The Addl. CIT, Range-4, Visakhapatnam V. Sri Sunkari Narayana Ammalu., Visakhapatnam

ITA 384/VIZ/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0672 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-05-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 10-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Assessee Lawyers: Y SURYACHANDRA RAO
• Keywords: Unexplained expenditure; Capital asset; Valuation report
• Section: 69C; 54F; 64

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SRI B.R. BASKARAN, ACCOUNTANT MEMBER I.T.A. NO 384 /VIZAG/2009 ASSESSMENT YEAR : 2006-07 ADD. CIT, RANGE-4, VISAKHAPATNAM VS. SUNKAI NARAYANA AMMALU, VISAKHAPATNAM (PAN NO.ANFPS 5783 C) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.S.S. GOPINATH, DR RESPONDENT BY : SHRI Y. SURYACHANDRA RAO, CA O R D E R PER SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 20-5-2009 PASSED BY LD CIT(A), VISAKHAPATNAM AND IT RELATES T O THE ASSESSMENT YEAR 2006- 07. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER: 1. THE LD CIT (A) HAS ERRED IN LAW AND FACTS IN DI RECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF EXEMPTION U /S 54F OF RS.11,15,000/-. 2. THE LD CIT (A) HAS ERRED IN LAW AND FACTS IN DIR ECTING THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON AC COUNT OF UNEXPLAINED EXPENDITURE OF RS.11,15,000/- 3. THE LD CIT (A) HAS ERRED IN OBSERVING THAT THE A SSESSEE HAS INCURRED THE EXPENDITURE OF RS.11,15,000/- OUT OF T HE SALE CONSIDERATION BY WAY OF WITHDRAWALS FROM BANK. 4. THE LD CIT (A) HAS ERRED IN OBSERVING THAT THE A SSESSEE HAS INCURRED THE EXPENDITURE WITHIN TWO YEARS. 5. THE LD CIT (A) HAS ERRED IN DELETING THE ADDITIO N MADE U/S 69C OF RS.11,15,000/- AS THE ASSESSEE HAS NOT EXPLAINED THE SOURCE OF THIS EXPENDITURE. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 2 LD DR SUBMITTED THAT THE ONLY POINT OF DISPUTE IS W ITH REGARD TO THE ELIGIBILITY OF DEDUCTION OF RS.11.54 LAKHS U/S 54F OF THE ACT AGAI NST THE LONG TERM CAPITAL GAIN. ACCORDINGLY, THE ARGUMENTS ALSO TOOK PLACE O N THAT POINT ONLY. HENCE WE RESTRICT OURSELVES TO ADJUDICATE THE SAID ISSUE ONL Y. 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE SOLD A PROPERTY ON 27.3.2006. SHE HAD PURCHASED A HOUSE P ROPERTY ON 09.11.2005, I.E. WITHIN ONE YEAR PRIOR TO THE DATE OF SALE OF HIS EA RLIER PROPERTY ON WHICH THE ASSESSEE CLAIMED DEDUCTION U/S 54F OF THE ACT AGAIN ST THE LONG TERM CAPITAL GAIN COMPUTED ON THE SALE OF CAPITAL ASSET ON 27.3.2006. THE NEWLY ACQUIRED PROPERTY CONSISTED OF GROUND FLOOR AND UNFINISHED FIRST FLOO R. THE ASSESSEE SPENT A SUM OF RS.11,15,000/- ON COMPLETING THE CONSTRUCTION IN TH E FIRST FLOOR OF THE NEW HOUSE DURING THE PERIOD FROM DECEMBER, 2005 TO SEPTEMBER 2006. THE ASSESSEE CLAIMED EXEMPTION U/S 54F OF THE ACT ON THE SAID AM OUNT OF RS.11,15,000/-. THE ASSESSEE FILED A VALUATION REPORT OBTAINED FROM A REGISTERED VALUER IN SUPPORT OF THE CLAIM OF RS.11.15 LAKHS. HOWEVER, THE AO A LLOWED DEDUCTION U/S 54F ONLY ON THE COST OF PURCHASE OF THE NEW HOUSE. WITH REG ARD TO THE AMOUNT SPENT ON CONSTRUCTION, ACCORDING TO THE AO, THERE WAS NO WIT HDRAWAL FROM THE BANK ACCOUNT OF THE ASSESSEE FOR INCURRING THE ABOVE STA TED COST OF CONSTRUCTION. HENCE THE AO ASKED THE ASSESSEE TO FURNISH SOURCES AND ALSO BILLS IN SUPPORT OF CONSTRUCTION. THE ASSESSEE EXPLAINED THAT SHE HAS WITHDRAWN A SUM OF RS.5,14,966/- DURING THE PERIOD 1.4.2006 TO 31.7.20 06, I.E. TILL THE DUE DATE OF FILING RELEVANT RETURN OF INCOME AND THE BALANCE AM OUNT WAS SUBSEQUENT TO THAT DATE. ACCORDING TO THE ASSESSEE THE PENDING CONSTR UCTION BILLS WERE SETTLED OUT OF WITHDRAWALS MADE SUBSEQUENTLY. THE ASSESSEE COU LD NOT SUBMIT COPIES OF BILLS FOR PURCHASE OF MATERIALS AND OTHER PAYMENTS. HENC E THE AO, NOT ONLY DECLINED TO ALLOW DEDUCTION U/S 54F OF THE SAID AMOUNT FROM THE COMPUTATION OF LONG TERM CAPITAL GAIN, BUT ALSO ADDED THE SAID AMOUNT O F RS.11,15,000/- U/S 69C OF THE ACT AS UNEXPLAINED EXPENDITURE. IN THE APPEAL PREFERRED BY THE ASSESSEE, LD CIT(A) ALLOWED DEDUCTION OF RS.11,15,000/- U/S 54F OF THE ACT AND ALSO DELETED THE ADDITION MADE U/S 69C OF THE ACT. AGGRIEVED, T HE REVENUE IS IN APPEAL BEFORE US. 3 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAD PURCHASED A NEW HOUSE PROPERTY ON 09.11.2005 AND FURTHER SPENT A SUM OF RS.11,15,000/- ON COMPLETING THE CONSTRUCTION IN THE FIRST FLOOR WHICH WAS HAVING ONLY RCC FRAMED STRUCTURES A T THE TIME OF PURCHASE. AS PER THE PROVISIONS OF SECTION 54F OF THE ACT, THE A SSESSEE COULD PURCHASE A NEW HOUSE WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEA RS AFTER THE DATE ON WHICH THE TRANSFER OF CAPITAL ASSET TOOK PLACE. THE DATE OF TRANSFER OF THE CAPITAL ASSET IS 27.3.2006. SINCE THE ASSESSEE HAD PURCHASED A N EW HOUSE ON 09.11.2005, THE SAID PURCHASE IS MADE WITHIN ONE YEAR BEFORE THE DA TE OF TRANSFER. SINCE THE FIRST FLOOR OF THE HOUSE WAS INCOMPLETE AT THE TIME OF PU RCHASE, THE ASSESSEE HAS STARTED THE PROCESS OF COMPLETION OF THE CONSTRUCTI ON IN FIRST FLOOR FROM DECEMBER, 2005 ONWARDS. SINCE IT IS A CASE OF PURC HASE OF A HOUSE PROPERTY, SECTION 54F OF THE ACT PERMITS THE PURCHASE OF A NE W HOUSE PROPERTY, EVEN PRIOR TO THE SALE OF THE CAPITAL ASSET ON WHICH THE LONG TERM CAPITAL GAIN HAS ARISEN. BY CARRYING OUT THE IMPUGNED CONSTRUCTION, THE ASSESSE E HAS NOT BROUGHT INTO EXISTENCE ANY NEW HOUSE PROPERTY AND THE ASSESSEE H AS CARRIED OUT CONSTRUCTION IN THE HOUSE THAT WAS PURCHASED BY HER IN ORDER TO MAKE THE FIRST FLOOR HABITABLE. HENCE THE SAID IMPROVEMENT WILL ALSO FORM PART OF C OST OF PURCHASE OF ASSET AND HENCE THE AMOUNT OF RS.11,15,000/- SPENT ON COMPLET ING THE CONSTRUCTION WOULD ALSO BE ELIGIBLE FOR DEDUCTION U/S 54F OF THE ACT. IN THIS REGARD, USEFUL REFERENCE MAY BE MADE TO THE FOLLOWING CASE LAW:- A) MRS. GULSHANBANOO R MUKHI VS. JCIT (2002) 83 IT D 649 (MUM) B) SALEEM FAZELBHOY V DCIT (2007) 291 ITR (AT) 169 (MUM) IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF LD CIT (A) IN GRANTING RELIEF U/S 54F OF THE ACT ON THE ABOVE SAID AMOUNT. 5. DURING THE COURSE OF HEARING, THE LD DR CONT ENDED THAT THE ASSESSEE HAS NOT USED THE FUNDS OBTAINED ON SALE OF THE ASSET FO R THE PURPOSE OF CONSTRUCTION AND IN SUPPORT OF HIS CONTENTION THAT DEDUCTION U/S 54F WILL NOT BE AVAILABLE IN SUCH A SITUATION, HE RELIED UPON THE FOLLOWING DECI SIONS. A. SMT. SHASHIKALA RAJKUMAR KABRA V ITO (1999) 64 TTJ (NAG) 754 (SMC) B. MILAN SHARAD RUPAREL VS. ACIT (2009) 121 TTJ (M UMBAI) 770. 4 IN THE SECOND CASE CITED ABOVE, THE ASSESSEE HAD US ED BORROWED FUNDS FOR PURCHASE OF HOUSE AND HENCE THE FACTS OF THAT CASE ARE DISTINGUISHABLE. THE FIRST CASE IS SMC BENCH DECISION WHICH IS IN CONTRADICTIO N WITH THE DECISION OF THE DIVISION BENCH RENDERED IN THE SECOND CASE. IN THE SECOND CASE IT HAS BEEN HELD THAT THE NEW RESIDENTIAL PROPERTY SHOULD EITHER BE ACQUIRED OR CONSTRUCTED BY THE ASSESSEE OUT OF HIS PERSONAL FUNDS OR THE SALE PROC EEDS OF THE CAPITAL ASSET. IN THE INSTANT CASE, THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SUGGEST THAT THE ASSESSEE HAD USED BORROWED FUNDS FOR THE PURPOS E OF CONSTRUCTION OF THE FIRST FLOOR. SINCE THE PURCHASE OF THE NEW HOUSE PROPERT Y IN THE INSTANT CASE HAS TAKEN PLACE PRIOR TO THE DATE OF SALE OF CAPITAL AS SET, THE QUESTION OF UTILIZATION OF FUNDS OBTAINED ON SALE OF THE CAPITAL ASSET ALSO DO ES NOT ARISE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 24 TH JUNE, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 24-06-2010. A COPY OF THIS ORDER IS FORWARDED TO : 01 THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-4, 3 RD FLOOR, DIRECT TAXES BUILDING, DOUBLE ROAD, MVP COLONY, VISAKHAPATNAM-50 0017 02 SMT. SUNKARI NARAYANA AMMALU, PLOT NO. MIG-36, 8 9-33-34/2, MADHAVADHARA VUDA LAYOUT, VISAKHAPATNAM 03 THE CIT-II VISAKHAPATNAM 04 THE CIT (A), VISAKHAPATNAM 05 THE DR, ITAT, VISAKHAPATNAM 06 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH