Sri Satti Chandra Reddy., Rajahmundry V. The ITO, Ward-1, Rajahmundry

ITA 388/VIZ/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0621 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 29-04-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 20-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Keywords: Capital asset; Benefit of exemption
• Section: 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.388/VIZAG/2009 ASSESSMENT YEAR : 2004-05 SATTI CHANDRA REDDY, RAJAHMUNDRY ITO, WARD-1 RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) PAN NO.AALHS 9790J APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI G.S.S. GOPINATH, DR ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) ON A SOLITARY GROUND THAT CIT(A) HAS ERRED I N CONFIRMING THE DENIAL OF EXEMPTION U/S 54F OF THE I.T. ACT AND ALSO CONFIRMED THE ESTIMATION OF AGRICULTURAL INCOME. 2. THE BRIEF FACTS WITH REGARD TO THE ISSUE OF DENI AL OF CLAIM OF EXEMPTION U/S 54F OF THE ACT ARE THAT DURING THE SCRUTINY OF THE ASSESSMENT, THE ASSESSING OFFICER SOUGHT TO INVESTIGATE THE CLAIM O F EXEMPTION U/S 54F OF THE ACT OF CAPITAL GAIN ARISING FROM SALE OF LAND AT HU KUMPET, RAJAHMUNDRY AND NOTICED THAT AS ON THE DATE OF SALE OF THE LAND I.E . ON 4.8.2003, THE ASSESSEE OWNED TWO RESIDENTIAL PROPERTIES, ONE AT DANAVAIPET , RAJAHMUNDRY AND ANOTHER AT HYDERABAD AND ACCORDINGLY HE HELD THE OW NERSHIP OF TWO RESIDENTIAL PROPERTIES AS ON THE DATE OF ACCRUAL OF CAPITAL GAIN ON SALE OF LAND AT HUKUMPET, RAJAHMUNDRY DISQUALIFIED THE ASSESSEE FROM AVAILING EXEMPTION U/S 54F OF THE ACT. ON SHOW CAUSING THE ASSESSEE A S TO WHY ITS CLAIM OF EXEMPTION U/S 54F OF THE ACT SHOULD NOT BE DISALLOW ED, IT WAS REPLIED THAT THE DANAVAIPET, RAJAHMUNDRY HOUSE WAS LET OUT UPTO JUNE , 2003 AND THEREAFTER IT WAS DEMOLISHED AND AS SUCH ON THAT DATE (4.8.200 3) SALE OF AGRICULTURAL LAND AT DANAVAIPET, RAJAHMUNDRY HOUSE WAS NOT IN EX ISTENCE AND ASSESSEE HAS ONLY A SINGLE RESIDENTIAL PROPERTY AT HYDERABAD AND THEREAFTER THE 2 DANAVAIPET, RAJAHMUNDRY PROPERTY WAS RECONSTRUCTED BY UTILIZING THE SALE PROCEEDS OF THE LAND AND ACCORDINGLY THE ASSESSEE Q UALIFIED TO OBTAIN A BENEFIT OF EXEMPTION U/S 54F OF THE ACT. THE A.O. WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES AND HE DENIED THE EXEMPTION AFTER HOLDING THAT AS PER THE EXTRACT OF THE EXPANSION OF BUILDI NG ACCOUNT ALL EXPENDITURES RELATING TO THE MUNICIPAL APPROVAL PLAN DISMANTLING AND CONSTRUCTION WAS INCURRED ONLY FROM 15.12.2003 ONWARDS AND ACCORDING LY THE CLAIM OF THE ASSESSEE THAT DANAVAIPET, RAJAHMUNDRY BUILDING STOO D DISMANTLED AS ON THE DATE OF SALE OF HUKUMPET LAND REMAINED UNSUBSTANTIA TED. 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) BUT DID NOT FIND FAVOUR WITH HIM. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL. 4. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT AT THE TIME WHEN THE SALE OF AGRICULTURAL LAND TOOK PLACE ASSESSEE W AS LIVING IN A RENTED ACCOMMODATION AND HE DID NOT HAVE EVEN A SINGLE RES IDENTIAL HOUSE IN HIS POSSESSION. THE PROPERTY AT DANAVAIPET, RAJAHMUNDR Y WAS DISMANTLED/DEMOLISHED BEING THE OLD PROPERTY AS THE DEMOLITION WORK WAS STARTED ON 1.7.2003 AND THE OTHER HOUSE AT HYDERABA D WAS ALREADY IN THE POSSESSION OF A TENANT TO WHOM IT WAS GIVEN FOR ITS COMMERCIAL USE AS IS EVIDENT FROM THE LEASE AGREEMENT. THE DEMOLISHED O LD PROPERTY WHICH WAS LET OUT FOR ITS COMMERCIAL USE TO A TENANT CANNOT B E CALLED TO BE A RESIDENTIAL HOUSE AVAILABLE WITH THE ASSESSEE AT THE TIME OF SA LE OF AGRICULTURAL LAND. THEREFORE, THE ASSESSEE IS ENTITLED FOR AN EXEMPTIO N U/S 54F OF THE ACT. AS PER SECTION 54F OF THE ACT, THE ASSESSEE IS ENTITLE D FOR EXEMPTION EVEN IF THE ASSESSEE HAS ONE RESIDENTIAL HOUSE. THE AMENDMENT IN SECTION 54F WAS BROUGHT BY FINANCE ACT, 2000 W.E.F 1.4.2001 TO GIVE A BENEFIT OF THIS EXEMPTION TO THOSE ASSESSEES WHO EVEN HAS ONE RESID ENTIAL HOUSE AT THE TIME OF SALE OF LONG TERM CAPITAL ASSET. WHILE MAKING T HE AMENDMENT, IT WAS REALIZED BY THE LEGISLATURE THAT THE EARLIER CONDIT IONS STANDS IN THE WAY OF LARGE NUMBER OF TAX PAYERS WHO HAS SMALL HOUSE OR A TENANTED HOUSE WHICH IS DIFFICULT TO BE SOLD IN VIEW OF STRINGENT TENANC Y LAWS OR A HOUSE THAT CANNOT BE SOLD BECAUSE OF NON-AVAILABILITY OF BUYERS OR SL UMP IN MARKET PRICE, FROM 3 AVAILING THE DEDUCTION U/S 54F OF THE ACT. THE LE GISLATURE THEREFORE AMENDS SECTION 54F OF THE I.T. ACT TO PROVIDE THE DEDUCTIO N UNDER THIS SECTION TO AN INDIVIDUAL OR A HUF AS LONG AS HE HAS ONE AND NOT M ORE THAN ONE HOUSE EXISTING ON THE DATE OF THE TRANSFER. IN THE INSTAN T CASE, EVEN THE TENANTED HOUSE WHICH WAS LET OUT FOR A COMMERCIAL PURPOSE IS CONSIDERED TO BE THE RESIDENTIAL HOUSE AVAILABLE WITH THE ASSESSEE, THE ASSESSEE HAD NO OTHER RESIDENTIAL ACCOMMODATION, AS THE OTHER PROPERTY AT DANAVAIPET, RAJAHMUNDRY WAS DISMANTLED OR DEMOLISHED AND WAS NO T INHABITABLE FOR RESIDENCE. THEREFORE, THE ASSESSEE WAS ENTITLED FO R DEDUCTION U/S 54F OF THE I.T. ACT AND REVENUE HAS WRONGLY CONCLUDED THAT ASSE SSEE WAS IN POSSESSION OF TWO RESIDENTIAL HOUSES AT THE TIME OF SALE OF LO NG TERM CAPITAL ASSET AND IS NOT ENTITLED FOR DEDUCTION U/S 54F OF THE ACT. 5. THE LD. D.R. ON THE OTHER HAND HAS CONTENDED THA T HYDERABAD HOUSE WAS A RESIDENTIAL FLAT PURCHASED BY THE ASSESSEE AN D IT WAS GIVEN ON RENT TO ONE PRIVATE SECTOR FOR ITS USE EITHER AS A GUEST HO USE OR AS AN OFFICE. IF THE RESIDENTIAL HOUSE IS GIVEN ON RENT FOR A NON-RESIDE NTIAL PURPOSE, THE NATURE OF PROPERTY WOULD NOT BE CHANGED. THE HYDERABAD HOUSE WAS PURCHASED BY THE ASSESSEE IN A RESIDENTIAL AREA AND WAS IDENTIFIED T O BE THE RESIDENTIAL HOUSE. MERE CHANGE OF ITS USE WILL NOT CHANGE THE NATURE O F THE PROPERTY. THE LD. D.R. FURTHER CONTENDED THAT HYDERABAD HOUSE COMPRIS ES OF BED ROOMS, DRAWING ROOM AND KITCHEN, BATHROOMS ETC. AND IT IS A RESIDENTIAL PROPERTY WHICH WAS GIVEN FOR ITS COMMERCIAL USE ONLY WITH IN TENT TO GET THE BENEFIT OF SECTION 54F OF THE ACT. 6. SO FAR AS THE PROPERTY ACT DANAVAIPET, RAJAHMUND RY IS CONCERNED THIS PROPERTY WAS ALSO AVAILABLE WITH THE ASSESSEE AS IT WAS NOT DEMOLISHED AT THE TIME OF SALE. WHATEVER EXPENDITURES ARE BOOKED IT WAS UNDER THE HEAD HOUSE EXPENSES WHEREAS THE ASSESSEE HAS CLAIMED T HAT HE HAS MAINTAINED A SEPARATE ACCOUNT OF EXPANSION OF A BUILDING WHICH INTERALIA ALSO RECORDED BUILDING DISMANTLING EXPENSES INCURRED ON 31.12.200 3, 15.1.2004 AND 23.1.2004. THUS THE CLAIM OF THE ASSESSEE THAT BUI LDING STOOD DISMANTLED BY 31.7.2003 RAISES SUSPICION ABOUT ITS VERACITY AS TH E BUILDING PLAN WAS APPROVED INITIALLY ON 2.7.1982 FOR THE HOUSE THAT W AS ORIGINALLY CONSTRUCTED 4 WITH THE GROUND AND FIRST FLOOR AND THEREAFTER ON 3 1.1.2004 FOR RENOVATION OF THE EXISTING GROUND AND FIRST FLOOR. THE LD. D.R. FURTHER CONTENDED THAT AT THE TIME OF SALE, ASSESSEE WAS HAVING MORE THAN ONE RES IDENTIAL HOUSE ONE IS AT HYDERABAD AND OTHER IS AT DANAVAIPET, RAJAHMUNDRY. THEREFORE, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S 54F OF T HE ACT. 7. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF THE RECORD WE FIND THAT BEFORE THE SALE OF THE LONG TER M CAPITAL ASSET, ASSESSEE HAD TWO RESIDENTIAL HOUSES ONE IS AT HYDERABAD AND OTHER IS AT DANAVAIPET, RAJAHMUNDRY. BUT NONE OF THE HOUSES WAS IN POSSESS ION OF THE ASSESSEE AS BOTH THE HOUSES WERE LET OUT TO TENANTS. THE HYDER ABAD HOUSE WAS LET OUT TO ONE PRIVATE SECTOR FOR NON-RESIDENTIAL PURPOSE I.E. FOR THE USE OF THE GUEST HOUSE OR FOR OFFICE PURPOSE AND THESE FACTS ARE EVI DENT FROM THE LEASE DEED FILED BEFORE US. SO FAR AS OTHER HOUSE PROPERTY AT DANAVAIPET, RAJAHMUNDRY IS CONCERNED WE FIND THAT THIS HOUSE WAS LET OUT UP TO JUNE, 2003 AND THEREAFTER IT WAS VACATED AND DEMOLISHED. THE DISM ANTLING WORK STARTED ON 1.7.2003 AND WAS COMPLETED BY 31.7.2003 ACCORDING T O THE ASSESSEE. ACCORDING TO THE ASSESSEE, DISMANTLING EXPENSES AGG REGATING TO RS.20,000/- WERE BOOKED AGAINST THE HOUSEHOLD EXPENSES AND THES E FACTS WERE NOT DISPUTED BY THE REVENUE. REVENUES DISPUTE IS ONLY TO THE FACT THAT ONCE THE ASSESSEE WAS MAINTAINING ITS RENOVATION EXPENSES WH Y HE HAS BOOKED THE DISMANTLING EXPENDITURE AGGREGATING TO RS.20,000/- AGAINST THE HOUSEHOLD EXPENSES. BUT THE BOOKING OF ENTRIES UNDER DIFFERE NT HEADS DOES NOT FALSIFY THE FACT THAT DISMANTLING WORK OF THE PROPERTY WAS STARTED ON 1.7.2003. IF THE REVENUE HAS DOUBT WITH REGARD TO THESE FACTS, T HE ASSESSING OFFICER SHOULD HAVE CONDUCTED SOME MORE INQUIRY AND FOR DEMOLISHIN G A PROPERTY LOT OF EXPENDITURE IS NOT REQUIRED AND A SUM OF RS.20,000/ - DOES NOT APPEAR TO BE SMALLER AMOUNT INCURRED ON DISMANTLING THE PROPERTY . THOUGH IT MAY NOT BE DISMANTLED COMPLETELY BUT ONCE THE PROPERTY IS EVEN PARTLY DISMANTLED, IT CEASES TO BE INHABITABLE PROPERTY AND CANNOT BE USE D FOR THE RESIDENTIAL PURPOSE. IN THAT SITUATION, AFTER 1.7.2003 ASSESSE E WAS IN POSSESSION OF ONLY ONE PROPERTY I.E. HYDERABAD THAT TOO WAS LET OUT TO PRIVATE SECTOR FOR ITS COMMERCIAL USE. THOUGH THE ASSESSEE HAS CONTENDED THAT ONCE THE PROPERTY WAS LET OUT FOR A COMMERCIAL USE, IT CANNOT BE CALL ED TO BE A RESIDENTIAL HOUSE 5 AVAILABLE WITH THE ASSESSEES. WE DO NOT FIND MUCH FORCE IN THIS ARGUMENT IN AS MUCH AS ACCORDING TO US THE NATURE OF PROPERTY W ILL NOT BE CHANGED ON THE BASIS OF TERM OF LEASE AGREEMENT. IF THE PROPERTY I S SITUATED IN A RESIDENTIAL AREA AND IS LET OUT FOR A NON-RESIDENTIAL PURPOSE A GAINST THE TERMS AND CONDITIONS OF THE MUNICIPAL AUTHORITIES, THE PROPER TY WILL NOT CEASE TO BE RESIDENTIAL PROPERTY. IN THIS REGARD, WE ARE OF THE VIEW THAT THIS HYDERABAD PROPERTY SHOULD BE CONSIDERED TO BE RESIDENTIAL PRO PERTY AVAILABLE WITH THE ASSESSEES. BUT IN ORDER TO DENY THE EXEMPTION U/S 54F TO THE ASSESSEES THE ONUS IS UPON THE REVENUE TO PROVE SUCH ASPECT THAT ASSESSEE HAS ONE MORE RESIDENTIAL HOUSE IN HIS POSSESSION. THE OTHER PRO PERTY AT DANAVAIPET, RAJAHMUNDRY WAS DISMANTLED BY THE ASSESSEES AND WHE N IT BECOMES CEASE TO WITH THE RESIDENTIAL HOUSE IT CANNOT BE PROPER TO S AY THAT ASSESSEE WAS IN POSSESSION OF TWO RESIDENTIAL HOUSES AT THE TIME OF SALE OF LONG TERM CAPITAL ASSET I.E. ON 4.8.2003. THE REVENUE ITSELF HAS ADM ITTED THAT ASSESSEE HAS BOOKED A DISMANTLED EXPENDITURE OF RS.20,000/- AGAI NST HOUSEHOLD EXPENSES. 8. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS ALSO FILED THE PHOTOGRAPHS OF THE ORIGINAL PROPERTY BEFORE DISMANTLING AND THE RENOVATED PROPERTY AND FROM PERUSAL OF THESE PHOTOG RAPHS IT APPEARS THAT DRASTIC CHANGES WERE MADE IN THE PROPERTY WHICH ARE NOT POSSIBLE WITHOUT DISMANTLING CERTAIN PORTION OF THE PROPERTY. IF TH AT PORTION IS DISMANTLED, THE PROPERTY CEASE TO BE HABITABLE AND CANNOT BE USED F OR THE RESIDENTIAL PURPOSE. THEREFORE, IT CANNOT BE HELD THAT AT THE TIME OF SALE OF LONG TERM CAPITAL ASSET, ASSESSEE HAS TWO RESIDENTIAL HOUSES WHICH DENIES THE EXEMPTION U/S 54F TO THE ASSESSEE. THE USE OF THE SALE PROCEEDS IN THE CONSTRUCTION OF THE HOUSE WAS NOT DISPUTED. THE DI SPUTE WAS ONLY WITH REGARD TO THE AVAILABILITY OF RESIDENTIAL HOUSE AT THE TIME OF SALE OF LONG TERM CAPITAL ASSETS. WE THEREFORE CONFINE OUR FINDING W ITH REGARD TO THE AVAILABILITY OF THE RESIDENTIAL HOUSE WITH THE ASSESSEE AT THE T IME OF SALE OF LONG TERM CAPITAL ASSET. SINCE THE REVENUE HAS NOT BROUGHT A NYTHING ON RECORD TO ESTABLISH THAT DEMOLITION WAS NOT STARTED W.E.F. 1. 7.2003, EXCEPT DOUBTING THE CLAIM OF THE ASSESSEE, WE FIND OURSELVES NOT IN AGR EEMENT WITH THE ORDER OF THE CIT(A) AND WE HOLD THAT AT THE TIME OF SALE OF LONG TERM CAPITAL ASSET, ASSESSEE HAS ONLY ONE RESIDENTIAL HOUSE I.E. IN HYD ERABAD. THEREFORE, HE IS 6 ENTITLED FOR EXEMPTION U/S 54F OF THE ACT. WE ACCO RDINGLY, DIRECT THE A.O. TO ALLOW THE EXEMPTION/DEDUCTION U/S 54F TO THE ASSESS EES AND THEREAFTER RE-COMPUTE THE TOTAL INCOME OF THE ASSESSEE AS PER LAW. 9. SO FAR AS THE DISALLOWANCE OF CLAIM OF ADVANCE O F RS.1,50,000/- AGAINST AGRICULTURAL INCOME PERTAINING TO THE SUBSEQUENT AS SESSMENT YEAR 2005-06 IS CONCERNED, WE FIND THAT DURING THE COURSE OF ASSESS MENT PROCEEDINGS ASSESSEE HAS CLAIMED TO HAVE RECEIVED A SUM OF RS.1 ,50,000/- AS AN ADVANCE FOR THE CASHEW FOR SUBSEQUENT FINANCIAL YEAR FOR WH ICH THE ASSESSEE HAS SUBMITTED SELF-MADE VOUCHERS. THESE EXPLANATIONS O F THE ASSESSEE WERE NOT ACCEPTED AND THE A.O. HAS TREATED THIS AMOUNT AS IN COME FROM OTHER SOURCES. BEFORE THE CIT(A) IT WAS CONTENDED THAT THIS AMOUNT WAS ADJUSTED IN THE AGRICULTURAL INCOME OF RS.4,71,718/- SHOWN BY THE A SSESSEE IN A.Y. 2005-06 AND THIS CLAIM OF THE ASSESSEE WAS ACCEPTED IN THAT ASSESSMENT YEAR BY THE REVENUE. ONCE THE REVENUE HAS ACCEPTED THE CONTENT IONS OF THE ASSESSEES IN SUBSEQUENT YEAR, THEY CANNOT DISBELIEVE THE SAME CO NTENTION IN ANOTHER YEAR. THE CIT(A) HOWEVER OBSERVED IN HIS ORDER THAT IF TH IS AMOUNT IS RECEIVED AS ADVANCE OF THE AGRICULTURAL INCOME FOR SUCCEEDING Y EARS, IT CANNOT BE ADMITTED AS AGRICULTURAL INCOME IN THE RELEVANT ASS ESSMENT YEAR I.E. 2004-05. THESE OBSERVATIONS OF THE CIT(A) APPEARS TO BE CORR ECT. IN THE LIGHT OF THESE FACTS, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES A VERIFICATION FROM THE RECORD. IF THE ADVANCE OF AGRICULTURAL INCOME RECEI VED IN THIS YEAR WAS ADJUSTED IN SUBSEQUENT YEAR WHILE SHOWING THE AGRIC ULTURAL INCOME, NO ADDITION ON THIS ACCOUNT IS CALLED FOR IN THE IMPUG NED ASSESSMENT YEAR. WE THEREFORE SET ASIDE THIS ISSUE AND RESTORE IT TO TH E FILE OF THE A.O. WITH A DIRECTION TO VERIFY THE FACTS AND DELETE THE ADDITI ON OF THE SAME IN CASE THIS ADVANCE OF AGRICULTURAL INCOME WAS ADJUSTED IN SUBS EQUENT ASSESSMENT YEARS. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON 20.7.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 20 TH JULY, 2010 7 COPY TO 1 SRI SATTI CHANDRA REDDY, D.NO.46-20-1, DANAVAIPET A, RAJAHMUNDRY 2 ITO, WARD-1, RAJAHMUNDRY 3 THE CIT, RAJAHMUNDRY 4 THE CIT(A), RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM