Mannur Meghana Reddy, Hyderabad V. Dy. Director of Income Tax (Intl. Taxn), Hyderabad

ITA 358/HYD/2012

• Counselvise Citation: 35822514 RSA 2012
• Duration Of Justice: 3 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 31-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Gift; Opportunity of being heard; Cost of acquisition
• Section: 45(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 358/HYD/2012 ASSESSMENT YEAR: 2007-08 MANNUR MEGHANA REDDY, HYDERABAD PAN AHOPM5941M VS. DY. DIRECTOR OF INCOME-TAX, (INTERNATIONAL TAXATION), HYD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SHRI RAMAKRISHNA BANDI DATE OF HEARING : 31-08-2015 DATE OF PRONOUNCEMENT : 04-09-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER DATED 11/01/2012 OF LD. CIT(A) V, HYDERABAD FOR THE AY 2007-08. 2. THOUGH, ASSESSEE HAS RAISED IN TOTAL 12 GROUNDS, SOME OF WHICH ARE ALSO ARGUMENTATIVE, BUT, THE ONLY ISSUE A RISING FROM THE GROUNDS RAISED RELATES TO DISALLOWANCE OF ASSESSEE S CLAIM OF DEDUCTION ON ACCOUNT OF COST OF ACQUISITION AND COS T OF IMPROVEMENT WHILE COMPUTING LONG TERM CAPITAL GAIN (LTCG). 3. BRIEFLY THE FACTS ARE, ASSESSEE IS A NON-RESIDEN T INDIVIDUAL. FOR THE AY UNDER CONSIDERATION, SHE FILED HER RETURN OF INCOME ON 31/07/07 DECLARING TOTAL INCOME OF RS. 12,97,900. T HOUGH, ASSESSEE DURING THE YEAR HAD COMPUTED CAPITAL GAIN, BUT, SHE CLAIMED EXEMPTION U/S 54EC OF THE ACT FOR AN AMOUNT OF RS. 90,00,000. DURING 2 ITA NO. 358 /HYD/2012 MANNUR MEGHANA REDDY THE ASSESSMENT PROCEEDING, IT WAS NOTICED BY AO THA T ASSESSEE IN THE RELEVANT PY HAS SOLD A HOUSE PROPERTY BEARING HOUSE NO. 8-2- 293/82/2/31A/A, MLA COLONY, ROAD NO. 12, BANJARA HI LLS, HYDERABAD, FOR A TOTAL CONSIDERATION OF RS. 1,25,00,000. HOWEV ER, IN THE COMPUTATION OF TOTAL INCOME FILED ALONG WITH THE RE TURN OF INCOME, ASSESSEE HAS COMPUTED LTCG AT RS. 87,22,118 AFTER C LAIMING DEDUCTION TOWARDS COST OF ACQUISITION AND COST OF I MPROVEMENT OF AN AMOUNT OF RS. 37,77,882. AT THE SAME TIME, ASSESSEE ALSO CLAIMED EXEMPTION OF CAPITAL GAIN HAVING MADE INVESTMENT U/ S 54EC OF THE ACT OF AN AMOUNT OF RS. 90,00,000. AO CALLED UPON ASSES SEE TO FURNISH THE DETAILS OF PROPERTY SOLD AS WELL AS CLAIM OF CO ST OF ACQUISITION AND COST OF CONSTRUCTION. IN RESPONSE, IT WAS SUBMITTED BY ASSESSEE THAT SHE HAD INHERITED THE PROPERTY SOLD BY HER BY WAY O F A DEED OF SETTLEMENT EXECUTED ON 06/07/02 BY HER FATHER WITHO UT ANY MONETARY CONSIDERATION. SHE ALSO SUBMITTED THAT AS THE PROPE RTY WAS RECEIVED WITHOUT ANY MONETARY CONSIDERATION, THE COST OF ACQ UISITION WOULD BE THE COST AT WHICH THE ORIGINAL OWNER HAS ACQUIRED T HE PROPERTY. SHE FURTHER CLAIMED THAT AFTER ACQUIRING THE PROPERTY A SSESSEE HAD INVESTED SUBSTANTIAL AMOUNT IN FY 1998-99 TO 2003-0 4 ON CONSTRUCTION OF THE PROPERTY, WHICH HAS BEEN CLAIMED AS COST OF IMPROVEMENT. AO, HOWEVER, WAS OF THE VIEW THAT AS THERE WAS NO MONET ARY CONSIDERATION ON SETTLEMENT OF PROPERTY IN FAVOUR O F ASSESSEE, THE COST OF ACQUISITION SHOULD BE TAKEN AT NIL. AO ALSO CALLED UPON ASSESSEE TO SUBSTANTIATE THE COST OF IMPROVEMENT CL AIMED BY HER. AFTER EXAMINING THE DETAILS SUBMITTED BY ASSESSEE, AO OBSERVED THAT APPROVED MUNICIPAL PLAN FOR THE BUILDING WAS ISSUED IN THE NAME OF ASSESSEES FATHER ON 15/01/98, HENCE, ASSESSEES CL AIM THAT SHE HAS MADE IMPROVEMENT BY BUILDING EXTRA SPACE, IS NOT AC CEPTABLE. HE OBSERVED THAT ASSESSEE GOT PROPERTY WITH GROUND FLO OR AND 1 ST FLOOR CONSTRUCTED IN 300 SQ.YDS THROUGH SETTLEMENT DEED. THEREAFTER, SHE HAS NOT MADE ANY ADDITION TO THE BUILDING. IF AT AL L ANY MINOR IMPROVEMENT/REPAIRS WERE EFFECTED ASSESSEE IS GETTI NG BENEFIT OF THE SAME @ 30% OF THE RENTAL INCOME. HE OBSERVED THAT A SSESSEE NEITHER 3 ITA NO. 358 /HYD/2012 MANNUR MEGHANA REDDY HAS MAINTAINED ANY ACCOUNT FOR CONSTRUCTION CLAIMED TO HAVE BEEN MADE NOR THE BANK ACCOUNT COPIES REFLECTED ANY SUBS TANTIAL WITHDRAWAL TO MATCH THE CLAIM OF CONSTRUCTION. ALLE GING THAT ASSESSEE FAILED TO PRODUCE ANY EVIDENCE TO SUBSTANTIATE THE CLAIM OF CONSTRUCTION, AO ULTIMATELY DISALLOWED ASSESSEES C LAIM TOWARDS COST OF ACQUISITION AND COST OF CONSTRUCTION AMOUNTING T O RS. 37,77,882 AFTER INDEXATION. AS A RESULT, LTCG AFTER ALLOWING DEDUCTION U/S 54EC WAS COMPUTED AT RS. 35 LAKHS. BEING AGGRIEVED OF TH E ASSESSMENT ORDER SO PASSED ASSESSEE PREFERRED APPEAL BEFORE LD . CIT(A). 4. IN COURSE OF HEARING BEFORE LD. CIT(A), THOUGH, ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AO, BUT, LD. CIT(A) REFERRING TO THE PROVISIONS CONTAINED U/S 47 OF THE ACT, HELD THAT SINCE THE TRANSFER OF PROPERTY FROM ASSESSEES FATHER WAS UND ER A DEED OF SETTLEMENT AND NOT UNDER GIFT OR WILL OR UNDER IRRE VOCABLE TRUST, PROVISIONS OF SECTION 47 WILL NOT BE APPLICABLE. AS ASSESSEE HAS NOT INCURRED ANY COST TOWARDS TRANSFER OF PROPERTY IN H ER NAME, THE COST OF ACQUISITION HAS TO BE TAKEN AS NIL. AS FAR AS COS T OF CONSTRUCTION IS CONCERNED, LD. CIT(A) OBSERVED THAT SINCE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE TO SHOW INCURRING OF ANY EXPENDITURE T OWARDS IMPROVEMENT OF THE PROPERTY APART FROM NORMAL REPAI R, NO DEDUCTION ON THAT ACCOUNT CAN BE ALLOWED. ACCORDINGLY, HE CON FIRMED THE COMPUTATION OF CAPITAL GAIN BY AO. 5. LD. AR EXPLAINING THE FACTS SUBMITTED BEFORE US, ASSESSEES GRAND FATHER HAS EXECUTED A WILL ON 10/07/97 BEQUEA THING A PROPERTY AT DELHI IN FAVOUR OF ASSESSEE. HOWEVER, ASSESSEES FATHER WITHOUT HER KNOWLEDGE DISPOSED OF THE PROPERTY. THEREFORE, SINCE THE PROPERTY BELONGING TO HIS DAUGHTER WAS SOLD BY HIM, FATHER O UT OF NATURAL LOVE AND AFFECTION GIFTED A PART OF THE PROPERTY BELONGI NG TO HIM THROUGH DEED OF SETTLEMENT. LD. AR REFERRING TO THE PROVISI ON CONTAINED U/S 49 OF THE ACT SUBMITTED, SINCE THE PROPERTY DEVOLVED U PON ASSESSEE ON ACCOUNT OF NATURAL LOVE AND AFFECTION OF FATHER TOW ARDS HER, THE COST OF ACQUISITION OF THE PROPERTY HAS TO BE TAKEN TO BE T HE COST FOR WHICH 4 ITA NO. 358 /HYD/2012 MANNUR MEGHANA REDDY HER FATHER ACQUIRED THE PROPERTY. AS FAR AS THE COS T OF IMPROVEMENT IS CONCERNED, LD. AR REFERRING TO THE DEED OF SETTLEME NT DATED 06/07/02 BETWEEN ASSESSEE AND HER FATHER SUBMITTED, THE BUIL T UP AREA RECEIVED BY ASSESSEE WAS 2000 SFT. WHEREAS ASSESSEE SOLD BUILT UP AREA OF 3000 SFT. IN THIS CONTEXT, HE REFERRED TO T HE SALE DEED DATED 14/02/07 EXECUTED BY ASSESSEE FOR SALE OF THE PROPE RTY. IN THIS CONTEXT, HE SPECIFICALLY DREW OUR ATTENTION TO THE SCHEDULE OF PROPERTY AS MENTIONED IN ANNEXURE -1A OF SALE DEED. LD. AR S UBMITTED, THE VERY FACT THAT ASSESSEE RECEIVED 2000 SFT BUILT UP AREA UNDER THE DEED OF SETTLEMENT, WHEREAS, SHE SOLD BUILT UP AREA OF 3 000 SFT. INDICATES THAT ASSESSEE HAS CONSTRUCTED EXTRA SPACE FOR WHICH COST OF IMPROVEMENT HAS BEEN CLAIMED. 6. LD. DR, ON THE OTHER HAND, SUPPORTING THE VIEW E XPRESSED BY LD. CIT(A), SUBMITTED, AS FAR AS THE COST OF ACQUISITIO N IS CONCERNED, ASSESSEE RECEIVED THE PROPERTY BY WAY OF SETTLEMENT FROM HER FATHER WITHOUT ANY MONETARY CONSIDERATION. HE SUBMITTED, S INCE DEVOLUTION OF THE PROPERTY ON ASSESSEE WAS NOT BY WAY OF GIFT, WI LL OR IRREVOCABLE TRUST, THE COST TO THE PREVIOUS OWNER CANNOT BE CON SIDERED AS COST OF ACQUISITION OF ASSESSEE IN TERMS WITH SECTION 49 OF THE ACT. AS FAR AS THE COST OF CONSTRUCTION IS CONCERNED, LD. DR SUBMI TTED, SINCE ASSESSEE COULD NOT SUBSTANTIATE HER CLAIM WITH PROP ER EVIDENCE EITHER BEFORE AO OR BEFORE LD. CIT(A), THERE IS JUSTIFICAT ION IN DISALLOWING ASSESSEES CLAIM OF COST OF IMPROVEMENT. HOWEVER, A O CAN BE DIRECTED TO VERIFY ASSESSEES CLAIM, IF, ASSESSEE I S IN A POSITION TO PRODUCE PROPER EVIDENCE. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS OF REV ENUE AUTHORITIES. THE MATERIAL FACTS WHICH EMERGES FROM RECORD ARE, A SSESSEES GRAND FATHER LATE M. RAMALINGA REDDY BY VIRTUE OF A WILL DATED 10/07/97 HAD BEQUEATHED A PROPERTY AT 54/B, SUKHDEV VIHAR, NEW D ELHI IN FAVOUR OF ASSESSEE. HOWEVER, AS IT TRANSPIRES, ASSESSEES FAT HER MR. MADHUSUDHAN REDDY WITHOUT KNOWLEDGE OF ASSESSEE SOL D THE 5 ITA NO. 358 /HYD/2012 MANNUR MEGHANA REDDY PROPERTY TO THIRD PARTY. SUBSEQUENTLY, HOWEVER, TO MAINTAIN CORDIAL RELATIONSHIP WITHIN THE FAMILY, ASSESSEES FATHER A S ENVISAGED IN THE DEED OF SETTLEMENT DATED 06/07/02, A COPY OF WHICH IS AT PAGE 26 OF THE PAPER BOOK, OUT OF NATURAL LOVE AND AFFECTION, SETTLED A PART OF PROPERTY AT ROAD NO. 12, BANJARA HILLS CONSISTING O F 300 SQYD. OF LAND AND BUILDING WITH GROUND FLOOR AND 1 ST FLOOR HAVING 200 SFT BUILT UP AREA IN FAVOUR OF ASSESSEE. THUS, AS CAN BE SEEN FR OM THE TERMS OF THE DEED OF SETTLEMENT, THE PROPERTY GIVEN BY FATHE R OF ASSESSEE TO HER WAS OUT OF NATURAL LOVE AND AFFECTION AND WITHO UT ANY MONETARY CONSIDERATION. THAT BEING THE CASE, IT CANNOT BE SA ID THAT IT IS NOT A GIFT SO AS TO COME WITHIN THE PURVIEW OF SECTION 49 OF THE ACT. THOUGH, THE PROPERTY MIGHT HAVE BEEN GIVEN TO ASSESSEE UNDE R A DOCUMENT TERMED AS DEED OF SETTLEMENT, BUT, THE RECITALS IN THE DEED TO THE EFFECT THAT PROPERTY WAS GIVEN OUT OF NATURAL LOVE AND AFFECTION AND WITHOUT MONETARY CONSIDERATION SUGGEST THAT IT IS I N THE NATURE OF GIFT BY FATHER TO A DAUGHTER. THAT BEING THE CASE, THE C OST OF ACQUISITION TO THE PREVIOUS OWNER I.E. FATHER SHALL BE DEEMED TO B E THE COST OF ACQUISITION TO ASSESSEE IN TERMS OF SECTION 49 OF T HE ACT. 7.1 EVEN OTHERWISE ALSO, IF WE ACCEPT THE CONTENTIO N OF LD. DR THAT THE PROPERTY CAME TO ASSESSEE BY WAY OF SETTLEMENT SINCE ANOTHER OF PROPERTY BELONGING TO ASSESSEE WAS SOLD BY HER FATH ER, THEN, ALSO IT CANNOT BE SAID THAT DEVOLUTION OF PROPERTY IN FAVOU R OF ASSESSEE IS WITHOUT ANY MONETARY CONSIDERATION. AS COULD BE SEE N FROM THE FACTS ON RECORD AND AS WELL AS THE RECITALS IN THE DEED O F SETTLEMENT, PART OF THE SUBJECT PROPERTY WAS GIVEN TO THE DAUGHTER AS T HE PROPERTY INHERITED BY DAUGHTER FROM HER GRAND FATHER BY VIRT UE OF A WILL WAS SOLD BY HER FATHER WITHOUT HER KNOWLEDGE. THUS, IT IS TO BE ASSUMED THAT SETTLEMENT OF PROPERTY IN FAVOUR OF ASSESSEE B Y HER FATHER WAS IN EXCHANGE OF PROPERTY BELONGING TO ASSESSEE AT DELHI SOLD BY HER FATHER WITHOUT HER KNOWLEDGE. THAT BEING THE CASE, IT CANNOT BE SAID THAT THE TRANSFER OF PROPERTY BY ASSESSEES FATHER TO HIS DAUGHTER WAS WITHOUT ANY MONETARY CONSIDERATION. APPLYING THE AF ORESAID LOGIC, COST 6 ITA NO. 358 /HYD/2012 MANNUR MEGHANA REDDY OF ACQUISITION OF PROPERTY CAN BE CONSIDERED TO BE THE VALUE OF PROPERTY AT DELHI IN EXCHANGE OF WHICH ASSESSEE GOT THE PROPERTY AT BANJARA HILLS. IN THE AFORESAID VIEW OF THE MATTER, WE HOLD THAT THE COST OF ACQUISITION OF THE PROPERTY CANNOT BE TAKEN AT NIL . THE MATTER CAN ALSO BE LOOKED INTO FROM ANOTHER ANGLE. AS CAN BE SEEN FROM THE MODE OF COMPUTATION OF CAPITAL GAIN PROVIDED U/S 48 OF THE ACT, INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN SHA LL BE COMPUTED AFTER DEDUCTING THEREFROM EXPENDITURE INCURRED WHOL LY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER OF THE ASSET AND S ECONDLY, THE COST OF ACQUISITION OF THE ASSET AND COST OF ANY IMPROVEMEN T THERETO. THEREFORE, UNLESS THERE IS COST OF ACQUISITION, COM PUTATION PROVISION AS PER SECTION 48 WILL FAIL. IN THIS CONTEXT RELIAN CE CAN BE PLACED ON CIT VS. B.C. SRINIVASA SETTY (128 ITR 294). THOUGH, SECTION 45(5) PROVIDES FOR CONSIDERING COST OF ACQUISITION AND CO ST OF IMPROVEMENT AT NIL, UNDER CERTAIN SPECIFIED CIRCUMSTANCES, TH OSE, CONDITIONS ARE ABSENT IN THE PRESENT CASE. THEREFORE, CONSIDERED I N THE AFORESAID PERSPECTIVE, DISALLOWANCE OF COST OF ACQUISITION BY AO, IN OUR VIEW, IS NOT PERMISSIBLE IN LAW. ACCORDINGLY, WE ALLOW ASSES SEES CLAIM OF COST OF ACQUISITION. 7.2 AS FAR AS COST OF IMPROVEMENT IS CONCERNED, IT IS EVIDENT FROM THE DEED OF SETTLEMENT THAT SCHEDULED PROPERTY RECE IVED BY ASSESSEE FROM HER FATHER IS BUILT UP AREA OF 2000 SFT. COMPR ISING OF GROUND FLOOR AND 1 ST FLOOR OVER A LAND OF 300 SQ.YDS., WHEREAS, AS PER THE SCHEDULE OF PROPERTY, WHICH FORMS PART OF THE SALE DEED EXEC UTED BY ASSESSEE, PROPERTY SOLD IS 3000 SFT. OF BUILT UP AREA CONSIS TING OF GROUND FLOOR AND 1 ST FLOOR OVER 300 SQ.YDS. LAND. THUS, THE AFORESAID F ACTS, TO CERTAIN EXTENT INDICATES THAT ASSESSEES CLAIM THAT SHE HAS CONSTRUCTED SOME EXTRA SPACE BOTH IN THE GROUND FL OOR AND 1 ST FLOOR APPEARS TO BE BELIEVABLE. HOWEVER, SINCE BOTH THESE ASPECTS HAVE NOT BEEN EXAMINED BY AO OR LD. CIT(A), AND IT IS NOT FO RTHCOMING WHETHER DOCUMENTARY EVIDENCES PRODUCED BEFORE US WERE SPECI FICALLY BROUGHT TO THE NOTICE OF THE DEPARTMENTAL AUTHORITIES, WE A RE INCLINED TO REMIT 7 ITA NO. 358 /HYD/2012 MANNUR MEGHANA REDDY THE ISSUE RELATING TO CLAIM OF COST OF CONSTRUCTION TO AO FOR DECIDING AFRESH AFTER VERIFYING DOCUMENTARY EVIDENCE SUBMITT ED BY ASSESSEE AND ONLY AFTER DUE OPPORTUNITY OF BEING HEARD TO AS SESSEE. 8. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON SEPTEMBER, 20 15. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 4 TH SEPTEMBER, 2015 KV COPY TO:- 1) MANNUR MEGHANA REDDY, C/O P. MURALI & CO., CAS. , 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500 082 2) DDIT (INTERNATIONAL TAXATION), HYD. 3) CIT(A) - V, HYDERABAD 4) DIT (INTERNATIONAL TAXATION), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.