Boddu Venkataramana Srinivas, Rajahmundry V. THE ITO, Rajahmundry

ITA 134/VIZ/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2039 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 16-04-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: I SARISH KUMAR
• Keywords: Assessment record
• Section: 54F; 142(1); 133A; 147; 148

Judgement Text

ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.134/VIZAG/2015 ( / ASSESSMENT YEAR: 2010-11) B. VENKATA RAMANA SRINIVAS RAJAHMUNDRY VS. ITO , WARD - 2 , RAJAHMUNDRY [PAN: AGZPB 0137C ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI I. SARISH KUMAR, DR / RESPONDENT BY : SHRI G.V.N. HARI, AR / DATE OF HEARING : 22.01.2016 / DATE OF PRONOUNCEMENT : 19.02.2016 ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A), RAJAHMUNDRY DATED 19.3.2015 AND IT PERTAINS TO THE ASSESSMENT YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 24.5.2011 DECLARING A TOTAL INCOME OF RS.4,77,330/-. A SURVE Y U/S 133A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED AS THE AC T) WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 16.8.2012. DURING THE COURSE OF SURVEY OPERATION, THE ASSESSEE AGREED TO FILE RE VISED RETURN BY ADMITTING THE ADDITIONAL INCOME OF 6% ON SALES MADE ON ORDER BOOK BASIS, THAT ARE NOT RECORDED IN THE BOOKS OF ACCOUN TS MAINTAINED IN THE REGULAR BOOKS OF BUSINESS. DURING THE COURSE OF SU RVEY, IT WAS NOTICED THAT THE ASSESSEE HAD ENTERED INTO A JOINT DEVELOPM ENT AGREEMENT-CUM- GENERAL POWER OF ATTORNEY ALONG WITH 3 OTHER CO-OWN ERS WITH M/S. SNK BUILDERS FOR DEVELOPMENT OF A PIECE OF LAND. AS PE R THE JD AGREEMENT, THE ASSESSEE WAS RECEIVED 3 FLATS AND WHOSE MARKET VALUE WAS DETERMINED AT RS.30,87,580/-. SINCE, THE TRANSACTI ONS PERTAIN TO THE ASSESSMENT YEAR 2010-11, THE A.O. ISSUED NOTICE U/S 148 OF THE ACT TO ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 3 REOPEN THE ASSESSMENT U/S 147 OF THE ACT. AS STATE D BY THE A.O., THE ASSESSEE NEITHER FILED ANY RETURN IN RESPONSE TO NO TICE U/S 148 OF THE ACT NOR FURNISHED ANY DETAILS IN RESPECT OF NOTICES ISS UED U/S 142(1) OF THE ACT. THEREAFTER THE A.O. ISSUED A SHOW CAUSE NOTIC E AND ASKED TO EXPLAIN WHY THE CAPITAL GAIN SHOULD NOT BE LEVIED O N THREE FLATS RECEIVED CONSEQUENT TO JOINT DEVELOPMENT AGREEMENT. IN RESP ONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE FILED A REVISED STATEMEN T OF TOTAL INCOME TO ARRIVE AT A CAPITAL GAIN OF RS.30,65,236/- AND CLAI MED EXEMPTION U/S 54F OF THE ACT ON THE TOTAL CAPITAL GAIN FOR REINVESTIN G THE SALE CONSIDERATION IN 3 FLATS. THE A.O., HOWEVER, AFTER CONSIDERING T HE EXPLANATIONS FURNISHED BY THE ASSESSEE DENIED THE BENEFIT OF EXE MPTION U/S 54F OF THE ACT. WHILE DOING SO, THE A.O. HELD THAT AS PER THE INFORMATION AVAILABLE ON RECORD, THE ASSESSEE OWNS 2 RESIDENTIA L FLATS S1 & F1 IN SOUBHAGYA NILAYAM WHICH WAS PURCHASED BY HIM IN T HE YEAR 2006-07 AND LATER COMPLETED THE CONSTRUCTION AFTER OBTAININ G HOUSING LOAN FROM THE BANK. THE A.O. FURTHER HELD THAT THE ASSESSEE OWNS TWO RESIDENTIAL FLATS AS ON THE DATE OF TRANSFER OF ORIGINAL ASSET, THEREFORE, HE IS NOT ELIGIBLE FOR EXEMPTION U/S 54F OF THE ACT FOR THE 3 APARTMENTS RECEIVED ON ACCOUNT OF JOINT DEVELOPMENT AGREEMENT. ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 4 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE SUBMITTED THAT THE A.O. WAS NOT CORRECT IN REJECTING EXEMPTIO N U/S 54F OF THE ACT, AS HE HAS REINVESTED SALE CONSIDERATION FOR ACQUIRI NG 3 FLATS BY VIRTUE OF JOINT DEVELOPMENT AGREEMENT. THE ASSESSEE, FURTHER , SUBMITTED THAT THOUGH HE OWNED TWO FLATS AT SOUBHAGYA NILAYAM, THO SE ARE USED FOR COMMERCIAL PURPOSES AND ALSO LET OUT TO TWO CORPORA TE ENTITIES I.E. ONE FOR RELIANCE GENERAL INSURANCE COMPANY LIMITED AND ANOTHER FOR KAL RADIO. THE TWO FLATS OWNED BY HIM ARE COMMERCIAL I N NATURE AND USED FOR COMMERCIAL PURPOSES. THE MUNICIPAL AUTHORITIES AFTER NOTICING THE USAGE OF THE FLATS FOR COMMERCIAL PURPOSE ISSUED A NOTICE DEMANDING MUNICIPAL TAX PAYABLE FOR COMMERCIAL PURPOSES. TO THIS EFFECT FILED NECESSARY COPIES OF RENTAL AGREEMENT EXECUTED IN FA VOUR OF THE TWO TENANTS, ELECTRICITY BILL FOR HAVING CHARGED THE CO MMERCIAL RATE FOR CONSUMPTION OF ELECTRICITY AND ALSO THE NOTICE ISSU ED BY THE MUNICIPAL AUTHORITIES FOR LEVYING THE COMMERCIAL RATE OF TAX. ALTERNATIVELY, THE ASSESSEE SUBMITTED THAT THOUGH IT RECEIVED THREE FL ATS, ALL THE FLATS ARE LOCATED IN A SINGLE RESIDENTIAL COMPLEX. IN VIEW O F THE JUDGEMENT OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CI T VS. SYED ALI ADIL 352 ITR 418, HE IS ELIGIBLE FOR EXEMPTION FOR ALL T HE THREE FLATS AS A SINGLE RESIDENTIAL UNIT. THE CIT(A), HOWEVER AFTER CONSIDERING THE ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 5 EXPLANATIONS OF THE ASSESSEE HELD THAT THE INFORMAT ION AVAILABLE IN THE FILE CLEARLY SHOW THAT THE BUILDING PLAN HAS BEEN A PPROVED FOR CONSTRUCTION OF RESIDENTIAL BUILDING. THE BANK HAS GRANTED LOAN TO THE ASSESSEE TOWARDS HOME LOAN FOR PURCHASE OR CONSTRUC TION OF RESIDENTIAL HOUSE. THE ASSESSEE AND HIS FAMILY MEMBERS HAVE CON STRUCTED 8 RESIDENTIAL FLATS. ALL THESE FACTS ARE NOT IN DISPU TE. THEREFORE, THERE IS ELEMENT OF DOUBT THAT THE ASSESSEE ACQUIRED AND OWN ED TWO COMMERCIAL FLATS IN SOUBHAGYA NILAYAM AND THEY DO NOT FALL WIT HIN THE PURVIEW OF RESIDENTIAL HOUSE REFERRED IN THE PROVISO TO SECTIO N 54F IS UNTENABLE. THE MERE REASON THAT THE RESIDENTIAL FLATS ARE BEIN G LET OUT FOR COMMERCIAL PURPOSE WOULD NOT ALTER THE NATURE AND C HARACTERISTICS OF THESE TWO FLATS AS RESIDENTIAL HOUSE. WITH THESE OB SERVATIONS, CONFIRMED THE ASSESSMENT ORDER AND REJECTED THE APPEAL FILED BY THE ASSESSEE. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN A PPEAL BEFORE US. 4. THE LD. A.R. OF THE ASSESEE SUBMITTED THAT THE C IT(A) WAS NOT JUSTIFIED IN SUSTAINING DISALLOWANCE OF EXEMPTION U /S 54F OF THE ACT, AS THE ASSESSEE DOES NOT OWN ANY OTHER RESIDENTIAL HOU SE OTHER THAN THE NEW FLATS AS ON THE DATE OF TRANSFER OF ASSET. THE LD. A.R. FURTHER SUBMITTED THAT THE TWO FLATS ALREADY OWNED BY THE A SSESSEE ARE COMMERCIAL FLATS AND LET OUT FOR COMMERCIAL PURPOSE S. THEREFORE, THE ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 6 APPELLANT CANNOT BE DENIED EXEMPTION U/S 54F OF THE ACT ON THE GROUND THAT THE ASSESSEE OWNED MORE THAN ONE RESIDENTIAL H OUSE OTHER THAN THE NEW HOUSE. IN THIS REGARD, RELIED UPON JUDGEMENT O F ITAT CHENNAI BENCH IN THE CASE OF ITO VS. SHRI M. VENKATESAN IN ITA NO.2055/MDS/2008. ON THE OTHER HAND, THE LD. D.R. S TRONGLY SUPPORTED THE ORDER OF THE CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ONLY ISSUE ARISES FOR OUR CONSIDERATION IS WHET HER TWO FLATS OWNED BY THE ASSESSEE ARE COMMERCIAL AND ASSESSEE IS ELIG IBLE FOR EXEMPTION UNDER SEC. 54F FOR ACQUIRING 3 FLATS IN LIEU OF DEV ELOPMENT AGREEMENT. THE A.O. DISALLOWED THE CLAIM OF EXEMPTION U/S 54F OF THE ACT, ON THE GROUND THAT THE ASSESSEE OWNED TWO RESIDENTIAL HOUS ES AS ON THE DATE OF TRANSFER OF ORIGINAL ASSET. THE CONTENTION OF TH E ASSESSEE WAS THAT THE TWO FLATS ARE COMMERCIAL AND LET OUT TO COMMERCIAL PURPOSES. THEREFORE, HE IS ELIGIBLE FOR CLAIMING EXEMPTION U/ S 54F OF THE ACT ON THE NEW FLATS ACQUIRED IN LIEU OF JOINT DEVELOPMENT AGR EEMENT. THE ASSESSEE FILED A PAPER BOOK CONTAINING RENTAL AGREEMENT COPI ES OF FLATS, ELECTRICITY BILL AND MUNICIPAL TAX ASSESSMENT RECORDS. THOUGH, THE RECORDS CLEARLY SHOWS THAT THE FLATS ARE LET OUT FOR COMMERCIAL PUR POSES AND ALSO ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 7 ELECTRICITY CONSUMPTION WAS CHARGED ON COMMERCIAL B ASIS, THE FACT THAT THE PLAN SANCTION WAS FOR THE PURPOSE OF RESIDENTIA L BUILDING CANNOT BE IGNORED. THE FACTS CLEARLY INDICATE THAT THE ASSESS EE INITIALLY PURCHASED THE RESIDENTIAL FLATS AND LATER CONVERTED INTO COMM ERCIAL PURPOSES BECAUSE IT IS FINANCIALLY VIABLE. THEREFORE, THERE IS NO DOUBT THAT THE ASSESSEE OWNED TWO RESIDENTIAL PROPERTIES AS ON THE DATE OF TRANSFER OF ASSET OTHER THAN NEW HOUSE. THOUGH, THE PROPERTIES ARE LET OUT FOR COMMERCIAL PURPOSES, THE BASIC FACT THAT THESE FLAT S ARE MEANT FOR RESIDENTIAL PURPOSES CANNOT BE IGNORED. THE MERE FA CT THAT THE PROPERTIES ARE LET OUT FOR COMMERCIAL PURPOSES WOUL D NOT ALTER THE NATURE AND CHARACTERISTICS OF THE FLATS. 6. SECTION 54F OF THE ACT PROVIDES FOR EXEMPTION FR OM CAPITAL GAIN, IN THE CASES WHERE THE ASSESSEE TRANSFER ANY CAPITAL A SSET, OTHER THAN RESIDENTIAL HOUSE AND REINVESTED SALE CONSIDERATION FOR PURCHASE OF RESIDENTIAL HOUSE SUBJECT TO CERTAIN CONDITIONS. T HE ONE SUCH CONDITION IS THAT AS ON THE DATE OF TRANSFER OF ORIGINAL ASSE T, THE ASSESSEE SHOULD NOT OWN MORE THAN ONE RESIDENTIAL HOUSE OTHER THAN THE NEW HOUSE. A CAREFUL STUDY OF SECTION 54F OF THE ACT MADE IT CLE AR THAT THE OBJECTIVE OF ENACTING THIS PROVISION WAS TO ENCOURAGE THE HOUSIN G ACTIVITY BY GIVING EXEMPTION FROM TAX. THE BASIC IDEA OF PUTTING A CA P ON NUMBER OF UNITS ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 8 IS TO DISCOURAGE THIS TYPE OF PRACTICE OF BUYING MU LTIPLE HOUSES, SO AS TO CLAIM EXEMPTION FROM TAX. IN THE PRESENT CASE ON H AND, FROM THE FACTS IT AS ABUNDANTLY CLEAR THAT THE ASSESSEE OWNED TWO RESIDENTIAL FLATS AND THESE FLATS ARE LET OUT FOR COMMERCIAL PURPOSES. BU T, IN OUR VIEW, JUST BECAUSE PROPERTY WAS PUT TO USE FOR COMMERCIAL PURP OSE, THE BASIC CHARACTER OF NATURE AND PROPERTY WOULD NOT CHANGE. THEREFORE, WE ARE OF THE OPINION THAT THE ASSESSEE OWNED TWO RESIDENT IAL HOUSES, OTHER THAN NEW HOUSE AS ON THE DATE OF TRANSFER OF ASSET AND HENCE, NOT ELIGIBLE FOR EXEMPTION U/S 54F OF THE ACT. 7. COMING TO THE CASE LAWS RELIED UPON BY THE ASSES SEE. THE ASSESSEE RELIED UPON ITAT, CHENNAI BENCH DECISION I N THE CASE OF ITO VS. M. VENKATESAN (SUPRA). WE HAVE CONSIDERED THE CASE LAW RELIED UPON BY THE ASSESSEE IN THE LIGHT OF THE FACTS OF T HE PRESENT CASE AND FIND THAT THE DECISION IS NOT APPLICABLE TO THE FAC TS OF THE PRESENT CASE. THE CASE BEFORE ITAT, CHENNAI BENCH WAS, WHETHER TH E PROPERTY PURCHASED WAS RESIDENTIAL OR COMMERCIAL. IN THE SAI D CASE, THE ASSESSEE PURCHASED A COMMERCIAL PROPERTY AND LET OUT FOR COM MERCIAL PURPOSE, CLAIMED EXEMPTION UNDER SEC. 54F, BY STATING THAT T HE INITIAL PLAN SANCTION WAS FOR RESIDENTIAL PURPOSE. THE BENCH HEL D THAT ONCE PROPERTY PURCHASED WAS A COMMERCIAL AND PUT TO USE FOR COMME RCIAL PURPOSES, ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 9 THOUGH THE PLAN SANCTION WAS RESIDENTIAL PURPOSE, I T CANNOT BE HELD THAT THE PROPERTY WAS RESIDENTIAL PROPERTY AND ELIGIBLE FOR EXEMPTION U/S 54F OF THE ACT. 8. IN THE PRESENT CASE ON HAND, THE RECORDS SHOW TH AT THE ASSESSEE ALONG WITH FAMILY MEMBERS PURCHASED INCOMPLETE RESI DENTIAL APARTMENT CONSISTING OF 8 FLATS. THE ASSESSEE HAS TAKEN HOUSI NG LOAN FROM BANK. THE PLAN SANCTION WAS ALSO FOR THE PURPOSE OF RESID ENTIAL PURPOSE. THE REVENUE RECORDS SHOW THAT PROPERTIES ARE RESIDENTIA L IN NATURE. JUST BECAUSE, THE FLATS ARE LET OUT FOR COMMERCIAL PURPO SES FOR FINANCIAL VIABILITY, IT CANNOT BE SAID THAT THE PROPERTIES LO SE ITS BASIC NATURE AND CHARACTERISTICS. FROM THE FACTS, IT IS UNDOUBTEDLY CLEAR THAT AS ON THE DATE OF TRANSFER OF ORIGINAL ASSET, THE ASSESSEE HA S OWNED TWO RESIDENTIAL FLATS. THEREFORE, WE ARE OF THE OPINION THAT THE AS SESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 54F OF THE ACT FOR THE FLATS RECE IVED IN LIEU OF JOINT DEVELOPMENT AGREEMENT. THE CIT(A) HAS RIGHTLY CONFI RMED THE ORDER OF THE ASSESSING OFFICER. WE DO NOT SEE ANY ERROR OR INFIRMITY IN THE ORDER PASSED BY THE CIT(A). HENCE, WE INCLINED TO UPHELD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE ASSESSEE . ITA NO.134/VIZAG/2015 & SP 44/VIZAG/2015 B. VENKATA RAMANA SRINIVAS, RAJAHMUNDRY 10 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 19 TH FEB16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED 19.2.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT BODDU VENKATA RAMANA SRINIVAS, P ROP: SATYANARAYANA JEWELLERY MART, D.NO.9-25-98, GUNDUVARI STREET, RAJ AHMUNDRY 2. / THE RESPONDENT ITO WARD-2, RAJAHMUNDRY 3. + / THE CIT, RAJAHMUNDRY 4. + ( ) / THE CIT (A), RAJAHMUNDRY 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM