ACIT, CIR-32, Kolkata, Kolkata V. Jitendra Seth, Kolkata

ITA 1420/KOL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5876 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 04-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR CIT SRDR
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Capital asset
• Section: 143(3); 54F; 133(6)

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI S.S.GODARA, JUDICIAL MEMBER ITA NO.1420/KOL/2016 ASSESSMENT YEAR:2012-13 ACIT, CIRCLE-32, 10B, MIDDLETON ROW, 2 ND FLOOR, KOLKATA-71 / V/S . JITENDRA SETH 87, KARNANI ESTATE, 209, A.J.C. BOSE ROAD, KOLKATA-700 017 [ PAN NO.AJHS 9552 M ] /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI SAURABH KUMAR, ADDL. CIT-SR-DR /BY RESPONDENT SHRI MIRAJ D SHAH, AR /DATE OF HEARING 04-07-2018 /DATE OF PRONOUNCEMENT 27-07-2018 /O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2012-13 CHALLENGES COMMISSIONER OF INCOME TAX (APPEALS)-9, KOLKATAS ORDER DATED 31 .03.2016 PASSED IN CASE NO. 749/CIT(A)-9/CIR-32/2014-15/KOL, REVERSING ASSESSIN G OFFICERS ACTION DISALLOWING ASSESSEES COMMISSION PAID OF 51,56,694/- AS WELL AS PARTLY RESTRICTING SECTION 5 4F DEDUCTION DISALLOWANCE TO 42,39,181/- OUT OF 56,52,242/-; RESPECTIVELY, INVOLVING PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. LEARNED REPRESENTATIVES TAKE US THE CIT(A)S DET AILED DISCUSSION QUA THE FORMER ISSUE OF ASSESSEES COMMISSION EXPENDITURE D ISALLOWANCE READING AS UNDER:- ITA NO.1420/KOL/2016 A.Y. 2012-13 ACIT CIR-32, KOL. VS. JITENDRA SETH PAGE 2 4.2 GROUND NO.2: THIS GROUND IS AGAINST THE DISALLO WANCE OF COMMISSIONS EXPENSES OF RS.51,56,694/- CLAIMED BY THE ASSESSEE AS A DEDUCTI ON IN COMPUTING THE INCOME. I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED THE WRI TTEN SUBMISSION AND ORAL SUBMISSIONS MADE BY THE AUTHORISED REPRESENTATIVE OF THE APPELL ANT. I FIND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MAN POWER RECRUITMENT UNDER HIS PRO PRIETARY CONCERN MS CAREER PROBE. ON PERUSAL OF THE AUDITED ACCOUNTS OF THE YEAR UNDER C ONSIDERATION I FIND THAT THE BOOKS OF ACCOUNT OF THE CONCERN WERE DULY AUDITED U/S44AB OF THE INCOME TAX ACT 1961. THE APPELLANT HAD A GROSS RECEIPT OF RS.198.70 LAKH AND AGAINST T HIS THE APPELLANT HAD EARNED A NET PROFIT OF RS45.34 LAKH. THE APPELLANT HAD CLAIMED COMMISSI ON EXPENSES OF RS.79.55 LAKH AS EXPENSES IN THE PROFIT LOSS ACCOUNT. THE AO ISSUED NOTICES TO THE PERSONS WHO WERE PLACED BY THE APPELLANT TO VERIFY IF THE PARTY TO WHOM COMMIS SION WAS PAID HAD RENDERED ANY SERVICES. AS PER THE AO ALL THESE PARTIES REFUSED USING THE S ERVICES OF THE COMMISSION AGENT AND HENCE WHILE ASSESSING THE APPELLANT DISALLOWED A SUM OF R S.51,56,694 ON ACCOUNT OF COMMISSIONS EXPENSES AND HELD THAT THE ASSESSEE FAILED TO ESTAB LISH THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF ASSESSEE BUSINESS. 4.3 I FIND THAT THE ASSESSEE HAS FLED THE DETAILS A ND EVIDENCES WITH RESPECT TO THE PARTIES TO WHOM THE COMMISSION WAS PAID. THE DETAILS AVAILABLE INCLUDE: (A) NAME & ADDRESS OF THE AGENTS (B) PAN DETAILS OF THE AGENTS (C) BILL ISSUED BY THE AGENTS (D) DETAIL OF THE SERVICES RENDERED I.E. NAME OF CA NDIDATE AND TO WHICH COMPANY THE CANDIDATE WAS PLACED. (E) TDS ON THE PAYMENT TO AGENTS WAS DULY DEDUCTED AS PER LAW (F) THE PAYMENTS TO THE AGENTS WERE MADE BY ACCOUNT PAYEE CHEQUE THE GENTS WHOSE COMMISSIONS THE AO DISALLOWED AS NOT FOR THE PURPOS E OF BUSINESS WERE AS FOLLOWS: SL.NO. NAME OF COMMISSION AGENTS PAN GROSS COMMISSION 1 PRADIP JISWAL ACXPJ 1983G 5,00,000 2 RAGAV TRUST RAHUL TRUST AAATR 3121P AAATR 4724Q 5,00,000 5,00,000 4 5 URMILA DEVI JISWAL REEMA JAISWAL AGHPJ 0842Q AJNPJ 7607C 2,30,000 2,20,000 6 7 KIRAN JAISWAL ASHOK KR JAISWAL AKYPJ 5714C ACWPJ 3917D 1,25,000 3,00,000 8 9 JAYANT JAISWAL SEEMA JAISWAL AKYPJ 5737F AILPJ 3705A 1,25,000 3,00,000 10 11 DURGADAS KARMAKAR SUJATA KARMAKAR AAFHD 9208Q ATGPK 0744 G 2,00,000 1,50,000 12 MANAS KANJILAL AFCPK 7807G 3,00,000 13 PARTH PRATIM BHATTACHERJEE ADVPB 8331 P 85,000 14 15 KABITA JAISWAL TRIVENI PRASAD JAISWAL AILPJ 3706D AGHPJ 0841P 3,25,000 2,25,000 16 17 18 19 ANIL KR BHUWALKA HUF RAHUL BHUWALKA AVISEK BHUWALKA ROHIT BHUWALKA AACHA 5021M AQZPB 3362M BBJPB 7165G BCCPB 7484G 1,20,000 3,15,000 1,85,000 1,80,000 20 SUNIL KR BHUWALKA AAFHS 5744G 2,00,000 21 22 PLENTITDUDE INC MANJULA CHNDRASEKHER AAMFP 2628M AMWPK 7829D 22,286 34,438 23 OMPRAKASH YADAV AAJPY 8595K 90,000 TOTAL 51,56,694 ITA NO.1420/KOL/2016 A.Y. 2012-13 ACIT CIR-32, KOL. VS. JITENDRA SETH PAGE 3 IN THE ASSESSMENT PROCEEDINGS THE AO HAS ISSUED NOT ICES U/S 133(6) OF THE IT ACT 1961 TO THE ALLOWING PERSONS WHOM WERE PLACED BY THE APPELLANT AND THE RESPONSES TO THE NOTICE ISSUED BY THE AO ARE ALSO AVAILABLE IN THE TABLE BELOW: S.NO. NAME OF THE CANDIDATE PLACEMENT FEES RECEIVED COMMISSION PAID REMARKS 1 ROHIT DHONDY 4,14,166.67 5,00,000 COMMISSION PAID IS MORE THAN PLACEMENT FEES RECEIVED 2 VINEET CHHABRA 34,82,925.00 4,50,000 NOT REFERRED BY ANYONE 3 MARK POPLY 9,60,000 4,50,000 REFUSED HAVING UTILIZED YOUR SERVICES 4 RAJIV BHATIA 8,50,170.00 4,25,000 NOT REFERRED BY ANYONE 5 SURESH KASI 5,95,833.34 3,50,000 NOT REFERRED BY ANYONE, SPECIFICALLY DENIES KNOWING THE PERSON TO WHOM COMMISSIONS HAS BEEN PAID 6 DEEPTI VERMA 7,33,480.00 3,50,000 REFUSED HAVING UTILISHED YOUR SERVICES 7 VINOD ZUTSHI 6,49,425.00 3,00,000 NOT REFERRED BY ANYONE 8 NAGENDRA ED 2,86,500.00 85,000 NOT REFERRED BY ANYONE 9 ANKHI DAS 10,18,155.00 5,50,000 REFUSED HAVING UTILIZED YOUR SERVICES 10 SUBHAYU BASU 16,00,000.00 8,00,000 NOT REFERRED BY ANYONE 11 SEEMA TRIVEDI 4,60,000.00 2,00,000 NOT REFERRED BY ANYONE 12 DHANANJAY P KULKARNI 1,81,250.00 56,694 REUSED HAVING UTILIZED YOUR SERVICES 13 KATYASHINI SIVARAJ 3,41,000.00 90,000 NOT REFERR ED BY ANYONE 12 DHANANJAY P KULKARNI 1,81,250.00 56,694 REFUSED HAVING UTILIZED YOUR SERVICES 13 KATDYASHINI SIVARAJ 3,41,000.00 90,000 NOT REFER RED BY ANYONE 4.4 I FIND THAT THE ASSESSEE IS ENGAGED IN MAN POWE R PLACEMENT. IN THIS BUSINESS, AS EXPLAINED BY THE APPELLANT THE BUSINESS PROCESS OF THE ASSESS EE IS TO PLACE SENIOR LEVEL EXECUTIVES IN VERY BIG CORPORATE HOUSES. THE ASSESSEE FIRST TAKES A MA NDATE FROM THE COMPANY TO PLACE THE REQUIRED MANPOWER. THEN THE ASSESSEE STARTS THE MAN POWER SEARCH. THE HUMAN RESOURCES REQUIRED BEING VERY SENIOR LEVEL OFFICIAL, THE ASSE SSEE MOST OF THE TIMES CANNOT ADVERTISE OPENLY FOR THE MANPOWER REQUIREMENTS. THIS IS REQUI RED TO ENSURE CONFIDENTIALITY OF SUCH INFORMATION BEING SHARED IN GENERAL PUBLIC. THE ASS ESSEE USES DATA BASE AVAILABLE ON PORTALS LIKE NAUKRI.COM ETC BUT AS THE PROFILE OF THE CANDI DATES BEING IN VERY HIGH POSITIONS, SUCH QUALITY OF DATA BASE IS NOT AVAILABLE MOST OF THE T IMES. IT IS A COMMON KNOWLEDGE THAT GOOD QUALITY MANPOWER IS POUCHED BY COMPANIES. IN FACT M ANY SENIOR BUREAUCRATS ARE ALSO BEING POACHED BY THE CORPORATES. THEREFORE GIVEN THE SENI OR PROFILE AND SENSITIVE POSITION OF THE ITA NO.1420/KOL/2016 A.Y. 2012-13 ACIT CIR-32, KOL. VS. JITENDRA SETH PAGE 4 COMPANIES AND CANDIDATES THE NATURE OF THE ASSESSEE S BUSINESS IS SUCH THAT IT HAS TO RELY ON DISCREET INFORMATION. SUCH DISCREET INFORMATION IS AVAILABLE DIRECTLY FROM THE PROSPECTIVE CANDIDATE WHO MEETS THE REQUIREMENT OF THE CLIENT A ND IS READY TO LEAVE HIS/HER PRESENT ASSIGNMENT AND TAKE A NEW JOB. ONLY IF THIS INFORMA TION IS AVAILABLE THEN THE ASSESSEE IS ABLE TO MOVE FURTHER. THIS INFORMATION IS AVAILABLE ONLY WITH THE PERSONS WHO HAS DIRECT KNOWLEDGE THAT A PARTICULAR CANDIDATE IS INTERESTED IN LEAVIN G HIS/HER EXISTING JOB OR SUCH INFORMATION IS AVAILABLE INDIRECTLY I.E. A CLOSE ASSOCIATE OF THE PROPOSED CANDIDATE REVEALS SUCH INFORMATION ABOUT THE INTEREST OF THE CANDIDATE TO CHANGE HIS J OB. THIS IS THE MOST IMPORTANT AND VITAL INFORMATION IN THE BUSINESS OF THE ASSESSEE. THIS R OLE OF SHARING INFORMATION ABOUT THE CANDIDATE BEING AVAILABLE FOR CHANGE OF JOB IS THE KEY IN THIS BUSINESS. THE ASSESSEE HAD CLAIMED TO HAVE MADE PAYMENTS FOR THESE SERVICES TO THE SAID AGENTS OR PERSONS GIVING LEADS. UNLESS THE PERSON TO WHOM THE PAYMENT WAS MADE WAS NOT EXAMINED NO ADVERSE INFERENCES COULD BE DRAWN. THE AO IN THIS CASE FAILED TO MAKE ANY INQUIRES WITH THE COMMISSION GENTS. THUS THE AO FAILED TO MAKE ANY INQUIRIES WITH THE C OMMISSION AGENTS. THUS THE AO FAILED TO UNDERSTAND THE ENTIRE BUSINESS PROCESS AND THE AO A LSO FAILED TO CORRECTLY INVESTIGATE THE MATTER. U9NELSS THE AGENTS WERE NOT EXAMINED BY THE AO IT WAS NOT POSSIBLE FOR HIM TO COME TO A FINDING WITH RESPECT TO THE FACT THAT THE EXPE NSES WERE INCURRED FOR THE PURPOSE OF THE BUSINESS OR NOT. I FIND THAT ON THIS VERY ISSUE THE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCES AGAINST THE ASSESSEE. IN MY OPINION THE A O CANNOT, MERELY ON THE INQUIRY WITH THE CANDIDATES COME TO THE CONCLUSION THAT THE COMMISSI ON EXPENSES WERE NOT INCURRED FOR BUSINESS. IMPUGNED ORDER RATHER FIND THAT THE INQUI RY WITH THE CANDIDATE WAS IRRELEVANT IS ALSO DEMONSTRATED BY THE ASSESSMENT ORDER ITSELF. I MPUGNED ORDER FIND THAT THE MOST OF THE CANDIDATES HAVE STATED THAT THEY HAVE NOT UTILIZED THE SERVICES THE APPELLANT ITSELF. IF THIS IS TRUE THEN THE COMMISSION RECEIPT OF THE APPELLANT I S ALSO NOT ARISING OR ACCRUING FROM PLACEMENT OF THESE CANDIDATES. WHILE THE COMPANIES WHERE THESE CANDIDATES WERE PLACED HAVE PAID THE APPELLANT THE COMMISSION AND THE SAME WAS DULY ASSESSED AND ACCEPTED BY THE AO. THE AO IS THUS ACCEPTING THE INCOME OF THE APPELLAN T AS INCOME FROM PLACEMENT FEES DESPITE THE FACT THAT THE CANDIDATE HAD DISPUTED THAT THE A PPELLANT AND NOT RENDER ANY SERVICES. THIS SHOWS THAT THE CANDIDATES ARE EVEN DISPUTING THAT R OLE OF THE ASSESSEE IN THE PLACEMENT. THIS FACT RATHER DEMONSTRATES THAT THE CANDIDATES HARDLY ARE AWARE AND OR HARDLY KEEP IN MIND THE PERSONS WHO WERE INVOLVED IN THEIR PLACEMENT. IN SU CH CIRCUMSTANCES IT THE AO IS NOT JUSTIFIED IN TO EXPECT THAT A CANDIDATE WOULD REMEMBER WHO CO NTACTED HIM FOR HIS PLACEMENT JOB WHICH TOOK PLACE 2-3 YEARS AGO. THIS APPEARS TO BE NEXT T O IMPOSSIBLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN MOST OF THE CASES THE PLACEMENT AGE NTS REPRESENT THEMSELVES AS REPRESENTATIVE OF THE COMPANY. AS FAR THE CANDIDATE IS CONCERNED HE IS INTERACTING WITH THE REPRESENTATIVE OF THE COMPANY. THE CANDIDATE IS NOT CONCERNED IF THE PERSON CONTACTING HIM IS AN EMPLOYEE OF THE COMPANY OR AN OUTSOURCED AGENCY. THE ASSESSEE H AS RELIED ON VARIOUS CASE LAWS. I FIND MOST OF THE CASE LAWS APPLY TO THE CASE OF THE APPE LLANT HENCE THE SAME ARE NOT ONCE AGAIN IN REPRODUCED IN THE ORDER. I FIND THAT THE APPELLANT HAS MADE THE COMMISSION BY ACCOUNT PAYEE CHEQUES, THE APPELLANT HAS PRODUCED FULL DETAILS OF COMMISSION EXPENSES INCLUDING COMPLETE DETAILS INCLUDING PAYMENT BY CHEQUES BILLS AND RECI PIENTS INCOME TAX PAN DETAILS, THE NAME OF CANDIDATES AND THEIR CV AND THE JOB TO WHICH THEY W ERE PLACED WAS ALSO PROVIDED I THUS FIND THAT THE AO FAILED TO CARRY OUT ANY RELEVANT ENQUIR Y IN THIS RESPECT. I FIND THAT IN THE PRECEDING YEAR I.E. ASSESSMENT YEAR, THE ASSESSEE WAS ENGAGED IN THE SAME BUSINESS AND ALSO TAKEN SERVICES FROM THE PARTIES AND PAID COMMISSION TO TH EM AND NO DISALLOWANCE WAS MADE BY THE AO. I ALSO FIND THAT IN AY 2013-2014 THE ASSESSEE C ASE WAS ASSESSED U/S.143(B) OF THE IT ACT 1961 BY THE SAME OFFICE AND THE COMMISSION EXPENSES PAID WERE DULY ACCEPTED IN SCRUTINY ASSESSMENT AND NO DISALLOWANCE WERE MADE. I THEREFO RE HOLD THAT THE COMMISSION EXPENSES WERE INCURRED FOR THE BUSINESS OF THE ASSESSEE. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF SASOON DAVID & CO. PVT. LTD. VS. CIT, 118 I TR 261 THAT IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE C OURSE OF HIS OR ITS BUSINESS. IT WAS ALSO HELD BY THE BOMBAY HIGH COURT IN CIT VS SIGMA PAINT S LTD 188 ITR 6 THAT PAYMENT OF COMMISSION IS AN ALLOWABLE EXPENDITURE IF THE SAME IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CARRIED ON BY THE ASSESSEE. HON 'BLE GUJARAT HIGH COURT IN THE CASE OF SWASTIK TEXTILES CO. PVT. LTD. 150 ITR 55 UPHELD TH E CONTENTION OF THE ASSESSEE ABOUT ITA NO.1420/KOL/2016 A.Y. 2012-13 ACIT CIR-32, KOL. VS. JITENDRA SETH PAGE 5 ALLOWABILITY OF COMMISSION PAYMENT ON THE GROUND TH AT THERE WAS NO EVIDENCE TO SUPPORT THE FINDING OF THE TRIBUNAL THAT SERVICES HAD NOT BEEN RENDERED BY THE COMMISSION AGENTS. HON'BLE SUPREME COURT HAS ALSO HELD IN THE CASE OF DHANRAJ GIRIJI RAJ NARSHINGH RAJ, 91 ITR 544 THAT IT WAS FOR THE ASSESSEE TO DECIDE HOW BEST TO PROTECT HIS OWN INTEREST AND IT WAS NOT OPEN TO DEPARTMENT TO PRESCRIBE WHAT EXPENDITUR E THE ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR SUCH EXPENDITURE. 4.5 IN THE CASE OF THE APPELLANT THERE IS NO DISPUT E TO THE FACT THAT THE ASSESSEE HAS MADE PAYMENTS TOWARDS COMMISSIONS TO THE ABOVE-NAMED PAR TIES BY WAY OF ACCOUNT PAYEE CHEQUES AND DEDUCTED TDS THEREON. THESE PARTIES HAVE CONFIR MED THE TRANSACTION. ALL THESE PARTIES ARE INCOME TAX ASSESSEE AND ALL SUCH DETAILS WERE P LACED BEFORE THE AO BY THE ASSESSEE. CONSIDERING THE ABOVE CASES AND THE FACTS OF THE CA SE BEFORE US, I AM OF THE CONSIDERED VIEW THAT THE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFI ED. I HOLD THAT THE SAID EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN THE COURSE OF HIS BUSINESS AND IT IS FOR ASSESSEE AS TO HOW TO RUN HIS BUSINESS. THE DEPARTMENT IS NOT JUSTIFIED T O STATE THAT THERE WAS NO NEED TO APPOINT COMMISSION AGENT AND, THEREFORE, EXPENDITURE INCURR ED WAS NOT REQUIRED. I THEREFORE HOLD THAT THE SAID EXPENDITURE IS AN ALLOWABLE EXPENDITURE. T HIS GROUND IS ALLOWED. 3. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RI VAL CONTENTION. LEARNED DEPARTMENTAL REPRESENTATIVE REITERATES ASSESSMENT F INDINGS THAT THE ASSESSEES ALLEGED COMMISSION AGENTS DID NOT SUPPORT ITS CASE DURING T HEIR RESPECTIVE STATEMENTS. WE FIND NO MERIT IN THE INSTANT ARGUMENT. IT HAS COME ON RE CORD THAT THIS ASSESSEE IS ENGAGED IN HIGHLY LEVEL EMPLOYEES REQUIREMENT BUSINESS. HE DE CLARED INCOME FROM THE SAID BUSINESS ACTIVITY AMOUNTING TO 198.70 LAKH ALONG WITH COMMISSION OF 79.55 LAKH DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSI NG OFFICER DISALLOWED A PART THEREOF TO THE EXTENT OF THE IMPUGNED SUM OF 51,56,694/- MAINLY ON THE GROUND THAT THE CORRESPONDING PARTIES DID NOT SUPPORT HIS CASE. WE MAKE IT CLEAR THAT ALL THE CORRESPONDING PAYMENTS HAVE BEEN SUBJECTED TO TDS; WHEREVER NECESSARY. THERE HAS NOT BEEN ANY ENQUIRY ON PART OF THE ASSESSING OFFIC ER TO FIND OUT AS TO WHETHER ALL THESE PARTIES WHO HAVE NOT SUPPORTED ASSESSEES CAS E HAVE CLAIMED THE CORRESPONDING TDS CREDIT OR NOT IS RESPECTIVE TAX RECORDS. COUPLE D WITH THIS, WE FIND THAT THE ASSESSING OFFICER HAS ALSO NOT CARRIED OUT THE NECE SSARY VERIFICATION ON ASSESSEES ULTIMATE CUSTOMERS/CLIENTS WHO HAVE APPOINTED THE HIGHLY QUALIFIED PERSONNEL THROUGH THE ASSESSEE. THE REVENUE FURTHER FAILS TO REBUT TH E FACT THAT SIMILAR COMMISSION PAYMENTS HAVE ALREADY BEEN ACCEPTED AS ALLOWABLE IN LATTER ASSESSMENT YEARS (SUPRA). WE THEREFORE TAKE INTO ACCOUNT ALL THESE FACTS AND CIRCUMSTANCES TO UPHOLD THE CIT(A)S FINDINGS DELETING THE IMPUGNED DISALLOWANC E UNDER CHALLENGE. THE REVENUES INSTANT FORMER SUBSTANTIVE GROUND FAILS A CCORDINGLY. ITA NO.1420/KOL/2016 A.Y. 2012-13 ACIT CIR-32, KOL. VS. JITENDRA SETH PAGE 6 4. THIS LEAVES US WITH REVENUES LATTER GRIEVANCE S EEKING TO REVIVE ASSESSING OFFICERS ACTION DISALLOWING U/S 54F DEDUCTION CLAI MED OF 56,52,242/- AS REVERSED TO THE EXTENT OF 42,39,181/- IN CIT(A)S ORDER UNDER CHALLENGED AS F OLLOWS:- 4.6 GROUND NO.3 & 4: BOTH THESE GROUNDS ARE INTERRE LATED AND HENCE THEY ARE TAKEN UP FOR DISPOSAL TOGETHER. THIS GROUND IS AGAINST TH E REJECTION OF THE CLAIM U/S. 54F OF THE INCOME TAX ACT FOR RS.56,52,242/ THE BRIEF FACT S OF THE CASE IS THAT THE ASSESSEE SOLD A LAND AT HASUR SARJAPURA ROAD, BANGALORE FOR RS.2,52,00,000 AGAINST THIS HE PAID A BROKERAGE ON SALE FOR RS.3,60,000. THUS THE NET SALE CONSIDERATION AS PER THE ASSESSEE WAS RS.2,48,40,000. THE ASSESSEE HAD PURCH ASED THIS PROPERTY IN THE YEAR 2005-2006 FOR A CONSIDERATION OF RS.47,44,163 AND T HE INDEXED COST OF THE PROPERTY WAS DETERMINED AT RS.74,93,295. THUS THE CAPITAL GA INS WAS DETERMINED AT RS.173,46,704/-. OUT OF THIS THE ASSESSEE INVESTED RS.50,00,000 WAS DEPOSITED IN BONDS ELIGIBLE U/S. 54FC OF THE IT ACT 1961 AND THE BALANCE AMOUNT OF CAPITAL GAINS OF RS.1,23,46,704 WAS LIABLE FOR TAX. OUT OF THIS AMOU NT THE ASSESSEE CLAIMED THAT HE HAD INVESTED A SUM OF RS.8093,855 IN CONSTRUCTION OF A RESIDENTIAL HOUSE AND ACCORDINGLY THE ASSESSEE CLAIMED A DEDUCTION U/S.54F OF THE ACT FOR RS.56,52,242 AND ON THE BALANCE AMOUNT OF CAPITAL GAINS FOR RS.66,94,461 TH E ASSESSEE OFFERED THE SAME TO TAX AND PAID THE TAX THEREON. 4.7 IN THE ASSESSMENT PROCEEDINGS THE AO ISSUED NOT ICES AND OBTAINED THE SANCTION PLAN AND FOUND THAT THE BUILDING WAS SANCTIONED AS COMMERCIAL CUM RESIDENTIAL BUILDING. THE AO SHOW CAUSED THE ASSESSEE TO EXPLAI N THE ISSUE TO THIS THE ASSESSEE SUBMITTED THAT THE PLOT WAS RESIDENTIAL AND THERE W AS NO DEMARCATION OF THE COMMERCIAL AND RESIDENTIAL PORTION ON THE DATE WHEN THE RETURN WAS FILED AS THE BUILDING WAS UNDER CONSTRUCTION AT THAT TIME. THUS THE APPELLANT STATED THAT HE WAS ADVISED TO CLAIM ON THE ENTIRE AMOUNT. HOWEVER IN T HE ASSESSMENT PROCEEDINGS THE APPELLANT SUBMITTED THAT THE DEDUCTION MAY BE RESTR ICTED TO THE RESIDENTIAL PORTION OF THE SAID HOUSE. 4.8 THE AO HOWEVER WAS OF THE OPINION THAT AS THE B UILDING WAS BOTH RESIDENTIAL AND COMMERCIAL THE DEDUCTION U/S 54F OF THE ACT WAS NOT APPLICABLE AND HENCE THE DISALLOWED THE ENTIRE CLAIM OF THE DEDUCTION MADE B Y THE APPELLANT. THE AO ALSO HAD ISSUED COMMISSION TO THE ITO BANGALORE THE VISIT TH E SITE AND THE SAID ITO ON VISIT TO THE FOUND THAT THE BUILDING WAS IN A STRUCTURE FORM AND HAD A GLASS FAADE. WITHOUT OBSERVED THAT THE BUILDING COMPRISED OF BASEMENT, S ILT AREA, GROUND FLOOR, FIRST FLOOR, SECOND FLOOR TERRACE AND LIFT AND AS PER THE AO THE 2 ND FLOOR WAS ONLY RESIDENTIAL. THE AO THEN HELD THAT AS PER HIS ESTIMATE THE COST OF C ONSTRUCTION OF 2 ND FLOOR WAS TO BE DETERMINED BY DIVIDING THE ENTIRE AREA FOR THE BUIL DING INCLUDING TERRACE AND LIFT ROOM ETC AND THE COST FOR THE SECOND FLOOR WAS TO BE EST IMATED AT 15% LOWER THAN THE AVERAGE COST. THE AO THUS HELD THAT EVEN IF THE DED UCTION WAS TO BE ALLOWED THE DEDUCTION SHOULD BE RS.14,98,481 INSTEAD OF RS.56,5 2,242. 4.9 I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDE RED THE WRITTEN SUBMISSION AND ORAL SUBMISSIONS MADE BY THE AUTHORISED REPRESENTAT IVE OF THE APPELLANT. I FIND THAT THE BUILDING WAS SANCTIONED AS RESIDENTIAL AND COMM ERCIAL BUILDING HOWEVER ON PHYSICAL VERIFICATION OF THE BUILDING BY THE ITO T BANGALORE NO COMMERCIAL ACTIVITIES WERE FOUND TO BE CONDUCTED ON THE SAID BUILDING. TH E BUILDING COMPRISED OF GROUND PLUS THREE STORIES AND ALSO HAD COMMON SERVICE AREA INCLUDING BASEMENT, STILT FLOOR, ITA NO.1420/KOL/2016 A.Y. 2012-13 ACIT CIR-32, KOL. VS. JITENDRA SETH PAGE 7 TERRACE AND LIFT. THE AREA OF THE EACH FLOOR WAS 15 4.32 SQ/. MTS. AND THE TOTAL AREA OF THE BUILDING WAS 715.36 SQ. MTS. 4.10 I FIND THAT THE PROVISIONS OF SECTION 54F OF T HE IT ACT 1961 IS A BENEFIT GIVING SECTION AND THE SAME SHOULD BE CONSTRUCTED LIBERALL Y. ONCE AN ASSESSEE FALLS WITHIN THE AMBIT OF A BENEFICIAL PROVISION, THEN THE SAID PROVISION SHOULD BE LIBERALLY INTERPRETED. THE APEX COURT IN THE CASE OF BAJAJ TE MPO LTD. 196 ITR 188 (SC). A PROVISION IN A TAXING STATUTE GRANTING INCENTIVES F OR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY, AND SINC E AS PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY, TH E RESTRICTION ON IT TOO HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PRO VISION AND NOT FRUSTRATE IT. WHILE INTERPRETING THE VARIOUS PROVISIONS, THE COURT MUST NOT ADOPT A HYPER TECHNICAL APPROACH AND TO APPLY CUT-AND-DRY FORMULA. A PRAGMA TIC APPROACH SHOULD BE ADOPTED SO THAT THE OBJECT OF THE INTRODUCTION/INSERTION OF A PARTICULAR PROVISION COULD BE ACHIEVED. [SIMILAR VIEWS HAVE BEEN EXPRESSED IN JUG GILAL KAMLAPAT V CIT [1969] 73 ITR 702 (SC); CIT V. STRAWBOARD MANUFACTURING CO. L TD. [1989] 177 ITR 431 (SC) AT PAGE 434 AND CIT V. SOUTH ARCOT DISTRICT CO-OPERATI VE MARKETING SOCIETY LTD. 176 ITR 117 (SC) AT PAGE 119]. THE SUPREME COURT IN CCE VERSUS FAVOURITE INDUSTRIES, (2012) 7 SCC 153 HAS OBSERVED:- 21 FURTHERMORE, THIS COURT IN ASSOCIATED CEMENT CO MPANIES LTD. V. STATE OF BIHAR [(2004) 7 SCC 642], WHILE EXPLAINING THE NATURE OF THE EXEMPTION NOTIFICATION AND ALSO THE MANNER IN WHICH IT SHOULD BE INTERPRETED HAS HELD: SCC P. 648, PARA 12) 12. LITERALLY, EXEMPTION IS FREEDOM FROM LIABILITY, TAX OR DUTY. FISCALLY IT MAY ASSUME VARYING SHAPES, SPECIALLY, I N A GROWING ECONOMY. IN FACT, AN EXEMPTION PROVISION IS LIKE N EXCEPTION AND ON NORMAL PRINCIPLE OF CONSTRUCTION OR INTERPRETATION OF STATUTES IT IS CONSTRUED STRICTLY EITHER BECAUSE OF LEGISLATIVE IN TENTION OR ON ECONOMIC JUSTIFICATION OF INEQUITABLE BURDEN OF PRO GRESSIVE APPROACH OF FISCAL PROVISIONS INTENDED TO AUGMENT STATE REVE NUE. BUT ONCE EXCEPTION OR EXEMPTION BECOMES APPLICABLE NO RULE O R PRINCIPLE REQUIRES IT TO BE CONSTRUED STRICTLY. TRULY SPEAKIN G, LIBERAL AND STRICT CONSTRUCTION OF N EXEMPTION PROVISION IS TO BE INVO KED AT DIFFERENT STAGES OF INTERPRETING IT. WHEN THE QUESTION IS WHE THER A SUBJECT FALLS IN THE NOTIFICATION OR IN THE EXEMPTION CLAUSE THEN IT BEING IN THE NATURE OF EXCEPTION IS TO BE CONSTRUED STRICTLY AND AGAINST T HE SUBJECT BUT ONCE AMBIGUITY OR DOUBT ABOUT APPLICABILITY IS LIFTED AN D THE SUBJECT FALLS IN THE NOTIFICATION THEN FULL PLAY SHOULD BE GIVEN TO IT AND IT CALLS FOR A WIDER AND LIBERAL CONSTRUCTION. (SEE UNION OF INDIA V. WOOD PAPERS LTD. [(1990) 4SCC 256: 1990 SCC (TAX) 422] AND MANG ALORE CHEMICALS AND FERTILISERS LTD. V. CCT [1992 SUPP (1 ) SCC 21] TO WHICH REFERENCE HAS BEEN MADE EARLIER.) 22. IN G.P. CERAMICS (P) LTD. V. CTT (2009) 2 SCC 9 0], THIS COURT HAS HELD: (SCC PP. 101-102, PARA 29) 29. IT IS NOW A WELL-ESTABLISHED PRINCIPLE OF LAW THAT WHEREAS ELIGIBILITY CRITERIA LAID DOWN IN AN EXEMPTION NOTI FICATION ARE REQUIRED TO BE CONSTRUED STRICTLY, ONCE IT IS FOUND THAT THE APPLICANT SATISFIES THE SAME, THE EXEMPTION NOTIFICATION SHOULD BE CONSTRUE D LIBERALLY. [SEE ITA NO.1420/KOL/2016 A.Y. 2012-13 ACIT CIR-32, KOL. VS. JITENDRA SETH PAGE 8 CTT V. DSM GROUP OF INDUSTRIES [(2005) 1 SCC 657] ( SCC PARA 26 ); ITSCO LTD. V. STATE OF JHARKHAND [(2005) 4 SCC 272] (SCC PARA 42- 45); STATE LEVEL COMMITTEE V. MORGARDSHAMMAR INDIA LTD . [(1996) 1 SCC 108]; NOVOPAN INDIA LTD V. CCE & CUSTOMS [1994 SUPP (3) SCC 606]; A.P. STEEL RE-ROLLING MILL LTD. V. STATE OF KERALA [(2007) 2 SCC 725] AND REIZ ELECTROCONTROLS (P) LTD. V. CCE . [(2006) 6 SCC 213] 4.11. IN THIS CASE THE DEDUCTION U/S. 54F IT IS REQ UIRED THAT THE INVESTMENT SHOULD BE MADE IN A RESIDENTIAL HOUSE. IN THIS CASE IT IS SE EN THAT THE APPELLANT HAD MADE AN INVESTMENT IN THE RESIDENTIAL HOUSE. THE SAID HOUSE WAS SANCTIONED TO BE BOTH RESIDENTIAL AND COMMERCIAL. THEREFORE IN MY OPINION THE APPELLANT SATISFIED THE CONDITION OF THE INVESTMENT IN A RESIDENTIAL HOUSE AND THUS THE SECTION MUST BE CONSTRUCTED LIBERALLY TO GRANT DEDUCTION TO THE APP ELLANT TO THE EXTENT OF RESIDENTIAL HOUSE INVESTMENT. I THEREFORE HOLD THAT THE APPELLA NT WAS ENTITLED TO DEDUCTION U//S 54F OF THE ACT ON THE INVESTMENT MADE IN THE RESIDE NTIAL PORTION. HAVING HELD SO, IT IS RELEVANT TO SEGREGATE THE RESIDENTIAL AND COMMERCIA L AREA. THE ITO AT BANGALORE HAS PHYSICALLY INSPECTED AND FOUND THAT THERE WAS A STR UCTURE AND NO COMMERCIAL ACTIVITY WAS FOUND. THE AITXO OPINED THAT AS THERE WAS A GLA SS FACADE AND THIS GIVES A COMMERCIAL LOOK TO THE BUILDING. HOWEVER, FACTUALLY NO COMMERCIAL ACTIVITY WAS FOUND TO BE DONE IN THE SAID PREMISES. I FURTHER FI ND THAT THE AO METHOD OF DETERMINATION OF RESIDENTIAL AREA IS NOT BACKED BY ANY BASIS. THE AO CAME TO A CONCLUSION THAT ONLY 2 ND FLOOR IS TO BE TREATED AS RESIDENTIAL IS NOT SUPPO RTED BY ANY BASIS. IT IS WELL KNOWN THAT GROUND FLOOR OF BUILDI NGS ARE USED FOR COMMERCIAL ACTIVITIES AND SUCH PRACTICE IS SEEN ALL OVER THE C OUNTRY AND THEREFORE I HOLD THAT THE GROUND FLOOR AREA BE HELD TO BE COMMERCIAL IN NATUR E AND THE REST THREE FLOORS ARE HELD TO RESIDENTIAL IN A NATURE. I FURTHER HOLD THA T THE BASEMENT, STILT, TERRACE AND LIFT ROOM ARE A PART OF THE COMMON AREA OF THE ENTIRE BU ILDING FOR COMMON USE BY ALL THE OCCUPANTS HENCE THIS AREA ALSO IS TO BE CONSIDERED 25% COMMERCIAL AND 75% RESIDENTIAL AREA. I ALSO HOLD THAT THE BEST METHOD TO DETERMINE THE COST OF CONSTRUCTION IS TO SPREAD THE TOTAL COST OVER THE FOUR FLOORS EQ UALLY AND ACCORDINGLY I DIRECT THAT 25% OF THE INVESTMENT SHOULD BE CONSIDERED TO BE MA DE FOR COMMERCIAL AREA AND 75% OF THE INVESTMENT SHOULD BE CONSIDERED TO BE MADE F OR RESIDENTIAL AREA. I THEREFORE HOLD THAT THE DEDUCTION U/S.54F OF THE IT ACT 1961 SHOULD BE RESTRICTED TO 75% OF THE CLAIM MADE BY THE APPELLANT. I THEREFORE DETERMINE THE DEDUCTION U/S 54F OF THE ACT AT RS.42,39,181 ( 75% OF RS.56,52,242 ) AND THE AO IS DIRECTED TO RECOMPUTED THE CAPITAL GAINS ACCORDINGLY. THIS GROUND IS PARTLY ALLOWED. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY CONT ENDS THAT ASSESSING OFFICER HAD RIGHTLY MADE THE IMPUGNED DISALLOWANCE AS THE ASSES SEE HAD NOT FULFILLED THE RELEVANT CONDITIONS FOR CLAIMING SECTION 54F DEDUCTION IN QU ESTION. WE DO NOT FIND ANY DISPUTE BETWEEN PARTIES ABOUT THE ASSESSEE HAVING TRANSFERR ED HIS RELEVANT CAPITAL ASSET FOLLOWED BY RE-INVESTMENT OF THE CONSEQUENTIAL CAPI TAL GAINS IS NEW ASSET WHICH HAPPENS TO BE BOTH RESIDENTIAL AS WELL AS COMMERCIA L. THE REVENUES ENDEAVOUR IS TO DISALLOW THE ENTIRE DEDUCTION COMPONENT QUA THE RE-INVESTMENT OF ASSESSEES CAPITAL GAINS MADE IN THE NEW BUILDING COMPRISING OF FOUR F LOORS. WE MAKE IT CLEAR THAT ITA NO.1420/KOL/2016 A.Y. 2012-13 ACIT CIR-32, KOL. VS. JITENDRA SETH PAGE 9 TAXPAYER IS VERY FAIR IN DECLARING THE GROUND FLOOR OF HIS NEW HOUSE AS USED FOR COMMERCIAL PURPOSE AS AGAINST THE REMAINING THREE U PPER FLOORS TAKEN AS A RESIDENTIAL UNIT. THE QUESTION THAT ARISES FOR OUR CONSIDERATIO N IS AS TO WHETHER THE CIT(A) HAS RIGHTLY APPORTIONED ASSESSEES DEDUCTION TO 25% IS TO 75%; FLOOR-WISE OR NOT. OUR INSTANT ADJUDICATION SUPPORTS THE CIT(A)S ACTION T O THIS EFFECT AS HE HAS RIGHTLY PROCEEDED ON AN ASSUMPTION THAT SECTION 54F IS A DE DUCTION PROVISION TO THE LIBERALLY CONSTRUED. THIS IS NOT THE REVENUES CASE THAT THE 3 FLOORS OF THE BUILDING IN QUESTION ARE NOT USED FOR RESIDENTIAL PURPOSES. WE THEREFORE AFFIRM THE CIT(A)S FINDINGS UNDER CHALLENGE RESTRICTING THE ASSESSEES DEDUCTION CLAI M TO THE EXTENT RESIDENTIAL PORTION OF THE BUILDING ONLY BY TREATING THE SAME TO BE A RESIDENTIAL HOUSE AS PER THE TRUE LEGISLATIVE INTENT U/S 54F OF THE ACT. THE REVENUE FAILS IN ITS INSTANT LATTER SUBSTANTIVE GROUND AS WELL. 5. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 27/07/2018 SD/- SD/- ( &) (( &) (J.SUDHAKAR REDDY) (S.S.GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER *DKP-SR.PS ) - 27/07/2018 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ACIT, CIRCLE-32, 10B, MIDDLETON ROW, 2 ND FLOOR, KOLKATA-71 2. /RESPONDENT-JITENDRA SETH, 87, KARNANI ESTATE, 209, AJC. BOSE, ROAD, KOL-17 3. , - / CONCERNED CIT 4. - - / CIT (A) 5. . ((, , , /DR, ITAT, KOLKATA 6. 2 / GUARD FILE. BY ORD ER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO ,,