Gundala Sarvottam Rao, Hyderabad V. Income Tax Officer, Ward-11(3), Hyderabad

ITA 1668/Hyd/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5771 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2008-2009
• Appeal Filed On: 27-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Cost of acquisition; Set aside
• Section: 54B; 54F; 133A

Judgement Text

आयकर अपीलीय अधिकरण, हैदराबाद पीठ में IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER आ.अपी.सं / ITA Nos. निर्धारण वर्ा / A.Y. अपीलधर्थी / Appellant प्रत् यर्थी / Respondent 1668/Hyd/2017 2008-09 Gundala Sarvottam Rao, Hyderabad [PAN: BGTPS2080L] The Income Tax Officer, Ward-11(3), Hyderabad 1669/Hyd/2017 2008-09 Gundala Mahender Rao, Hyderabad [PAN: ANRPM6938K] निर्धाररती द्वधरध/Assessee by: Shri K.C.Devdas, AR रधजस् व द्वधरध/Revenue by: Shri Rohit Mujumdar, DR स ु िवधई की तधरीख/Date of hearing: 06/06/2022 घोर्णध की तधरीख/Pronouncement on: 19/08/2022 आदेश / ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the order(s) passed by the Learned Commissioner of Income Tax (Appeals)-5, Hyderabad (“Ld. CIT(A)”) in the cases of Shri Gundala Sarvottam Rao and Shri Gundala Mahender Rao (“the assessee(s)”) for the assessment year 2008-09, both the assessees filed these appeals. Since the grounds and question of fact and law are identical ITA Nos. 1668 & 1669/Hyd/2017 Page 2 of 12 in both the appeals, we dispose of these appeals by way of this common order, taking the appeal in ITA No. 1668/Hyd/2017 as a lead case. 2. Brief facts of the case are that the assessee is an individual. There was a survey under section 133A of the Income Tax Act, 1961 (for short “the Act”) on 9/3/2010. Assessee filed the return of income for the assessment year 2008-09 on 7/5/2010 declaring total income of Rs. 1,36,32,990/-. During the scrutiny proceedings, it was found that the assessee sold agricultural land admeasuring 24 guntas in survey No. 89 and 90 at Maqta Mahabubabad village on 21/1/2008 for a consideration of Rs. 2.7 crores and claimed exemption under section 54F and 54B of the Act to the tune of Rs. 98,83,399/- and Rs. 31,68,790/- respectively. Assessee declared agricultural income of Rs. 3,12,500/-. Assessment under section 143(3) of Act was complete by order dated 31/12/2011 denying the claim of the assessee for exemption under section 54F and 54B of the Act. Learned Assessing Officer also did not allow the cost of acquisition of land in respect of the above said property and restricted the agricultural income to Rs. 20,000/- per acre and accordingly brought to tax an amount of Rs. 1,51,100/- as income from other sources. 3. Aggrieved by such an order, assessee preferred an appeal and the Ld. CIT(A), vide order dated 28/12/2012 partly allowed the claim of the assessee for exemption under section 54F to the tune of Rs. 85,20,500/- by restricting it to 50% of the claim. Ld. CIT(A) also allowed the claim of the assessee for exemption under section 54B of the Act to the tune of Rs. 31,68,790/-. Insofar as the disallowance of agricultural income of Rs. 1,51,590/- is concerned, Ld. CIT(A) upheld the addition made by the learned Assessing Officer. ITA Nos. 1668 & 1669/Hyd/2017 Page 3 of 12 4. Revenue carried the matter in appeal to the Tribunal challenging the relief granted to the assessee under section 54F and 54B of the Act, whereas the assessee filed an appeal challenging the disallowance of the claim in respect of agricultural income. The Tribunal vide order dated 24/9/2014 upheld the order of the Ld. CIT(A) in respect of the exemption under section 54B of the Act and also allowed the claim of agricultural income. In respect of the claim of exemption under section 54F of the Act, the Tribunal set aside the issue to the file of the learned Assessing Officer for deciding the said issue afresh after conducting necessary enquiry and directed the assessee to produce necessary evidence to show that the property constructed was a residential house, on the ground that the authorities below did not make any attempt to ascertain the true nature of the property by examining the construction plan, or approval given by the municipal authorities, or through physical verification. 5. Pursuant to the directions given by the Tribunal to the learned Assessing Officer to verify the nature of property by examining the construction plan, or approval given by the municipal authorities, or through physical verification, learned Assessing Officer revisited the facts. Learned Assessing Officer noted that though the assessee claims that the building constructed was a residential building and the photographs of the building would establish the same, but the inspectors report shows that the building is specifically constructed for the purpose of hostel building only. Further it was found that the assessee let out the property on lease to M/s Narayana College. In the circumstances, learned Assessing Officer sought the information from the assessee on the following aspects: – ITA Nos. 1668 & 1669/Hyd/2017 Page 4 of 12 Furnish the permission letter for construction of building iron Municipal Authorities. Copy of the valuation certificate by the approved valuer. Copies of all assessment order of Municipal Authorities in connection with property tax payable by you. Copy of the approved plan. Whether any approval was taken for construction of building if so to furnish copy of the approval. If not whether construction was regularized under RBS Scheme. If so to provide copy of approval of regularization. To clarify whether munic1pal tax on the building is assessed on commercial basis or residential basis. to clarify whether any trade license is issued for the purpose doing any business in the building, if so, furnish the copy of license and also you may furnish the details of exact nature of trade allowed by the municipal department to be carried in that building. to furnish the details of your family members. If the family consists of 04 to 05 members where is the need for you to construct such a big House consisting of Ground + Four Floor along with Penthouse. To substantiate for construction of such a big building with a built- up area of 23000 Sft. (Approximately), which comprises of Open Hall Dining Hall Kitchen Staircase. So many bathrooms in each floor, and Seven large rooms in each floor. To furnish the details of residential house owned by the appellant as on the date of construction Where exactly the appellant was residing since the date of construction. Why the loan specifically was taken from M/s Narayana Education Society. 6. Learned Assessing Officer recorded that except reiterating their original stand that the building in question was constructed for residential purpose, photographs would establish the same, the building is located in predominantly a residential area with all the facilities necessary for a residential building, assessee did not furnish any of the information sought by the learned Assessing Officer. Learned Assessing Officer gathered ITA Nos. 1668 & 1669/Hyd/2017 Page 5 of 12 certain information from the GHMC office and also physically verified the building and came to a conclusion that the building was constructed for commercial purposes, and therefore, the assessee is not entitled to claim deduction under section 54F of the Act. 7. Aggrieved with such an action of the learned Assessing Officer, assessee preferred an appeal before the Ld. CIT(A). Ld. CIT(A) on a fresh appraisal of the material before him, reached a conclusion that there are no grounds to interfere with the assessment order and accordingly dismissed the appeal. 8. Assessee is, therefore, before us in this appeal contending that the building was originally constructed as a residential building eligible for deduction under section 54F of the Act and, therefore, the subsequent developments of the usage of the building as a hostel does not influence the conclusion in respect of the allowability of the claim of the assessee under section 54F of the Act. It is the submission of the Ld. AR that in order to be qualified for deduction under section 54F of the Act the residential building need not be in a single unit, but it could also be a multiunit building. 9. Per contra, it is the submission of the Ld. DR that the physical verification of the building clearly establishes that it is a huge building with four floors, huge halls and rooms containing 25 wash basins, 25 lavatory basins, underground sump capacity of 2000 litres and of over head tank with a capacity of 50,000 Liters. All these things would presuppose that the building was constructed to accommodate the students hostel. Ld. DR submitted that the assessee did not produce the information required by ITA Nos. 1668 & 1669/Hyd/2017 Page 6 of 12 the learned Assessing Officer to ascertain the intention of the assessee in constructing such a building and its usage. Ld. DR submits that the Ld. CIT(A) recorded valid reasons for agreeing with the learned Assessing Officer to deny the claim of deduction under section 54F of the Act to the assessee. 10. We have gone through the record in the light of the submissions made on either side. Insofar as the contention of the assessee that if originally the building was constructed for a residential purpose, the same would be entitled for deduction under section 54F of the Act even if such a building was put to commercial use subsequently, and that in order to be qualified for deduction under section 54F of the Act the building may not be in a single residential unit but it could comprise of more than one residential unit is concerned, absolutely there is no dispute. Even Revenue also does not challenge the same. What all the Revenue contend is that even initially the building was constructed as a commercial property for commercial exploitation and not for residential purpose. Revenue contends that residential building presupposes the dwelling of human beings in juxtaposition to temporarily residing in a hotel or hostel or a hospital. 11. It could be seen from the record that althrough the proceedings, the Revenue’s contention is that the physical characteristics of the building were such that the building was a commercial building and not a residential building, no person would construct such a huge building with four floors, so many rooms, big halls, 25 wash basins, 25 lavatory basins, underground sump capacity of 2000 litres and over head tank with a capacity of 50,000 Liters for a single dwelling unit. The structure of the ITA Nos. 1668 & 1669/Hyd/2017 Page 7 of 12 building also does not suggest that it is fit to be a multi-dwelling units, because the distribution of the rooms, halls and sanitary facilities are such that they do not suggest that the building is comprised of several dwelling units. Out and out, it is fit to be a hostel and hostel alone. In the absence of any evidence to clinch the issue, Ld. DR urges us to draw a backward presumption as to the state of affairs to be found at the building at the time of verification by the ITO. 12. Observations of the learned Assessing Officer are that the property is jointly owned by the assessee and another, there is no demarcation in the building as to which portion belongs to whom and that neither the assessee nor the co-owner ever resided in the disputed building. Learned Assessing Officer observed that if the property is under co-ownership, the assessee is not eligible for deduction under section 54F of the act. There is no dispute that the Tribunal, in the first round of litigation, set aside the issue relating to the nature of the building for verification of the learned Assessing Officer with reference to the construction plan, or approval given by the municipal authorities, or through physical verification to reach a conclusion as to the eligibility of the building for allowing the deduction under section 54F of the Act. In compliance with the above direction of the Tribunal, learned Assessing Officer sought the assessee to produce the permission letter for construction of building from the municipal authorities, approval for construction of building along with a plan, the category under which the municipal taxes in respect of the building were collected, to furnish the details of the family members who are supposed to dwell originally in the building, to furnish the details of any other residential house owned by the assessee with reference to the date of such ITA Nos. 1668 & 1669/Hyd/2017 Page 8 of 12 construction, details of residence of the assessee in the building in question etc. It is pertinent to note that the assessee did not furnish any such information sought by the learned Assessing Officer. 13. Learned Assessing Officer specifically asked the assessee to furnish the reason why the assessee had taken loan specifically from M/s Narayana Educational Society, which presupposes that even before the completion of the building the assessee had an idea of letting it out to such educational institution, which will use it not for dwelling purpose only to run either the college or the hostel. Assessee failed to furnish such a reason as to why such loan was taken specifically from an educational institution. 14. It is not the case of the assessee that at any point of time the assessee resided in the building in dispute. If really the original construction of the building was for the purpose of human dwelling in its proper sense, the distribution of the halls, rooms, kitchens and the sanitary facilities would be in a particular order for each dwelling unit. If the entire building was intended to be used as a single dwelling unit, there must be a reason for the assessee to construct such a huge building in four floors, with very big kitchens, dining halls, rooms and 25 wash basins and 25 lavatory basins. The water storing capacity is also disproportionate to the normal usage of a dwelling unit. Demarcation of various dwelling units in the building in question is not at all possible, even if we believe that the building in question comprises of more dwelling units than one. Having regard to the hugeness of the building and the facilities available, it is not possible to believe that it was intended to be used as a single dwelling unit. ITA Nos. 1668 & 1669/Hyd/2017 Page 9 of 12 15. Record speaks that the learned Assessing Officer obtained information from the GHMC which shows that the assessee did not obtain any permission for construction of such building and as per the record of the GHMC such a construction was not even regularised under the BPS. Municipal taxes are collected for the commercial usage of the building and at no point of time the building was assessed for residential purpose. 16. Contention of the assessee is that he constructed the property to exploit the same as residential building, but when he was offered attractive rent by the prospective tenant, he allowed the occupant to exploit the property for hostel purpose. For this purpose the assessee is required to establish his intention at the time of acquisition or construction of a house for residential purpose and that he did not indulge in an adventure in nature of trade or for earning commercial income. It is the prerequisite for claiming exemption under section 54F of the Act. 17. As on the date of verification, the physical features of the building and actual usage of the same do not suggest that the same is a residential building, but it is only a commercial building fit for running a hostel. There is no evidence whatsoever produced by the assessee to suggest that originally the building was constructed for residential house, but subsequently it was converted for commercial usage. Law presumes the continuance of a state of affairs once shown to have prevailed, and such presumption of continuity can be drawn not only forward but backward also. Court can presume that such state of affairs might have existed in past also unless discontinuity is proved. In the instant case, it is found that the building in question is a structure, not fit for residential house, but to exploit the same for commercial usage. Absolutely, there is no affirmative ITA Nos. 1668 & 1669/Hyd/2017 Page 10 of 12 evidence on record to show that originally, the plaintiff constructed the building as a residential building but subsequently, it was converted into a hostel at the request of the lessee. 18. The contention of the assessee that the tenant used the property according to their convenience is also appears to be not acceptable because by way of agreement the lessee was prevented from making any additional alterations or structural changes of any kind whatsoever in such building. It is therefore clear that even before the building was let out on lease, the structural changes were made to make it suitable for running a hostel. As we held in the preceding paragraphs that the need to have such a huge building for a single dwelling unit is not established, and at the same time the demarcation for multi-dwelling units is not possible in the structure of the building. When we look at this fact from the angle of the assessee and for that matter anyone used the building for residential purpose at no point of time, coupled with the fact that the assessee obtained the loan from M/s Narayana Educational Society even before the building is complete shows that the construction of the building itself was for commercial purposes. The lessee is prevented by way of agreement from making any structural changes and also that the lessee shall obtain requisite permission of the concerned authorities for carrying out the business at such premises at their own cost from time to time. All these things cumulatively lead to the inference that the assessee constructed the building for commercial purposes only. The findings of fact recorded by the authorities below do not warrant any interference and we accordingly uphold the same. Consequently we find the grounds of appeal as devoid of merits and dismissed the same. ITA Nos. 1668 & 1669/Hyd/2017 Page 11 of 12 19. Since the facts of ITA No. 1669/Hyd/2017 in the case of the co-owner, namely, Gundala Mahender Rao are identical to the one as decided by us in ITA No. 1668/Hyd/2017 in the case of Gundala Sarvottam Rao (supra) and, therefore, our findings in the said appeal, mutatis mutandis, would apply to this appeal as well. Hence, this appeal of assessee is also dismissed. 20. To sum-up, both the appeals of the assessees are dismissed. Order pronounced in the open court on this the 19 th day of August, 2022 Sd/- Sd/- (RAMA KANTA PANDA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 19/08/2022 TNMM ITA Nos. 1668 & 1669/Hyd/2017 Page 12 of 12 Copy forwarded to: 1. Shri Gundala Savottam Rao, C/o. B.Narsing Rao & Co., Chartered Accountants, Plot No. 554, Road No.92, Jubilee Hills, Hyderabad. 2. Shri Gundala Mahender Rao, C/o. B.Narsing Rao & Co., Chartered Accountants, Plot No. 554, Road No.92, Jubilee Hills, Hyderabad. 3. The Income Tax Officer, Ward-11(3), Hyderabad. 4. The CIT(A)-5, Hyderabad. 5. The Pr.CIT-5, Hyderabad. 6. DR, ITAT, Hyderabad. 7. GUARD FILE TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD