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Additions u/s 68 are sustainable if source & nature of payments for purchase of flat, remain unproven, where such payment is made by licensees on assessee’s behalf despite any contractual obligation: ITAT

2019-TIOL-1486-ITAT-AMRITSAR

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH, AMRITSAR

ITA No.297/Asr/2015
Assessment Year: 2009-10

INCOME TAX OFFICER
WARD-1(1), JAMMU

Vs

LT CDR CHUNNI LAL (DECEASED)
(THRO JEETO DEVI AND ORS, LRS)
R/O VILLAGE MAMKA, PO KHOUR DEONIAN
MIRAN SAHIB, THE RS PURA, JAMMU
PAN NO:AAHPL9611M

Sanjay Arora, AM & N K Choudhry, JM

Date of Hearing: April 10, 2019
Date of Decision: July 02, 2019

Appellant Rep by: Shri Charan Dass (DR)
Respondent Rep by: 
Shri Joginder Singh (CA)

Income Tax – Sections 68, 147 & 148.

Keywords – Allotment of flat – Leave and license agreement.

The assessee, a retired Naval Officer, filed return for relevant AY. Reassessment proceedings were initiated vide notice u/s 148 on the basis of the information with the Revenue as to the assessee, a beneficiary of Adarsh Co-operative Housing Society Ltd., Mumbai, having been allotted a residential flat by the society in a building at Mumbai on payment of Rs. 60.39 lacs, confirmed by the assessee before the AO. The assessee responded (to the notice u/s. 148) by declaring an income. An examination of the source/s of the payment/s of Rs. 60.39 lacs to the society during assessment proceedings, it transpired that the assessee had received a total of Rs.81,78,240 from one, Sh. Sharad Madan, a NRI, resident of UK, of which Rs.21,78,240, was in fact direct to the housing society, for and on behalf of the assessee, forming part of the cost of the flat (at Rs.60,39,240). That a part, Sh. Sharad Madan (SM) had paid Rs.60 lacs to the assessee. by way of security deposit (Rs.35 lacs) and for furnishing the said flat (Rs.25 lacs). All these payments were stated to be made by SM in pursuance of a leave and license agreement. However flat was not furnished due to litigation in relation to flats, though no amount, whether paid to the assessee or directly to the society (for and on behalf of the assessee), by the licencee/s, was repaid to him by the assessee. The AO did not find the same as representing a genuine transaction. The AO made addition u/s 68 of Act. On appeal, CIT(A) allowed relief to the assessee.

On appeal, Tribunal held that,

Whether addition u/s 68 can be made when contentions of assessee regarding source of money and its nature, for making payment for flat remains unproved, as payment is made by licencees, on behalf of the assessee for which there is no contractual obligation – YES : ITAT

++ no merit was found in the assessee’s case, i.e., of the impugned transaction being a genuine transaction. As would be apparent therefrom, there are cogent reasons to doubt the veracity of the assessee’s various contentions, found contrary to his conduct, nay, of the parties, besides being inexplicable and indeed opposed to the normal course of human behavior. None of the several contentions, are proved; rather, are unproved, if not disproved. The CIT(A) has, in deciding the assessee’s appeal, not applied himself to the facts of the case, nor indeed the material on record. He has taken, a very superficial view of the whole matter, not issuing any finding qua the genuineness of the transaction, which is the fact-in issue, and not the creditworthiness of SM, on which no questions have been raised by the AO and, in fact, not in issue. He, in fact, questions the AOs’ finding, on the strength of the factum of payments (by SM), only on the non-satisfactory explanation as to nature thereof, in the facts and circumstances of the case, is the basis of his regarding the transaction as not genuine. The addition made by the AO, deleted by him, is not toward unexplained investment u/s. 69, but qua unexplained receipt – and, further, not as to its’ source, but nature, u/s. 68. Most, nay, all, the questions raised raising serious concern regarding the genuineness of the license arrangement, doubted by the AO, calling it fake, arise directly from the material on record, looking at the matter, including the assessee’s explanation for the various receipts, taxability of which under the Act is in issue, from the stand point of the normal course of events, in a holistic and plausible manner, to find several internal inconsistencies, contradictions, bordering on the ludicrous. The transaction, however, having been undertaken, so that, to that extent, it is an undeniable fact, the legal import of which, consistent with the facts as borne out, and the preponderance of probabilities, has been arrived at, holding the impugned sums to be the consideration for transfer of the assessee’s capital asset in the form of membership rights in the society, represented by the value of the underlying asset, the residential flat allotted to him. The unmistakable inference arising is of the said amounts having been received by the assesseee in his own right, and not by way of assuming liability, as projected, or toward obligations under the contract, no part of which has been in fact spent by him on or toward the said flat, with the payments falling due to the society having been also made by the so-called licencees, for which they were in fact not even contractually obliged to. That is, as a consideration for his flat. The amount being received in lieu of a capital asset, would warrant being assessed as capital gains. In the result, the Revenues’s appeal is partly allowed.

Revenue’s appeal partly allowed

ORDER

Per: Sanjay Arora:

This is an Appeal by the Revenue directed against the order by the Commissioner of Income Tax (Appeals), Jammu (‘CIT(A)’ for short) dated 27.03.2015, allowing the Assessee’s appeal contesting his assessment u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 08.03.2013 for Assessment Year (AY) 2009-10.

2. In this case the authorization on record was in favour of CA Joginder Singh by one, Sh. Suresh Kumar, as the legal heir of the assessee, since deceased, dated 27.12.2015. As the certificate from the Assessing Officer (AO) dated 26/2/2018 (copy on record) mentioned only Smt. Jeeto Devi, wife of late assessee, as his legal heir, who therefore was unrepresented, i.e., as against only Sh. Sursesh Kumar, earlier (vide letter dated 31/01/2017/coy on record), Sh. Singh was, vide order sheet dated 30.01.2019, required to obtain authorization in his favour from Jeeto Devi. An affidavit dated 23.9.2017 from Smt. Jeeto Devi, confirming of her being the only legal heir of the late assessee, as well as power of attorney dated 08.04.2019 in favour of Sh. Joginder Singh, stands since placed on record. The hearing was accordingly proceeded with.

3. The issue arising in this appeal is the sustainability in law, in the facts and circumstances of the case, of the addition in the sum of Rs.70,88,240 received by or on behalf the assessee during the relevant year (i.e., f.y. 2008-09) from one, Sh. Sharad Madan, since deleted by the ld. CIT(A).

4.1 The facts of the case, which are not disputed, are that the assessee, a retired Naval Officer, returned his income for the relevant year on 30.7.2009 at Rs.1,31,179. Reassessment proceedings were initiated vide notice u/s. 148 dated 23.9.2011 on the basis of the information with the Revenue as to the assessee, a beneficiary of Adarsh Co-operative Housing Society Ltd., Mumbai, having been allotted a residential flat by the said society in a building at Colaba, Mumbai (i.e., Flat No.1402, 14th Floor, Block No.6, Plot-652, Cuffe Parade, Colaba, Mumbai) on payment of Rs.60.39 lacs, confirmed by the assessee before the AO on 26.7.2011. The assessee responded (to the notice u/s. 148) by declaring an income of Rs. 1,82,210 (besides agricultural income at Rs. 45,000) vide return furnished on 20/12/2011. An examination of the source/s of the payment/s of Rs. 60.39 lacs to the society during assessment proceedings, it transpired that the assessee had received a total of Rs.81,78,240 from one, Sh. Sharad Madan, a NRI, resident of UK, of which Rs.21,78,240, detailed as under, was in fact direct to the housing society, for and on behalf of the assessee, forming part of the cost of the flat (at Rs.60,39,240):

Sr. No.Society Receipt DateInstrumentAmount (Rs.) 
(i)942 dt.04/06/2008Ch. No.910618 dt. 29/05/2008 on Syndicate Bank, NDLI5,38,240/- 
(ii)100 dt. 17/11/2008DD No.015253 dt. 06/10/2008 on HDFC, NDLI5,50,00010,88,240
(iii)1298 dt.11/12/2009Ch. No.315710 dt. 9/12/2009 on SBI, NDLI5,45,0005,45,000
(iv)1416 dt. 28/07/2010Ch. No.483022 dt. 26/07/2010 on SBI, Mumbai5,45,0005,45,000
Total21,78,240

That a part, Sh. Sharad Madan (SM) had paid Rs.60 lacs to the assessee by way of security deposit (Rs.35 lacs) and for furnishing the said flat (Rs.25 lacs) vide cheque No.12789 dated 27.6.2008 (drawn on HSBC Bank, New Delhi). All these payments were stated to be made by SM in pursuance of a leave and license agreement dated 25/06/2008 (‘LLA’ hereinafter) (at PB pages 4-13), reserving a rent (license fee) of Rs.35,000/- per month for a period of 60 months commencing the date of the receipt of the occupation certification (OC) by the society and furnishing of the licensed premises, the assessee’s flat (clause 2(a) of the LLA). No furnishing of the flat was, however, done, on the receipt of the OC much later on 01/10/2009. In fact, the transaction could not be carried out because of the ensuing litigation in relation to these flats, though no amount, whether paid to the assessee or directly to the society (for and on behalf of the assessee), by the licencee/s, was repaid to him by the assessee.

4.2 The AO did not find the same as representing a genuine transaction. The initial payment was made on 29/5/2008 i.e., even as the LLA was executed only on 25.6.2008, which was an unregistered agreement. Then, again, the parties being unrelated, why would anyone pay to another without security and interest, i.e., without consideration? Further, why did not SM recall his money, i.e., on the assessee having not, and indeed unable to deliver possession of said flat, much less furnish the same? The amount received during the year, i.e., Rs.70,88,240/- (Rs.60,00,000 + Rs.10,88,240/-) was brought to tax by the AO for the current year. The balance two payments of Rs.5.45 lacs each were brought to tax by him for the relevant years, i.e., AY 2010-11 and AY 2011-12.

4.3 In appeal, the assessee explained Sharad Madan, a British citizen, to be a London-based business-man, in readymade garments business. He frequented India for his business and was, accordingly, interested for a guest house for his company – XTC Clothing Co. Ltd. (‘XTC’ for short). The security deposit and advance for furnishing was justified on the basis of the low rental reserved, i.e., Rs. 35,000/- p.m. It was further not unusual to pay a token amount in advance, and which explained the payment of Rs.5.38 lacs on 29.5.2008. The registration of the LLA was, in terms of the agreement itself, only on the handing over the possession, which did not materialize as, soon after the issue of occupation certificate on 01/10/2009, litigation started and, resultantly, water and electricity was withdrawn from the said premises. Additional evidence towards the creditworthiness of the licencee, SM, being the financial statements of XTC for the years ending 30/6/2005, 30/6/2006, 31/12/2007 to 31/12/2010, as well as affidavit-cumdeclaration dated 25.11.2014, duly notarized, confirming to have entered into a leave and license agreement dated 25.6.2008 with the assessee, paying Rs.81,78,240 – detailed therein (including the purpose for which the different payments were made), and which agreed with that as stated by the assessee, was furnished (PB pages 15-17, 20-59). It was further stated in the affidavit that it was being issued on the request of Mr. Ramesh Kumar, legal heir of Sh. Chunni Lal, who had been informed to have expired in April, 2014, and that he (the deponent, SM) has initiated proceedings for recovery of the amount paid by him to the latter (assessee). In view thereof, the ld. CIT(A) allowed relief to the assessee, holding as under:

‘6.4 As regards the addition made by the A.O. for Rs. 70,88,240/-, I am of the view that there is a merit in the contention of the A.R. of the Appellant. I have considered the AO’s order, the remand report, rejoinder to the remand report and the contentions of the appellant alongwith materials on record placed before me.

Concerning the explanation placed on record for the receipt towards Security Deposits and Advance for furnishing Cost amounting to Rs. 70,88,240/- during the A.Y. 2009-10 and Rs. 5,45,000/- during the A.Y. 2010-11 and Rs. 5,45,000/- during the A.Y. 2011-12 the appellant has proved the credit worthiness of the Mr. Sharad Madan by submitting additional evidences by way of Original Affidavit cum declaration signed before High Commission of India-London dated 25.11.2014 of Mr. Sharad Madan along with evidence of his income for the relevant years which had been given to the appellant. The A.O. has made addition on the basis of mere assumption that such a big security deposits and other advance cannot be given disregarding the evidences placed on record by the appellant.

In view of the above discussion and the documentary evidences placed on record, I am of the view that the addition cannot be sustained. The AO is directed to delete the addition amounting to Rs. 70,88,240/- made as unexplained investments u/s. 69 of the Income Tax Act.’

5. We have heard the parties and perused the material available on record.

As afore-noted, the primary facts of the case are largely undisputed. It is the inferences arising from these facts, which is again a finding/s of fact, that is the bone of contention, and the reason for the difference of the opinion between the AO and the ld. CIT(A) in the instant case. The additional evidences furnished by the assessee before the first appellant authority, and since admitted by him, are qua the identity of Sh. Sharad Madan and his capacity in advancing the impugned sums to the assessee. It is, however, not these two, but the genuineness of the transaction, that has been doubted, and considered as not representing a genuine transaction by the AO, who regarded the LLA a fake document. What, therefore, is to be seen is whether there is, in the facts and circumstances of the case, substance in doubting the genuineness of the transaction (as by the AO), or no basis thereto, i.e., in disregarding the evidences placed on record, merely because a security deposit and advance at a high amount had been given, i.e., as stated by the ld. CIT(A).

Without doubt, merely raising a doubt, unless there are cogent reasons to do so, would not oust the assessee’s case of the transaction being a genuine transaction. This is particularly so as the burden to show that the apparent is not real is on the one who so alleges. In this regard, the first thing that the ld. counsel for the assessee, Sh. Singh, was asked by the Bench during hearing was if the assessee refunded the security deposit or the advance (for furnishing), i.e., on being unable to perform his part of the contract, which is admittedly so in-as-much as the transaction of allotment of flats to ex-servicemen, as per the information in the public domain, been found to be mired in a fraud and a subject matter of investigation by the CBI as well as court proceedings. There was, under the circumstances, thus, no, at best a remote, possibility of the assessee being able to furnish the flat and deliver its’ legal, peaceful possession, i.e., in an inhabitable state, to the licencees. Sh. Singh would reply in the negative, even as there is nothing on record to show, nor even a contention to that effect, that the sum/s had been repaid, i.e., even to date. Further, on being asked the reason for the same, he could not furnish any answer, much less satisfactory. Now, it is possible that one may have been able to obtain a tidy sum, covering the cost of the flat, towards its’ ‘furnishing’ and ‘security deposit’, but why, however, when it became apparent that the same could not be spent for the stated purpose, i.e., his part of the contract became not possible to be performed, returned forthwith, which would follow in the case of a bona fide and genuine transaction. No dishonesty of purpose, after all, could ordinarily be ascribed to the assessee, a retired Naval officer. Here it may be pertinent to state that the security deposit is at one hundred (100) times the monthly rent, which makes little business sense. It even exceeds the aggregate rent over the term of the agreement, i.e., 60 months. And which fact by itself is sufficient to have aroused genuine doubts as regards the bona fides of the transaction. Continuing further, a reading of the LLA makes it clear that the OC had not been obtained (by then), and neither did the parties had any fair idea as to when the same would be received (by the society), which is the starting point of the agreement. It is, after all, only thereafter that the flat could furnish and, in any case, its possession delivered. Where, then, one may ask, was the hurry to advance the sums? The agreement became operative, and the obligation on the assessee to furnish the flat crystallized, only thereat, i.e., the receipt of OC by the society. Why, then, was the security deposit and furnishing advance given even before the agreement came into effect or became operative. The same, thus, as on 27/6/2008, the date of advance, is without any legal basis. This is further accentuated by the fact that the parties are strangers, introduced, admittedly, for the purpose of this transaction, by a common friend, who is though unspecified.

Further, even presuming that the assessee may have (mis)represented to the Licencees (SM and his wife, Simrit Singh Madan), that the OC was, in June, 2008, i.e., when the agreement was entered into, imminent, so that the non-resident licencees, in India (Mumbai) at the relevant time, ought not to loose time – which though again projects the assessee in poor light in-as-much as the OC was in fact issued much later in October, 2009, where, in any case, is the question of the licencee/s making payments to the society, which commenced even prior to the execution of the agreement on 25.6.2008, i.e., 29.5.2008, continuing up to July, 2010, i.e., even after obtaining the OC on 01.10.2009. Why? Sh. Singh, the assessee’s counsel, on being asked about the same during hearing, could not furnish any answer, and neither do we find any from the material on record. There is, futher, no reference to these payments, aggregating to Rs.21.78 lacs, in the said agreement (LLA). Why, one wonders, being not obliged to, did, then, SM pay these sums? Further, SM paying these sums to the society implies that he was aware of the assessee having yet to pay a substantial sum to the society, and for which he, the assessee, admittedly either did not have the necessary resources, or otherwise an intention to pay? Again, why, in any case, if his relationship with the assessee, and in respect of the premises being licenced thereby, governed by the Agreement, should not these payments find reference therein? There are no answers to these questions staring one in the face and emanating from the material on record as well as the admitted facts.

The identity and the creditworthiness of SM is, as also afore-noted, not in or an issue, as sought to be emphasized before the ld. CIT(A), as also before us. We in fact observe other inconsistencies as well, all of which make it abundantly clear that the LLA, even as stated by the AO, is fake. It is said that SM, a NRI business man frequented India and, accordingly, was interested to license the subject property as a guest-house for his business concern. There is nothing on record to exhibit nor even a contention to that effect, of his company (XTC) being engaged in export to or import from India. And, in any case, of he, or the company officials, frequently visiting Mumbai for business purposes. That is, incurring, accordingly, expenditure on travel, as well as on their stay at Mumbai, to save on which, as well as, perhaps, a higher comfort level, that prompted the licencee arrangement. We highlight this aspect as the same is the stated reason for SM being interested to acquire the assessee’s property on license basis. That is, the business purpose that supposedly informs the said transaction, does not, strangely, find reflection in the agreement, and even in the assessee’s case as made out. Why, in that case, the payments to the society – which are itself, as observed earlier, quizzical indeed and inexplicable, as well as to the assessee, whether as security deposit or toward furnishing, would be by the company under the aegis of which the business is carried out, i.e., XTC. There is clearly no reference thereto in the annual accounts of the said company on record (PB pgs. 20-59), for which we have perused the notes to the accounts as well. All the payments (i.e., for Rs. 81.78 lacs) are, however, by the SM, from his different bank accounts. Rather, in such a case the agreement itself would be with the company (XTC), which though may authorize SM for the purpose inasmuch as a corporate entity could function only through the agency of human beings; SM being a director. In fact, his wife is also a licencee, whose locus standi; SM acting for and on behalf of the company – a separate legal entity, is, in that case, not understood. In fact, both the licencees (i.e., SM and his wife, Simrit Singh Madan) have entered into and executed the agreement in their individual capacities, put paying the assessee’s claims in this respect. Needless to add, there is no reference to either XTC or to any business purpose/interest, much less of the subject premises being proposed to be used as a guest house, in the LLA. Why? The stated reason for licensing the flat, i.e., as a guest house for his company by SM, and the fact of he (and his wife) being the lincencees in their individual capacity, paying from their personal sources, with further no reference to the business purpose of the LLA (and the consequent non-mention of these payments in the accounts of XTC), are inconsistent and contradictory and, in any case, unexplained. Now, sure, it may not be necessary for a party to an Agreement to spell out the reason/s for entering the same, but, equally, there is no reason to state untruth. The suo motu statement of the reason is not without basis, but with view to provide the economic justification for the transaction, which though is found to not obtain. Absence of any basis for entering the agreement, or the finding of the stated purpose as non-existent, does though impact the genuineness aspect of the transaction. Further still, the license agreement is not witnessed, again, seriously undermining its’ evidentiary value. Besides, this is also inexplicable and quizzical in the normal course of events as the parties are, as afore-noted, relatively strangers, i.e., unknown to each other prior to this transaction, stated to be introduced by a common friend, albeit unspecified. This, coupled with the fact that the agreement is neither registered nor notorized, makes its’ evidentiary value highly suspect. Finally, despite the assessee appropriating the amount, given in lump-sum, without even specifying the furnishing details – which in fact makes it inoperable, the licencees do not act in any manner upon the said appropriation. This is most surprising as, as explained, SM, as a director of XTC, and other personnel thereof, visiting Mumbai regularly – that being the premise for acquiring an accommodation thereat (as a guest-house), they would therefore only be current with the developments in-so-far as the affairs of the society and the progress of the building is concerned, being even otherwise presumably in touch with the assessee. In fact, the conduct of immediate payment – quizzical indeed and unexplained, may be ‘explained’ on the basis of being given to understand of the building being in near completion stage; complete faith in the assessee’s contentions; and the substantial savings that are expected to arise on the user of the premises as a guest house, the completely nonchalant and indifferent attitude, as borne out by complete inaction (on the part of the licencees) on the assessee proceeding to, without either delivering possession of the flat, or undertaking any furnishing, appropriated the amount which exceeds the cost of the flat itself (Rs. 60.39 lacs), is completely incredulous and incomprehensible, particularly considering that SM seemed to be a man in a hurry, practical and decisive, as indeed any successful man of business, would be. Why, the agreement itself provides for the refund of security deposit where the possession of the flat is not provided within nine months of the receipt of OC (cl. 4(b) of the LLA). Further, the agreement itself provides for interest at the rate of 18% per annum from the date it becomes payable, to the date of actual payment. Juxtapose this with the lackadaisical attitude with the undue haste in advancing the security deposit and furnishing advance in May, 2008 itself. The same indicate that two different considerations were at work at these two points of time, i.e., while entering the contract and executing it, and subsequently. In fact, a man in hurry would retract the moment he discovers that substantive payment toward the cost of the building is yet to be made by the owner, while here we find the first payment itself is to the housing society! Why should a licencee, one may ask, bear the cost of the premises being licenced? Clearly, the cost and the risk borne by SM – who was paid the entire amount, is completely out of proportion, i.e., stated capacity as a licencee. Rather, as observed hereinbefore, the payment of the security deposit in May, 2008 itself is without basis as the agreement comes into effect only on the receipt of the OC by the society, i.e., on 01.10.2009. Likewise, for the furnishing advance, as there is no question of furnishing unless OC is received. The entire payment, i.e., Rs. 21.78 lacs, as well as Rs.60 lacs, is thus without a legal basis. The factum of the huge payment, even if under a legal arrangement, would imply a formidable relationship, based on trust or confidence, between the parties, which normally takes years to build, while in fact they are relatively strangers and, further, the payment, without a legal basis.

Any normal person would, rather, on the OC not forthcoming, pursue the matter for immediate refund, i.e., act with the same alacrity as he did while entering the agreement, indeed ruing the fact that he did so, even assuming that he did it bona fide, having been assured of the assessee’s credentials as well as the progress of the building by the unspecified friend. However, in the instant case, no legal notices have admittedly been sent even up to 25.11.2014, the date of the affidavit, i.e., even over five years after the receipt of OC. Reading thereof (affidavit) makes it clear that SM was not even aware of the assessee’s death in April, 2014, and came to know about it only upon being requested for an affidavit by the assessee’s legal heir (i.e., for being furnished in the first appellate proceedings). That is, he was not in touch with the assessee, or pursuing the matter with him, a fact, even otherwise apparent from the conduct as borne out of the material on record. That the parties, however, continued to share good relations, is apparent from the fact of SM, upon being asked to furnish an affidavit for being submitted in the appellate proceedings in India, obliged. So much for his interest in having own accommodation for boarding and lodging at Mumbai, as well as, subsequently; on the same becoming not feasible, in receiving back his money! In fact, Sh Singh could not during hearing answer if any legal proceedings for recovery, even as stated in the affidavit dated 25.11.2014 itself, had been initiated; there being in any case no material on record toward the same. It is abundantly clear that the legal proceedings, if initiated, would, besides legal expenses, inflict heavy cost on the assessee – who has no case; the agreement itself providing for a interest of 18% p.a., which, by itself, would be great deterrent to the indifferent and nonchalant attitude by the assessee toward his contractual obligations, indicating, again, to a complicity between the parties. Why, he could, for reasons more than one, charged with misrepresentation and fraud, i.e., for criminal liability as well. The Agreement, as made, we concur with the AO, is fake, a make believe. Though no investigation in this respect has been made, as it appears, the assessee, rather than making provision for repayment, if not actually doing so, the cost of the flat borne by SM (Rs.21.78 lacs), being only in the nature of, as we presume, a temporary accommodation, has not set aside the amount received by him under trust (Rs.60 lacs), as (say) in a bank deposit, as any normal person would, being received for being spent under the contract or, as the case may be, refunded under the contract, i.e., the assessee’s conduct does not agree with his stated position as a licensor. As explained per its several decisions by the Apex Court, viz. CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) = 2002-TIOL-877-SC-IT, that in a case of self serving recitals in documents, it was for the party to establish the truth of those recitals, and that it was the taxing authorities, as indeed the tribunal, was entitled to look into the surrounding circumstances to find the reality of such recitals.

The impugned payments, however, have been made, i.e., by SM to the assessee. The purport of the foregoing is to underscore the non-genuineness of the leave and license agreement. It does not question the factum of the payment or the financial capacity of the payer, but his capacity as a licencee. The irresistible inference that arises in the given facts and circumstances, all of which are largely admitted and undisputed, including the fact of the payments, besides the assessee, to the society as well, is that SM (and his wife), had in effect acquired the assessee’s rights in the subject property for a consideration. The transfer being not permissible under the rules in-as-much as the beneficiary of the society could only be an ex-serviceman, an ‘agreement’ was entered into to provide a legal cover to the transaction. The assessee had, thus, in effect, transferred his substantive rights in the subject property, a capital asset, for a consideration, i.e., Rs.81,78,240, as against a cost of Rs.60,39,240, i.e., at a neat profit of Rs.21.39 lacs. True, some of the payments included in Rs.81.78 lacs are directly to the society, but then the said sums are also included in the cost price (Rs.60.39 lacs), so that the difference, i.e., even upon excluding such payments (being at Rs.21,78,240), would remain the same. It is this excess amount which is liable to be assessed as capital gain in the hands of the assessee for the current year, i.e., on the receipt of the first payment on 29.5.2008, which could only be regarded as in pursuance of a tacit agreement between the parties, for which they conjured a leave and licence agreement, executing it on 25.6.2008. The first payment to the society by the assessee being on 08.9.2004, the income would be a long-term capital gain, so that the indexation benefit u/s. 48 would ensue, which would be up to 29.5.2008, the date of payment. The cost and the receipt after that date shall get netted. Needless to add, the sums received in the following two years, i.e., at Rs.10.90 lacs, forming part of the sale consideration (Rs.81.78 lacs), shall not be subject to tax separately for the years of their receipt by the assessee, as the member of the housing society. This may accordingly be regarded as a direction u/s. 150 r/w s. 153 (including Explanations thereto).

6. We, accordingly, in view of the fore-going, find no merit in the assessee’s case, i.e., of the impugned transaction being a genuine transaction. As would be apparent therefrom, there are cogent reasons to doubt the veracity of the assessee’s various contentions, found contrary to his conduct, nay, of the parties, besides being inexplicable and indeed opposed to the normal course of human behavior. None of the several contentions, which are aplenty, for which reference may be made to the different sub-paras of para 5 of this order, are proved; rather, are unproved, if not disproved. The ld. CIT(A) has, in deciding the assessee’s appeal, not applied himself to the facts of the case, nor indeed the material on record. He has taken, we are afraid to say, a very superficial view of the whole matter, not issuing any finding qua the genuineness of the transaction, which is the fact-inissue, and not the creditworthiness of SM, on which no questions have been raised by the AO and, in fact, not in issue. He, in fact, questions the AOs’ finding, on the strength of the factum of payments (by SM), only on the non-satisfactory explanation as to nature thereof, in the facts and circumstances of the case, is the basis of his regarding the transaction as not genuine. The addition made by the AO, deleted by him, is not toward unexplained investment u/s. 69, as stated by him, but qua unexplained receipt – and, further, not as to its’ source, but nature, u/s. 68. Most, nay, all, the questions raised hereinbefore, raising serious concern regarding the genuineness of the license arrangement, doubted by the AO, calling it fake, arise directly from the material on record, looking at the matter, including the assessee’s explanation for the various receipts, taxability of which under the Act is in issue, from the stand point of the normal course of events, in a holistic and plausible manner, to find several internal inconsistencies, contradictions, bordering on the ludicrous.

The transaction, however, having been undertaken, so that, to that extent, it is an undeniable fact, the legal import of which, consistent with the facts as borne out, and the preponderance of probabilities, has been arrived at, holding the impugned sums to be the consideration for transfer of the assessee’s capital asset in the form of membership rights in the society, represented by the value of the underlying asset, the residential flat allotted to him. The unmistakable inference arising is of the said amounts having been received by the assesseee in his own right, and not by way of assuming liability, as projected, or toward obligations under the contract, no part of which has been in fact spent by him on or toward the said flat, with the payments falling due to the society having been also made by the so-called licencees, for which they were in fact not even contractually obliged to. That is, as a consideration for his flat. The amount being received in lieu of a capital asset, would warrant being assessed as capital gains.

We decide accordingly.

7. In the result, the Revenues’s appeal is partly allowed.

(Order pronounced in the open court on 02.07.2019)

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