ITO, New Delhi v. Mahendra Kumar Khanna, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL I.T.A. NOS. 4579 & 4580(DEL)/2009 ASSESSMENT YEAR: 2005-06 INCOME-TAX OFFICER SHRI MAHENDRA KUMAR KHANNA WARD 28(2) NEW DELHI. VS. B-28 1 ST FLOOR NIZAMUDDIN WEST NEW DELHI-2. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KISHORE B SR. D.R. RESPONDENT BY: SHR I S.K. BAJAJ C.A. ORDER PER K.G. BANSAL : AM THESE APPEALS OF THE REVENUE PERTAIN TO THE DELETION OF AN AMOUNT OF RS. 48.00 LAKH ADDED BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE U/S 69 AND PENALTY OF RS. 15 68 508/ - LEVIED BY HIM U/S 271(1)(C) OF THE INCOME-TAX ACT 1961. ON BEHAL F OF THE ASSESSEE SHRI S.K. BAJAJ C.A. ATTENDED. HE FILED A LETTE R OF AUTHORITY SIGNED BY SHRI HIRA LAL KHANNA THE BROTHER OF THE ASSE SSEE. WHEN QUESTIONED AS TO WHY HE HAS NOT FILED LETTER OF AUTHORITY ON BEHALF OF THE ASSESSEE HE EXPLAINED THAT THE ASSESSEE IS NOT IN A POSIT ION TO SIGN ANY PAPER. IN THIS CONNECTION OUR ATTENTION WAS DRAWN TO PARAGRAP H 3 OF THE ORDER OF THE LD. CIT(A) A PART OF WHICH IS REPRODUCED OVERLEAF: - ITA NOS. 4579&4580(DEL)/2009 2 3. THE APPEAL WAS FILED ON 23.9.2008 BEARI NG THUMB IMPRESSION OF THE APPELLANT. IT WAS SUBMITTED T HAT THE APPELLANT IS 77 YEARS OLD MAN AND HAS NO FAMIL Y; THAT SINCE 1963 HE WAS LIVING IN BELFAST U.K; THAT HE CA ME ON A VISIT TO INDIA IN MAY 2006 WHEN HE SUFFERED A PARALY TIC ATTACK WHICH INCAPACITATED HIM BOTH MENTALLY AND PHYSICA LLY; THAT SINCE THEN HE HAS BEEN RESIDING AT B-28 NIZA MUDDIN WEST; THAT HE IS SUFFERING FROM APHASIA AND RIGHT H EMI PARESIS WHICH HAS PERMANENTLY DISABLED HIM AND MADE HIM BED- RIDDEN; THAT HE IS UNDER THE CARE OF DOMESTIC SERVANT/ATTENDANT; THAT HIS FINANCIAL REQUIREMENT S ARE BEING MANAGED BY HIS BROTHER DR. HIRA LAL KHANNA FROM USA AN ASSOCIATE PROFESSOR IN NEUROSURGERY OHIO UNIVERS ITY; THAT THE APPELLANT WAS NOT IN A POSITION TO UNDERSTA ND COMMUNICATE AND PARTICIPATE IN ANY OF THE PROCEED INGS INITIATED BY THE ASSESSING OFFICER; THAT IT WA S ONLY WHEN AN ITI VISITED THE RESIDENCE AT NIZAMUDDIN WEST THAT DR. HIRA LAL KHANNA (BROTHER OF THE APPELLANT) WAS CONTACT ED AND APPRISED ABOUT THE INCOME-TAX PROCEEDINGS; THAT AFTER CONSIDERABLE DIFFICULTY IN OBTAINING THE SIGNATURE AND THE PHOTOGRAPH OF THE APPELLANT AN APPLICATION FOR PAN WAS MADE IN AUGUST 2008; THAT THEREAFTER APPEAL FE ES WAS PAID AND APPEAL FILED ON 23.9.2008. 2. SIMILAR REPRESENTATION WAS MADE IN PARAGRAPHS 3 AND 4 OF LETTER FILED BEFORE US AND SIGNED BY SHRI S.K. BAJAJ . IT WAS PRAYED THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LETTER OF AUTHORITY SIGNED BY SHRI HIRA LAL KHANNA MAY BE TAKEN A S THE LETTER OF AUTHORITY SIGNED BY THE ASSESSEE EVEN IN ABSENCE OF HIS APPOINTMENT AS GUARDIAN OF THE ASSESSEE BY THE COMPETENT AUTHORITY. 2.1 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. WE FIND THAT SHRI S.K. BAJAJ HAS NOT BEEN AUTHORIZED BY THE ITA NOS. 4579&4580(DEL)/2009 3 ASSESSEE TO REPRESENT HIS CASE. FURTHER SHRI HIRA LAL KHANNA HAS NOT BEEN APPOINTED BY THE COMPETENT COURT TO BE THE LEGAL GUARDIAN OF THE ASSESSEE. THEREFORE HE CANNOT BE TAKEN AS AU THORIZED REPRESENTATIVE OF THE ASSESSEE. NONETHELESS SHRI BAJAJ IS FOUND TO BE CONVERSANT WITH THE FACTS OF THE CASE AND THEREFORE HE WAS DIRECT ED BY THE BENCH TO HELP IT IN UNDERSTANDING THE CASE BY APPOINTING HIM AS AMICUS CURIE WHICH WAS DONE BY HIM. THUS WE PROCEED TO DETERMI NE THE APPEAL ON THE BASIS OF FACTS AVAILABLE ON RECORD AND AS EX PLAINED BY THE LEARNED DR AND THE AMICUS CURIE. 2.2 THE LD. DR SUBMITTED THAT ASSESSMENT PROCE EDINGS WERE INITIATED ON RECEIPT OF INFORMATION THAT THE ASSESSEE INVESTED A SUM OF RS. 48.00 LAKH IN VARIOUS BONDS/DEBENTURES. THEREFORE THE ASSESSEE WAS REQUIRED TO FILE THE RETURN OF INCOME BY ISSUING NOTICES U/S 142(1) ON 18.9.2007 26.10.2007 AND 12.12.2007. THE ASSESSEE WAS AL SO REQUESTED TO EXPLAIN THE SOURCE OF INVESTMENT IN BONDS/DEBENTURES. THE ASSESSEE NEITHER FILED THE RETURN OF INCOME NOR EXPLAINED THE SOURCE OF IN VESTMENT. THEREFORE THE AMOUNT WAS ASSESSED AS INCOME BY INVOKING THE PROVISION CONTAINED IN SECTION 69 OF THE ACT. PROCEEDING S WERE ALSO INITIATED U/S 271(1)(C). TWO OPPORTUNITIES WERE GIVEN TO THE ASSESSEE TO EXPLAIN AS TO ITA NOS. 4579&4580(DEL)/2009 4 WHY THE PENALTY SHOULD NOT BE LEVIED. THERE WA S NO RESPONSE FROM THE ASSESSEE TO THESE NOTICES. THEREFORE MINIMUM PENALTY OF RS. 15 86 508/- WAS LEVIED. 2.3 IT WAS FURTHER SUBMITTED THAT THE FACTS WERE EXPLAINED BEFORE THE LD. CIT(A) THAT A SUM OF RS. 1.37 CRORE WAS R ECEIVED BY THE ASSESSEE FROM HIS BROTHER FOR RELINQUISHING HIS RIGHT IN THE PROPERTY OF LATE LAL CHAND KHANNA HUF FATHER SITUATED AT 74 JA NPATH NEW DELHI. AS A MATTER OF ABUNDANT PRECAUTION A SUM OF RS. 4 8.00 LAKH WAS INVESTED IN THE BONDS FOR CLAIMING EXEMPTION U/S 54EC. AS THESE FACTS WERE NOT AVAILABLE BEFORE THE AO THE LD. CIT(APPEALS) RE FERRED THE MATTER TO THE AO FOR SUBMITTING HIS REMAND REPORT. IT WAS SUBMITTED THAT THE AFORESAID FACTS HAD NOT BEEN BROUGHT TO HIS NOT ICE IN THE COURSE OF ASSESSMENT PROCEEDINGS. IT WAS FURTHER SUBMIT TED THAT THE ASSESSEE WAS LIABLE TO PAY CAPITAL GAINS TAX ARISING FROM R ELINQUISHMENT OF HIS RIGHT IN THE HUF PROPERTY. THE CLAIM OF EXEMPTION U/S 54EC WAS DISPUTED ON THE GROUND THAT CERTIFICATE FROM THE NATIONAL H OUSING BANK WAS NOT FILED. THE LD. CIT(APPEALS) OBTAINED THE EXP LANATION OF THE ASSESSEE ON THE REMAND REPORT. AFTER CONSIDERING THE FAC TS AND THE SUBMISSIONS IT WAS MENTIONED THAT THAT THE ASSESSEE WAS PREV ENTED BY SUFFICIENT CAUSE ITA NOS. 4579&4580(DEL)/2009 5 IN NOT FILING RELEVANT DOCUMENTS IN THE ASSE SSMENT PROCEEDINGS AND THEREFORE THE ADDITIONAL EVIDENCE WAS ADMITT ED. COMING TO THE EXPLANATION OF THE SOURCE OF RS. 48.00 LAKH IT WAS MENTIONED THAT VARIOUS PAPERS PLACED BEFORE HIM CLEARLY SHOW T HAT THIS AMOUNT WAS RECEIVED ON ACCOUNT OF RELINQUISHMENT OF THE RIGH T IN THE PROPERTY OF LAL CHAND KHANNA HUF ON FAMILY SETTLEMENT. THER EFORE THE ADDITION WAS DELETED. SINCE THE TOTAL INCOME OF THE A SSESSEE WAS ASSESSED AT NIL AS A CONSEQUENCE OF THIS ORDER THE PENALTY WAS ALSO DELETED. 2.4 IT WAS HIS CASE THAT THE ORDER OF THE LD. CI T(A) NOWHERE MENTIONS THAT ANY ORDER WAS PASSED U/S 171 EVIDENCING PARTITION OF LAL CHAND KHANNA HUF. THEREFORE THE GENUINENESS OF T HE CLAIM ABOUT PARTITION AND CONSEQUENT RECEIPT OF RS. 1.37 CRORE FRO M HIRA LAL KHANNA BROTHER COULD NOT BE VERIFIED IN THE COURSE OF ASSESSMENT PROCEEDINGS OR THE APPELLATE PROCEEDINGS. THEREFORE IT W AS ARGUED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE AO SO THAT E NTIRE GAMUT OF FACTS COULD BE EXAMINED. ITA NOS. 4579&4580(DEL)/2009 6 2.5 THE AMICUS CURIE DREW OUR ATTENTION TO PA GE 33 OF THE PAPER BOOK BEING THE CERTIFICATE ISSUED BY CHITRA MAH ENDALE ADVOCATE DATED 09.07.2008. THE CERTIFICATE READS AS UNDER:- CERTIFIED THAT SUIT NO. 1651 OF 1990 FOR PARTIT ION OF THE JOINT FAMILY AND OTHER PROPERTIES WAS FILED BY SHRI MAHENDRA KUMAR KHANNA SON OF LATE SHRI LAL CHAND KHANNA AGAINST HIS BROTHER SHRI MADAN LAL KHANNA AND OTHERS. THE MAIN PROPERTY IN SUIT WAS 74 JANPATH NEW DELHI. AFT ER 14 YEARS OF LITIGATION IN MARCH 2004 THIS SUIT WAS COM PROMISED. THE COMPROMISE WAS RECORDED BY THE HIGH COURT AN D AT THIS IN CONSIDERATION OF SHRI MAHENDRA KUMAR KHAN NA SURRENDERING HIS INTEREST IN THE PROPERTY (74 J ANPATH) A SUM OF RS. 1 37 50 000/- (RUPEES ONE CRORE THIRT Y SEVEN LAKHS FIFTY THOUSAND ONLY) WAS PAID BY HIS ELDER BROTH ER SHRI MADAN LAL KHANNA (WHO TOOK OVER THE INTEREST OF M AHENDRA KUMAR KHANNA IN THE SAID PROPERTY) WHICH PAYMENT WAS MADE BY PAY ORDER NO. 604023 DATED 1.3.2004 ISS UED BY CANARA BANK JANPATH NEW DELHI ACCOUNTING PAYEE IN FAVOUR OF SHRI MAHENDRA KUMAR KHANNA. IF REQUIRED A CERTIFIED COPY OF THE COMPROMI SE AND THE HIGH COURT ORDER IN THE ABOVE SUIT CAN BE OBTAIN ED. THIS WILL TAKE AT LEAST THREE WEEKS. SHRI MAHENDRA KUMAR KHANNA I AM TOLD HAS HAD A PARALYTIC STROKE AND FOR THE LAST TWO YEARS HAS BEEN CONFINED TO BED AND UNABLE TO SPEAK. 2.6 FURTHER HE DREW OUR ATTENTION TO THE APP LICATION MADE UNDER ORDER 23 RULE 3 AND SECTION 151 CPC BEFORE THE H IGH COURT IN C.S(OS) NO. 1751 OF 1990. THIS APPLICATION HAS BEEN SI GNED BY THE ASSESSEE SHRI HIRA LAL KHANNA SHRI ARVIND KHANNA SHRI MADAN LA L KHANNA SHRI LALIT ITA NOS. 4579&4580(DEL)/2009 7 K. KHANNA SHRI KARAN KHANNA AND MS. PRIYA KHANNA. PARAGRAPHS 3 TO 3.4 READ AS UNDER:- 3. THE PARTIES (PLAINTIFF AND DEFENDANTS 1 & 2 ALSO DEFENDANTS 5 TO 8) HAVE NOT COMPROMISED THEIR D ISPUTES. THERE HAS BEEN A FAMILY SETTLEMENT. LATER A MEMORANDUM THEREOF HAS BEEN PREPARED. NOW THE PARTIES P RAY TO THE COURT TO DISPOSE OF THE ABOVE SUIT AS UNDER: 3.1 THAT IN CONSIDERATION OF A SUM OF RS. 1 37 5 0 000/- (RUPEES ONE CRORE THIRTY SEVEN LAKHS FIFTY THOUS AND ONLY) SINCE PAID TO THE PLAINTIFF SHRI MAHENDRA K. KHAN NA BY MEANS OF PAY ORDER NO. 604023 DATED 1.3.2004 ISSUED BY CANARA BANK JANPATH NEW DELHI ON BEHALF OF DEFENDAN T NO. 1 AND IN TERMS OF FAMILY SETTLEMENT ARRIVED AT EA RLIER THE PLAINTIFF MAHENDRA K. KHANNA HAS RELINQUISHED A LL HIS RIGHTS TITLE AND INTEREST AND CLAIMS IN LAL C HAND KHANNA (HUF) PROPERTY NO. 74 JANPATH NEW DELHI AND AL L ASSETS AND LIABILITIES OF LATE SHRI LAL CHAND KHANNA IN FAVOUR OF SHRI MADAN LAL KHANNA THE ELDEST MEMBER OF THE HUF AND HAS SEPARATED HIMSELF FROM THE (HUF) FAMILY. IT IS MADE CLEAR THAT THIS FINAL RELINQUISHMENT (DIVESTIN G OF INTEREST) HAS TAKEN PLACE AND FULL AND FINAL PAYMENT HAS ALSO BEEN MADE. 3.2 SIMILARLY IN CONSIDERATION OF A SUM OF R S.1 37 50 000/- (RUPEES ONE CRORE THIRTY SEVEN LAKHS FIFTY TH OUSAND ONLY) SINCE PAID TO DR. HIRA LAL KHANNA (DF. 2) BY MEAN S OF PAY ORDER NO. 604024 DATED 1.3.2004 ISSUED BY CANARA BANK JANPATH NEW DELHI ON BEHALF OF DEFENDANT NO. 1 AND IN TERMS OF FAMILY SETTLEMENT ARRIVED AT EARLIER DF. 2 DR. HIRA LAL KHANNA HAS RELINQUISHED ALL HIS RIGHTS TITLE INTEREST AND CLAIMS IN ALL PROPERTIES OR ASSETS OF ANY KIND THAT EXIST OR MAY ARISE IN FUTURE IN LAL CHA ND KHANNA HUF PROPERTY NO. 74 JANPATH NEW DELHI AND ALL ASSETS AND LIABILITIES OF LATE SHRI LAL CHAND KHANNA IN FAV OUR OF SHRI MADAN LAL KHANNA THE ELDEST MEMBER OF THE HUF AND SEPARATES HIMSELF FROM THE (HUF) FAMILY. IT IS MADE CLEAR THAT THIS IS THE FINAL RELINQUISHMENT (DIVESTI NG OF INTEREST) ITA NOS. 4579&4580(DEL)/2009 8 THAT HAS TAKEN PLACE AND FULL AND FINAL PAYMENT HAS ALSO BEEN MADE. 3.3 THAT TITLE TO THE JANPATH PROPERTY AND AL L ASSETS AND LIABILITIES OF LAL CHAND KHANNA HUF- CONSEQUENT T O SUCH PAYMENT AND RELINQUISHMENT- STAND WITH MADAN L AL KHANNA (HUF) ITSELF LEAVING NO INTEREST THEREIN OF MAHENDRA K. KHANNA AND HIRA LAL KHANNA ANY LONGER. 3.4 IT IS ALSO CLARIFIED THAT SHRI MAHENDRA K. KHANNA PLAINTIFF IS A BACHELOR AND IS UNMARRIED TILL TH E DATE OF SIGNING THIS DEED. DR. HIRA LAL KHANNA IS MAR RIED AND HIS WIFE SMT. SUMOHINI KHANNA AND HIS THREE CHILDREN NAMELY VANITA POONAM AND SANJEEV ARE FILING AFFIDAVIT S THAT IT IS IN THEIR KNOWLEDGE AND HAVE CONSENTED TO THE FAMI LY SETTLEMENT AND THIS IS A FINAL AND BINDING SETTLEMENT A ND NO CLAIM WILL BE MADE BY THEM HEREINAFTER FOR THE PROPERTY KNOW N AS 74 JANPATH OR LAL CHAND KHANNA (HUF) AND ALL ASS ETS AND LIABILITIES OF LATE SHRI LAL CHAND KHANNA. 2.7 IN VIEW OF THE AFORESAID DOCUMENTS IT WAS EXPLAINED TO US THAT THE ASSESSEE RECEIVED A SUM OF RS. 1.37 CRORE ON R ELINQUISHING HIS RIGHTS IN THE HUF PROPERTY. OUT OF THIS MONEY A SUM OF RS. 48.00 LAKH WAS INVESTED IN THE BONDS OF NATIONAL HOUSING BANK AS A MATTER OF ABUNDANT PRECAUTION IN CASE ANY LIABILITY AROSE ON ACCO UNT OF CAPITAL GAINS. HOWEVER MONEY RECEIVED BY A COPARCENER ON ACC OUNT OF RELINQUISHMENT OF RIGHT OR INTEREST IN THE HUF PROPERTY IS NOT EXIGIBLE TO CAPITAL GAIN. SINCE NO AMOUNT WAS TAXABLE AND THERE WAS NO LIABILITY TO PAY INCOME- TAX PENALTY COULD ALSO NOT BE LEVIED U/S 271(1) (C). ITA NOS. 4579&4580(DEL)/2009 9 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. FROM THE LETTER OF MS. CHITRA MA HENDALE ADVOCATE IT IS CLEAR THAT THE ASSESSEE RECEIVED A SUM OF RS. 1.37 CRORE ON SURRENDERING HIS INTEREST IN THE HUF PROPERTY SITUATED AT 74 JANPATH NEW DELHI. IT IS ALSO CLEAR FROM THE ORDER OF THE LD. CIT(A PPEALS) THAT A SUM OF RS. 48.00 LAKH WAS INVESTED IN THE BONDS OF NATION AL HOUSING BANK. THE GROUND OF THE REVENUE IN THE QUANTUM APPEAL IS THAT THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS. 48.00 LAKH MADE BY THE AO TO THE TOTAL INCOME U/S 69 OF THE ACT. T HE FACTS STATED ABOVE LEAD TO A CLEAR CONCLUSION THAT THE AFORESAID AMOUNT CAME OUT OF THE MONEY RECEIVED BY THE ASSESSEE FROM HIS BROT HER ON RELINQUISHING RIGHT IN THE HUF PROPERTY. THEREFORE THE PROV ISION CONTAINED IN SECTION 69 IS NOT APPLICABLE AS NATURE AND SOURCE OF I NVESTMENT STANDS ADEQUATELY PROVED BY THE FACTS ON RECORD. THER EFORE THERE IS NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(APPE ALS). IN THIS VIEW OF THE MATTER THE LEVY OF PENALTY U/S 271(1)(C) BY TH E AO ALSO DOES NOT SURVIVE. 4. IN THE RESULT BOTH THE APPEALS ARE DISMISS ED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 23 APRIL 2010. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 23.04.2010. ITA NOS. 4579&4580(DEL)/2009 10 SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. MAHENDRA KUMAR KHANNA NEW DELHI. 2. ITO WARD 28(2) NEW DELHI. 3. CIT(A) 4. CIT NEW DELHI. 5. DR ITAT NEW DELHI. ASSISTANT REGISTRA R.