Income Tax Officer, Ward-3, Kalaburgi V. Shri. Santhosh verghese, Kalaburgi

ITA 2693/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5575 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 11-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Agreed addition; Assessment record
• Section: 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO . 2693 /BANG/201 7 ASSESSMENT YEAR : 20 1 2 - 1 3 THE INCOME TAX OFFICER, WARD 3, KALABURAGI. VS. SHRI SANTOSH VERGHESE, MARY VILLA, VENKATESHWAR NAGAR, KALABURAGI, KARNATAKA 585 102. PAN: ABRPV7971P APPELLANT RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SHRI R.N. SIDDAPPAJI, ADDL. CIT (DR) DATE OF HEARING : 30 .01.2019 DATE OF PRONOUNCEMENT : 30 . 01 .201 9 O R D E R PER SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. CIT(A) DATED 28.09.2017. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS. 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. THE CIT(A) ERRED IN NOT APPRECIATING THE FACTS A ND CIRCUMSTANCES OF THE CASE, THAT THE DISALLOWANCE OF DEDUCTION CLAIME D U/S 54G OF THE ACT, WAS AGREED UPON BY THE ASSESSEE DURING THE ASSESSME NT PROCEEDINGS, AGAINST WHICH THE ORDER OF CIT(A) WAS PASSED WITHOU T ANY GROUND FOR THE ASSESSEE TO CONTEST IN APPEAL AND CIT(A) OUGHT TO HAVE EXAMINED THIS ISSUE AS BORNE OUT ON RECORD. BY EXAMINING OR HEARING THE AO, AS PER RULE 46A. 3. THE LTD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE ASSET TRANSFERRED WAS NOT BELONGING TO BUSINESS OF 'INDUS TRIAL UNDERTAKING' TO ITA NO. 2693/BANG/2017 PAGE 2 OF 6 BE ELIGIBLE FOR CLAIMING DEDUCTION U/S 54G, AND THE ASSET WAS MERELY BELONGING TO THE BUSINESS OF RUNNING A SINGLE CINEM A THEATRE/HALL, BY AN INDIVIDUAL. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT CLAUSE(B), CLEARLY DEFINES THAT DEDUCTION U/S 54G IS ALLOWABLE ONLY IN CASE WHERE THE ASSESSEE, W ITHIN THE SPECIFIED PERIOD ACQUIRES BUILDING OR CONSTRUCTED BUILDING OR MACHINERY ETC BUT NOT ON THE INVESTMENT MADE INTO AN EXISTING FIRM, A S IN THE CASE OF ASSESSEE. 5. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT THE SAID INVESTMENT MADE IN NEW ASSET IS NOT ONLY DISQUALIFI ED TO BE AN 'INDUSTRIAL UNDERTAKING', BUT ALSO DOES NOT BELONG TO THE ASSESSEE, WITH THE ASSESSEE IS ONLY A PARTNER IN FIRM WHICH CLAIME D THE REINVESTMENTS IN MULTIPLEX CINEMA HALLS. 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) OUGHT TO HAVE CONSIDERED THAT THE 'INDIVIDUAL BUSINESS' AND 'BUSI NESS OF A FIRM' IN WHICH THE INDIVIDUAL IS A PARTNER, ARE TWO DIFFEREN T ENTITIES, FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 54G. 7. THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THA T THE RE-INVESTED ASSETS ARE NOT FALLING OUTSIDE THE URBAN AREA FOR THE PURP OSE OF CLAIMING DEDUCTION U/S 54G, AS DEFINED IN THE ACT. 8. ANY OTHER GROUNDS WHICH MAY BE RAISED DURING THE COURSE OF APPEAL. 3. NONE APPEARED FOR THE ASSESSEE. WE PROCEEDE D TO DECIDE THE APPEAL AFTER HEARING THE LD. DR. THE FACTS OF THIS ISSUE ARE TH AT THE ASSESSEE HAS SOLD HIS PROPERTY AT OPPOSITE OF CENTRAL BUS STAND WHICH WAS CONSTRUCTED IN 1970 AND RUN THE CINEMA HALL AS SANTOSH TALKIES AFTERWARD HE HAS SOLD HIS PROPERTY TO J P BUILDERS AND DEVELOPERS ON 30.05.2011. HE HAS SOLD HIS PROPERTY FOR RS. 3,50,00,000 THROUGH BANKERS CHEQUE, ALL CHEQUES ARE DEPOSITED IN FEDERAL BANK LIMITED, AND STATE BANK OF HYDERABAD AND ALSO HE IS HAVING STATE BANK OF INDIA ACCOUNTS. ASSESSEE HAS DECLARED CAPITAL GAIN OF RS. 2,13,39,753 ON THE BASIS OF FINANCIAL YEAR 1981-82. THE ASSESSEE HAS SHOWN TOTA L COST OF RS. 17,38,885/- FOR THE PERIOD. HENCE CAPITAL GAIN ARISE 2,13,39,75 3. AND AS PER ASSESSEE STATEMENT IT IS STATED THAT ENTIRE SALE CONSIDERATI ON OF RS. 3,50,00,000 HAVE BEEN DEPOSITED IN BANK AND SAME AMOUNT WHICH HAVE BEEN W ITHDRAWN FOR CONSTRUCTION OF MULTIPLEX BUILDING BY ONE OF THE PARTNER. THE AM OUNT OF RS. 3,50,00,000 DRAWN FROM BANK AND INVESTED IN MULTIPLEX BUILDING BY DRA WING AMOUNT FROM BANK AND ITA NO. 2693/BANG/2017 PAGE 3 OF 6 SAME IS GIVEN MILESTON ALUMINIUM CO PVT. LTD, B NAG RJUNA SOUND ENGINEER, BLUE STAR LTD AND BLAGE FIRE PROTECTION BANGALORE. IT IS SEEN THAT ASSESSEE HAS MADE INVESTMENT IN OLD FIRM BY EXTENSION OF OLD BUILDING WHICH IS AN OLD BUILDING RUN A CINEMA THEATRE IN MULTIPLEX. WHICH IS ASSESSEE HAS A PARTNER OF THAT FIRM. IT IS KNOWN THAT ASSESSEE HAS INVESTED IN OLD BUILDING IN THE NAME OF VERGHESE AND CO. EXEMPTION OF CAPITAL GAIN DOES NOT ARISE AS THE TRANSFER OF CAPITAL ASSETS BEING MACHINERY OR PLANT BUILDING OR LAND FOR PURPO SE OF BUSINESS OF AN INDUSTRIAL UNDERTAKING SITUATED IN THE URBAN AREA IN ORIGINAL ASSETS. IT WAS NOT FULFILLED SECTION 54G OF IT ACT AS HE HAS INVESTED IN OTHER B UILDING FOR BUSINESS PURPOSE WHERE HE WAS A PARTNER, HENCE, THE CAPITAL GAIN 2,1 3,39,753 WAS A CAPITAL GAIN FOR ASSESSMENT YEAR 2012-13., THE AR OF THE ASSESSE E WHO ACCEPTED AND CONSENTED FOR ADDITION. THE ASSESSEE WENT IN APPEA L BEFORE CIT(A) AND IT WAS SUBMITTED BY LD. AR BEFORE CIT(A) THAT THE ASSESSEE WAS OWNER OF THE ASSETS USED BY M/S. SANTOSH COMBINES GULBARGA. ASSESSEE HA S SOLD SOME OF THE PROPERTY AND ALSO TRANSFERRED THE PLANT AND MACHINE RY USED FOR THE PURPOSE OF INDUSTRIAL UNDER TAKING; AND ALSO INVESTED FOR PURC HASES OF INDUSTRIAL MACHINERY, COMMERCIAL BUILDING FOR MALL AND CINEMA THEATRE. TH E TRANSFER EFFECTED IN THE COURSE OF AND IN CONSEQUENCES OF SHIFTING OF INDUST RIAL UNDER TAKING. WITH EFFECT FROM ASSESSMENT YEAR 2006-07 THE EXEMPTION HAS INTR ODUCED TO ENCOURAGE INDUSTRIAL UNDERTAKING SITUATED IN URBAN AREA TO SH IFT TO SPECIAL ECONOMIC ZONE TO HELP THOSE INDUSTRIAL UNDERTAKING WHICH MAY SHIFT T HEIR PREMISES FROM AN URBAN TO SPECIAL ECONOMIC ZONE. TO AVAIL THE EXEMPTION F OLLOWING CONDITIONS TO BE FULFILLED. 1. THERE IS A TRANSFER OF ASSETS LIKE LAND AND BUIL DING OR NAY RIGHT IN LAND AND BUILDING, PLANT AND MACHINERY OF AN INDUSTRIAL UNDERTAKING. 2. THE ABOVE MENTIONED TRANSFER HAS BEEN MADE WITH THE INTENTION OF SHIFTING OF AN INDUSTRIAL UNDERTAKING FROM AN URBAN AREA TO A SPECIAL ECONOMIC ZONE. 3. IN CONNECTION WITH TRANSFER OF AN INDUSTRIAL UNI T THE ASSESSEE HAS SET UP AN INDUSTRIAL UNIT IN AN ECONOMIC ZONE WITHIN A PER IOD OF ONE YEAR BEFORE OR 3 YEARS AFTER THE DATE ON WHICH SUCH TRANSFER TO OK PLACE. ITA NO. 2693/BANG/2017 PAGE 4 OF 6 THE ASSESSEE HAS BOUGHT AND PURCHASED PLANT AND MAC HINERY AND ALSO SIFTED THE ASSETS TO SPECIAL ECONOMIC ZONE WITHIN THE TIME FRAME AND HENCE THE ASSESSEE IS ENTITLED THE AMOUNT OF EXEMPTION 1. AMOUNT OF CAPITAL GAIN EARNED ON THE TRANSFER OF CAPITAL ASSET. 2. AMOUNT SPENT ON THE PURCHASE, CONSTRUCTION ETC O F NEW ASSET IN A SPECIAL ECONOMIC ZONE WITHIN THE SPECIFIED TIME. ASSESSEE RELIED ON THE JUDGMENT DELIVERED BY SUPREM E COURT IN THE CASE OF M/S. FIBRE BOARDS (P) LTD BANGALORE. 4. THE CIT(A) OBSERVED THAT AS PER THE PROVISIONS O F SECTION 54 G, THE CAPITAL GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET, BEING MACHINERY OR PLANT OR BUILDING OR LAND OR ANY RIGHTS IN BUILDING OR LAND USED FOR THE PURPOSES OF THE BUSINESS OF AN INDUSTRIAL UNDERTAKING SITUATED IN AN URBAN AREA , EFFECTED IN THE COURSE OF, OR IN CONSEQUENCE OF, THE SHIFTING OF SUCH INDUSTRIAL UNDERTAKING TO ANY AREA (OTHER THAN URBAN AREA) AND THE ASSESSEE HAS WITHIN A PERI OD OF ONE YEAR BEFORE OR THREE YEARS AFTER THE DATE ON WHICH THE TRANSFER TO OK PLACE, :- (A) PURCHASED NEW MACHINERY OR PLANT FOR THE PURPOS ES OF BUSINESS OF THE INDUSTRIAL UNDERTAKING IN THE AREA TO WHICH THE SAI D INDUSTRIAL UNDERTAKING IS SHIFTED; (B) ACQUIRED BUILDING OR LAND OR CONSTRUCTED BUILDI NG FOR THE PURPOSES OF HIS BUSINESS IN THE SAID AREA; (C) SHIFTED THE ORIGINAL ASSET AND TRANSFERRED THE ESTABLISHMENT OF SUCH UNDERTAKING TO SUCH AREA AND (D) INCURRED EXPENSES ON SUCH OTHER PERSONS AS MAY BE SPECIFIED IN A SCHEME FRAMED BY THE CENTRAL GOVERNMENT FOR THE PUR POSES OF THIS SECTION,,.. IN THE PRESENT CASE, THE FACT THAT IS UNDISPUTED IS THAT THE ASSESSEE TRANSFERRED PART OF THE BUILDING AND PLANT AND MACHINERY FOR A CONSIDERATION AND SUCH TRANSFER IS EFFECTED IN THE COURSE OF AND IN CONSEQUENCE OF SUCH INDUSTRIAL UNDERTAKING. THE ONLY CONDITION IS WHETHER THE ASSESSEE INVESTED THE SALE PROCEEDS IN THE PURCHASE OF A NEW ASSET AS MENTIONED IN THE PROVISI ONS OF SECTION 54 G MENTIONED ABOVE. THE AO IN HIS ORDER MENTIONED THA T THE ASSESSEE HAS INVESTED THE SALE PROCEEDS IN THE NEW ASSET WHICH IS NOTHING BUT EXTENSION OF THE OLD BUILDING. ON THE OTHER HAND, THE AR CONTENDED THAT THE ASSESSEE HAS IN FACT ITA NO. 2693/BANG/2017 PAGE 5 OF 6 PURCHASED PLANT AND MACHINERY AND ALSO SHIFTED THE ASSETS TO SPECIAL ECONOMIC ZONE WITHIN THE TIME FRAME. ON A CONSIDERATION OF THE FACTS OF THE CASE, THE ASSESSEE HAS INVESTED THE SALE PROCEEDS IN THE PURC HASE OF NEW ASSET IN A NON URBAN AREA, WITHIN THE TIME ALLOWED UNDER SECTION 5 4G. THE AO HAS NOT DISPUTED THE FACT OF INVESTMENT IN THE NEW ASSET. THE AO HAS NOT DISPUTED THE FACT THAT THE INVESTMENT WAS MADE WITHIN THE SPECIFIED TIME LIMIT OR THAT THE NEW ASSET WAS NOT LOCATED IN THE SPECIFIED ZONE ELIGIBLE FOR THE SAID DEDUCTION. ALL THAT THE AO STATED WAS THAT THE SALE PROCEEDS WERE INVESTED IN EXTENSION OF BUILDING BY THE ASSESSEE IN THE CAPACITY OF A PARTNER. INVESTING AS A 'PARTNER' DOES NOT BAR THE ASSESSEE FROM CLAIMING THE SAID DEDUCTION AS LONG A S THE INVESTMENT IS ACTUALLY MADE. THERE IS NO PROVISION STATING THAT FRESH INV ESTMENT SHOULD BE MADE ONLY ON 'INDIVIDUAL' BASIS IN A 'TOTALLY NEW ASSET' AND THAT EXTENSION OF EXISTING ASSET IS NOT ELIGIBLE FOR DEDUCTION. IT IS ALSO NOTED THAT T HERE IS NO MENTION OF ORDER SHEET NOTING OF CONSENT OR LETTER OF WRITTEN CONSENT IN T HE ASSESSMENT ORDER. IN VIEW OF THE ABOVE, THE AO HAS MADE A FACTUAL ERROR IN HOLDI NG THAT THE ASSESSEE HAS NOT INVESTED THE SALE PROCEEDS IN A NEW ASSET, AND ACCO RDINGLY, THE ADDITION MADE WAS DELETED BY CIT(A). 5. NOW THE REVENUE IS IN APPEAL BEFORE US. THE MAIN CONTENTION OF LD. DR IS THAT THIS IS AGREED ADDITION BEFORE THE AO AS SUCH CIT(A ) OUGHT TO HAVE EXAMINED THE ASSESSMENT RECORD BEFORE DECIDING THE ISSUE IN FAVO UR OF THE ASSESSEE. WE FIND FORCE IN THIS ARGUMENT OF LD. DR. IF IT IS AGREED ADDITION, THE ASSESSEE OUGHT NOT HAVE CHALLENGED THE ISSUE BEFORE CIT(A) UNLESS IT W AS A MISTAKE ON LAW OR FACTS. HENCE IN THE INTEREST OF JUSTICE, WE ARE INCLINED T O REMIT THE ENTIRE ISSUE TO THE FILE OF CIT(A) TO RE-EXAMINE AFTER VERIFYING THE ASSESSM ENT RECORDS WHETHER IT IS AGREED ADDITION OR NOT. WITH THIS OBSERVATION, WE REMIT THE ISSUE DENOVO TO THE FILE OF CIT(A). IT IS NEEDLESS TO SAY THAT THE CIT (A) SHALL GIVE AN OPPORTUNITY OF HEARING TO ASSESSEE BEFORE DECIDING THE SAME. ITA NO. 2693/BANG/2017 PAGE 6 OF 6 6. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JANUARY, 2019. SD/- SD/- (LALIET KUMAR) (CHANDRA POOJ ARI) JUDICIAL MEMBER ACCOUNT ANT MEMBER BANGALORE, DATED, THE 30 TH JANUARY, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGAL ORE.