Smt. M. Sreedevi Reddy, Hyderabad V. Income Tax Officer, Ward-6(1), Hyderabad

ITA 1009/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66443 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 25-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHANTI KUMAR
• Keywords: Deduction for capital gain; Capital asset; Cost of acquisition
• Section: 143(3); 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 1009/HYD/2012 (ASSESSMENT YEAR : 2008-09) SMT. M. SREEDEVI REDDY HYDERABAD PAN: AFFPM0041M VS. THE INCOME TAX OFFICER WARD-6(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI SHANTI KUMAR RESPONDENT BY: SRI NARAHARI BISWAL DATE OF HEARING: 1 1 . 1 0.2012 DATE OF PRONOUNCEMENT: 16.11.2012 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT-IV, HYDERABAD DATED 26.3.2012 FOR A.Y. 2008 -09. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE COMMISSIONER (APPEALS) FAILED IN LAW AND ON FACTS WHILE UPHOLDING THE ORDER OF THE ASSESSING OFFICER. 2. THE CIT (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF APPELLANT'S CLAIM OF DEDUCTION TOWARDS EXPENDITURE INCURRED ON IMPROVEMENTS MADE TO THE PROPERTY TRANSFERRED BY HER. 3. THE CIT (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE OF APPELLANT'S CLAIM OF DEDUCTION OF RS. 27,03,100 BEING PAYMENTS TOWARDS SETTLEMENT EXPENSES. 4. THE CIT (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN REJECTING APPELLANT'S CLAIM OF DEDUCTION UNDER SECTION 54F. 5. THE CIT (APPEALS) ERRED IN LAW WHILE UPHOLDING I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 2 ACTION OF THE ASSESSING OFFICER IN NOTING THAT THE SALE CONSIDERATION WAS NOT PROPERLY UTILIZED IN PURCHASING THE LAND FOR ACQUIRING RESIDENTIAL PURPOSE WITHIN THE MEANING OF SECTION 54F. 6. THE CIT (APPEALS) ERRED IN LAW WHILE AGREEING WITH THE ASSESSING OFFICER THAT THE INVESTMENT OF RS. 2,25,00,000 IN PURCHASE OF LAND FOR CONSTRUCTION OF RESIDENTIAL HOUSE WAS NOT IN ACCORDANCE WITH SECTION 54F OF THE INCOME-TAX ACT, 1961. HE OUGHT TO HAVE APPRECIATED THAT THE PURCHASE OF LAND WAS FOR CONSTRUCTION OF RESIDENTIAL HOUSE PROPERTY WITHIN THE TIME LIMIT PRESCRIBED IN SECTION 54F. 7. THE CIT (APPEALS) IS NOT JUSTIFIED IN AGREEING WITH THE ASSESSING OFFICER THAT THE EXPENSES OF RS. 1,12,59,100 INCURRED BY THE APPELLANT AFTER THE DUE DATE OF 31.07.2008 WAS NECESSARY FOR COMMENCEMENT OF CONSTRUCTION OF RESIDENTIAL HOUSE WITHIN THE TIME LIMIT MENTIONED IN SECTION 54F. 8. THE CIT(APPEALS) AS WELL AS THE ASSESSING OFFICER FAILED TO NOTE THAT AS PER SECTION 54F, THE UTILIZE D PORTION OF SALE PROCEEDS WITHIN THE TIME LIMITS MENTIONED IN SECTION 54F IS TO BE ALLOWED AS A DEDUCTION. 9. THE CIT(APPEALS) AND THE ASSESSING OFFICER FAILED IN NOTING THAT THE UNUTILIZED PORTION OF SALE PROCEEDS ARE ASSESSABLE AS APPELLANT'S INCOME ONLY AFTER EXPIRY OF THE PERIOD OF 3 YEARS AND NOT IN THE CURRENT ASSESSMENT YEAR. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED A RETURN OF INCOME DECLARING INCOME OF RS. 1,69,500. THE ASSES SING OFFICER NOTICED THAT THE ASSESSEE CLAIMED CAPITAL GAIN OF R S. 3,66,06,236 AS EXEMPT U/S. 54F OF THE INCOME-TAX ACT, 1961. TH E FACTS RELATING TO THE ISSUE OF CAPITAL GAIN ARE THAT THE ASSESSEE SOLD THE PLOT BEARING NO. 14, IN SECTOR II, HUDA TECHNO ENCL AVE, MADHAPUR, SY. NO. 64 IN SERILINGAMPALLY MANDAL, R.R . DISTRICT ON 18.7.2007. IT WAS SUBMITTED BY THE ASSESSEE THAT T HE PROPERTY WAS PURCHASED BY THE ASSESSEE ON 30.6.2003 FOR A CO NSIDERATION OF I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 3 RS. 22,26,928 AND INCURRED REGISTRATION CHARGES OF RS. 2,67,240. THUS THE TOTAL COST WORKED OUT AT RS. 24,98,168. L ATER IN THE FINANCIAL YEAR 2004-05, SHE SPENT AN AMOUNT OF RS. 7 LAKHS FOR IMPROVEMENT OF THE PROPERTY. THE SAID PLOT WAS SOL D ON 18.7.2007 FOR A TOTAL CONSIDERATION OF RS. 4,03,78,000 AND CO MPUTED THE CAPITAL GAIN AS FOLLOWS: A) SALE CONSIDERATION OF PROPERTY RS. 4,03,78,000 B) INDEX COST - RS. 29,68,222 C) INDEX COST OF IMPROVEMENT- RS. 8,03,542 RS. 3 7,71,764 -------------------- CAPITAL GAIN RS. 3,66,06,236 EXEMPTION U/S. 54 RS. 3,66,06,236 -------------------- CAPITAL GAIN NIL 4. THE ASSESSEE CLAIMED CAPITAL GAIN EXEMPTION ON THE REASON THAT AFTER SALE OF ABOVE PROPERTY SHE HAS PURCHASED PROPERTY AT DOOR NO. 79, ITHEPALLY REVENUE VILLAGE, MAMANDURU V ILLAGE AND PANCHAYAT, CHANDRAGIRI MANDAL, CHITTOOR DISTRICT., ANDHRA PRADESH ON 16.10.2007. THE ASSESSEE ALSO CLAIMED C ERTAIN EXPENDITURE INCURRED FOR SETTLING THE CLAIM WITH ON E SRI J. SUBRAMANYAM NAIDU AND SRI B.C. REDDAPPA REDDY AT RS . 27,03,100. ACCORDING TO THE ASSESSEE, SHE HAS ALSO INCURRED AN AMOUNT OF RS. 1,12,50,100 FOR DEVELOPMENT, REMODELL ING AND RENOVATION OF THE RESIDENTIAL BUILDING. THUS, THE ASSESSEE MADE AN INVESTMENT OUT OF THE CONSIDERATION RECEIVED AT RS. 3,86,00,000. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE EXE MPTION OF CAPITAL GAIN U/S. 54F OF THE ACT ON THE FOLLOWING REASONS. 5. THE INCOME TAX OFFICER, WARD-6(1), HYDERABAD, PASSE D AN ORDER UNDER SECTION 143(3) ON 27.12.2010 REJECTING THE ASSESSEE'S CLAIM OF DEDUCTION OF RS. 3,66,06,236 UNDER SECTION 54F ON THE FOLLOWING GROUNDS: (I) THE ASSESSEE HAS NOT STARTED ANY SORT OF CONSTRUCTI ON ON THE LAND TILL THE DATE OF ASSESSMENT AND NOT SPE NT I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 4 SINGLE PIE ON CONSTRUCTION. (II) THE ASSESSEE HAS NOT EVEN OBTAINED ANY PERMISSION FROM THE GRAM PANCHAYAT FOR CONSTRUCTION. (III) EXPENDITURE FOR CONSTRUCTION WAS INCURRED AFTER 31.07.2008 AND AS SUCH NOT ELIGIBLE FOR EXEMPTION. (IV) NO PROOF OR EVIDENCE FOR THE EXPENDITURE INCURRED O N IMPROVEMENTS AND SETTLEMENT WAS PRODUCED. 6. AGAINST THE ORDER OF ASSESSMENT, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEA LS)-IV, HYDERABAD. BEFORE THE CIT(A), THE ASSESSEE SUBMITTE D THAT AN AMOUNT OF RS. 7,00,000 WAS ACTUALLY SPENT ON IMPROVEMENT AND THE SAME WAS REFLECTED IN THE BALANCE SHEET AS AT 3 1.03.2005. IT WAS ALSO SUBMITTED THAT THE PROPERTY PURCHASED WAS USED FOR A TEXTILE MILL BUT THE MACHINERY WAS SOLD AWAY LONG B ACK ABOUT 20 YEARS AGO. THE APPELLANT HAS PURCHASED THIS PROPERT Y WITH THE SOLE INTENTION OF USING IT FOR RESIDENTIAL PURPOSE. ALTE R OBTAINING PRIOR PERMISSION FROM THE GRAM PANCHAYAT AUTHORITIES, THE ASSESSEE MADE CERTAIN ALTERATIONS TO THE BUILDING TO MAKE IT HABITABLE. IT WAS FURTHER SUBMITTED NECESSARY PROOF FOR WITHDRAWI NG FUNDS OF RS. 1,12,59,100 INCURRED FOR DEVELOPMENT OF THE PRO PERTY AND RENOVATION OF THE HOUSE WELL WITHIN THE STIPULATED TIME I.E. BEFORE 31-07-2008. 7. THE CIT(A) HAS NOT ACCEPTED THE ASSESSEE'S CONTENTI ONS AND DISMISSED THE APPEAL ON THE GROUNDS THAT THE ADVANC ES WERE PAID FOR THE PURPOSE OF CONSTRUCTION ONLY AFTER 31.07.20 08 I.E., AFTER THE DUE DATE OF FILING THE RETURN. ANY PORTION OF THE S ALE CONSIDERATION WAS NOT DEPOSITED IN THE CAPITAL GAIN SCHEME ACCOUN T AS MANDATED BY SEC. 54 WITHIN THE STIPULATED TIME. THE LAND PUR CHASED WAS A MILL LAND WHICH SHOWS THAT THE INITIAL PURPOSE ITSE LF WAS NOT TO ACQUIRE A NEW RESIDENTIAL HOUSE. CONSTRUCTION WAS N OT ACTUALLY UNDERTAKEN WHICH COULD BE CONSIDERED AS A NEW RESID ENTIAL HOUSE. EXISTING CONSTRUCTION WAS REMODELLED OR RENOVATED B Y ALTERATIONS I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 5 CANNOT BE CONSIDERED AMOUNTING TO INVESTMENT IN A R ESIDENTIAL HOUSE. THE CIT(A) FURTHER HELD THAT NO PERSON INTEN DING TO USE OR EVEN CONSTRUCT A RESIDENTIAL HOUSE WOULD INCUR MEAG RE EXPENSES TOWARDS ALTERATION OF THE HABITABLE AREA AND HUGE S UMS WOULD BE SPENT ON LAND DEVELOPMENTS, FILLING UP GRAVEL ETC. BY DEPLOYING PROCLAINERS AND HUMAN LABOUR. ELECTRIC CONNECTION ON DOMESTIC TARIFF AND PAYMENT OF HOUSE TAX CANNOT BE CONCLUSIV E EVIDENCE IN THIS REGARD. THE ASSESSEE'S REFERENCE TO THE CASE OF CIT V. SARDARMAL KOTHARI (302 ITR 286) (MAD) WAS REJECTED BY SAYING THAT IN THAT CASE THE ENTIRE CAPITAL GAIN WAS UTILIZED I N CONSTRUCTION EVEN IF CONSTRUCTION WAS NOT COMPLETE. WHEREAS IN T HE APPELLANT'S CASE NEITHER THERE WAS INTENTION TO CONSTRUCT RESID ENTIAL HOUSE NOR CONSTRUCTED A RESIDENTIAL HOUSE. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LEARNED AR SUBMITTED THAT THE ASSESSEE ORIGINAL LY PURCHASED THE PROPERTY ON 30.6.2003 FOR A CONSIDERA TION OF RS. 24,94,168 WHICH INCLUDES REGISTRATION EXPENSES OF R S. 2,67,240. THIS IS DULY REFLECTED IN THE BALANCE SHEET FILED A LONG WITH THE RETURN FOR A.Y. 2004-05 VIDE ACKNOWLEDGEMENT NO. 06 11002764 DATED 6 TH OCTOBER, 2004. LATER THE ASSESSEE INCURRED AN EXPENDITURE OF RS. 7 LAKHS. THIS IS ALSO DISCLOSED TO THE DEPARTMENT IN THE ASSESSEE'S BALANCE SHEET FILED AL ONG WITH THE RETURN OF INCOME FOR THE A.Y. 2005-06 VIDE ACKNOWLE DGEMENT NO. 6110662879 DATED 1 ST AUGUST, 2005. 9. REGARDING THE PAYMENT OF RS. 27,03,100 TO SRI J. SUBRAMANYAM NAIDU AND SRI B.C. REDDAPPA REDDY, IT W AS SUBMITTED THAT THOUGH THE ASSESSEE PURCHASED THE PR OPERTY THROUGH AUCTION BY OFFICIAL LIQUIDATOR AS PER THE D IRECTION OF THE HONBLE HIGH COURT OF ANDHRA PRADESH, THERE WAS CER TAIN DISPUTE TOWARDS THE PROPERTY. THE DISPUTE WAS SETTLED BY P AYMENT OF THE ABOVE AMOUNT BY CHEQUE TO THESE TWO PERSONS. THE A SSESSEE I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 6 DESPITE HAVING PRODUCED THE DETAILS OF CHEQUE NO., DATE OF PAYMENT, BANK PARTICULARS, THE LOWER AUTHORITIES WR ONGLY REJECTED THE CLAIM OF THE ASSESSEE. 10. REGARDING INVESTMENT OF CONSIDERATION RECEIVED BY T HE ASSESSEE IN RESIDENTIAL PROPERTY, THE AR SUBMITTED THAT THE RELEVANT DATE OF TRANSACTION 18.7.2007. THE CIT(AP PEALS) ERRED IN CONFIRMING THE AO'S NOTING THAT THE INVESTMENT IN CONSTRUCTION WAS AFTER 31.07.2008 I.E., AFTER THE D UE DATE OF FILING OF RETURN. THE DETAILS OF SALE PROCEEDS AND INVESTM ENTS ARE AS UNDER: (I) DATE OF RECEIPT OF ADVANCE OF RS. 1,50,00,000 FOR T HE SALE OF PLOT WAS 07-06-2007. (II) DATE OF RECEIPT OF BALANCE OF CONSIDERATION OF RS. 2,53,78,000/- FOR SALE OF PLOT WAS ON 18-07-2007. (III) DATE OF REGISTRATION OF SALE TRANSACTION OF PLOT WA S ON 18-07-2007. (IV) DATE OF AGREEMENT OF PURCHASE OF NEW PROPERTY WAS O N 10-04-2007. (V) DATE OF PAYMENT OF RS. 1,79,95,450/- TO OFFICIAL LIQUIDATOR FOR PURCHASE OF NEW PROPERTY WAS ON 30.07.2007. (VI) DATE OF PAYMENT OF BALANCE OF CONSIDERATION OF RS. 45,00,000/- FOR PURCHASE OF PROPERTY WAS ON 23-08- 2007. (VII) DATE OF REGISTRATION OF PROPERTY PURCHASED WAS ON 1 6- 10-2007. (VIII) CAPITAL GAIN IS RS. 3,66,06,236/-. INVESTMENT IN PURCHASE OF LAND IS RS. 2,46,37,800/-. (IX) DATES OF PAYMENTS OF RS. 27,03,100 TOWARDS SETTLEMENT AND RS. 1,12,59,100/- TOWARDS DEVELOPMENT AND CONSTRUCTION THROUGH CHEQUES ARE: 28.06.2007 RS. 50,00,000 03.07.2007 RS. 50,00,000 04.09.2007 RS. 40,00,000 I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 7 11. THE AR SUBMITTED THAT AS COULD BE SEEN FROM THE ABO VE, AN AMOUNT OF RS. 3,86,37,800 WAS SPENT AGAINST THE CAP ITAL GAIN OF RS. 3,66,06,236, WELL BEFORE THE STIPULATED DUE DAT E FOR FILING OF RETURN OF INCOME I.E. 31.07.2008. THE CIT(A) CONFIR MING THE ITO'S OBSERVATION THAT THE MONEY IS SPENT AFTER 31-07-200 8 IS NOT FACTUALLY CORRECT. THE FINDING OF THE CIT(A) THAT A NY PORTION OF THE SALE PROCEEDS OF THE ORIGINAL ASSET WERE NOT DEPOSI TED INTO CAPITAL GAINS SCHEME ACCOUNT ALSO DOES NOT HOLD GOOD SINCE THE ENTIRE AMOUNT OF CAPITAL GAIN IS INVESTED WITHIN ONE YEAR AND MUCH BEFORE FILING OF THE RETURN I.E. 31-07-2008. THEREF ORE, THE ASSESSEE IS FULLY ELIGIBLE FOR EXEMPTION OF CAPITAL GAIN U/S . 54 OF I T ACT. THE ASSESSEE, THEREFORE, PRAYS FOR ALLOWING THE CLAIM O F EXEMPTION. 12. THE AR FURTHER SUBMITTED THAT THE ASSESSEE'S SOLE I NTENTION OF PURCHASING THE PROPERTY WAS TO USE IT FOR RESIDE NTIAL PURPOSE. THE ASSESSEE I.E. DR. M. SREEDEVI REDDY IS A DOCTOR BY PROFESSION. SHE IS WITH GOOD SOCIAL STANDING IN THE ERSTWHILE T ALUK OF CHANDRAGIRI. HER HUSBAND SRI M VENKAT REDDY IS A LA NDLORD HAVING GOOD POLITICAL BACKGROUND AND WITH POLITICAL ASPIRATIONS. HIS FATHER'S ELDER BROTHER SRI THIMMA REDDY HAS SER VED AS PCC CHIEF FOR AP FOR ONE TERM AND HE SERVED AS MINISTER IN AP CABINET FOR TWO TERMS. HIS FATHER'S YOUNGER BROTHER SRI M. SRINIVASULU REDDY HAS SERVED AS M P (RAJYA SABHA) FOR ONE TERM. THE ASSESSEE WANTED A BIG PLACE TO HAVE A RESIDENTIAL HOUSE TO M EET THE NEEDS OF HER HUSBAND AS POLITICIAN. IT IS PERTINENT TO MENTI ON HERE THAT ACROSS THE ROAD OPPOSITE TO THE ASSESSEE'S HOUSE TH ERE IS A HOUSE OF SRI B C REDDY, WHO BELONGS TO THAT AREA, IS HAVI NG 42 ACRES OF LAND APPURTENANT TO HIS HOUSE. IT IS VERY COMMON AN D NOT UNUSUAL TO HAVE HUGE LAND APPURTENANT THERETO THE HOUSES IN RAYALASEEMA ESPECIALLY THE REDDY'S COMMUNITY. PHOTOS OF SRI B C REDDY'S HOUSE ARE SUBMITTED. THEREFORE, THE OBSERVATION OF THE CIT(A) THAT 'THE PROPERTY PURCHASED BY THE ASSESSEE WAS A MILL LAND ADMEASURING AS BIG AS 17 ACRES SHOWS THAT THE INITI AL PURPOSE I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 8 ITSELF WAS NOT TO ACQUIRE A NEW RESIDENTIAL HOUSE' DOES NOT HOLD GOOD. THE ASSESSEE HAS INTENTIONALLY PURCHASED THE PROPERTY TO USE AS RESIDENTIAL HOUSE AND MADE SUITABLE ADDITION S, ALTERATIONS AND RENOVATION TO THE EXISTING BUILDINGS AND MADE S UITABLE DEVELOPMENT TO THE LAND APPURTENANT THERETO AFTER I NCURRING THE ABOVE MENTIONED EXPENDITURE SO AS TO MAKE THE PROPE RTY HABITABLE TO THEIR REQUIREMENTS AND STANDARDS. THE ASSESSEE U SED JCB MACHINES, LABOUR AND GRAVEL TO LEVEL THE LAND AND C LEAR THE BUSHES AROUND THE HOUSE AND CONSTRUCTED WAY FROM ENTRANCE TO THE BUILDING. SHE ALSO TOOK PERMISSION FROM GRAM PANCHA YAT TO MODIFY AND ADD TO THE EXISTING BUILDING. THEREFORE, IT IS SUBMITTED THAT THE ASSESSEE HAS GENUINELY AND CONSCIOUSLY INV ESTED HER SALE PROCEEDS IN THIS PROPERTY WITH AN INTENTION TO REMO DEL THE PROPERTY INTO A RESIDENTIAL HOUSE. AND THE INVESTMENT IS DON E WITHIN THE STIPULATED TIME. HENCE, THE ASSESSEE IS ENTITLED FO R THE EXEMPTION U/S. 54F. 13. THE AR SUBMITTED THAT IN THE PROPERTY PURCHASED, IN ADDITION TO THE SHEDS NOTICED BY THE AO, THERE ARE SOME MORE BUILDINGS INCLUDING AN RCC BUILDING WITH 1,297 SQUARE FEET. TO MAKE THE PREMISES HABITABLE, THE ASSESSEE SPENT MON EY ON LAND DEVELOPMENT AND MADE ALTERATIONS AND RENOVATIONS TO THE BUILDING. IT WAS ABSOLUTE NECESSARY TO THE ASSESSEE TO SPEND MORE ON LAND DEVELOPMENT THAN ON THE BUILDING FOR THE RE ASON THAT THE PROPERTY WAS LYING UNUSED FOR THE LAST 20 YEARS AND THEN IT WAS TO BE MADE HABITABLE. THE LAND WAS SOFT AND MARSHY AND THERE WERE THICK BUSHES AROUND THE BUILDING AND ON THE APPROAC H WAY FROM THE ENTRANCE TO THE BUILDING. THE MARSHY LAND WAS F ILLED WITH GRAVEL TO MAKE THE LAND HARD AND SUITABLE TO USE BY VEHICLES AND THE BUSHES WERE CLEARED AND PATHWAY WAS LAID FROM E NTRANCE TO THE BUILDING. FOR DOING THESE WORKS, IT WAS NECESSA RY TO USE JCM MACHINES AND LABOUR AND INCUR CONSIDERABLE EXPENDIT URE. RENOVATION INCLUDES ALL THESE WORKS OF IMPROVEMENTS . FURTHER, TO I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 9 ADD SOME MORE ROOMS TO THE BUILDING, THE ASSESSEE S OUGHT FOR PERMISSION OF GRAM PANCHAYAT TO BUILD BED-ROOM, KIT CHEN, BATH- ROOM ETC. IN PROOF OF ALTERATIONS MADE, RENOVATIONS DONE AND TO PROVE THAT IT IS A RESIDENTIAL HOUSE, THE FOLLOWING DOCUMENTS ARE SUBMITTED. (I) LETTER ADDRESSED TO GRAM PANCHAYAT, MAMANDURU STATING THAT THE ERSTWHILE PREMISES OF SRI KALYANA SRINIVASA TEXTILE WERE BEING USED FOR RESIDENCE AND THEREFORE REQUESTING FOR REDUCTION OF HOUSE TAX. AL SO, PERMISSION TO CONSTRUCT KITCHEN, BATH-ROOM WAS SOUG HT THROUGH THIS LETTER. (II) LETTER DATED 15.12.2007 ISSUED BY THE SARPANCH, GR AM PANCHAYAT, MAMANDURU VILLAGE, ACCORDING PERMISSION TO RENOVATE/REPAIR BED ROOM, BATH ROOM ETC., AND INTIM ATING TO PAY HOUSE TAX OF RS. 7,755/-. (III) DEMAND NOTICE DT. 10-05-2009 FOR PAYMENT OF HOUSE TAX OF RS. 15,898 FOR THE YEARS 2007-08 AND 2008-09. (IV) HOUSE TAX RECEIPT DATED 23.06.2009 FOR RS. 15,898 /- ISSUED BY SECRETARY, MAMANDURU GRAM PANCHAYAT. (V) HOUSE TAX RECEIPT FOR RS. 8,551/- FOR 09-10 ISSUED BY THE SECRETARY, MAMANDURU GRAM PANCHAYAT. (VI) LETTER DT. 29-06-2008 FROM ASST. DIVISIONAL ENGINE ER, OPERATIONS, CHANDRAGIRI, INTIMATING ESTIMATE FOR RELEASING 1 NO HSC OF 5 KW TO THE ASSESSEE. (VII) RECEIPT DT. 11.07.2008 FOR RS. 42,910/- ISSUED BY A DDL. ASST. ENGINEER, SOUTHERN POWER DISTRIBUTION COMPANY OF AP LTD. (VIII) APSPDC LTD. RECEIPT DT. 19.08.2008 FOR RS. 1,525/-. (IX) DD DT. 16-09-2008 FOR RS. 5,349/- PAID TO THE SENI OR ACCOUNTS OFFICER, OPERATION CIRCLE, APSPDCL, TIRUPA TI. (X) ELECTRICITY BILLS FOR THE MONTHS OF MAY AND JULY OF 2009. (XI) PHOTOS OF THE NEW HOUSE PURCHASED AND OCCUPIED BY THE ASSESSEE. I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 10 14. THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER WAS UNDER THE MISTAKEN IMPRESSION THAT THE PROPERTY PUR CHASED AT MAMANDURU VILLAGE IS IN ONLY 5 SURVEY NUMBERS VIZ. 11-1, 11-2A, 11-2B, 11-4 AND 11-5. AND THE ENQUIRIES MADE OR CAU SED ON THE NATURE OF PROPERTY WERE ALSO ABOUT THE STRUCTURES I N THE PREMISES OF THAT PROPERTY AS NOTED BY HIM IN THE ASSESSMENT ORDER. THE AO'S FURTHER OBSERVATION IS THAT ONLY 2 SHEDS EXIST ED IN THAT PROPERTY. ALL THESE FINDINGS OF THE AO ARE ACCEPTED AND CONFIRMED BY THE CIT(A). BUT, THIS IS NOT FACTUALLY CORRECT. THE ASSESSEE SUBMITS THAT THE PROPERTY WAS PURCHASED IN AUCTION CONDUCTED BY THE OFFICIAL LIQUIDATOR OF THE HON'BLE HIGH COURT O F ANDHRA PRADESH. THE LAND IS SITUATED IN 19 SURVEY NUMBERS VIZ. 11/1, 11/2A, 11/2B, 11/3, 11/4, 11/5, 13/1, 13/2, 13/3A, 13/3B, 13/4A, 13/4B, 13/4C, 13/5A, J3/5B, 14, 15, 17 & 18 AS PER THE SCHEDULE OF PROPERTY TO THE SALE DOCUMENT. THE DET AILS OF BUILDINGS WHICH ARE EXISTED IN THE PREMISES OF THE PROPERTY ARE AS UNDER: BUILDING AREA CONSTRUCTION 1 ST ITEM 15,122 SFT ACC BUILDING 2 ND ITEM 1,521 SFT ACC BUILDING 3 RD ITEM 1,496 SFT ACC BUILDING 4 TH ITEM 768 SFT ACC BUILDING 5 TH ITEM 1,297 SFT RCC BUILDING 15. THE AR SUBMITTED THAT THESE DETAILS SHOW THAT THE E NQUIRIES BY THE ASSESSING OFFICER WITH REGARD TO THE PROPERT Y ARE INADEQUATE AND LOP-SIDED. THE ENQUIRY REPORT ON THE PROPERTY F INDING THAT 'THERE ARE ONLY TWO SHEDS AND THE REMAINING LAND IS VACANT' IS VERY FAR FROM THE TRUTH. IN FACT, THERE ARE FIVE BUILDIN GS IN TOTAL IN THE PREMISES OF THE PROPERTY. FOUR OF THEM ARE WITH ACC CONSTRUCTION AND ONE IS WITH RCC. THE AREA OF FOUR BUILDINGS WIT H ACC TOGETHER IS ADMEASURING AROUND 19,000 SFT AND THE ONE WITH R CC IS 1,297 SFT WHICH WAS USED FOR OFFICE-CUM-GUEST HOUSE BY TH E TEXTILE MILL. SINCE THE PROPERTY WAS NOT IN USE FOR 20 YEARS, THE BUSHES AROUND THE BUILDING WERE CLEANED AND CONSTRUCTED THE ROAD FROM ENTRANCE I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 11 TO BUILDING AND RENOVATED THE BUILDING SUITABLY FOR INHABITATION. THUS THE BUILDING TOGETHER WITH LAND HAS BEEN RENOV ATED WITH SOME ALTERATIONS AND ADDITIONS AND MADE HABITABLE B Y SPENDING RS. 1,12,59,100/-. THE CIT(APPEALS) HOLDING THAT 'T HE FACT THAT THE EXISTING CONSTRUCTION WAS ONLY REMODELLED OR RENOVA TED BY SUCH ALTERATIONS CANNOT BE CONSIDERED AMOUNTING TO INVES TMENT IN A RESIDENTIAL HOUSE, AS CONTEMPLATED U/S. 54, DOES NO T HOLD WATER IN VIEW OF THE ABOVE FACTS AND JUDICIAL PRONOUNCEMENTS UT INFRA. 16. THE LEARNED AR SUBMITTED THAT IN THE CASE OF JYOTI PAL RAM VS. ITO, REPORTED IN 92, TTJ 199 (LUCKNOW), IT WAS HELD: LITHE TERM REMODELLING AND RENOVATION SUFFICIENT REFERRED TO N EW CONSTRUCTION ALSO AND, THEREFORE, THE ASSESSEE HAS TO BE HELD TO HAVE MADE INVESTMENT IN CONSTRUCTION OF RESIDENTIAL HOUSE WIT HIN THE STIPULATED TIME. IN PRINCIPLE, IT IS ENTITLED FOR EXEMPTION U/ S. 54F'. THE CALCUTTA HIGH COURT IN THE CASE OF KALIPADA GHOSH VS. TULSID AS DUTT, AIR 1960 CAL 467 HELD: LITHE TERMS 'HOUSE' OR 'DWELLING HOUSE' ARE AMBIGUOUS TERMS AND FOR THE PURPOSE OF SECTION 4 OF THE PARTITION ACT MUST BE LIBERALLY CONSTRUED. THE TERMS SHOULD B E TAKEN TO MEAN NOT ONLY THE STRUCTURE OR BUILDING, BUT ALSO ADJACE NT BUILDINGS, GARDEN, COURT- YARD, ORCHARD AND ALL THAT IS NECESS ARY FOR THE CONVENIENT OCCUPATION OF THE HOUSE'. IN CIT VS. VEGETABLE PRODUCTS LTD. (88 ITR 192) (SC) THE HON'BLE SUPREME COURT HELD: 'IF THE LANGUAGE IS PLAIN, THE FACT THAT THE CONSEQUENCE OF GIVING EFFECT TO IT MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTOR TO BE TAKEN INTO ACCOUNT IN INTERPRETING A PROVISION. IT IS FOR THE LEGISLATURE TO STEP IN AND REMOVE THE ABSURDITY. ON THE OTHER HAND, IF TWO REASONABLE CONSTRUCTIONS OF A TAX PROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED. THIS IS A WELL-ACCEPTED RULE OF CONSTRUCTION. IN OUR OPINION, WE HAVE TO TAKE A LIBERAL VIEW OF THE BENEFICIAL PROVISIONS OF SECTION 54F AND REMODELLING OR RENOVATION OF THE HOUSE TO MAKE IT HABITABLE TO SUIT THE REQUIREM ENT OF THE I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 12 ASSESSEE AND THEREBY WE HAVE TO HOLD THAT THE PROVISIONS OF SECTION 54F HAVE BEEN COMPLIED WITH BY THE ASSESSEE. IN OUR OPINION, DEDUCTION U/S. 54F HAS TO BE GRANTED TO THE ASSESSEE. ACCORDINGLY, WE ALLOW THE APPEAL OF THE ASSESSEE'. IN THE INSTANT CASE THE ASSESSEE PURCHASED THE PROPERTY TOGETHER WITH THE B UILDINGS AND LAND MADE ALTERATIONS, REMODELLING AND RENOVATIONS TO MAKE IT HABITABLE. IN THE LIGHT OF THE ABOVE DECISIONS, INV ESTMENT IN DEVELOPMENT, REMODELLING AND RENOVATION FOR THE CON VENIENT OCCUPATION AND TO SUIT THE REQUIREMENT OF THE ASSES SEE IS TAKEN TO HAVE INVESTED IN NEW CONSTRUCTION OF HOUSE AND TREA TED TO HAVE COMPLIED WITH THE PROVISIONS OF SEC. 54F. THEREFORE , THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S. 54F AND IT IS PRAYED FOR ALLOWING THE SAME. 17. THE AR PLACED RELIANCE ON CIT VS. ZAIBUNNISA BEGUM (1985) 151 ITR 320: WHILE CONSIDERING SECTION 54 OF THE IN COME-TAX, THE ANDHRA PRADESH HIGH COURT HELD: ' ..... THE MEANING OF THE WORDS 'LAND APPURTENANT' FORMULATED THE FOLLOWING FIVE TESTS TO UNDERSTAND T HE MEANING OF THE WORDS 'LAND APPURTENANT' MORE PRECISELY (HEADNOTE): '(1) IF THE BUILDING TOGETHER WITH THE LAND IS TREATED AS AN INDIVISIBLE UNIT AND ENJOYED AS SUCH BY THE PERSONS OCCUPYING THE BUILDING, IT IS AN INDICATION THAT TH E ENTIRE EXTENT OF LAND IS APPURTENANT TO THE BUILDING; (2) IF THE BUILDING HAS EXTENSIVE LANDS APPURTENANT THERETO AND EVEN IF THE BUILDING AND THE LAND LAVE BEEN TREATED AS ONE SINGLE UNIT AND ENJOYED AS SUCH BY THE OCCUPIERS, AN ENQUIRY COULD BE MADE TO FIND OUT WHETHER ANY PART OF THE LAND CONTIGUOUS TO THE BUILDING CAN BE PUT TO INDEPENDENT USER WITHOUT CAUSING ANY DETRIMENT TO THE ENJOYMENT OF THE BUILDING AS SUCH. SUCH AN ENQUIRY SHOULD BE CONDUCTED NOT BASED ON AN Y ARTIFICIAL CONSIDERATIONS BUT FROM THE POINT OF VIEW OF THE PERSONS OCCUPYING THE BUILDING. THE NUMBER OF PERSONS OR DIFFERENT BRANCHES OF FAMILIES RESIDING IN THE BUILDING, THE REQUIREMENTS OF THE PERSONS OCCUPYING THE BUILDING, CONSISTENT WITH THEIR SOCIAL STANDING, ET C., ARE I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 13 RELEVANT FOR THE PURPOSE. IF ANY SURPLUS IS ARRIVED AT ON SUCH ENQUIRY, THEN THE EXTENT OF SUCH SURPLUS LAND MAY NOT QUALIFY TO BE TREATED AS LAND APPURTENANT TO THE BUILDING; (3) IF THERE IS ANY EVIDENCE TO INDICATE THAT ANY P ORTION OF THE LAND CONTIGUOUS TO THE BUILDING WAS APPLIED TO USER OTHER THAN THE ENJOYMENT OF THE BUILDING, THEN THAT PROVIDES A SAFE INDICATION REGARDING THE EXTENT OF LAND APPLIED FOR SUCH USER. FOR INSTANCE, THE LAND USED BY THE OCCUPIER FOR COMMERCIAL OR AGRICULTURAL PURPOSE S ALTHOUGH FORMING PART OF THE LAND ADJACENT TO THE BUILDING, DOES NOT QUALIFY TO BE TREATED AS LAND APPURTENANT TO THE BUILDING; (4) IF THE OWNER OR OCCUPIER IS DERIVING ANY INCOME FROM THE LAND WHICH IS NOT LIABLE TO BE ASSESSED AS INCO ME FROM HOUSE PROPERTY UNDER SECTION 22 OF THE INCOME-TAX ACT, THEN THE EXTENT OF SUCH LAND DOES NOT QUALIFY TO BE TREATED AS LAND APPURTENANT TO THE BUILDING; AND (5) ANY MATERIAL POINTING TO THE ATTEMPTED USER OF THE BUILDING FOR PURPOSES OTHER THAN THE EFFECTIVE AND PROPER ENJOYMENT OF THE HOUSE WOULD ALSO AFFORD A SAFE GUIDE TO DETERMINE THE EXTENT OF SURPLUS LAND NOT QUALIFYING TO BE TREATED AS LAND APPURTENANT TO THE BUILDING. THE ABOVE TESTS ARE ILLUSTRATIVE AND BY N O MEANS EXHAUSTIVE. IT IS FOR THE TAX AUTHORITIES TO APPLY THEIR MIND PROPERLY TO THE FACTS OF EACH CASE AND TO DEVISE TESTS SUITABLE AND APPROPRIATE TO EACH CASE. ' WHILE DECIDING THE MATTER, THE HON'BLE AP HIGH COUR T ALSO REFERRED TO THE JUDGMENT IN THE CASE OF TRIM V S. STURMINSTER RURAL DISTRICT COUNCIL (1938) 2 KB 508; 2 ALL ER 168 (CA) WHEREIN IT WAS HELD: ' UNDER THE HOUSING ACT, 1936, THE MEANING OF THE EXPRESSION 'HOUSE' TURNED OUT TO BE SIGNIFICANT. UN DER SECTION 188 OF THE SAID ACT, THAT EXPRESSION WAS DEFINED AS INCLUDING 'ANY YARD, GARDEN, OUTHOUSES, AND APPURTENANCES BELONGING THERETO OR USUALLY ENJOYED THEREWITH'. THE QUESTION AROSE WHETHER A COTTAGE AND TEN ACRES OF ADJOINING GRASS LAND CAME WITHIN THE EXPRESSION OF 'HOUSE' FOR THE ABOVE PURPOSE. IT WAS HELD THAT IT WAS NOT THE COTTAGE TOGETHER WITH THE WHOLE OF THE TEN ACRES OF LAND, BUT ONLY THE COTTAGE WITH ITS OUTHOUSES, YARDS, CURTILAGE AND GARDENS, THAT CONSTITUTED THE 'HOUSE' WITHIN THE DEFINITION, INAS MUCH I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 14 AS THE TERM 'APPURTENANCES' WAS THERE USED IN ITS W ELL- ESTABLISHED LEGAL SENSE AS INCLUDING ONLY SUCH MATT ERS AS OUTHOUSES, YARDS AND GARDENS, AND NOT LAND AS MEANING A CORPOREAL HEREDITAMENT. IT WAS FURTHER HELD THAT THE QUESTION AS TO EXACTLY HOW MUCH OF THE TEN ACRES OUGHT TO BE INCLUDED IN THE APPURTENANCES OF THE COTTAGE AND, THEREFORE, IN THE 'HOUSE' WAS ONE FOR THE DECISION OF THE COUNTY COURT JUDGE, HIS DECISION TO BE CONFINED, HOWEVER, TO MATTERS WHICH, ON THE FACE OF IT, WOULD BE SOMETHING CONSIDERABLY LESS THAN THE WHOLE OF THE TEN ACRES. ' 18. THE AR SUBMITTED THAT THE ASSESSEE PURCHASED THE PR OPERTY IN ONE LOT WHICH IS VERIFIABLE FROM THE SALE DEED. NO EVIDENCE WAS BROUGHT BY THE DEPARTMENT TO INDICATE THAT ANY PORT ION OF THE LAND CONTIGUOUS TO THE BUILDING WAS APPLIED TO USER OTHE R THAN THE ENJOYMENT OF THE BUILDING SUCH AS COMMERCIAL OR AGR ICULTURAL ACTIVITIES. THE ASSESSEE DOES NOT DERIVE ANY INCOME FROM THIS PROPERTY AND IS USED FOR RESIDENTIAL PURPOSE ONLY. THUS, THE ASSESSEE QUALIFIES THE TESTS LAID DOWN IN ZAIBUNNIS A BEGUM'S CASE. THE ASSESSEE SOLD A LONG-TERM CAPITAL ASSET AND INV ESTED IN RESIDENTIAL HOUSE PROPERTY AND CLAIMED DEDUCTION U/ S. 54F. ALL THE CONDITIONS PRESCRIBED THERE FOR ARE SATISFIED. THER EFORE, THE ASSESSEE PRAYS FOR ALLOWING THE EXEMPTION CLAIMED U /S. 54F. 19. THE LEARNED DR SUBMITTED THAT WHILE COMPUTING LONG TERM CAPITAL GAIN ON TRANSFER OF PLOT THE ASSESSEE HAS C LAIMED COST OF IMPROVEMENT OF THE SITE IN THE A.Y. 2004-05 FOR RS. 7,00,000. THE INDEXED COST OF IMPROVEMENT WORKED OUT AT RS. 8,03, 542. IN THE COURSE OF ASSESSMENT PROCEEDINGS WHEN ASKED BY THE ASSESSING OFFICER, THE ASSESSEE EXPRESSED HIS INABILITY TO PR ODUCE ANY PROOF OR EVIDENCE IN RESPECT OF EXPENDITURE INCURRED ON S UCH IMPROVEMENT. THE ASSESSING OFFICER DISALLOWED THE CLAIM. IN APPEAL FILED BEFORE CIT(A), NO GROUND WAS RAISED AG AINST THIS DISALLOWANCE OF RS. 7 LAKHS AS EXPENDITURE TOWARDS IMPROVEMENT. HOWEVER IN APPEAL BEFORE HON'BLE ITAT, THIS GROUND IS RAISED. IT IS SUBMITTED THAT SINCE THIS GROUND OF APPEAL WAS NOT RAISED BEFORE I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 15 CIT(A), THIS GROUND SHOULD NOT BE ALLOWED. IN ANY C ASE NO DETAILS OF EXPENDITURE HAVE BEEN FILED BY THE ASSESSEE BEFORE THE ITAT EXCEPT STATING THAT THE ASSESSEE WANTED TO BEGIN CONSTRUCT ION OF HOUSE ON PLOT AND THE CONSTRUCTION HAS BEEN TAKEN UP IN F.Y. 04-05 INCURRING EXPENDITURE OF RS. 7 LAKHS WHICH IS REFLE CTED IN THE BALANCE SHEET AS ON 31.3.2005 FILED WITH RETURN OF INCOME FOR THE A.Y. 2005-06. IN THIS BALANCE SHEET, VALUE OF THE C ONSTRUCTION OF BUILDING WAS SHOWN AT RS. 31,94,158 (COST OF LAND R S. 24,94,168 + EXPENDITURE OF RS. 7 LAKHS). IT IS ALSO CLAIMED TH AT THE PLOT WAS ON A HILLOCK AND RS. 7 LAKHS WERE SPENT TO REMOVE THE ROCKS AND TOWARDS LEVELLING THE GROUND. HOWEVER, IN THIS SUBM ISSION NEITHER DETAILS OF EXPENDITURE HAVE BEEN FILED NOR THE DETA ILS OF PERSONS WHO WERE IN RECEIPT OF SUCH PAYMENT WAS FURNISHED. IN VIEW OF THE ABOVE THE DR SUBMITTED THAT THIS GROUND SHOULD NOT BE ALLOWED. 20. THE DR SUBMITTED THAT THE NEXT GROUND IS AGAINST DISALLOWANCE OF RS. 27,03,100 BEING PAYMENT TOWARDS SETTLEMENT EXPENDITURE. IN RESPECT OF PROPERTY PURCHASED, IT IS STATED THAT THE ASSESSEE HAS PAID RS. 27,03,100 TO TWO PERSONS I.E. , SHRI J. SUBRAMANYAM NAIDU AND SHRI B.C. REDDAPPA REDDY WHO WERE PARTY TO AUCTION BY THE OFFICIAL LIQUIDATOR. IT AP PEARS THE ASSESSEE, SHRI V. MADHUSUDANA REDDY, SRI J. SUBRAMA NYAM NAIDU, SRI B.C. REDDAPPA REDDY AND OTHERS WERE PART Y TO AUCTION BY OFFICIAL LIQUIDATOR., HOWEVER, IT IS NOT CLARIFI ED WHY PAYMENTS WERE MADE ONLY TO SRI J. SUBRAMANYAM NAIDU AND SHRI B.C. REDDAPPA REDDY. FURTHER, IT IS SUBMITTED THAT THE PAYMENT WAS MADE TOWARDS SETTLEMENT OF CLAIM BY THESE TWO PERSO NS WHO WERE CLAIMING ADVERSE POSSESSION AND CLAIM IN THE TITLE OF LAND. THIS CLAIM WAS MADE BY THE ASSESSEE BEFORE ASSESSING OFF ICER WHICH HAS BEEN REPEATED BEFORE THE CIT(A). 21. THE DR FURTHER SUBMITTED THAT IN THE PAPER BOOK FIL ED BY THE ASSESSEE, IT IS SUBMITTED THAT THE ENTIRE AMOUNT HA S BEEN PAID FOR I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 16 WHICH DETAILS OF CHEQUE NO, DATES AND AMOUNT HAVE B EEN MENTIONED. FROM THE DETAILS FILED IT IS NOT CLEAR TO WHOM THESE PAYMENTS WERE MADE BECAUSE THE PAYMENTS OF RS. 1,40 ,00,000 WERE MADE IN 3 INSTALMENTS. IT IS ASSESSEE'S CLAIM THAT OUT OF THE ABOVE AMOUNT, RS. 27,03,100 HAS BEEN PAID TO SHRI B .C. REDDAPPA REDDY AND SHRI J. SUBRAMANYAM NAIDU. NO CONFIRMATIONS FROM THE ABOVE TWO PERSONS HAVE BEEN FILED. FURTHER, SO FAR THE QUESTION OF ADVERSE POSSESSION IS CONCERNED, THIS CLAIM IS NOT BORN OUT OF THE RECORDS. IN FACT, IN THE SALE DEED DATED 16-1 0-2007, IT IS VERY CLEARLY STATED THAT T HE OFFICIAL LIQUIDATOR IS ABSOLUTE OWNER OF SCHEDULED PROPERTY AND IT HAS GOT MARKETABLE TITLE, VESTED RIGHTS AND POSSESSION OF T HE SCHEDULED PROPERTY. (P. 2 OF PAGE 53 OF THE PAPER BOOK OF THE ASSESSEE) IN PAGE 4 OF THE SAME SALE DEED, IT IS ALSO CATEGORICA LLY STATED THAT THE VENDOR I.E., THE OFFICIAL LIQUIDATOR ASSURES VENDEE I.E., ASSESSEE THAT NONE ELSE HAS ANY RIGHT, TITLE, CLAIM OR INTER EST WHATSOEVER ON THE SCHEDULED PROPERTY. FROM THIS THE CLAIM OF ADVE RSE POSSESSION BY SRI J. SUBRAMANYAM NAIDU AND SRI B.C. REDDAPPA R EDDY FALLS FLAT. IT IS SUBMITTED THAT THIS CLAIM OF THE ASSESS EE IS NOT ACCEPTABLE AND HENCE THIS GROUND DESERVES TO BE REJ ECTED. 22. THE DR SUBMITTED THAT THE NEXT GROUND IS REJECTION OF CLAIM U/S. 54F. THE ASSESSEE IN THE RETURN OF INCOME CLAI MED DEDUCTION U/S. 54. FOR THE REASONS STATED THE AO HAS DISALLO WED THIS CLAIM U/S. 54. IN THE GROUNDS FOR APPEAL FILED BEFORE CI T(A), THE DISALLOWANCE U/S. 54 IS TAKEN AS A GROUND. HOWEVER, THE CIT(A) IN HIS ORDER HAS DISMISSED THE ASSESSEE'S CLAIM OF DED UCTION U/S. 54F. IN THE APPEAL BEFORE THE ITAT, THE ASSESSEE HA S TAKEN GROUND AGAINST DISALLOWANCE OF CLAIM OF DEDUCTION U/S. 54F . (GROUND NO. 4 TO GROUND NO. 9). THE DEDUCTION U/S. 54 IS NOT AL LOWABLE, AS ASSESSEE HAS SOLD A RESIDENTIAL PLOT. NOW COMING TO DEDUCTION U/S. 54F, IT IS CLAIMED BY THE ASSESSEE THAT ON SALE OF PROPERTY AT RS. 4,03,78,000, IT HAS COMPUTED CAPITAL GAIN OF RS. 3, 66,45,236 AFTER I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 17 DEDUCTION OF INDEX COST OF ACQUISITION. IT IS CLAIM ED THAT OUT OF THE SALE CONSIDERATION OF RS. 4,03,78,000. RS. 3,86,37, 800 HAS BEEN SPENT OR UTILIZED IN CONSTRUCTION OF THE NEW PROPER TY AS AGAINST CAPITAL GAIN OF RS. 3,66,06,236 BEFORE DUE DATE FOR FILING OF RETURN FOR ASST. YEAR: 2008-09 I.E., 31-7-2008. AS PER T HE PROVISIONS OF SEC. 54F, THE ASSESSEE SHOULD UTILIZE THE 'NET CONS IDERATION' FOR PURCHASE OR CONSTRUCTION OF NEW ASSET BEFORE THE DA TE OF FURNISHING THE RETURN OF INCOME U/S. 139(1). THE U NUTILIZED PORTION OF THE 'NET CONSIDERATION' SHOULD BE DEPOSI TED IN A CAPITAL GAIN ACCOUNT SCHEME AND PROOF OF SUCH DEPOSIT SHOUL D BE ACCOMPANIED WITH THE RETURN OF INCOME. THE NET CONS IDERATION HAS BEEN DEFINED AS PER THE EXPLANATION TO SEC. 54F(L) AS UNDER: 'NET CONSIDERATION' IN RELATION TO THE TRANSFER OF A CAPITAL ASSET, MEANS THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET AS REDUCED BY ANY EXPENDITURE INCURRE D WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. 23. IN VIEW OF THE ABOVE, THE ASSESSEE SHOULD HAVE UTIL IZED THE ENTIRE AMOUNT OF RS. 4,03,78,000 TOWARDS PURCHASE O R CONSTRUCTION OF THE NEW ASSET BEFORE 31-7-2008 I.E. , THE DUE DATE FOR FILING THE RETURN U/S. 139(1). HOWEVER AS SEEN FROM RECORD, THE ASSESSEE HAS CLAIMED TO HAVE SPENT RS. 2,25,00,000 TOWARDS PURCHASE OF LAND AND CLAIMED TO HAVE PAID RS. 27,03 ,100 TOWARDS SETTLEMENT EXPENSES ON WHICH A SUBMISSION HAS BEEN MADE IN EARLIER PARAGRAPH STATING THAT THERE IS NO SCOPE TO TREAT THE ABOVE EXPENSES AS SETTLEMENT EXPENSES. FURTHER IT IS CLA IMED THAT RS. 1,12,59,100 HAS BEEN INCURRED TOWARDS CONSTRUCTION EXPENSES BEFORE DUE DATE. EVEN IF THIS IS TREATED AS UTILIZ ED, ASSESSEE SHOULD HAVE DEPOSITED BALANCE AMOUNT OF NET CONSIDERATION IN CAPITAL GAIN ACCOUNT SCHEME BEFORE DUE DATE OF FILING OF RE TURN. THIS AMOUNT COMES TO RS. 66,18,900 (RS. 4,03,78,000 - (2 ,25,00,000 + 1,12,59,100). THE ASSESSEE HAS NOT DEPOSITED ANY M ONEY IN THE I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 18 CAPITAL GAIN ACCOUNT SCHEME HENCE IS NOT ENTITLED F OR DEDUCTION U/S. 54F OF ACT. 24. THE LEARNED DR FURTHER SUBMITTED THAT THE CLAIM OF EXPENDITURE OF RS. 1,12,59,100 NEEDS TO BE EXAMINED . THE ASSESSEE HAS CLAIMED TO HAVE PAID RS. 1,40,00,000 A S MENTIONED BELOW OUT OF WHICH RS. 1,12,59,100 IS CLAIMED AS EX PENDITURE TOWARDS CONSTRUCTION OF RESIDENTIAL UNIT.. THERE IS NO CLARIFICATION AS TO WHOM THESE PAYMENTS HAVE BEEN MADE. NO CONFIR MATION CERTIFICATES FROM SUCH PERSONS HAVE BEEN FILED. THE SE PAYMENTS HAVE BEEN MADE ON THESE DATES. 28-06-07 HSBC CR. 29603 RS. 50,00,000 03-07-07 HSBC CR. 29606 RS. 50,00,000 04-09-07 HSBC CR. 29605 RS. 40,00,000 25. HOWEVER, AS ON THE DATE OF SUCH LAST PAYMENTS I.E., 04-09- 2007, THE ASSESSEE WAS NOT THE OWNER OF LAND. AS ME NTIONED IN SALE DEED, SUCCESSFUL BIDDERS IN THE AUCTION HAVE F ILED AFFIDAVIT BEFORE HON'BLE HIGH COURT SEEKING DIRECTION TO HAND OVER AND REGISTER THE AUCTIONED PROPERTY IN FAVOUR OF THE AS SESSEE DR. M. SRIDEVI REDDY. THIS PETITION WAS ALLOWED BY HON'BLE HIGH COURT VIDE ITS ORDER DT: 17-9-2007 AND FINAL SALE DEED WA S EXECUTED ON 16-10-07, WHEREAS IT IS CLAIMED THAT THE PAYMENT FO R CONSTRUCTION OF RESIDENTIAL UNIT HAS BEEN MADE ON 28-6-07,03-07- 07 AND 04-09- 2007 I.E., BEFORE THE HON'BLE HIGH COURT ALLOWED TO REGISTER THE PROPERTY IN THE NAME OF THE ASSESSEE (ON 17-9-07) O R BEFORE SALE DEED WAS EXECUTED ON 16-10-2007. IT IS NOT CLARIFIE D WHY SUCH PAYMENT WAS MADE BEFORE ASSESSEE BECAME OWNER OF LA ND OR EVEN BEFORE HIGH COURT ALLOWED TO REGISTER THE PROPERTY IN THE ASSESSEE'S NAME. THE ONLY CONCLUSION THAT CAN BE DRAWN BY THE ABOVE FACT IS THAT THE AMOUNTS OF RS. 1,12,59,100/- PAID BEFORE 1 7-09-2007 ARE NOT MADE TOWARDS CONSTRUCTION OF RESIDENTIAL UNIT. THIS IS ALSO APPARENT FROM THE REPORT OF THE ITO, CIB, TIRUPATI WHO ON 10-12- I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 19 20I0 FOUND THAT NO CONSTRUCTION ACTIVITY HAS TAKEN PLACE ON THE SAID LAND AND AS PER REPORT OF THE PANCHAYAT SECRET ARY, MAMANDURU DT: 10-12-20 10, NO ONE HAS APPLIED FOR C ONSTRUCTION OF ANY RESIDENTIAL UNIT FOR WHICH PAYMENT OF RS. 1, 12,59, 100/- HAS BEEN MADE BEFORE TWO YEARS. FURTHER, THE LAND O F ACRES 17.45 CENTS ALONG WITH BUILDING WERE AUCTIONED BY THE OFF ICIAL LIQUIDATOR. THE ASSESSEE IN EFFECT HAS PURCHASED A PROPERTY CONSISTING OF LAND AND FACTORY BUILDING WHERE EARLI ER A TEXTILE MILL WAS IN OPERATION. IN THE CIRCUMSTANCES, IT CANNOT B E CLAIMED THAT THE LAND WAS PURCHASED FOR RESIDENTIAL PURPOSE AND ADVANCE FOR CONSTRUCTION OF RESIDENTIAL UNIT HAS BEEN GIVEN. T HE DR SUBMITTED THAT IN VIEW OF THE ABOVE SUBMISSIONS, THE APPEAL F ILED BY THE ASSESSEE HAS TO BE DISMISSED. 26. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. ADMITTEDLY, IN THIS CASE THE ASSESSEE PURC HASED A PROPERTY MEASURING 17 ACRES 47 CENTS ALONG WITH THE BUILDING FOR A CONSIDERATION OF RS. 2.25 CRORES AND ALSO INCURRED EXPENDITURE OF RS. 21,37,800 TOWARDS REGISTRATION CHARGES. THE AS SESSEE ALSO CLAIMED EXPENDITURE OF RS. 27,03,100 TOWARDS SETTLI NG THE CLAIMS OF TWO PERSONS VIZ., SRI J. SUBRAMANYAM NAIDU AND B .C. REDDAPPA REDDY. THE FACT OF PURCHASING THE ABOVE P ROPERTY CANNOT BE DISPUTED. THIS PROPERTY WAS PURCHASED TH ROUGH THE HIGH COURT ORDER FROM OFFICIAL LIQUIDATOR. THE OBJ ECTION OF THE DEPARTMENT IS THAT IT IS NOT A RESIDENTIAL PROPERTY AND IT WAS ORIGINALLY BELONGED TO SRI KALYANA SRINIVASA TEXTIL ES FACTORY AND THE ASSESSEE HAS NOT STARTED ANY SORT OF CONSTRUCTI ON ON THE LAND AND HAS NOT SPENT EVEN A SINGLE PIE ON CONSTRUCTION AND ALSO THE ASSESSEE NOT DEPOSITED THE SALE CONSIDERATION IN CA PITAL GAIN SCHEME ACCOUNT AS MANDATED BY SECTION 54F(4) OF THE ACT WITHIN THE STIPULATED TIME. BEFORE THE CIT(A) THE ASSESSE E PRODUCED THE EVIDENCE REGARDING CONSTRUCTION OF THE BUILDING AT THE SCHEDULED PROPERTY SITUATED AT ITHEPALLY VILLAGE, MAMANDURU P ANCHAYAT, I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 20 CHANDRAGIRI MANDAL, CHITTOOR DISTRICT, A.P. THE AS SESSEE ALSO PRODUCED EVIDENCE REGARDING DOMESTIC ELECTRICITY CO NNECTION, PAYMENT OF PANCHAYAT TAXES, PERMISSION LETTER DATED 16.12.2007 BY THE SARPANCH, GRAM PANCHAYAT, MAMANDURU TO RENOV ATE AND REPAIR THE HOUSE. THE ASSESSEE ALSO PRODUCED THE F OLLOWING DOCUMENTS IN ADDITION TO THE ABOVE: A) LETTER ADDRESSED TO GRAM PANCHAYAT, MAMANDURU STATI NG THAT THE ERSTWHILE PREMISES OF SRI KALYANA SRINIVAS A TEXTILE WERE BEING USED FOR RESIDENCE AND THEREFORE REQUESTING FOR REDUCTION OF HOUSE TAX. ALSO, PERMIS SION TO CONSTRUCT KITCHEN, BATH-ROOM WAS SOUGHT THROUGH THI S LETTER. B) LETTER DATED 15.12.2007 ISSUED BY THE SARPANCH, GRA M PANCHAYAT, MAMANDURU VILLAGE, ACCORDING PERMISSION TO RENOVATE/REPAIR BED ROOM, BATH ROOM ETC., AND INTIM ATING TO PAY HOUSE TAX OF RS. 7,755/-. C) DEMAND NOTICE DT. 10-05-2009 FOR PAYMENT OF HOUSE T AX OF RS. 15,898 FOR THE YEARS 2007-08 AND 2008-09. D) HOUSE TAX RECEIPT DATED 23.06.2009 FOR RS. 15,898/- ISSUED BY SECRETARY, MAMANDURU GRAM PANCHAYAT. E) HOUSE TAX RECEIPT FOR RS. 8,551/- FOR 09-10 ISSUED BY THE SECRETARY, MAMANDURU GRAM PANCHAYAT. F) LETTER DT. 29-06-2008 FROM ASST. DIVISIONAL ENGINEE R, OPERATIONS, CHANDRAGIRI, INTIMATING ESTIMATE FOR RELEASING 1 NO HSC OF 5 KW TO THE ASSESSEE. G) RECEIPT DT. 11.07.2008 FOR RS. 42,910/- ISSUED BY A DDL. ASST. ENGINEER, SOUTHERN POWER DISTRIBUTION COMPANY OF AP LTD. H) APSPDC LTD. RECEIPT DT. 19.08.2008 FOR RS. 1 ,525/- . I) DD DT. 16-09-2008 FOR RS. 5,349/- PAID TO THE SENIO R ACCOUNTS OFFICER, OPERATION CIRCLE, APSPDCL, TIRUPA TI. J) ELECTRICITY BILLS FOR THE MONTHS OF MAY AND JULY OF 2009. K) PHOTOS OF THE NEW HOUSE PURCHASED AND OCCUPIED BY T HE ASSESSEE. 27. THE CIT(A) WAS OF THE OPINION THAT THESE DOCUMENTS ARE NOT CONCLUSIVE TO ALLOW THE CLAIM OF THE ASSESSEE U/S. 54F OF THE ACT. I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 21 28. ON THE OTHER HAND, THE LEARNED DR PRODUCED A LETTER DATED 10.10.2012 BEFORE US THAT THE DOCUMENTS FILED BY TH E ASSESSEE ARE NOT AVAILABLE IN THE ASSESSMENT FOLDER. TO THAT EX TENT THERE IS A CONTRADICTION BETWEEN THE ASSESSING OFFICER AND THE CIT(A)'S ORDER. THESE FACTS ARE TO BE EXAMINED AND FURTHER IN OUR O PINION, THE EXPRESSION 'RESIDENTIAL HOUSE' USED IN SECTION 54F HAS NOT BEEN DEFINED IN THE INCOME-TAX ACT. THE POPULAR MEANING OF THE WORD 'HOUSE' IS A PLACE OR A BUILDING USED FOR HABITATIO N OF PERSONS. 'RESIDENTIAL HOUSE' IS A DWELLING HOUSE AS DISTINGU ISHED FROM A HOUSE OF BUSINESS, WAREHOUSE, OFFICE, SHOP, ETC. I N OTHER WORDS, RESIDENTIAL HOUSE IS A BUILDING USED AS A PLACE OF ABODE IN WHICH PEOPLE RESIDE OR DWELL IN CONTRA DISTINCTION IN ONE WHICH IS USED FOR COMMERCIAL OR BUSINESS PURPOSES. SINCE A HOUSE IS CALLED RESIDENTIAL HOUSE WITH REFERENCE TO THE PURPOSE OF ITS USERS, IT MAY NOT BE NECESSARY THAT SOMEBODY SHOULD LIVE IN IT CO NTINUOUSLY. IT IS ENOUGH IF IT WAS A HOUSE FOR RESIDENCE. A FARMH OUSE IS ALSO A RESIDENTIAL HOUSE. A FARMHOUSE, ACCORDING TO THE D ICTIONARY MEANING, IS A FARMER'S HOUSE ATTACHED TO A FARM. T HEREFORE, IF THE ASSESSEE CONSTRUCTED OR REMODELLED A BUILDING SITUA TED IN THE FARMHOUSE TO SUIT HER NEEDS THEN ONE COULD NOT TAKE THE VIEW THAT WHAT WAS IN QUESTION COULD NOT BE CALLED AS A RESID ENTIAL HOUSE. IF THE EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE TO S HOW THAT THERE WAS A DWELLING UNIT IN THE PRESENT PROPERTY AND THE INVESTMENT HAS BEEN MADE BY THE ASSESSEE FOR CONSTRUCTION OR R EMODELLING OF THE EXISTING BUILDING AS STIPULATED HEREIN BELOW TH E CLAIM OF THE ASSESSEE HAS TO BE ALLOWED: (A) DATE OF RECEIPT OF ADVANCE OF RS. 1,50,00,000 FOR T HE SALE OF PLOT WAS 07-06-2007. (B) DATE OF RECEIPT OF BALANCE OF CONSIDERATION OF RS. 2,53,78,000/- FOR SALE OF PLOT WAS ON 18-07-2007. (C) DATE OF PAYMENT OF RS. 1,79,95,450/- TO OFFICIAL LI QUIDATOR FOR PURCHASE OF NEW PROPERTY WAS ON 30.07.2007. I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 22 (D) DATE OF PAYMENT OF BALANCE OF CONSIDERATION OF RS. 45,00,000/- FOR PURCHASE OF PROPERTY WAS ON 23-08-2 007. (E) CAPITAL GAIN IS RS. 3,66,06,236/-. INVESTMENT IN PU RCHASE OF LAND IS RS. 2,46,37,800/-. (F) DATES OF PAYMENTS OF RS. 27,03,100 TOWARDS SETTLEME NT AND RS. 1,12,59,100/- TOWARDS DEVELOPMENT AND CONSTRUCT ION THROUGH CHEQUES ARE: 28.06.2007 RS. 50,00,000 03.07.2007 RS. 50,00,000 04.09.2007 RS. 40,00,000 29. FURTHER CLAIM OF THE ASSESSEE CANNOT BE REJECTED ON ANY SUPERFICIAL GROUND THAT THE ASSESSEE HAD NOT MADE I NVESTMENT WITHIN THE TIME STIPULATED AND THE BUILDING CONSTRU CTED BY THE ASSESSEE IS NOT A RESIDENTIAL HOUSE. IN OUR OPINIO N, AS THERE IS A CONTRADICTION BETWEEN THE FINDINGS OF THE CIT(A) AN D THE ASSESSING OFFICER AS COMPARED TO THE EVIDENCE PRODUCED BEFORE US. WE FEEL IT APPROPRIATE TO REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER, WHO WILL EXAMINE THE ISSUE AFRESH IN THE L IGHT OF THE EVIDENCE BROUGHT ON RECORD BY THE ASSESSEE AS WELL AS OUR OBSERVATIONS. HOWEVER, WE MAKE IT CLEAR THAT THE AMOUNT INCURRED BY THE ASSESSEE TOWARDS SETTLING CERTAIN C LAIMS AT RS. 27,03,100 CANNOT BE CONSIDERED FOR DEDUCTION U/S. 5 4F AS THE NEW PROPERTY ACQUIRED BY THE ASSESSEE IS THROUGH THE HI GH COURT ORDER FROM OFFICIAL LIQUIDATOR AND WE ARE UNABLE TO SEE A NY REASON TO INCUR SUCH AN AMOUNT. 30. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 16 TH NOVEMBER, 2012 I.T.A. NO. 1009/HYD/2012 SMT. M. SREEDEVI REDDY ===================== 23 COPY FORWARDED TO: 1. SMT. M. SREEDEVI REDDY, C/O. SRI B. SHANTHI KUMAR, ADVOCATE, SK & SK ASSOCIATES, 411, TARAMANDAL COMPL EX, 5-9-13, SAIFABAD, HYDERABAD-500 004. 2. THE INCOME TAX OFFICER, WARD - 6(1), 6 - D, IT TOWERS, 10 - 2 - 3, AC GUARDS, HYDERABAD. 3. THE CIT - IV , HYDERABAD 4. THE CIT - III , HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO