The ACIT, Circle-7, Ahmedabad V. Smt. Kusumben N.Patel, Ahmedabad

ITA 1048/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85636 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 08-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: A C SHAH
• Section: 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. ITA NO. 1048/AHD/2011 (ASSESSMENT YEAR: 2007-08) ACIT, CIRCLE-7, AHMEDABAD APPELLANT VS. SMT. KUSUMBEN N. PATEL 11/12, SHYAMAL RAW HOUSE-I, SHYAMAL CROSS ROAD, SATELLITE ROAD, AHMEDABAD RESPONDENT PAN: ABWPP0852F / BY REVENUE :SHRI V. K. SINGH, SR. D.R. / BY ASSESSEE : SHRI A. C. SHAH, A.R. /DATE OF HEARING :13.01.2015 !' /DATE OF PRONOUNCEMENT :23.01.2015 I.T.A. NO. 1048/AHD/2011 FOR A.Y. 07-08 (ACIT VS. M/S. SMT. KUSUMBEN N. PATEL) PAGE 2 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY REVENUE AGAINST THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XIV, AHMEDABAD , DATED 18.11.2010 FOR A.Y. 2007-08 ON THE FOLLOWING GROUND S: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE CLAIM U/S 54F AS MADE BY ASSESSEE. TH E AO WAS RIGHT IN RESTRICTING THE CLAIM TO THE EXTENT OF RS.39,31,293/- AS AGAINST THE CLAIMED RS.1,06,21,723/-. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF LTCL OF RS.14,81,427/- ARISING ON TRANSFER OF SHARES OF SURYA COATS PVT. LTD. 2. FOR THE YEAR UNDER CONSIDERATION, ASSESSEES SOU RCE OF INCOME IS LONG TERM CAPITAL GAIN AND INCOME FROM OT HER SOURCES. ASSESSEE HAD EARNED LONG TERM CAPITAL GAI N OF RS, 2,18,74,798/- AS PER STATEMENT OF INCOME FURNISHED ALONG WITH RETURN OF INCOME. THIS LONG TERM CAPITAL GAIN WAS WORKED OUT AFTER CLAIMING DEDUCTION OF RS. 1.5 CRORE UNDER SEC TION 54F. ASSESSING OFFICER RESTRICTED THE CLAIM UNDER SECTIO N 54F TO THE EXTENT OF RS. 39,31,293/-. AS AGAINST THE CLAIM OF ASSESSEE OF RS. 1,06,21,723/- MADE DURING ASSESSMENT PROCEEDING S AS AGAINST THE CLAIM OF RS. 1.5 CRORE IN THE RETURN OF INCOME. 2.1 ASSESSEE HAS MADE PAYMENT TOWARDS CONSTRU CTION OF A BUILDING AS UNDER: I.T.A. NO. 1048/AHD/2011 FOR A.Y. 07-08 (ACIT VS. M/S. SMT. KUSUMBEN N. PATEL) PAGE 3 DATE OF TRANSFER OF SHARES IS 20-09-2006 THE PAYMENT MADE IS AS UNDER: DATE AMOUNT RS. AMOUNT RS. 15-05-2006 3,00,000 31-05-2006 2,00,000 09-06-2006 5,00,000 29-06-2006 5,00,000 24-07-2006 5,00,000 PAYMENT MADE BEFORE DATE OF TRANSFER 20-09-2006 20,00,000 17-10-2006 45,00,000 18-10-2006 55,00,000 15-06-2007 10,00,000 19-06-2007 10,00,000 1,20,00,000 PAYMENT MADE BEFORE DUE DATE OF FILING OF THE RETURN 31-07-2007 1,40,00,000 THE COST OF CONSTRUCTION IS AS UNDER: PARTICULARS AMOUNT RS. AMOUNT RS. LAND 22,95,000 COST OF CONSTRUCTION 60,75,000 83,70,000 STAMP DUTY, REGISTRATION CHARGES ETC. [ON 11-09-2009 RS. 7,74,125 AND NOT RS. 8,25,174 AS STATED IN THE ASST. ORDER IN 4.3 & 4.4] 7,74,125 EXTRA WORK 14,26,549 22,00,674 TOTAL: 1,05,70,674 THE DISALLOWANCE AS PER ASSESSING OFFICER IS AS UND ER: LAND RS. 22,95,000/- PAID BEFORE DATE OF TRANSFER RS. 20,00,000/- CONSIDERED AS BORROWINGS AND IS NOT ALLOWED RS. 28,56,435/- TEMPORARY BORROWING FROM NAVINCHANDRA R. PATEL HUSBAND OF ASSESSEE RS.55,00,000/- DISALLOWED SINCE IT IS NOT PAID OUT OF I.T.A. NO. 1048/AHD/2011 FOR A.Y. 07-08 (ACIT VS. M/S. SMT. KUSUMBEN N. PATEL) PAGE 4 CAPITAL GAIN ACCOUNT SCHEME RS.8,25,174/- EXTRA WORK RS. 14,26,549/- ASSESSING OFFICER FOUND THAT RS. 20,00,000/- WAS PAID IN ADVANCE FOR LAND AND CONSTRUCTION. THE PURCHASE DE ED WAS EXECUTED ON 26-03-2007 I.E. THE LAND WAS ACQUIRED A FTER THE DATE OF TRANSFER OF SHARES I.E. AFTER 20-09-1006. STAND OF ASSESSEE HAS BEEN THAT LAND WAS ACQUIRED ON 26-03-2 007 I.E. AFTER TRANSFER OF SHARES ON 20.09.2006. THE CONSTR UCTION AGREEMENT WAS MADE WITH STHAPATHYA SHILP DEVELOPERS ON 26- 03-2008. THE RESIDENTIAL BUILDING WAS CONSTRUCTED AND ASSESSEE STARTED USING RESIDENCE WITHIN THREE YEARS I.E. BY 20- 09-2009. THEREFORE IT CANNOT BE SAID THAT THE ADVA NCE PAID BEFORE THE DATE OF TRANSFER WAS NOT ELIGIBLE FOR DE DUCTION IN AS MUCH AS LAND WAS ACQUIRED ON 26-03-2007. EVEN IF IT IS PRESUMED THAT RS. 20,00,000 WAS NOT ELIGIBLE FOR DE DUCTION THEN TOO THE ASSESSEE HAS PAID TOTAL AMOUNT OF RS. 1.20 CRORE AFTER THE DATE OF TRANSFER AND BEFORE DUE DATE OF F ILING OF THE RETURN. THE COST OF LAND WAS INCLUDED IN TOTAL PAYM ENT OF RS. 1.20 CRORE, THEREFORE THE DISALLOWANCE IS NOT PROPER. COST OF CONSTRUCTION OF RS. 60,75,000/-. APART FROM THIS V ARIOUS CONTENTIONS WERE RAISED ON BEHALF OF ASSESSEE AND H AVING CONSIDERED THE SAME CIT(A) GRANTED RELIEF TO THE AS SESSEE AS DISCUSSED ABOVE. SAME HAS BEEN OPPOSED ON BEHALF O F REVENUE. ON OTHER HAND, LEARNED AUTHORIZED REPRESE NTATIVE SUPPORTED THE ORDER OF CIT(A). I.T.A. NO. 1048/AHD/2011 FOR A.Y. 07-08 (ACIT VS. M/S. SMT. KUSUMBEN N. PATEL) PAGE 5 3. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERI AL ON RECORD, WE FIND THAT SO FAR AS PAYMENT OF RS. 20,00 ,000/- IS CONCERNED, IT WAS PAID BEFORE DATE OF TRANSFER OF S HARES AND IT IS NOT ELIGIBLE FOR DEDUCTION SINCE SECTION 54F REQ UIRES INVESTMENT AFTER INVESTMENT IN CONSTRUCTION OF A RE SIDENTIAL HOUSE AFTER THE DATE OF TRANSFER OF ORIGINAL ASSETS . IN PRESENT CASE, SHARES HAVE BEEN TRANSFERRED ON 20-09-2006, T HEREFORE THE PAYMENT MADE PRIOR TO 20-09-2006 COULD BE CONSI DERED. IN THIS BACKGROUND, CIT(A) HELD THAT ASSESSING OFFI CER WAS JUSTIFIED IN NOT CONSIDERING RS 20,00,000/- PAID BE FORE DATE OF TRANSFER OF SHARES. HOWEVER, CIT(A) FOUND FORCE IN ALTERNATIVE CONTENTION OF AUTHORIZED REPRESENTATIVE THAT EVEN I F PAYMENT OF RS. 20,00,000 IS IGNORED THEN ASSESSEE HAS PAID RS. 1.20 CRORE AFTER DATE OF TRANSFER OF SHARES AND BEFORE DUE DAT E OF FILING OF RETURN. THEREFORE, THE COST OF LAND OF RS. 22,95,0 00 IS INCLUDED IN TOTAL PAYMENT OF RS. 1.20 CRORE. UNDER THE CIRC UMSTANCES, IT WAS NOT FOUND PROPER NOT TO CONSIDER THE COST OF LAND OF RS. 22,95,000/- SINCE IT WAS PAID AFTER THE DATE OF TRA NSFER OF SHARES IN AS MUCH AS IT WAS INCLUDED IN TOTAL PAYME NT OF RS. 1.20 CRORE. THEREFORE, COST OF LAND WAS ELIGIBLE F OR DEDUCTION UNDER SECTION 54F. ASSESSING OFFICER HAS CONSIDERE D TEMPORARY BORROWINGS AS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 54F BUT IN APPEAL, CIT(A) OBSERVED THAT PRO VISION OF SECTION 54F REQUIRES INVESTMENT OF FUNDS IN CONSTRU CTION OF A RESIDENTIAL BUILDING, IT IS NO WHERE STATED IN THE SECTION THAT INVESTMENT SHOULD NOT BE MADE OUT OF BORROWINGS. TH IS VIEW IS I.T.A. NO. 1048/AHD/2011 FOR A.Y. 07-08 (ACIT VS. M/S. SMT. KUSUMBEN N. PATEL) PAGE 6 FORTIFIED BY ITAT DECISION IN CASE OF MILAN SHARAD RUPAREL VS. CIT 121 TTJ 770 (BOM), WHEREIN IT HAS BEEN STATED T HAT INVESTMENTS SHOULD BE OUT OF PERSONAL FUNDS AND NOT , OUT OF BORROWINGS. IN PRESENT CASE, TOTAL PAYMENT OF RS. 1.20 CRORE MADE BEFORE DUE DATE OF FILING OF RETURN REPRESENTS THE PERSONAL FUNDS AND NOT BORROWINGS IN AS MUCH AS TEMPORARY BO RROWING HAS BEEN REPAID FROM THE REDEMPTION OF MUTUAL FUNDS . FURTHER, THE RELIANCE WAS ALSO PLACED ON ITAT DECISION IN CA SE OF LALIT MARDA VS. ACIT 23 SOT 250 (KOL), WHEREIN IT WAS HEL D THAT IT IS NOT NECESSARY THAT INVESTMENT SHOULD BE MADE OUT OF VERY SALES CONSIDERATION RECEIVED. WHAT IS REQUIRED IS INVEST MENTS OF FUNDS IN CONSTRUCTION OF RESIDENTIAL BUILDING. IN THIS BACKGROUND, ASSESSEE WAS HELD ENTITLED TO DEDUCTION UNDER SECTION 54F TO THE EXTENT OF TEMPORARY BORROWING MA DE SINCE IT WAS REPAID OUT OF PROCEEDS OF MUTUAL FUNDS AND THAT FINALLY TOTAL PAYMENT OF RS.1.20 CRORE MADE BEFORE DUE DATE OF FILING OF THE RETURN REPRESENTS THE PERSONAL FUNDS AND NOT TH E BORROWED FUNDS. 3.1 SIMILARLY, SINCE PAYMENT OF RS. 1.20 CRORE IS M ADE BEFORE DUE DATE OF FILING OF THE RETURN I.E. 31.07.2007. THERE WAS NO NEED TO OPEN THE CAPITAL GAIN ACCOUNT SCHEME, THERE FORE THE PAYMENT OF STAMP CHARGES OF RS.7,74,125/- AND FOR E XTRA WORK OF RS.14,26,549/- THOUGH NOT MADE OUT OF CAPITAL GA IN ACCOUNT SCHEME WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 54F SINCE THE SAID PAYMENT WAS INCLUDED IN THE TOTAL PAYMENT OF R S. 1.20 I.T.A. NO. 1048/AHD/2011 FOR A.Y. 07-08 (ACIT VS. M/S. SMT. KUSUMBEN N. PATEL) PAGE 7 CRORE MADE BEFORE DUE DATE OF FILING OF THE RETURN. THEREFORE ASSESSES WAS RIGHTLY HELD ELIGIBLE FOR DEDUCTION OF RS. 1,05,70,674/- AND NOT RS. 1,06,21,723/- SINCE PAYME NT OF STAMP DUTY IS RS. 7,74,125/- AND NOT RS. 8,25,174/- . THE TOTAL PAYMENT MADE IS RS. 1.20 CRORE AFTER THE DATE OF TRANSFER OF SHARES AND BEFORE DUE DATE OF FILING OF RETURN A ND CLAIM OF DEDUCTION UNDER SECTION 54F WAS RS. 1,05,70,674/-. THIS REASONED FACTUAL FINDING OF CIT(A) NEEDS NO INTERFE RENCE FROM OUR SIDE. WE UPHOLD THE SAME. 4. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF LO NG TERM CAPITAL GAIN OF RS. 14,81,4277- ARISING ON TRANSFER OF SHARES OF SURYA COATS PVT. LTD. ASSESSEE HAD SOLD 1,19,0001- SHARES AS UNDER; NISHA S. PATEL RS.40,000/- SHARES ON 30-03-2007 TARIKABEN B. PATEL RS.79,000/- SHARES ON 30-03- 2007 BALANCE SHEET OF SURYA COATS PVT. LTD. AS ON 3 1 -0 3-2007 IS FORMING PART OF PAPER BOOK. IT WAS STAND OF ASSESS EE THAT FROM BALANCE SHEET THE PAID UP CAPITAL OF COMPANY IS RS. 2,44,74,910/- PLUS STATE GOVT. SUBSIDY OF RS.15,00, 000/- AMOUNTING IN ALL TO RS. 2,59,74 , 910/-. AS AGAINST THIS, THERE WAS A DEBIT BALANCE OF PROFIT AND LOSS ACCOUNT OF R S. 3,41,03,122/- MEANING BY THE COMPANY HAS NEGATIVE W ORTH AND THE VALUE OF THE SHARES WAS NIL. HOWEVER, SHARE S WERE TRANSFERRED AT RS. 1 PER SHARE AND LOSS WAS ON ACCO UNT OF FALL IN MARKET RATE AND ALSO ON ACCOUNT OF INDEXATION. ASSESSING I.T.A. NO. 1048/AHD/2011 FOR A.Y. 07-08 (ACIT VS. M/S. SMT. KUSUMBEN N. PATEL) PAGE 8 OFFICER DISALLOWED LONG TERM CAPITAL GAIN ON THE GR OUND THAT COMPANY WAS MAKING PROFIT IN THE CURRENT YEAR AND T HAT THE TRANSFEREES WERE DAUGHTERS IN LAW OF ASSESSEE. IN THIS REGARD, THE STAND OF ASSESSEE HAS BEEN THAT ASSESSEE COMPAN Y IS A PRIVATE LIMITED COMPANY AND VALUATION OF SHARES WAS MADE ON THE BASIS OF BREAK-UP VALUE WHICH WAS ADOPTED AS PE R BALANCE SHEET AS ON LAST DAY OF THE YEAR. AS ON 31-03-2006 , THERE WAS ACCUMULATED LOSS OF RS.3,41,03,122/- AND AFTER SET- OFF OF CURRENT YEAR'S PROFIT OF RS. 26,33,000/-. THERE WAS STILL C/F DEBIT BALANCE OF RS. 3,L5,87,614/-WHICH WAS HIGHER THAN THE PAID UP CAPITAL AND RESERVE AND THEREFORE THE BREAK -UP VALUE WAS RS. NIL. HOWEVER, SHARES WERE SOLD AT HIGHER P RICE I.E. AT RS. 1 AS AGAINST RS. NIL. SINCE THE BREAKUP VALUE WAS RS. NIL, ASSESSEE HAS INCURRED LONG TERM CAPITAL LOSS. THE FACT THAT TRANSFEREES ARE DAUGHTER IN LAW IS OF NO RELEVANCE. WHAT IS TO BE SEEN WHETHER THE SHARES ARE SOLD AT THE MARKET R ATE OR LOWER THAN THAT. IN THE PRESENT CASE, THE SHARES ARE SOL D HIGHER THAN THE MARKET RATE, THEREFORE LONG TERM CAPITAL LOSS T HAT ARISEN HAS TO BE ALLOWED AS DEDUCTION FROM LONG TERM CAPIT AL GAIN EARNED ON TRANSFER OF SHARES OF VOLTAMP TRANSFORMER S PVT. LTD. IN VIEW OF ABOVE SUBMISSIONS, INQUIRY WAS MADE ABOU T THE LATEST POSITION OF CARRIED FORWARD LOSS BY CIT(A). IN THIS REGARD, STAND OF ASSESSEE VIDE LETTER DATED 03.11.2010 ALON G WITH THE ANNUAL REPORTS FOR THE YEARS ENDED ON 31-03-2008, 3 1-03- 2009 AND 31-03-2010 WAS SUBMITTED. THE POSITION OF CARRIED I.T.A. NO. 1048/AHD/2011 FOR A.Y. 07-08 (ACIT VS. M/S. SMT. KUSUMBEN N. PATEL) PAGE 9 FORWARD LOSS AS PER AUDITED ACCOUNTS FILED IN THE C OURSE OF HEARING IS AS UNDER: FINANCIAL YEAR ENDING ON CARRIED FORWARD LOSS RS. 31-03-2006 3,41,03,122/- 31-03-2007 3,15,97,615/- 31-03-2008 3,17,00,192/- 31-03-2009 3,22,53,758/- 31-03-2010 3,39,43,755/- IN THIS BACKGROUND, STAND OF ASSESSEE HAS BEEN THAT THERE MIGHT BE NOMINAL PROFIT DURING FINANCIAL YEAR 2006- 2007 BUT COMPANY HAS BEEN INCURRING LOSSES CONSISTENTLY AND THAT ACCUMULATED LOSS WAS INCREASING YEAR BY YEAR. THE ACCUMULATED LOSS AS ON 31-03-2010 WAS RS. 3,39,43,755/- WHEREAS PAID UP CAPITAL AND RESERVE WAS RS. 2.59 CR ORE. THE VALUE OF SHARE WAS NEGATIVE. THIS FOLLOWS THAT THER E WAS NO INTENTION TO TRANSFER THE SHARES TO DAUGHTERS-IN-LA W AT A RATE LOWER THAN MARKET RATE. IN THIS BACKGROUND, CIT(A) RIGHTLY OBSERVED THAT LOSS COULD NOT BE DISALLOWED ONLY BEC AUSE SHARES WERE TRANSFERRED TO THE DAUGHTER IN LAW. IT HAS TO BE SEEN WHETHER BREAKUP VALUE IS LOWER THAN SALE PRICE. THE BREAKUP VALUE PER SHARE IS RS. NIL AS DISCUSSED ABOVE, WHEREAS SALE PRICE IS RS. 1 PER SHARE WHICH WAS HIGHER THAN BREA KUP VALUE. THIS IS EVIDENT FROM THE ACCUMULATED LOSS OF THE FI NANCIAL YEAR 31-03-2006 TO 31-03-2010. THE FACT THAT SHARES WERE SOLD TO DAUGHTERS-IN-LAW IS OF NO CONSEQUENCE. THEREFORE, L OSS SUSTAINED BY ASSESSEE ON SALE OF SHARES OF SURYA CO ATS PVT. LTD. WAS RIGHTLY HELD ALLOWABLE AND SHOULD BE SET-O FF AGAINST I.T.A. NO. 1048/AHD/2011 FOR A.Y. 07-08 (ACIT VS. M/S. SMT. KUSUMBEN N. PATEL) PAGE 10 LONG TERM CAPITAL GAIN. THIS REASONED FACTUAL AND LEGAL FINDING OF CIT(A) NEEDS NO INTERFERENCE, WHEREBY HE HAS HEL D THAT LOSS SUSTAINED BY ASSESSEE ON SALE OF SHARE OF SURYA COA TS PVT. LTD. AS ALLOWABLE AND SHOULD BE SET OFF AGAINST LONG TER M CAPITAL GAIN IS UPHELD. 5. AS A RESULT, APPEAL FILED BY REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS THE 23 RD DAY OF JANUARY, 2015. SD/- SD/- (ANIL CHATURVEDI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY S.K.SINHA # # # # %& %& %& %& '&' '&' '&' '&' / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. ,, - / CONCERNED CIT 4. -- / CIT (A) 5. &12 %, , / DR, ITAT, AHMEDABAD 6. 256 78 / GUARD FILE. BY ORDER / # , 9/ , , ;