The ITO, Ward-10(4), Ahmedabad V. Smt. Ushaben J. Sodhan, Ahmedabad

ITA 2610/AHD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67782 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-09-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 12-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P SHAH
• Assessee Lawyers: O P BATHEJA
• Keywords: Unexplained expenditure; Capital asset; Gift; Business income; Income from undisclosed sources; Deemed to accrue or arise in india; Tangible material
• Section: 45(2); 143(3); 54F

Judgement Text

ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURVE DI, A.M.) I.T. A. NO. 2394 & 2610 /AHD/2012 (ASSESSMENT YEAR: 2009-10) SMT. USHABEN JAYANTILAL SODHAN SHREEKUNJ APARTMENT, KRISHNA SOCIETY, B/H. P & T QUARTERS, ELLISBRIDGE, AHMEDABAD (APPELLANT) VS. THE I.T.O. WARD 10(4), AHMEDABAD (RESPONDENT) THE I.T.O. WARD 10(4), AHMEDABAD (APPELLANT) VS. SMT. USHABEN JAYANTILAL SODHAN SHREEKUNJ APARTMENT, KRISHNA SOCIETY, B/H. P & T QUARTERS, ELLISBRIDGE, AHMEDABAD (RESPONDENT) PAN: ACQPB2955H APPELLANT BY : SHRI J.P. SHAH. A.R. RESPONDENT BY : SHRI O.P. BATHEJA, SR. D.R. ( )/ ORDER DATE OF HEARING : 16-09-201 3 DATE OF PRONOUNCEMENT : 11-10-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THESE CROSS APPEALS ARISE OUT OF ORDER OF CIT(A)-XV I, AHMEDABAD DATED 09.08.2012 FOR A.Y. 2009-10. 2. THE FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUT HORITIES ARE AS UNDER. ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 2 3. ASSESSEE IS AN INDIVIDUAL WHO FILED HER RETURN OF I NCOME FOR AY 2009-10 ON 27.3.2010 DECLARING TOTAL INCOME OF RS 2,57,080/ -. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 18.11.2011 AND THE TOTAL INCOME WA S DETERMINED AT RS 1,29,72,360/-. AGGRIEVED BY THE ORDER OF AO, ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 9.8.2012 GRA NTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF C IT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWIN G GROUNDS. 1. THE CIT(A) ERRED IN REJECTING THE CLAIM OF DEDUCTIO N U/S. 54F OF THE APPELLANT OF RS. 58,87,176/- DESPITE THE FACT THAT THE APPELLANT HAS INVESTED IN RESIDENTIAL HOUSE LONG TERM CAPITAL GAI N ARISEN ON SALE OF LAND. 2. THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 2,00,000/- AS UNEXPLAINED EXPENDITURE IGNORING THE EXPLANATION OF THE APPELLANT IN TOTO AND OFFER TO INSPECT THE PREMISES TO VERIFY US E OF OLD TIMBER ETC. IN FOUR OWN RESIDENTIAL FLATS. 3. THE CIT(A) ERRED IN MAKING ADDITION OF RS. 1,00,000 /- AS UNDISCLOSED INCOME FOR SALE OF STEEL, TIMBER, COPPER ETC. IGNOR ING THE EXPLANATION OF THE APPELLANT. 4. IN THE CROSS APPEAL, THE GROUND RAISED BY THE REVEN UE READS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.64,34,143/- MADE BY THE A.O. TREATING THE SAME A S THE BUSINESS INCOME ACCRUED TO THE ASSESSEE FROM BUSINESS ACTIVI TY AND/OR ADVENTURE IN THE NATURE OF TRADE, WITHOUT APPRECIATING THE FA CTS OF THE CASE AND THE FINDINGS BROUGHT OUT BY THE A.O. 5. SINCE THE GROUNDS OF ASSESSEE AND REVENUE ARE INTER CONNECTED, ALL THE GROUNDS ARE CONSIDERED TOGETHER. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEES FATHER OWNED A PLOT OF LAND ADMEASURING 809 SQ. YDS AND THE SAME WAS ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 3 TRANSFERRED IN THE NAME OF ASSESSEE VIDE GIFT DEED DATED 24.3.1969 AND THE ASSESSEE'S NAME WAS ENTERED AS OWNER IN THE REV ENUE RECORDS IN 1975. ASSESSEE CONSTRUCTED A BUNGALOW ON THE SAID L AND IN F.Y. 1969-70. THE LAND WAS VALUED AT RS 45,600/- AND THE CONSTRUC TION THEREON AT RS 1,85,942/- WAS SHOWN IN THE BALANCE SHEET TILL 31.3 .2008. THE BUNGALOW WAS DISMANTLED TO CONSTRUCT 8 FLATS FOR WHICH THE A SSESSEE APPLIED FOR APPROVAL BEFORE AHMEDABAD MUNICIPAL CORPORATION (AM C) AND THE SAME WAS APPROVED ON 29.7.2006 AND THEREAFTER THE PROJEC T WAS COMPLETED ON 23.10.2008. OF THE 8 FLATS CONSTRUCTED, 4 FLATS WER E RETAINED BY ASSESSEE FOR HER OWN USE AND THE REMAINING 4 FLATS WERE SOLD . ON THE 4 FLATS SOLD, ASSESSEE WORKED OUT LONG TERM CAPITAL GAIN ON SALE OF LAND AND SHORT TERM LOSS ON SALE OF CONSTRUCTION OF FLATS AND OFFE RED THE SAME FOR TAX. AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE. HE WAS OF THE VIEW THAT THE ACT OF ASSESSEE OF CONSTRUCTION OF FLATS IS TO BE CONSIDERED AS ADVENTURE IN THE NATURE OF TRADE AND THEREFORE THE INCOME IS TO BE TREATED AS 'BUSINESS INCOME' AND NOT 'CAPITAL GAINS' INTERA LIA FOR THE REASONS THAT (1) ASSESSEE HAD SOLD 4 FLATS DURING THE CONSTRUCTI ON STAGE ITSELF PROVED THAT THE ASSESSEE HAD CONVERTED HER PLOT OF LAND IN TO STOCK IN TRADE AND THEREAFTER CONSTRUCTED FLATS FOR SALE (2) THE INTEN TION OF THE ASSESSEE WAS TO MAKE PROFIT OUT OF SALE OF EXTRA FLATS BEING CON STRUCTED (3) ASSESSEE HAD RECEIVED THE ADVANCE PAYMENTS FROM SOME OF THE CUSTOMERS EVEN PRIOR TO THE COMMENCEMENT OF CONSTRUCTION (IN FINAN CIAL YEARS 2006-07, 2007-08 AND 2008-09) (4) AMC HAD GIVEN COMMENCEMENT CERTIFICATE IN THE NAME OF THE ASSESSEE (5) ASSESSEE HAD TERMED TH E CONSTRUCTION AS 'CONSTRUCTION WIP' IN THE BALANCE SHEET FOR AY 2008 -09 (6) THE COPIES OF THE BILLS REVEAL THAT THE BILLS WERE IN THE NAME OF ASSESSEES FAMILY MEMBERS AND THEREFORE IT PROVED THAT THE ADULT FAMI LY MEMBERS WERE ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 4 ACTIVELY ENGAGED IN THE ACTIVITY OF ASSESSEE OF CON STRUCTION BUSINESS. HE THUS PREPARED THE TRADING ACCOUNT AND WORKED OUT TH E NET PROFIT OF RS 64,32,143/- (WORKING AT PAGE 17 & 18 OF THE ORDER) AND CONSIDERED IT TO BE INCOME FROM UNDISCLOSED SOURCES AND ADDED TO THE INCOME OF THE ASSESSEE. HE ALSO NOTICED THAT THE 4 FLATS RETAINED BY THE ASSESSEE FOR HER OWN USE WERE ON TWO DIFFERENT FLOORS, INDEPENDENT U NITS AND NOT INTERCONNECTED AND MUNICIPAL TAXES WERE ALSO LEVIED FOR EACH UNIT SEPARATELY AND THEREFORE ACCORDING TO HIM THE 4 FLA TS CANNOT BE CONSIDERED TO BE A SINGLE UNIT FOR THE PURPOSE OF CLAIMING EXE MPTION U/S 54F AND THEREFORE HELD THAT ASSESSEE IS NOT ELIGIBLE FOR DE DUCTION U/S 54F. AO ALSO NOTED THAT ON THE DEMOLITION OF BUNGALOW, ASSESSEE WOULD HAVE INCURRED EXPENSES. SINCE EXPENSES ON DEMOLITION WAS NOT ACCO UNTED BY THE ASSESSEE IN HER BOOKS AND IN THE ABSENCE OF DETAILS , HE MADE AN ADDITION OF RS 2 LACS CONSIDERING THE SAME TO BE UNEXPLAINED EXPENDITURE MADE OUT OF INCOME FROM UNDISCLOSED SOURCES. HE ALSO NOT ED THAT THE DEMOLITION OF BUNGALOW WOULD HAVE RESULTED INTO GEN ERATION OF TIMBER, STEEL, COPPER FROM ELECTRIC WIRES, DOORS, WINDOWS E TC. SINCE NO INCOME WAS REPORTED BY ASSESSEE ON ACCOUNT OF SALE OF THE AFORESAID ITEMS, HE ESTIMATED ITS SALE TO BE OF RS 1 LACS AND ADDED IT TO THE INCOME. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER B EFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE H ELD THAT THE INCOME FROM SALE IS NOT BE CONSIDERED AS BUSINESS INCOME B Y HOLDING AS UNDER: 2.5 A CAREFUL CONSIDERATION OF ABOVE FACTS INDICATE THA T THE LD. A.O. HAVE MISINTERPRETED AND MISUNDERSTOOD THE STATUTORY PROV ISIONS GOVERNING THE MATTER WHILE ESTIMATING INCOME FROM T HE TRANSACTIONS OF THE NATURE DISCUSSED ABOVE. THE ACTION OF LD. A .O. IN APPLYING PROVISIONS OF SECTION 45(2) RWS 2(47)(IV) AND THE C ONSEQUENT DRAWING OF APPELLANTS TRADING ACCOUNT APPEARS TO BE BASED UPON ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 5 INCORRECT UNDERSTANDING OF STATUTORY PROVISIONS GOV ERNING THE MATTER. 2.7 THE A O IS OF THE OPINION THAT, PROVISIONS OF SECTI ON 45(2) R W S 2(47)(IV) ARE ATTRACTED IN APPELLANTS CASE WHEN THE BUNGLOW WAS BROKEN DOWN FOR CONVERSION INTO FLATS. IT APPEARS T HAT THE A O HAS NOT CORRECTLY APPRECIATED THE PROVISIONS OF SECTION 45( 2) R W S 2(47)(IV). THERE IS NO DENYING THE FACT THAT THE TERM 'TRANSFE R' U/S. 2(47)(IV) INCLUDES CASES WHERE AN ASSET IS CONVERTED BY THE O WNER THEREOF INTO STOCK IN TRADE OF A BUSINESS CARRIED ON BY HIM. THE RE IS ALSO NO DENYING THE FACT THAT SECTION 45(2) IS ATTRACTED IN A CASE WHERE AN ASSET IS CONVERTED BY THE OWNER THEREOF INTO STOCK IN TRADE OF A BUSINESS CARRIED ON BY HIM. THE PRIMARY CONDITION H OWEVER FOR APPLICABILITY OF SECTION 45(2) R W S 2(47)(IV) IS T HAT IT SPEAKS OF CASES WHERE THE OWNER OF THE ASSET IS ENGAGED IN SOME KIN D OF BUSINESS ACTIVITY, HOLDING CERTAIN ASSET AND THEREAFTER CONV ERTS SUCH ASSETS INTO STOCK IN TRADE. THUS, THE PRINCIPLE REQUIREMENT IS THAT AT THE TIME OF CONVERSION OF AN ASSET INTO STOCK IN TRADE, SOME BU SINESS ACTIVITY MUST HAVE BEEN CARRIED ON BY THE ASSESSEE. IN THE INSTAN T CASE, FACTS AVAILABLE ON RECORDS, AS ALSO ADMITTED BY THE A O I N HIS NARRATION OF FACTS, CLEARLY INDICATE THAT AT THE TIME OF CONVERS ION THE APPELLANT WAS NOT ENGAGED INTO ANY BUSINESS ACTIVITY. SHE WAS MER ELY A LADY OWNING A RESIDENTIAL PROPERTY, ACQUIRED BY GIFT FROM HER F ATHER, WHICH WAS DEMOLISHED TO BE CONVERTED INTO A MULTI STORIED RES IDENTIAL PREMISE. THUS THE BASIC CONDITION ENUNCIATED IN SECTION 45(2 ) R W S 2(47)(IV) ARE NOT FULFILLED AND CONSEQUENTLY ID A.OS. ARGUMEN T THAT THE SAME ARE APPLICABLE IN APPELLANTS CASE FAILS. IN THE CASE OF CIT VS B K BHAUMIK 245 ITR 0614, HON'BLE DELHI HIGH COURT HAD HELD THA T EVEN THOUGH IT IS TRUE THAT QUESTION WHETHER PROFIT IN A TRANSACTI ON HAS ARISEN OUT OF ADVENTURE IN THE NATURE OF TRADE IS A MIXED QUESTIO N OF LAW AND FACTS, IT IS EQUALLY WELL SETTLED THAT THE EXPRESSION ' AD VENTURE IN NATURE OF TRADE' POSTULATES THE EXISTENCE OF CERTAIN ELEMENTS IN THE ADVENTURE, WHICH IN LAW WOULD INVEST IT WITH THE CHARACTER OF TRADE OR BUSINESS. FURTHER, THE QUESTION WHETHER THE TRANSACTION IS AN ADVENTURE IN THE NATURE OF TRADE HAS NECESSARILY TO BE DETERMINED IN THE LIGHT OF CUMULATIVE EFFECT OF THE ENTIRE SET OFF OF FACTS TO BE GATHERED FROM MATERIAL ON RECORDS. IN THIS CASE, THE ASSESSEE HA D ENTERED INTO AN AGREEMENT WITH THE BUILDER TO GET THE MULTI STORIED UNIT CONSTRUCTED ON THE PLOT OF LAND WHERE ORIGINALLY A SINGLE STORIED HOUSE EXISTED AND WHICH WAS IN OCCUPATION OF THE ASSESSEE SINCE 1973. THE HON'BLE COURT HELD THAT THE INTENTION AT THE TIME OF PURCHA SE OF THE HOUSE, ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 6 CONTEMPORANEOUS CONDUCT AND THE CIRCUMSTANCES PECUL IAR TO THE ASSESSES CASE LEFT NO ROOM FOR DOUBT THAT THE TRANS ACTION RESULTED ONLY IN CAPITAL GAINS. IT IS PERTINENT TO NOTE THAT THE SLP FILED BY THE DEPARTMENT, AGAINST THE ORDER OF THE HON'BLE DELHI HIGH COURT, WAS NOT ENTERTAINED BY THE HON'BLE APEX COURT. FURTHER, IN THE CASE OF CIT VS DR D L RAMACHANDRA RAO, HON'BLE MADRAS HIGH COUR T WAS ALSO CEASED WITH A MATTER IDENTICAL TO FACTS OF THE PRES ENT CASE. IN THIS CASE, THE ASSESSEE HAD CONSTRUCTED A BUILDING ON A PLOT O F LAND AND SUBSEQUENTLY DISCLOSED PROFITS ON THE COMPONENT OF LAND AS LTCG AND STCG IN RESPECT OF THE SUPERSTRUCTURE THEREIN. THE ARGUMENT OF THE ASSESSEE THAT INDIAN LAW RECOGNISES SEPARATE OWNERS HIP OF THE LAND AND BUILDING AS RECOGNISED BY HON'BLE MADRAS HIGH C OURT IN THE CASE OF PARKVIEW ENTERPRISES VS STATE GOVT OF TAMILNADU 189 ITR 192 WAS UPHELD BY THE HON'BLE MADRAS HIGH COURT. WHILE LAYI NG DOWN THIS RATIO, THE HON'BLE COURT FOLLOWED THE DECISION OF P RIVI COUNSEL IN THE CASE OF NARAYANDAS KHETTY VS JATINDRANATH ROY CHAUD HARY AIR 1927 PC 135. THE COURT OBSERVED THAT THE DECISION OF THE PRIVI COUNSEL THAT IT IS POSSIBLE TO HAVE SEPARATION OF OWNERSHIP OF B UILDING FROM THE OWNERSHIP OF THE LAND HAS ALSO BEEN AFFIRMED BY HON 'BLE APEX COURT IN THE CASE OF BISHANDAS VS STATE OF PUNJAB AIR 196 1 (SC) 1570. THEREFORE, AS THE BASIC PREMISE ON WHICH THE ID. A O HAS PLACED HIS ARGUMENTS FOR MAKING THE ADDITIONS FAIL, THE CONSEQ UENT ACTION OF ESTIMATING BUSINESS INCOME BY DRAWING A TRADING ACC OUNT OF THE APPELLANT ALSO BECOMES ERRONEOUS AND BAD IN LAW. AC CORDINGLY, IT IS HELD THAT THE ADDITION OF RS. 64,32,143/- MADE BY T HE A O TREATING THE TRANSACTIONS OF THE ASSESSEE AS A BUSINESS OR A DVENTURE IN NATURE OF TRADE CANNOT BE SUSTAINED AND HENCE THE SAME IS DELETED. THE GROUND OF APPEAL RAISED BY THE APPELLANT IS THEREFO RE ALLOWED. 7. WITH RESPECT TO CLAIM OF DEDUCTION U/S 54F, THE CLA IM OF ASSESSEE WAS NEGATED BY CIT(A) BY HOLDING AS UNDER: 2.10 AS FAR AS FACTS OF THE PRESENT CASE ARE CONCERNED, THERE IS NO DISPUTE REGARDING THE STATUS OF THE ASSESSEE BEING AN INDIVIDUAL. THERE IS ALSO NO DISPUTE AS THE AMOUNT OF CAPITAL G AINS HAS BEEN EARNED, BY THE ASSESSEE ON TRANSFER OF A LONG TERM CAPITAL ASSET NOT BEING A RESIDENTIAL HOUSE, SINCE IN THIS CASE THE L ONG TERM CAPITAL GAINS HAS PRIMARILY BEEN EARNED ON THE TRANSFER OF 50% OWNERSHIP ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 7 OF THE LAND HITHERTO OWNED BY THE ASSESSEE. THE FUN DAMENTAL CONTROVERSY HOWEVER LIES IN THE SATISFACTION OF CON DITION AT C) ABOVE. AS PER THE I T ACT, THE ASSESSEE CLAIMING DE DUCTION OUGHT TO HAVE PURCHASED A RESIDENTIAL HOUSE WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH THE TRA NSFER TAKES PLACE. IN THE PRESENT CASE, THERE IS NO OCCASION OF ANY PURCHASE OF RESIDENTIAL HOUSE. THUS, THE APPELLANT CASE FALLS I N THE SECOND LIMB OF THE CONDITION I.E. CONSTRUCTION OF RESIDENTIAL H OUSE SHOULD HAVE BEEN COMPLETED WITHIN THREE YEARS FROM THE DATE ON WHICH THE TRANSFER TAKES PLACE. THE APPELLANT INCIDENTALLY DO ES NOT SATISFIES THIS CONDITION ALSO FOR SEVERAL REASONS. TO BEGIN W ITH THE TRANSFER OF PROPERTY I.E. THE SALE OF FOUR FLATS TOOK PLACE ON THE DATE ON WHICH THE SALE DEED WAS EXECUTED. AS PER THE DETAIL S FILED BY THE APPELLANT, THE SALE DEEDS FOR ALL THE FOUR FLATS SO LD WERE EXECUTED BETWEEN THE APPELLANT AND FLAT BUYERS AS PER FOLLOW ING :- NO. NAME OF THE BUYER DATE OF SALE DEED 1 KANKUBEN MANSINGBHAI PATEL & VIPULBHAI MANSINGBHAI PATEL 10.09.2008 2 NAISHADH RAJENDRA DIWANJI & TORAL NAISHADH RAJENDRA DIWANJI 15.12.2008 3 PAVNI NAISHADH DIWANJI 15.12.2008 4 EQUIPMENT & SPACE ENGINEERING INDIA LTD 09.01.2009 2.11 A PERUSAL OF THE ABOVE SHOWS THAT TRANSFER OF ASSET TOOK PLACE IN F Y 2008-09 RELEVANT TO A Y 2009-10. IT WILL BE SEEN FROM THE DEFINITION OF THE TRANSFER IN RELATION TO A CAPITAL ASSET THAT THE CAPITAL GAIN WILL BE CHARGEABLE TO TAX ONLY ON ACCO UNT OF SALE OR ANY TRANSACTION INVOLVED ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR IN PART PERFORMAN CE OF AN CONTRACT OF THE A NATURE REFERRED TO IN SECTION 54( A) OF THE TRANSFER OF PROPERTY ACT. SINCE THE REGISTERED DEED WAS NOT EXECUTED WITH THE AFORESAID PERSONS WITH WHOM THE AGREEMENT TO SA LE (BANAKHAT) WAS EXECUTED THEREFORE IT CANNOT BE TREATED AS THE SALE OF LAND. THE ASSESSEE'S CASE CANNOT BE COVERED BY CLAUSE (V) OF SECTION 12(4) OF THE ACT BECAUSE THE POSSESSION OF THE LAND AND PROP ERTY WAS NOT GIVEN TO THE AFORESAID FIVE PERSONS WITH WHOM THE A GREEMENT TO SALE (BANAKHAT) WAS EXECUTED. THEREFORE IT CANNOT B E SAID THAT THE ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 8 ASSESSEE HAS SOLD HIS PROPERTY TO THE AFORESAID FOU R PERSONS. THE AGREEMENT WAS EXECUTED WITH THE ABOVE PERSONS AND T HEREFORE ACTUAL SALE OF PROPERTY WAS MADE ON ABOVE DATES BY THE REGISTERED DEED. THE ISSUE REGARDING LEGAL AND LAWFUL TRANSFER OF IMMOVABLE PROPERTY HAS BEEN DECIDED BY THE HON'BLE SUPREME CO URT IN THE CASE OF SURAJ LAMP & INDS PVT LTD VS STATE OF HARYA NA 340 ITR 1 (SC)(2011) WHEREIN IT HAS BEEN LAID DOWN THAT: 2.12 NOW, SINCE THE TRANSFER OF ASSETS BY THE APPELLANT ITSELF TAKES PLACE IN THE MONTHS OF SEPT AND DECEMBER, 2008 AND IN JAN UARY, 2009, THE APPELLANT CAN REST HER CLAIM OF ANY DEDUCTION U /S. 54F ONLY ON THE AMOUNTS OF MONIES SPENT ON CONSTRUCTION WITHIN THE PERIOD THREE YEARS THEREAFTER. THE SAME IS NOT THE CASE IN THE IMPUGNED CASE. AS PER EVIDENCE ON RECORD, THE B U PERMISSION OF THE BUILDING WAS GIVEN BY THE AHMEDABAD MUNICIPAL CORPO RATION VIDE ITS CERTIFICATE DATED 23-10-2008. THUS, NO CONSTRUC TION ACTIVITY WAS CARRIED OUT AFTER THE SAID DATE. AS PER DETAILS / E VIDENCES ON RECORD, THE PERMISSION TO CONSTRUCT THE BUILDING WA S OBTAINED BY THE APPELLANT FROM AHMEDABAD MUNICIPAL CORPORATION VIDE THEIR APPROVALS GIVEN ON 26-07-2006 & 01-02-2007. THUS, T HE BUILDING UNDER CONSIDERATION WAS CONSTRUCTED BETWEEN THE PER IOD 01-02- 2007 TO 23-10-2008. CONSEQUENTLY, THE FUNDAMENTAL C ONDITIONS OF CONSTRUCTING A RESIDENTIAL HOUSE WITHIN THREE YEARS AFTER THE DATE OF TRANSFER IS NOT FULFILLED BY THE APPELLANT. THE APPELLANT HAS ACTUALLY CONSTRUCTED THE BUILDING / RESIDENTIAL HOU SE IN A PERIOD BEFORE THE ACTUAL DATE OF TRANSFER. HYPOTHETICALLY ASSUMING THAT THE APPELLANT RESTS HER CLAIM FROM THE DATE OF BANAKHAT S OR AGREEMENT TO SALE EXECUTED WITH THE BUYERS OF FLAT IN 2007. I T IS SEEN THAT HON'BLE APEX COURT HAS CATEGORICALLY LAID DOWN IN T HE CASE OF SURAJ LAMPS, SUPRA THAT AGREEMENTS TO SALE ARE NOT TO BE CONSIDERED FOR THE PURPOSES OF TRANSFERS. IN THE IN STANT CASE, THE OWNERSHIP AND POSSESSION OF THE PROPERTY I.E. THE F LAT HAS BEEN GIVEN BY THE APPELLANT TO THE FLAT OWNERS ONLY FROM THE DATE OF SALE- DEED. NATURALLY SPEAKING ON THE DATE OF BANAKHAT, N O POSSESSION OF FLAT COULD HAVE BEEN GIVEN AS THE SAME WAS NOT IN E XISTENCE. WITHOUT PREJUDICE TO THE ABOVE, THE ID A O HAS BROU GHT ON RECORDS, THE EVIDENCE THAT THE FLATS IN POSSESSION OF THE AP PELLANT, ARE BEING USED AS REGISTERED OFFICES OF THE COMPANY OWNED AND OPERATED BY SONS OF THE APPELLANT. SUB SECTION 4 OF SECTION 54F FURTHER PROVIDES THAT THE AMOUNT OF LTCG RECEIVED AT THE TIME OF TRA NSFER OF ASSET ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 9 WHICH COULD NOT BE UTILIZED FOR PURCHASE / CONSTRUC TION OF ANOTHER ASSET IS REQUIRED TO BE DEPOSITED IN A SPECIFIED AC COUNT OF A NATIONALIZE BANK BEFORE THE DUE DATE OF FILING OF R ETURN OF INCOME U/S. 139(1). THERE IS NO EVIDENCE ON RECORD THAT TH E SAME WAS DONE IN THIS CASE. 2.13 IN THIS REGARD, IT IS NOTED THAT IN THE CASE OF PAN KAJ WADHWANI VS CIT 18 TAXMAN.COM.33 (2012) HON'BLE ITAT, INDORE HA S DISMISSING ASSESSES APPEAL FOR GRANT OF DEDUCTION U /S. 54F, HELD AS UNDER :-.. ACCORDINGLY, IN VIEW OF THE DISCUSSIONS MADE IN PRE CEDING PARAS, IT IS HELD THAT AS THE APPELLANT HAS FAILED TO SATISFY THE BASIC CONDITIONS LAID DOWN U/S. 54F, NO DEDUCTION IS ADMI SSIBLE TO HER IN THAT SECTION. THE CLAIM OF DEDUCTION U/S. 54F IS A CCORDINGLY REJECTED AND THE GROUND OF APPEAL DISMISSED. 8. CIT(A) CONFIRMED THE ADDITION ON ACCOUNT OF UNDISCL OSED DEMOLITION EXPENDITURE AND UNDISCLOSED INCOME FROM GENERATION OF SCRAP BY HOLDING AS UNDER: 3. IN THE APPELLANTS CASE, THE A O HAS MADE ADDITI ONS OF RS. 2,00,000/- AND RS. 1,00,000/- AGGREGATING TO RS. 3,00,000/- AS DEEMED INCOME. THE SAME HAS BEEN DISCUSSED BY THE A O IN PARA-5.7 & 5. 8 OF ASSESSMENT ORDER, MENTIONED SUPRA. THE ADDITION WAS MADE ON TH E PRESUMPTION THAT THE APPELLANT HAD INCURRED EXPENSES OF RS. 2,00,000 /- TOWARDS DEMOLITION OF THE OLD BUNGLOW AND EARNED AN AMOUNT OF RS. 1,00 ,000/- AS INCOME FROM THE SALE PROCEEDS OF ITEMS LIKE TIMBER, STEEL, COPPER, DOOR, WINDOWS ETC AS EXTRACTED FROM THE OLD BUNGLOW. THE A O HAD NOTED THAT THE APPELLANT HAD NEITHER DISCLOSED ANY EXPENSES TOWARD S DEMOLITION OF THE BUNGLOW NOR HAD SHOWN ANY INCOME FROM SALE OF SCRAP ITEMS IN HER BOOKS OF ACCOUNTS. CONSEQUENTLY, THE A O HAD MADE HIS EST IMATIONS AS ABOVE AND MADE ADDITION OF RS. 3 ,00,000/- TO THE TOTAL I NCOME OF THE APPELLANT. IT IS PERTINENT TO NOTE THAT THE A O HAD GIVEN ADEQ UATE OPPORTUNITIES TO THE APPELLANT BEFORE MAKING THE IMPUGNED ADDITIONS. THE ARGUMENTS FURNISHED BY THE APPELLANT, INTER ALIA, THAT THE OL D ITEMS WERE REUSED IN THE NEW STRUCTURE WERE FOUND TO BE UNSATISFACTORY. THERE IS NO DENYING THE FACT THAT DEMOLITION OF A BUNGLOW FOR CONSTRUCT ION OF NEW STRUCTURE INVOLVES COST. THE APPELLANT BY NOT DISCLOSING SUCH COST, IN HER BOOKS OF ACCOUNTS HAS THUS COMMITTED THE DEFAULT OF NOT DISC LOSING THE TRUE COST OF ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 10 CONSTRUCTION. THE ESTIMATION MADE BY THE ID A O, OF RS. 2,,00,000/- ON THIS ACCOUNT HAS FOUND TO BE ABSOLUTELY FAIR AND RE ASONABLE. SIMILARLY, THERE CAN BE NO DISPUTE THAT THE DEMOLITION OF THE BUNGLOW RESULTED IN SCRAP ITEMS OF THE NATURE DISCUSSED BY THE ID A O I N HIS ORDER. THE ARGUMENT FORWARDED BY THE APPELLANT THAT THE SAME W ERE REUSED IS A TOTALLY UNACCEPTABLE HYPOTHESIS SINCE AS RIGHTLY OB SERVED BY THE ID A O, NO PERSON WOULD PUT OLD ITEMS IN A NEW BUILDING. TH E ESTIMATION MADE BY THE ID A O, OF RS. 1,00,000/- ON THIS ACCOUNT HAS A LSO BEEN FOUND TO BE ABSOLUTELY FAIR AND REASONABLE. IT IS PERTINENT TO NOTE THAT DURING THE COURSE OF CURRENT APPELLATE PROCEEDINGS ALSO THE AP PELLANT HAS NOT BEEN ABLE TO BRING FORTH ANY COGENT EVIDENCE THAT COULD HAVE INDICATED THAT THE ADDITIONS WERE UNWARRANTED. THE APPELLANT HAS MEREL Y REPEATED THE ARGUMENTS TAKEN BEFORE THE ID A O. AS DISCUSSED ABO VE, THE ARGUMENTS FORWARDED BY THE A O AS ALSO THE ESTIMATIONS MADE B Y HIM FOR MAKING THIS ADDITIONS HAVE BEEN FOUND TO BE FAIR AND REASO NABLE, IT IS HELD THAT NO INTERFERENCE IS REQUIRED TO BE MADE IN THE ADDIT IONS MADE BY THE ID A O TO THE RETURNED INCOME OF THE APPELLANT. CONSEQUE NTLY, THE ADDITION OF RS. 2.00,000/- ON ACCOUNT OF UNDISCLOSED DEMOLITION EXPENSES AND RS. 1,00.000/- ON ACCOUNT OF UNDISCLOSED INCOME EARNED FROM SALE OF SCRAP ITEMS AGGREGATING TO RS. 3,00,000/- MADE BY THE ID A O IS CONFIRMED AND THE GROUND OF APPEAL RAISED IS DISMISSED. 9. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE REV ENUE AND ASSESSEE ARE NOW IN APPEAL BEFORE US. 10. BEFORE US, THE LD .A. R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND CIT(A). HE FURTHER PLACED RELIANCE ON DECISIONS IN THE CASE OF ITO VS CHIMANLAL THAKORDAS (1991) 41 TTJ (AHD) 526, CIT VS GITA DUGGAL (2013) 84 DTR 346 AND OTHER CASES. HE FURTHER SUBMI TTED THAT SINCE PROVISIONS OF SECTION. 54F ARE BENEFICIAL PROVISION S, THE SAME HAVE TO BE CONSTRUED LIBERALLY. THE LD D.R, ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF AO AND SUBMITTED THAT THE DECISIONS RELIED BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS. ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 11 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WITH RESPECT TO THE ACTION OF TREATING THE TRANSACT ION OF SALE OF FLATS TO BE IN THE NATURE OF TRADE BY THE AO, WE FIND THAT CIT( A) BY A WELL REASONED ORDER HAS CONCLUDED THAT THE AO HAS MISINTERPRETED AND MISUNDERSTOOD THE PROVISIONS AND ACCORDINGLY HELD THAT THE TRANSA CTION OF THE ASSESSEE CANNOT BE TREATED AS BUSINESS OR ADVENTURE IN NATUR E OF TRADE. BEFORE US, THE REVENUE COULD NOT CONTROVERT THE FINDINGS OF CI T(A) NOR COULD IT BRING ANY CONTRARY MATERIAL ON RECORD IN ITS SUPPOR T. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WIT H THE ORDER OF CIT(A) WITH RESPECT TO DELETING THE ADDITION OF RS 64,32,1 43/- AS BUSINESS INCOME AND THUS THIS GROUND OF THE REVENUE IS DISM ISSED. 12. WITH RESPECT TO HOLDING THE ASSESSEE TO BE NOT ELIG IBLE FOR DEDUCTION U/S 54F, IT IS AN UNDISPUTED FACT AND ALSO NOTED BY CIT (A) THAT THE TRANSFER WITH RESPECT TO 4 FLATS BY MEANS OF REGISTERED SALE S DEED TOOK PLACE IN FY 2008-09 RELEVANT TO AY 2009-10. HE HAS ALSO GIVEN A FINDING THAT THE BUILDING WAS CONSTRUCTED BETWEEN 1.2.2007 AND 23.10 .2008 AND THE BU PERMISSION WAS GRANTED BY AMC ON 23.10.2008 MEANING THEREBY THAT NO CONSTRUCTION ACTIVITY TOOK PLACE AFTER 23.10.2008. FOR GRANT OF DEDUCTION U/S 54F IN CASE OF CONSTRUCTION OF A RESIDENTIAL HO USE, THE CONDITION IS THAT THE ASSESSEE HAS WITHIN A PERIOD OF THREE YEARS AFT ER THE DATE OF TRANSFER OF LONG TERM ASSET, CONSTRUCTED A RESIDENTIAL HOUSE. I N THE PRESENT CASE, SINCE THE CONSTRUCTION TOOK PLACE PRIOR TO THE DATE OF TR ANSFER, WE ARE OF THE VIEW THAT CIT(A) HAS RIGHTLY APPRECIATED THE FACTS AND BY HIS WELL REASONED ORDER HELD THAT ASSESSEE IS NOT ELIGIBLE F OR DEDUCTION U/S 54F. BEFORE US, THE LD. A.R. COULD NOT BRING ANY DECISIO N OF ANY HIGH COURT IN SUPPORT OF HIS CONTENTION WHERE IT HAS BEEN HELD TH AT EVEN THE ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 12 CONSTRUCTION OF RESIDENTIAL HOUSE BEFORE THE DATE O F TRANSFER WOULD BE ELIGIBLE FOR DEDUCTION U/S 54F. FURTHER, THE CASE L AWS RELIED UPON BY THE LD. A.R. ARE DISTINGUISHABLE ON FACTS. 13. IN THE CASE SMT. TARULATA SHYAM & ORS. VS. CIT (197 7) 108 ITR 345 (SC) THE H'BLE APEX COURT HAS HELD THAT THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE WORDS WHICH ARE NOT THERE. SUCH IM PORTATION WOULD BE, NOT TO CONSTRUE, BUT TO AMEND THE STATUTE. EVEN IF THERE BE A CASUS OMISSUS, THE DEFECT CAN BE REMEDIED ONLY BY LEGISLA TION AND NOT BY JUDICIAL INTERPRETATION. THE INTENTION OF THE LEGIS LATURE IS PRIMARILY TO BE GATHERED FROM THE WORDS USED IN THE STATUTE. ONCE I T IS SHOWN THAT THE CASE OF THE ASSESSEE COMES WITHIN THE LETTER OF THE LAW, HE MUST BE TAXED, HOWEVER, GREAT THE HARDSHIP MAY APPEAR TO THE JUDIC IAL MIND TO BE. 14. IN VIEW OF THE AFORESAID RATIO, WE ARE OF THE VIEW THAT THE CONTENTION OF THE LD. A.R. THAT THE PROVISIONS OF SECTION 54F BEI NG BENEFICIAL PROVISION, CANNOT BE ACCEPTED MORE SO WHEN THE LANGUAGE OF THE SECTION IS VERY CLEAR AND SINCE SECTION 54F (1) STATES HAS WITH A PERIOD OF THREE YEARS AFTER THAT DATE CONSTRUCTED A RESIDENTIAL HOUSE. IN VIE W OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CI T(A) AND THUS DISMISS THIS GROUND OF ASSESSEE. 15. AS FAR AS THE ADDITION MADE ON ACCOUNT OF DEMOLITIO N EXPENSES AND INCOME FROM SALE PROCEEDS OF ITEMS EXTRACTED FROM O LD BUNGALOW IS CONCERNED, WE FIND THAT AO HAS MADE AN ESTIMATION O F INCOME AND ALSO OF THE EXPENSES. HE HAS NOT BROUGHT ON RECORD ANY S INGLE EVIDENCE IN SUPPORT OF HIS CONTENTION. CIT(A) HAS ALSO UPHELD T HE VIEW OF AO. WE ITA NO 2394 & 2610/AHD/2012 . A.Y. 2009- 10 13 ARE OF THE VIEW THAT THE VIEW OF CIT(A) IS ALSO NOT ON THE BASIS OF ANY TANGIBLE MATERIAL ON RECORD. WE ARE THEREFORE OF TH E VIEW THAT IN SUCH CIRCUMSTANCES NO ADDITION CAN BE MADE ONLY ON THE B ASIS OF ESTIMATION. WE THUS DIRECT ITS DELETION. THUS THIS GROUND OF TH E ASSESSEE IS ALLOWED. 16. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF REVENUE IS DISMISSED ORDER PRONOUNCED IN OPEN COURT ON 11- 10 - 2013. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASS TT.REGISTRAR ITAT,AHMEDABAD