Grandhi Nageswara Rao (HUF), Anakapalle V. The ACIT, Visakhapatnam

ITA 142/VIZ/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8770 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 20-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y SESHA SRINIVAS
• Assessee Lawyers: B V RAO
• Keywords: Capital asset; Salary income
• Section: 54F; 148; 132

Judgement Text

ITA NO.142/VIZAG/2017 GRANDHI NAGESWARA RAO (HUF), ANAKAPALLI 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.142/VIZAG/2017 ( / ASSESSMENT YEAR: 2012-13) GRANDHI NAGESWARA RAO (HUF) ANAKAPALLE ACIT, CENTRAL CIRCLE - 2 VISAKHAPATNAM [PAN NO. AAFHG8818K ] ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI B.V. RAO, AR / RESPONDENT BY : SHRI Y. SESHA SRINIVAS, DR / DATE OF HEARING : 07.02.2018 / DATE OF PRONOUNCEMENT : 09.02.2018 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST ORDER OF THE COMMISSIONER OF INCOME TAX-3 {CIT(A)}, VISAKHAPATNA M VIDE ITA NO.71/2015-16/CIT(A)-3/VSP/2016-17 DATED 12.12.2016 FOR THE ASSESSMENT YEAR 2012-13. ITA NO.142/VIZAG/2017 GRANDHI NAGESWARA RAO (HUF), ANAKAPALLI 2 2. IN THIS CASE, THE ASSESSEE FILED THE RETURN OF I NCOME ADMITTING TOTAL INCOME OF ` 98,820/-. A SEARCH U/S 132 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') WAS CARRIED OUT IN THE CASE OF M/S. A.S. STEEL TRADERS ON 11.10.2012 AND IN THE COURSE OF SEARCH, THE DOCUMENT NO.5019 OF 2011 OF SRO, ANAKAPALLI WAS FOU ND AND SEIZED VIDE ANNEXURE- AJ/O1, WHICH REVEALED THAT THE ASSES SEE HAD SOLD THE LAND ADMEASURING 6 ACRES IN SURVEY NO.1632/8 OF ANA KAPALLE ALONG WITH 5 OTHERS IN THE CAPACITY OF HUF TO THE INDIVIDUALS SHRI A. JAGADISH AND OTHERS. THE ASSESSEE ALONG WITH OTHERS HAVE RECEIV ED THE SALE CONSIDERATION OF ` 1.20 CRORES AGAINST THE MARKET VALUE ADOPTED BY TH E SRO AT ` 2.10 CRORES FOR STAMP DUTY PURPOSE. HOWEVER, THE ASSESSEE DID NOT DISCLOSE THE SALE CONSIDERATION AS CAPITAL GAINS. HENCE, THE ASSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUE OF NOTICE U/S 148 OF THE ACT AND BROUGHT TO TAX THE ASSESSEES SHARE OF CAPITAL GAINS. THE ASSESSEE IS 1/6 TH SHARE HOLDER OF 6 ACRES OF LAND SOLD TO MR. A JAGA DISH AND OTHERS OF M/S. A.S. STEEL TRADERS AND RECEIVED A SUM OF ` 20,00,000/- AS SALE CONSIDERATION AND CLAIMED DEDUC TION U/S 54F OF THE ACT. THE A.O. REJECTED THE DEDUCTION CLAIMED BY TH E ASSESSEE U/S 54F OF THE ACT, SINCE THE IMPUGNED PROPERTY WAS PURCHAS ED IN THE NAME OF SRI RAMANA MURTHY SETTY, CO-PARCENER OF THE HUF. T HE ASSESSEE CONTENDED THAT SRI G. R. SETTY, ONE OF THE CO-PARCE NER OF THE HUF HAS ITA NO.142/VIZAG/2017 GRANDHI NAGESWARA RAO (HUF), ANAKAPALLI 3 PURCHASED THE PROPERTY FOR WHICH THE FUNDS WERE GIV EN FROM THE HUF AND THE BALANCE AMOUNT WAS TAKEN AS A LOAN FROM LIC (HFL) AND THE PROPERTY WAS TRANSFERRED TO HUF BY A MEMORANDUM OF UNDERSTANDING. HOWEVER, THE LD. A.O. WAS NOT IMPRESSED WITH THE EX PLANATION OF THE ASSESSEE, HENCE DISALLOWED THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 54F OF THE ACT HOLDING THAT, SINCE THE PROPERTY OF THE HUF WAS TRANSFERRED, THE NEW PROPERTY REQUIRED TO BE ACQUIR ED BY THE HUF BUT NOT THE INDIVIDUAL. ACCORDING TO THE ASSESSING OFF ICER, HUF AND INDIVIDUAL ARE TWO SEPARATE ENTITIES AND IF INDIVID UAL CO-PARCENER ACQUIRES THE PROPERTY THE SAME CANNOT BE TREATED AS HUF PROPERTY, HENCE, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U /S 54F OF THE ACT. FURTHER, THE A.O. ALSO ASSESSED THE CAPITAL GAINS A S PER THE SRO VALUE. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) CONFIRMED THE ORDER OF THE A.O. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THIS TRIBUNAL. APPEARING FOR THE ASSESSEE, THE LD. A.R. ARGUED THAT THE ASSESSEE HUF HAS SOLD THE PROPERTY AND THE COPARCENER HAD ACQUIRED THE RESIDENTIAL HOUSE FOR WHICH THE SOURCE WAS FUNDED BY THE HUF PARTIALLY AND BALANCE WAS MET OUT OF BORROWED F UNDS. ONE OF THE CO-PARCENER HAD ACQUIRED THE PROPERTY AND GOT REGIS TERED IN THE NAME ITA NO.142/VIZAG/2017 GRANDHI NAGESWARA RAO (HUF), ANAKAPALLI 4 OF THE CO-PARCENER MR. G.R. MURTHY SETTY, S/O NAGES WARA RAO. SINCE HUF IS NOT ENTITLED FOR THE LOAN, MR. RAMA MURTHY S ETTY WHO IS HAVING SALARY INCOME HAS TAKEN LOAN FROM LIC OF INDIA AND ACCORDINGLY THE ASSET WAS PURCHASED IN THE NAME OF MR. R. MURTHY SE TTY, ONE OF THE CO- PARCENER AND THE MOU HAS BEEN REACHED ON 11.3.2014 AND THE PROPERTY IS TREATED AS HUF PROPERTY AS PER THE MOU. THE RENT RECEIVED WAS ALSO OFFERRED IN THE HANDS OF HUF AND THE LOAN INSTALLMENTS WERE REPAID BY THE HUF AND ON COMPLETE REPAYMENT OF THE LOAN, THE PROPERTY WOULD BE TRANSFERRED BY REGISTERED SALE DE ED TO THE HOTCHPOTCH OF HUF. SINCE THE FUNDS WERE INVESTED F ROM HUF AND THE CO-PARCENERS ARE HAVING EQUAL SHARE IN THE HUF PROP ERTY, THE LD. A.R. ARGUED THAT HUF IS ENTITLED FOR DEDUCTION U/S 54F O F THE ACT EVEN THOUGH THE PROPERTY WAS PURCHASED IN THE NAME OF CO -PARCENERS. HENCE, ARGUED THAT THE ORDERS OF THE LD. CIT(A) TO BE SET ASIDE AND ALLOW THE APPEAL OF THE ASSESSEE. THE LD. A.R. ALS O RELIED ON THE DECISION OF HONBLE ITAT, CHENNAI BENCH IN THE CAS E OF PURANCHAND & FAMILY (HUF) VS. ITO ,ITA NO.2974 (MDS) OF 2016 DA TED 31 ST JANUARY 2017 5. ON THE OTHER HAND, THE LD. D.R. SUPPORTED THE OR DERS OF THE LOWER AUTHORITIES. ITA NO.142/VIZAG/2017 GRANDHI NAGESWARA RAO (HUF), ANAKAPALLI 5 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE HUF HAS SOLD THE PROPERTY AND RECEIVED 1/6 TH SHARE OF CONSIDERATION AMOUNTING TO ` 20,00,000/- OUT OF WHICH CONTRIBUTED ` 15 LAKHS TOWARDS PURCHASE OF NEW PROPERTY AND THE REMAINING AMOUNT OF ` 25 LAKHS WAS CONTRIBUTED BY THE CO-PARCENER FOR ACQUIR ING THE NEW PROPERTY. BOTH THE HUF AND CO-PARCENER OF THE PROP ERTY HAVE ENTERED INTO A MEMORANDUM OF UNDERSTANDING TO TRANSFER THE PROPERTY IN THE NAME OF HUF AFTER COMPLETE REPAYMENT OF THE LOAN, W HICH WAS GRANTED TO THE INDIVIDUAL CO-PARCENER MR. G. RAMA MURTHY SE TTY, S/O NAGESWARA RAO. THE ASSESSEE ALSO DECLARED THE RENTAL INCOME IN ITS HANDS AND THE LOAN IS BEING REPAID BY THE HUF. CO-PARCENER IS ON E OF EQUAL SHAREHOLDER OF THE HUF. UNDER THE SIMILAR FACTS AN D CIRCUMSTANCES, THE COORDINATE BENCH OF ITAT, CHENNAI IN THE CASE OF PU RNACHAND & FAMILY (HUF) CITED (SUPRA) HELD THAT THE PROPERTY ACQUIRED IN THE NAME OF KARTA IS ENTITLED FOR THE DEDUCTION U/S 54F OF THE ACT. FOR READY REFERENCE, WE EXTRACT PARA NOS.6 TO 10 OF THE ORDER CITED (SUPRA). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSES SEE SOLD A CAPITAL ASSET NAMELY DIAMOND AND CLAIMS EXEMPTION ON THE CAPITAL GAIN UNDER SECTION 54F OF THE ACT. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THREE GROUNDS :-- (1) FIRST, THE CAPITAL ASSET WAS PURCHASED IN THE INDIV IDUAL NAME OF COPARCENER OF HUF. ITA NO.142/VIZAG/2017 GRANDHI NAGESWARA RAO (HUF), ANAKAPALLI 6 (2) BORROWED FUNDS WERE USED FOR PURCHASE OF THE NEW AS SET AND NOT THE SALE PROCEEDS OF THE DIAMOND. (3) THERE WAS NO CONSTRUCTION ON THE NEW ASSET. 7. AS REGARDS THE INVESTMENT MADE IN THE INDIVIDUA L CAPACITY, EVEN THOUGH HUF IS AN INDEPENDENT ASSESSABLE UNIT UNDER INCOME TAX ACT, UNDER THE COMMON LAW, HUF CANNOT BE CONSIDERED TO B E A LEGAL ENTITY. THE HUF HAS TO BE REPRESENTED THROUGH ANY ONE OF TH E COPARCENERS. THEREFORE, WHEN THE ASSESSEE HUF INVESTED THE FUNDS IN THE NAME OF ANY ONE OF THE COPARCENER, IT HAS TO BE CONSTRUED THAT THE INVESTMENT WAS MADE IN THE NAME OF HUF. WHEN THE NUCLEUS OF THE HU F FUND WAS USED FOR PURCHASE OF A PROPERTY IN THE NAME OF ANY ONE O F THE COPARCENER, THE PROPERTY BELONGS TO THE HUF, EVEN THOUGH THE PROPER TY WAS REGISTERED IN THE INDIVIDUAL NAME OF ONE OF THE COPARCENER. THE P ROPERTY BELONGS TO ALL THE COPARCENERS IN EQUAL SHARES AS MEMBERS OF HUF. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE ESPECIALLY, WHEN THE INVESTMENT WAS MADE IN THE NAM E OF KARTA OF HUF. 8. NOW COMING TO SECOND REASON FOR DISALLOWANCE OF CLA IM OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT ONLY THE BORROWED FUNDS ARE USED FOR PURCHASE OF NEW ASSET. AS RIGHTLY SUBMITTE D BY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE, PROVISIONS OF SECT ION 54F OF THE ACT, REQUIRES THE ASSESSEE TO PURCHASE A PROPERTY ONE YE AR BEFORE THE DATE OF THE SALE OR TWO YEARS AFTER THE DATE OF THE SALE OF ASSET. IF THE ASSESSEE COULD NOT INVEST WITHIN THE TIME FRAME PROVIDED IN THE ACT, THE SAME HAS TO BE DEPOSITED IN ANY ONE OF THE CAPITAL GAIN ACCO UNT WITHIN THE DUE DATE PROVIDED FOR FILING THE RETURN OF INCOME UNDER SECT ION 139(1) OF THE ACT. NO ONE COULD EXPECT THE ASSESSEE TO UTILIZE THE SAL E PROCEEDS OF THE CAPITAL ASSET OR THE CAPITAL GAIN ARISING FROM SUCH SALE BEFORE THE DATE OF THE SALE OF THE CAPITAL ASSET. THE ASSESSEE CANNOT HAVE ANY SALE PROCEEDS BEFORE THE DATE OF THE SALE. THEREFORE, THIS TRIBUN AL IS OF THE CONSIDERED OPINION, WHEN THE ASSESSEE BORROWED THE FUNDS AND U TILIZED IN PURCHASING THE CAPITAL ASSET AND THEREAFTER USES THE SALE PROC EEDS OR CAPITAL GAIN FOR REPAYING THE LOAN BORROWED, THAT WOULD AMOUNT TO SU FFICIENT COMPLIANCE OF THE REQUIREMENT OF SECTION 54F OF THE ACT. THERE FORE, MERELY BECAUSE THE BORROWED FUNDS WERE USED WHEN THE PROPERTY WAS PURCHASED BEFORE THE DATE OF THE SALE OF ASSET, THIS TRIBUNAL IS OF THE CONSIDERED OPINION, THIS CANNOT BE A REASON FOR DISALLOWING THE CLAIM O F THE ASSESSEE. 10. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UPHOLD THE O RDERS OF BOTH THE LOWER AUTHORITIES. ACCORDINGLY, THE ORDERS OF B OTH THE LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITION IS DELET ED. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF EXEMPTION UNDER SECTION 54F OF THE ACT, TO THE EXTENT OF THE AMOUNT INVESTED ON OR BEFORE THE DATE OF FILING OF RETURN OF INCOME AS PROVIDED UNDER SECTIO N 139(1) OF THE ACT. ITA NO.142/VIZAG/2017 GRANDHI NAGESWARA RAO (HUF), ANAKAPALLI 7 7. IN THE INSTANT CASE, SINCE THE PROPERTY WAS ACQU IRED BY ONE OF THE CO-PARCENERS, THE FACTS ARE IDENTICAL TO THE CASE L AW RELIED UPON BY THE LD. A.R. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENCH OF ITAT, CHENNAI, WE HOLD THAT THE ASSESSEE IS ENTI TLED FOR DEDUCTION U/S 54F OF THE ACT, ACCORDINGLY, WE SET ASIDE THE O RDER OF THE LOWER AUTHORITIES AND DIRECT THE A.O. TO ALLOW THE DEDUCT ION U/S 54F OF THE ACT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 9 TH FEB18. SD/- SD/- ( . ) ( . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 09.02.2018 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI GRANDHI NAGESWARA RAO, S/O ( LATE) SRI RAMAMURTHY SETTY, D.NO.11- 4-27, CHINNAVEEDHI, ANAKAPALLE-531 001. 2. / THE RESPONDENT THE ACIT, CENTRAL CIRCLE-2, VIS AKHAPATNAM 3. + / THE PRINCIPAL CIT(CENTRAL), VISAKHAPATNAM 4. + ( ) / THE CIT (A)-3, VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM