) The payment of Rs. 66 lakhs to the legal heirs of late Shri Tajdin Mavany in lieu of their shares should have been considered as the cost of the capital asset while working out the capital gains.
5. The assessee also objected to the reopening of the assessment on the ground that there was no compliance of the statutory requirement in so far as the confidential report of the DDIT for forming the belief for reopening of the assessment was not made available to the assessee and the original return of income was not available on record of the AO at the time of reopening of the assessment. Therefore, he did not consider all the relevant materials on his record before recpening the assessment.
6. As per the first ground of appeal, the assessee has objected to the decision of the ld. CIT (A) in upholding the proceedings under Section 148 of the Act. The ld. Counsel for the assessee, on this issue, reiterated the submissions as discussed above and taken before the ld.CIT(A). The ld. CIT(A) had upheld the action under Section 148 for the reasons discussed in detail in para. 3 at pages 8 to 13 of the impugned order which are summarized as under: (a) The two basic conditions for applying the provisions of Sections 147 and 143 of the Act, i.e the existence of the reason to believe and recording the reason before issuing notice under Section 148, were satisfied.
(b) A perusal of the reasons recorded before issue of notice under Section 148 of the Act reveals that there was due application of mind on the part of the AO and the reasons were duly communicated to the assessee.
(c) Non availability of original return on the date of inspection by the assessee of the record of the AO i e. on 8^th September, 2004 did not necessarily mean that the relevan original return v/as not available on 13^th Nov, 2000, i.e the date of issue notice under Section 148 of the Act.
(d) The AO had recorded the detailed reasons that the capital gain on the transfer of the property had not been declared by the assessee as per contract dated 8^th August, 1995 and that the transfer had taken place in the assessment year 1995-97 and income had escaped assessment for that assessment year.
(e) It was clear from the impugned order of assessment under Section 143(3) read with Section 147 that the original return had been processed wider Section 143(1) of the Act and the subsequent furnishing of copies of profit and loss account and balance sheet by the assessee while removing the defect in the return filed on 30^th November, 2000 in response to the notice under Section 148, could not give rise to a reasonable inference that the oriental return was not available with the AO at the time of reopening, of the assessment under Section 147 issuing notice under Section 143 of the Act.
(f) The confidential report of the DDIT which formed the basis of the reasons recorded on 30^th November, 2000 before issuing notice under Section 148, was not required to be supplied to the assessee and the reasons recorded had been duly supplied to the assessee.
(g) The assessee was, therefore not correct in challenging the jurisdiction of the AO in reopening the assessment under Section 147 of the Act as per the afore stated notice issued under Section 148 of the Act.
(h) It was not necessary for the AO to disclose the source of information and that the adequacy or sufficiency of reasons cannot be the grounds for challenging the validiy of notice under Section 148 of the Ac because the material or information on the basis of the AO issued notice under Section 148 were duly communicated to the assessee by giving a copy of reasons recorded by him.
ii) Midland Fruit and Vegetable Products (India) Ltd. 208 ITR 266 (Del) In view of the foregoing discussions and the case laws relied upon by the ld. CIT(A), he held that he action of the AO under Section 147/148 was valid. He dismissed the appeal of the assessee on this point.
7. The ld. Departmental Representative relied on the orders of the lower authorities.
8. We have carefully considered the issue in view of the materiel placed on record, rival submissions and the case laws relied upon by the ld. CIT(A) In our considered opinion, the reasons recorded before issuing notice under Section 147 wore duly supplied and the AO had sufficient material to arrive at the belief that the income had escaped the assessment. The objections of he assessee have no merits and the validity of the assessment is upheld. The first ground of appeal is rejected.
9. The ground Nos. 2 to 6 are interconnected, As per these grounds the assessee has challenged the determination of the capital gains as against the capital loss declared by it. The submissions of the ld.Counsel of the assessee are same as taken before the lower authorities.
The ld. Departmental Representative supported the orders of the lower authorities.
10. In our considered opinion (1) the theatre property was transferred to the Developer as per agreement dated 8^th August, 1995 in view of the provisions of Section 2(47) of the Act because the Developer was given a right to demohsh the existing structure of the Cinema Hall and carry out the development and construction work for the new commercial complex; (2) The property was transferred by the assessee firm constituted on 8^th August, 1995 for a consideration of Rs. 66 lakhs as initial payment and 35% of the newly constructed premises.
(3) The payment of Rs. 66 lakhs to the outgoing partners being the legal heirs of late Shri. Tajdin Mavany, was only an application of the funds receivable by the assessee as part of the contract to transfer property and direct payment of the amount by the assessee to these partners was on behalf of the assessee because the amount was duly entered into the books of account of the assessee.
(4) The capital gain was, therefore, liable to be assessed in the hands of the assessee as. on 8^th August, 1995 i.e. the date of transfer which is relevant to the previous year 1995-96 and the assessment year 1996-97.
(5) The payment of Rs. 66 lakhs to the outgoing partners cannot be considered as cost of the property because the amount was paid to them at the time of their retirement in lieu of their shares of profit and the claim of the assessee that it was a part of the family arrangement was of no relevance because a valid partnership was constituted on 8^th August, 1995 and the said property was shown as its asset and the outgoing partners were paid the amount of Rs. 66 lakhs on their retirement from the firm.
(6) Even if it is clear from the legally conslituted firm on 8^th August, 1995., the contract entered between the Developer and the firm on 8.08.95 itself and the immed ate retirement of the partners belonging to late Shri Tajdin Mavany Group and reconstitution of the firm, that the family members had entered into an arrangement but the assessee cannot be allowed to take advantage of its own arrangement and defeat the purpose of law by claiming other vise having faced with the tax liabilities.
(7) The cost of construction was rightly worked out by the AO and correctly confirmed by the ld. CIT(A) for the reasons discussed in their respective orders.
(8) The submissior of the assessee that Rs. 66 lakhs should be allowed as the cost of construction cannot be accepted because had the firm not been the owner of the property and the transfer could have teen without constitution of a firm as per the agreement dated 8^th August, 1995 the respective owners would have required to bear the capital gain on the share of their transfer consideration.
(9) The assessee it elf has admitted that the firm came into existence on 8^th August, 1995 by the deed of partnership whereby the cinema theatre became its asset and it was also admitted that Rs. 66 lakhs were paid to the outgoing partners on their retirement.
The assessee cannot, therefore, be allowed to now claim that the payment of Rs. 66 lakhs was for the purchase of 30% shares of the heirs of late Shri Tajdin Mavany.
(10) The cost of construction was certified at Rs. 1,55,00,000/- by the Developer and even if the claim of the assessee that no proper opportunity was given in this regard by the AO is considered correct, adecuate opportunity were allowed by the ld. CIT(A) in exercise of his coterminus powers and the assessee could not successfully challenge the cost of construction. The cost of construction as certified by the Developer cannot be rejected merely on the basis of self serving statement that the Developer had inflated the cost in order to reduce its tax liability, because the assessee has failed to give any evidence in support of its submission and successfully challenge the cost so certified.
(11) The cost of acquisition taken by the lower authorities has also not beeb successfully cha lenged.
11. In view of the foregoing discussions and the reasons given by the lower authorities in heir orders, we see no reason to interfere with the decision of the ld. CIT(A). The revised ground Nos. 2 to 6 of the appeal of the assessee are accordingly rejected.