Atul Govindji Shroff, Vadodara V. The DCIT, Central circle-3, Vadodara

ITA 1443/AHD/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9502 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Appeal Filed On: 16-09-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset
• Section: 54; 132; 143(3); 54F; 234B; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member Atul Govindji Shroff. 1028, Village Raipura, At Post Raipura, Vadodara PAN: AACPS7330R (Appellant) Vs The DCIT, Central Circle-3, Ahmedabad (Respondent) Appellant by : Shri Milin Mehta, A.R. Respondent by : Shri A.P. Singh, CIT/DR Date of hearing : 20-06-2022 Date of pronouncement : 07-09-2022 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- The present appeal has been filed by the Assessee against the order dated 07.08.2019 passed by the Commissioner of Income Tax (Appeals)12, Ahmedabad, as against the Assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2017- 18. ITA No. 1443/Ahd/2019 Assessment Year 2017-18 I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 2 2. The brief facts of the case is that the assessee is an individual and Director in few companies deriving income from salary and other sources. There was a search action u/s. 132 of the Act was conducted in Banco Products Group of cases including the case of the assessee on 02.08.2016. Pursuant to the search, the assessee was required to furnish the return of income for the assessment years 2011-12 to 2016-17. The present assessment year before us is the year of search namely assessment year 2017- 18. During this assessment year, the assessee had transferred shares of Excel Corp Care Ltd. and Transpek Industris Ltd. for a consideration of Rs. 15,77,30,705/- and offered net capital gain of Rs. Nil as the assessee has reinvested the consideration in a residential property at Colaba, Mumbai u/s. 54 of the Act of Rs. 14,14,55,783/-. On verification of the claim the assessing officer held that the assessee already owned two residential property namely (i) House no. 1028, Bhaili Road, Raipura, Vadodara (“the Raipura House”) and (ii) Vishubaug Farm property at Kharakhadi (“the Farm”). 2.1. The assessee claimed that the Farm property is an agricultural land used for carrying out agricultural activities wherein there is a Manager’s office, storehouse for farm equipments and agricultural produce stored there. Further the farm property also has a cow shed with 66 cows. The milk from these cows are sold and income is from generated the same. Thus the farm is exclusively used for agricultural purposes and it’s not a residential building and the employees of the assessee are carrying out the agricultural I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 3 activities. The assessee also claim that his one of the co-owner of the above land along with his wife and daughter. Thus the farm is exclusively used for agricultural purposes and it’s not a residential building and the employees of the assessee are carrying out the agricultural activities. Thus the assessee claimed that the reinvestment in new residential property at Colaba Mumbai is eligible for deduction u/s. 54F of the Act. 2.2. To verify the details, the A.O. deputed Inspector of the Income Tax Department to conduct enquiry of the residential properties owned by the assessee. As per Inspector’s Report, the Vishubag property comprised of separate residential houses/out houses, store houses, cow shed and various other structures along with the separately built, beautiful residence – a “bungalow” surrounded with all around verandah and covered boundary and was equipped with all furniture/ furnishings, befitting of a house of an elite/rich person like that the assessee. The photographs of the above Vishubag properties are reproduced by the Assessing Officer in his assessment order at page nos. 7, 8 & 9. 2.3. The second argument of the assessee was that as he was only 1/3 rd of the share in Vishubaug property following the Madras High Court in the case of CIT vs. Dr. Smt. P.K. Vasanthi Rangarajan reported in [2012] 23 taxmann.com 299 claimed that joint ownership of a property could not be held to stand in her way of claiming exemption u/s. 54F of the Act. I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 4 3. The assessing officer after considering the above submissions held that the detailed verification the assessee is owner of more than one house property which is one of the conditions of proviso (i) of Section 54F to debar the person from claiming deduction u/s. 54F. The Field Inspection Report and photographs of the property clearly show that Vishubag property is a residential house of Bungalow. Therefore the assessee is not eligible for reinvestment in a new property at Colaba, Mumbai u/s. 54F and therefore brought the sum of Rs. 14,14,55,783/- as the income of the assessee and demanded tax thereon. 3. Aggrieved against the same, the assessee filed an appeal before the Ld. CIT(A)-12, Ahmedabad. The Ld. CIT(A) held that Vishubag Property is also the second residential property of the assessee’s residence property and therefore not eligible for deduction u/s. 54F of the Act as well as the assessee having failed to declare any agricultural income from the Farm property, on that count also the claim of the assessee the Farm property as a commercial property was rejected by the Ld.CIT(A) as follows: 5.6 The thrust of appellant's arguments are that - a. The Farm is not a residential house and is only used for carrying out agricultural activities and commercial activities. b. The income, if any, from the building on the Farm would not be— chargeable to tax under the head "Income from House Property" and hence, proviso to section 54F is not applicable. c. The Appellant is not personally carrying out any agricultural activity and he is not required to reside at the Farm and therefore he does not reside at the Farm. d. The Appellant has made heavy investment in constructing his elegant bungalow at Raipura and the same is mainly for residential purpose and it cannot be assumed that the Appellant would reside at the Farm instead of the House at Raipura. e. Without prejudice to above, the Appellant in any case is a joint owner of the land and hence proviso to section 54F is not applicable to the Appellant. I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 5 5.7 From the description of the property Vishubag at Kharkhadi in the assessment order based on the Inspector's report, it is clear that the property is an agricultural land spread over 22 acres and on one third portion of land there are various structures like cow sheds, equipment shed, houses for the workers, house for the managers and a "bungalow" for the Shroff family. The appellant has asserted that the property at Vishubag is a "Farm" and has interestingly and altogether avoided calling it a "Farm house". "Farm", "Farm house" and "Residential house" are not defined in the Income Tax Act. These can be either taken as commonly and generally understood or as per the laws of the local bodies i.e. the Municipality and the Development Authority. 5.8 If the land is agricultural land, no residential properties can be legally constructed there. If the land is approved as a farm or a farm house, construction can be only upto a given percentage (typically 5% of the land area). Even if the property Vishubag is treated as a "farm house" and the alleged said "bungalow for the Shroff family" at the property at Vishubag is held as a "residential house", the issue is whether it is capable of being treated as residential house for the purpose of Section-54F. 5.9 In this regard, reference is made to Section 54F dealing with the deduction which is the subject matter of the appeal and Section-2(lA) which defines the agriculture income. As per the proviso to Section-54F, an assessee shall not be entitled for deduction u/s.54F if he has more than one residential house on the date of transfer [Clause (a)(i) of the Proviso] and income from such residential house is chargeable under the head 'income from house property' [Clause (b) of the Proviso]. One thing is unambiguously evident that if the property is a commercial property and not a residential house, the assessee will not be hit by the Proviso to Section-54F. The income from house property chargeable to tax u/s.22 is the annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purpose of any business or profession carried on by him the profits of which are chargeable to Income-tax. 5.10 As per Section-2(1 A), the agriculture income among other things also means (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on: Provided that - if the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building and the land is either assessed to, land revenue in India or is subject to a local rate assessed and collected by the Officers of the Government or where the land is not so assessed is situated in any area which is comprised within the jurisdiction of the Municipal Corporation or in any area within the specified distance from the local limits of any Municipality. 5.11 No dispute has been created by the AO as to 22 acres of land not being agricultural land. Thus it may be presumed that the land is agricultural land and is situated well beyond the prescribed limits outside the Municipal Corporation of Baroda. However, in the submission made during the assessment proceedings, I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 6 the claim has been made that the property at Vishubag is used as farm for milk production (there are 66 cows in the shelter on the farm) and cultivation of vegetables and that the appellant carries out milking activity and sells milk and milk products using the land. 5.12 In this regard, it is seen from the income-tax return for A.Y. 2017-18 filed in the paper book as pages 1 to pages 7 that the appellant has shown income from salary, income from house property, income from capital gain, income from other sources, special rate income (dividend income u/s 115BBDA and also exempt interest from PPF) but there appears to be no mention of any agricultural income or any income from sale of milk or other dairy products. Thus the claim of the appellant that there is sale of milk and vegetables in the farm is not supported by the return of income. It has also been noted by the AO that it was nowhere revealed that the appellant had carried out a commercial activity as claimed. 5.13 Otherwise also income from dairy farming is not an agricultural income. In State of Orissa Vs Ramchandra Chaudhary 46 ITR 246 (Orissa) it has been held that "dairy farming will not be an agricultural operation and income from dairy farming will also not be agricultural income. Therefore income from milk derived from milk pouch maintained by the assessee, is not agricultural income". 5.14 Even if agricultural and diary activities claimed by the appellant is conceded, it is admitted by the appellant that he does not do these activities himself but they are done by the employees engaged by him. Thus the appellant has failed to establish that agricultural or commercial activities are carried out at the Vishubag property and therefore it cannot be subscribed that the "bungalow" reported by the Income Tax Inspector is a dwelling unit which can be treated as covered u/s 2(1A) of the Income Tax Act. Therefore it has to be construed that the bunglow at the Vishubag property is a residential property which could deprive the appellant from the benefit of section 54F. The AO has already held that the joint holding of the Vishubag property does not rescue the assessee from suffering the consequences because the appellant is not protected by the case laws relied upon in this regard because the appellant also has a full-fledged residential property (1028, Raipura). I am also of the considered view that sec.54F allows only one residential property and the benefit ceases if the assessee has more than one residential property and the appellant definitely has more than one residential property. 5.15 In the facts and circumstances of the case the appellant is found to be-owner of more than one residential house other than the new asset (residential property at Colaba, Mumbai) on the date of transfer of the original asset (shares). I find no basis to interfere with the assessment order impugned in the appeal by the appellant. The addition is confirmed and the related grounds are dismissed. 4. Aggrieved against the appellate order, the assessee is in appeal before us raising the following Grounds of Appeal: All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. 1. The learned Commissioner of Income Tax (Appeals) -12, Ahmedabad ["CIT(A)"] erred in fact and in law in confirming the action of the learned Deputy I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 7 Commissioner of Income Tax, Central Circle-3, Vadodara ["the AO"] in disallowing the claim of deduction u/s. 54F of the Income Tax Act, 1961 ("the Act") amounting to Rs. 14,14,55,783. 2.The learned CIT(A) erred in fact and in law in confirming the action of the Id. AO in invoking proviso to section 54F for making disallowance of deduction u/s 54F despite that the Appellant did not own more than one residential house at the time of transfer of the capital asset. 3. The learned CIT(A) erred in fact and law in confirming the action of the Id. AO in invoking proviso to section 54F and consequently disallowing the claim of deduction u/s. 54F without properly appreciating the provisions of section 2(1 A) of the Act. 4. The learned CIT(A) erred in fact and law in confirming the action of the Id. AO in invoking proviso to section 54F and consequently disallowing the claim of deduction u/s. 54F despite the fact none of the conditions specified under proviso to section 54F were fulfilled in the case of the Appellant. 5. The learned CIT(A) erred in fact and law in confirming the action of the Id. AO in invoking / proviso to section 54F and consequently disallowing the claim of deduction u/s. 54F without appreciating the facts in proper perspective. 6. The learned CIT(A) erred in fact and law in confirming the action of the Id. AO in invoking proviso to section 54F and consequently disallowing the claim of deduction u/s. 54F merely on the basis of assumptions, surmises and conjectures. Without prejudice to Grounds Xo. 1 to 6. the learned CIT(A) erred in fact and in law in confirming the action of the Id. AO in invoking proviso to section 54F and consequently disallowing the claim of deduction u/s. 54F despite the fact that the Appellant was a joint owner of the alleged residential house. 8. Without prejudice to the above, the learned CIT(A) erred in fact and in law in confirming the action of the Id. AO in disallowing the claim of deduction u/s. 54F based on the inquiry conducted at the back of the Appellant and without providing the documents/material collected through such inquiry before disallowing the claim u/s. 54F of the Act. 9. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234A of the Act. 10. The learned CIT(A) erred in fact and in law in confirming the action of the AO in charging interest u/s 234B of the Act. 11. The learned CIT(A) erred in fact and in law in confirming the action of the AO in initiating penalty u/s. 270A of the Act. 4.1. Ld. Counsel Mr. Milin Mehta appearing for the assessee submitted before us, the lower authorities failed to consider that there is only residential property available to the assessee namely I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 8 Raipura House wherein the assessee is residing. The Vishubag Farm property is jointly held by the assessee with his wife and daughter as co-owners which is nothing but a commercial property. The net result of such commercial activities carried out is negative therefore the same is not declared by the assessee in its Return of Income. In fact the assessee was maintaining a bank account with Axis Bank and State Bank of India wherein amount received from sale of dairy products, vegetables have been deposited in the bank account and expenses namely salary to staff members, purchase of pesticides, fertilizers, minerals mixture, cow concentrate etc. were being spent through the above bank accounts only. These transactions in the bank statement itself confirmed that the commercial activity as well as agricultural activity carried out by the assessee in the Vishubag Farm property. The Ld. A.R. further submitted that as per proviso to Section 54F, the assessee could not own more than one residential house on the date of transfer and if he owns more than one residential house, the income from such property should be chargeable to tax under the head “income from house property”. In assessee’s case that there is a commercial property office building and staff rooms which is used agricultural purpose and storage of agricultural products. However no income from house property from the above property. Therefore the assessee has properly claimed deduction under 54F of the Act. 4.2. The assessee further relied on the decision of the ITAT Mumbai Bench in the case of Smt. Anjali Mehra wherein the assessing officer denied exemption u/s. 54F on the ground that assessee was I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 9 in possession of a plot of land wherein a farm-house existed and as farm-house was a residential house, benefit of Section 54F was denied. It was found from record that said piece of land was an agricultural plot consisting of huts and out-houses, which in turn were being used as cattle sheds and said huts were in a dilapidated condition and had never been used or occupied by the assessee. Therefore the assessee was not owner of another residential house and eligible for deduction under 54F of the Act. Applying the ratio of the above judgment, the assessee should be given the benefit of section 54F of the Act. 5. Per contra, ld. D.R. appearing for the Revenue submitted that the Field Inspection carried out by the Department and the photographs is reproduced in the assessment order clearly depict that there is a residential house namely a bungalow in the property which is habitat in nature, other than the one Raipura House. The assessee’s claim of agricultural activity and dairy activity is not substantiated with proof of evidence and not declared in the Return of Income filed by the assessee. In the absence of the same, the assessee’s claim of Vishubag Farm property as a commercial property cannot be accepted. The Hon’ble Orissa High Court in the case of State of Orissa vs. Ramchandra Chaudhary 46 ITR 246 has held that “dairy farming will not be an agricultural operation and income from dairy farming will also not be agricultural income. Therefore income from milk derived from milk pouch maintained by the assessee, is not agricultural income”. Thus assessee failed to proof and disclose the agricultural income in his Return of Income. I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 10 Therefore the assessee’s claim of commercial activity is not properly established that the Vishubag Farm property, wherein the Bunglow is also situated is to be treated only as a second residential property of the assessee. Therefore the lower authorities are correct in denying the exemption u/s. 54F of the Act. 6. We heard the rival parties and perused the materials available on record. As it can be seen from the assessment order page no. 7, 8 & 9 namely (i) Separately built Residence/Bungalow (ii) Manager’s office (iii) Workers residence/Outhouse (iv) Storehouse/farm equipments (v) Chow shed and (vi) Storehouse/farm equipments at Vishubaug property. 6.1 The above photographs clearly shows the assessee has built Residence/Bungalow,Manager’soffice,Workers residence/Outhouse, Storehouse/farm equipments, Cow shed, etc. in 22 acres of land at Vishubaug. To substantiate the claim that there is a residence property or Bungalow in Vishubaug property by the assessee. The assessee ought to have produced the property tax details and electricity connection details to prove the nature of the above property however, the same is not produced before us or before the Lower Authorities. Therefore the claim made by the assessee is hereby rejected. Further the assessee has not offered the agricultural income/loss in its Return of Income. Therefore the I.T.A No. 1443/Ahd/2019 A.Y. 2017-18 Page No Atul Govindji Shroff vs. DCIT 11 claim of the assessee, it was a commercial property cannot be entertained. Therefore the grounds raised by the assessee are devoid of merits and the same are rejected. 6. In the result, appeal filed by the Assessee is hereby dismissed. Order pronounced in the open court on 07-09-2022 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 07/09/2022 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद