Sri Alluri Srinivasa Raju, V. The Commissiner of Income Tax, Rajahmundry

ITA 399/VIZ/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2676 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-10-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 08-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T L PETER
• Keywords: Unexplained cash credit; Capital asset; Business income; Depreciation; Opportunity of being heard; Cost of acquisition; Assessment record; Benefit of exemption; Set aside; Capital Gains
• Section: 54B; 54F; 69A; 208; 139(1); 139(4); 68; 54; 263; 12; 139

Judgement Text

ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIP ALLI IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 398/ VIZAG/ 20 10 ASSESSMENT YEAR : 2007 - 08 SRI ALLURI KRISHN AM RAJU SAKHENETIPALLI, RAJOLU TALUK, E.G. DIST. CIT RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) PAN NO. ABXPA 6359G ITA NO.399/VIZAG/2010 ASSESSMENT YEAR : 2007 - 08 SRI ALLURI SRINIVASA RAJU SAKHENETIPALLI, RAJOLU TALUK, E.G. DIST. CIT RAJAHMUND RY (APPELLANT) VS. (RESPONDENT) PAN NO. ABWPA 8672P ITA NO. 400 /VIZAG/2010 ASSESSMENT YEAR : 2007 - 08 SMT. PENUMATSA VIJAYA LAKSHMI SAKHENETIPALLI, RAJOLU TALUK, E.G. DIST. CIT RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) PAN NO. ALFPP 9228H APPELLAN T BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI T.L. PETER, DR ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER : - THESE APPEALS ARE PREFERRED BY THE ASSESSEES AGAINST THE RESPECTIVE ORDERS OF THE CIT PASSED U/S 263 OF THE I.T. ACT. CERTAIN ISSUES ARE COMMO N IN THESE APPEALS. THEREFORE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF THROUGH THIS CONSOLIDATED ORDER. COMMON ISSUE IN ALL THESE APPEALS RELATE TO THE CLAIM OF DEDUCTION RAISED U/S 54F OF THE I.T. ACT. ALL THE ASSESSEES ARE CO - OWNE RS OF THE LAND SOLD ON WHICH CAPITAL GAIN WAS ACCRUED. THE DEDUCTION U/S 54F WAS ALLOWED BY THE A.O. BUT LATER ON THE ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 2 ORDER OF THE A.O. WAS S ET ASIDE AND REVISED BY CIT U/S 263 OF THE ACT. WE HOWEVER, PREFER TO ADJUDICATE THESE APPEALS ONE AFTER THE OTHE R. ITA NO.398 OF 2010: 2. THROUGH THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF CIT ON VARIOUS GROUNDS. THE FIRST AND MAJOR GROUND RELATE TO THE CLAIM OF DEDUCTION U/S 54F OF THE I.T. ACT. THE FACTS BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE ALONG WITH OTHER FAMILY MEMBERS UPON PUTTING ON SALE A PATCH OF URBAN LAND, RECEIVED A SUM OF RS.2,10,68,050/ - AS HIS 1/4 TH SHARE OF THE SALE CONSIDERATION. AFTER SETTING OFF TRANSFER FACILITATION EXPENSES OF RS.3 LAKHS AND INDEX COST OF IMPROVEMENT OF RS .16,43,032/ - , HE ARRIVED AT A NET LONG TERM CAPITAL GAINS OF RS.1,91,25,018/ - . AGAINST SUCH NET CAPITAL GAINS, THE ASSESSEE CLAIMED EXEMPTION U/S 54B OF THE ACT ON PURCHASE OF AGRICULTURAL LAND TO THE EXTENT OF RS.71,25,018/ - AND EXEMPTION U/S 54F OF THE I.T. ACT ON PURCHASE OF RESIDENTIAL FLAT AT HYDERABAD OF RS.1.20 CRORES. WHILE PASS ING A SCRUTINY ASSESSMENT ORDER, THE ASSESSING OFFICER HAS ACCEPTED THE CLAIM OF THE ASSESSEES. HE HOWEVER, DISALLOWED 20% OF THE EXPENDITURE CLAIMED AS DEVELOPMENT CHARG ES OF RS.7 LAKHS MADE FOR THE IMPROVEMENT OF THE LAND SOLD AND ITS INDEX VALUE WAS TAKEN AT RS.1,46,197/ - AND WAS ADDED TO THE CAPITAL GAIN. 3. THE CIT WHILE EXERCISING ITS POWER U/S 263 HAS OBSERVED THAT WHILE PASSING SCRUTINY ASSESSMENT ORDER , THE ASSE SSING OFFICER , WITHOUT DEEPLY EXAMINING THE RELEVANT FACTS RELATING TO CLAIM OF EXEMPTION OF CAPITAL GAIN S, WRONGFULLY ACCEPT ED SUCH CLAIM AS COULD BE OBSERVED FROM A PERUSAL OF RECORD S . 4. THE CIT ELABORATED ITS REASONS FOR NOT ACCEPTING THE CLAIM OF T HE ASSESSEES WHILE ISSUING A SHOW CAUSE NOTICE TO THE ASSESSEE AND HAS STATED IN HIS ORDER THAT THE CLAIM OF EXEMPTION U/S 54B OF THE ACT TO THE EXTENT OF RS.71,25,018/ - WAS PATENTLY IL LEGITIMATE ON ACCOUNT OF THE FACT THAT SUCH EXEMPTION IS PERMISSIBLE O NLY WHERE THE ASSET IN RESPECT OF WHICH CAPITAL GAIN ARISES IS AN AGRICULTURAL LAND, WHEREAS THE LAND SOLD BY THE ASSESSEE CONJOINTLY ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 3 WITH HIS FAMILY MEMBERS IS IN DISPUTEDLY , AN URBAN LAND AT HYDERABAD. AS REGARD TO THE CLAIM OF EXEMPTION U/S 54F OF THE A CT TOO , THE CIT OBSERVED THAT THE ASSESSEE WAS PR IMA - FACIE DISENTITLED TO IT FOR HAVING OWNED MORE THAN ONE RESIDENTIAL HOUSE AS ON THE DATE OF DISPOSAL OF THE URBAN LAND IN RESPECT OF WHICH CAPITAL GAINS AROSE. IN SUPPORT OF THESE OBSERVATIONS, HE PLACED RELIANCE UPON THE STATEMENT OF COMPUTATION ATTACHED TO THE RETURN OF INCOME IN WHICH ASSESSEE HAS DECLARED TWO RESIDENTIAL PROPERTIES VIZ. , ONE FLAT AT HYDERABAD AND 50% OF SHARE OF A HOUSE AT GANDHINAGAR, KAKINADA, IN RESPECT OF BOTH OF WHICH HE HAS OFFE RED THE INCOME FROM HOUSE PROPERTY. APART FROM THIS, THE ASSESSEE EXCESS COMPUTED THE QUANTUM OF EXEMPTION U/S 54 F OF THE ACT BY TAKING THE ENTIRE CLAIM OF INVESTMENT OF RS.1.20 CRORES IN THE NEW RESIDENTIAL FLAT AT HYDERABAD, WITHOUT RESTRICTING THE CLAI M OF DEDUCTION ON PRO - RATA BASIS U/S 54F(A)(B) OF THE ACT , T HERE BY ILLEGITIMATELY CLAIMING EXCESS DEDUCTIONS. THE CIT FURTHER OBSERVED THAT IT WAS NOT ESTABLISHED AS TO WHETHER THE ASSESSEE HAS SATISFIED THE CONDITION OF INVESTMENT , I N THE PURCHASE/CONST RUCTION OF NEW RESIDENTIAL HOUSE WITHIN THE PRESCRIBED PERIOD OF 2 OR 3 YEARS AS THE CASE MAY BE , AND ALSO , PENDING THE INVESTMENT IN THE NEW RESIDENTIAL PROPERTY, WHETHER THE NET CAPITAL GAIN S WAS DEPOSITED IN THE SPECIFIED BANK ACCOUNT UNDER THE C APITAL G AIN A CCOUNTS S CHEME . WITH REGARD TO THE COST OF IMPROVEMENT S , THE CIT OBSERVED THAT THE CLAIM OF COST OF IMPROVEMENT AGGREGATING TO RS.13,67,000/ - AS REGARDS ITS SOURCE S , COVERING A PERIOD OF 5 ASSESSMENT YEARS REMAIN UNPROVED AND , AS SUCH , THE CORRECTNE SS OF THE FIGURE OF NET CAPITAL GAIN SHOWN IS VERY MUCH QUESTIONABLE. 5. THE LD. COUNSEL FOR THE ASSESSEE APPEARED BEFORE THE CIT WITH THE SUBMISSION THAT 50% SHARE OF PROPERTY AT GANDHINAGAR, KAKINADA DOES NOT CONSTITUTE A FULL RESIDENTIAL HOUSE AS PER THE ORDER OF THE TRIBUNAL IN THE CASE OF ITO VS. RASIKLAL N. SATRA 100 TTJ (M) 1039 IN WHICH IT WAS HELD THAT A RESIDENTIAL HOUSE IN THE CONTEXT OF SECTION 54F OF THE ACT MEANS A COMPLETE RESIDENTIAL HOUSE AND WOULD NOT INCLUDE SHARED INTEREST IN THE RES IDENTIAL HOUSE WHERE THE PROPERTY IS CO - OWNED. ACCORDINGLY, 50% SHARE OF THE PROPERTY AT GANDHINAGAR, KAKINADA WOULD NOT BE TREATED AS FULLY AND WHOLLY OWNED PROPERTY BY THE ASSESSEE WHICH LEFT THE ASSESSEE THE FULL OWNER OF ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 4 ONLY ONE PROPERTY AT HYDERABAD AND AS SUCH, HE WAS CLEARLY ENTITLED TO THE BENEFIT OF DEDUCTION U/S 54F OF THE ACT. 6. SO FAR AS COST OF IMPROVEMENT ARE CONCERNED, THE ASSESSEE STARTED DEVELOPING THE LAND RIGHT FROM THE YEAR 1995 - 96 TO 2005 - 06 AT REGULAR INTERVALS BY WAY OF SITE IMPRO VEMENT AND LEVELING. THE AGGREGATE COST OF ITS SHARE WORKED OUT TO RS.13,67,700/ - WHICH TOGETHER WITH A SHARE OF COST OF LAND AND THE BENEFIT OF INDEXATION WORKED OUT TO BE A SUM OF RS.16,43,032/ - WHICH HE CLAIMS A SET OFF AGAINST THE GROSS CAPITAL GAIN R ECEIPT TO ARRIVE THE NET CAPITAL GAIN RECEIPT OF RS.1,91,25,018/ - . WITH REGARD TO THE INVESTMENT IN THE NEW PROPERTY, ASSESSEE HAS PAID OF RS.1.20 CRORES TO M/S. GRANDEUR BUILDERS AND DEVELOPERS BY CHEQUE DATED 12.12.2006 DRAWN ON ORIENTAL BANK OF COMMERC E. AS SUCH, THE REQUISITE CONDITIONS FOR ACQUIRING NEW RESIDENTIAL HOUSE WITHIN A PERIOD OF 2 YEARS HAS BEEN FULFILLED. THEREFORE, THE A.O. HAS RIGHTLY ACCEPTED THE CLAIM OF THE ASSESSEES HAVING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES. 7. THE CIT RE - EXAMINED THE EXPLANATIONS OF THE ASSESSEES IN THE LIGHT OF ASSESSMENT ORDERS AND THE ENQUIRIES MADE BY THE A.O. AND REPLY FILED BY THE ASSESSEE, BUT WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES AND HAS SET ASIDE THE ORDER OF THE A.O. WI TH THE OBSERVATIONS THAT A.O. HAS NOT APPLIED HIS MIND PR OPERLY TO THE FACTS OF THE CASE. THE RELEVANT OBSERVATION OF THE CIT ARE EXTRACTED HEREUNDER: 3.2 AFTER CAREFUL CONSIDERATION OF THE SUBMISSIONS AND CLARIFICATIONS AND ON PERUSAL OF THE RECORDS AND DOCUMENTS FURNISHED DURING THE REVISIONARY PROCEEDINGS, THE FOLLOWING OBSERVATIONS ARE MADE AND DECISIONS TAKEN: - (I) ADMITTEDLY, ON THE DATE OF SALE OF THE URBAN LAND AT HYDERABAD, WHICH IS THE SUBJECT OF CAPITAL GAINS, THE ASSESSEE WAS THE OWNER OF ONE HOUSE PROPERTY AT HYDERABAD AND 50% OF ANOTHER HOUSE PROPERTY AT KAKINADA. THE DECISION OF THE TRIBUNAL CITED SUPRA HAS NO CONTEXTUAL RELEVANCE IN THE PRESENT CASE IN AS MUCH AS IT WAS RENDERED WITH REFERENCE TO THE EARLIER UNAMENDED PROVISO TO SECTI ON 54F WHICH WAS APPLICABLE TO CASES PRIOR TO THE ASSESSMENT YEAR 2001 - 2002. THE BASIC CONDITION IN RESPECT OF THE UNAMENDED PROVISION WAS THAT AN ASSESSEE MUST NOT OWN ANY RESIDENTIAL HOUSE ON THE DATE OF THE TRANSFER OF THE ORIGINAL ASSET ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 5 OTHER THAN THE NEWE ASSET, WHEREAS IN THE AMENDED NEW PROVISO (A)(I), THE REQUIREMENT IS THAT THE ASSESSEE MUST NOT OWN MORE THAN ONE RESIDENTIAL HOUSE OTHER THAN THE NEW ASSET. SURELY, THE INSTANT ASSESSEE WOULD NOT DENY THAT OVER AND ABOVE THE RESIDENTIAL HOUSE AT HY DERABAD, HE DOES HAVE OWNERSHIP RIGHT IN RESPECT OF THE RESIDENTIAL HOUSE AT KAKINADA, MERELY BECAUSE SUCH OWNERSHIP IS LIMITED TO ONLY 50%, FOR THE REASON THAT THE ASSESSEE HIMSELF HAS ADMITTED THE INCOME FROM HOUSE PROPERTY IN RESPECT OF SUCH 50% SHARE O F OWNERSHIP. SINCE THE FACT OF OWNING MORE THAN ONE RESIDENTIAL HOUSE UNDISPUTABLY APPEARS IN THE ASSESSEES CASE, THE CONDITION OF NOT OWNING MORE THAN ONE RESIDENTIAL HOUSE AS PER THE SAID PROVISO (A)(I) HAS NOT BEEN COMPLIED WITH BY THE ASSESSEE, AND, AS SUCH, THE ASSESSEE GETS CLEARLY DEBARRED FROM THE BENEFIT OF EXEMPTION U/S 54F OF THE ACT. EVEN OTHERWISE, IT MAY BE STATED, WITH DUE RESPECT TO THE DECISION OF THE ITAT CITED BY THE ASSESSEE, THAT JOINT OWNERSHIP OF A HOUSE COULD WELL BE INTERPRETED A S OWNING A RESIDENTIAL HOUSE FOR THE REASON THAT IT WAS THE INTENTION OF THE LEGISLATURE THAT THE BENEFIT OF EXEMPTION BE GRANTED TO PERSONS WHO DID NOT HAVE ANY RESIDENTIAL ACCOMMODATION AT ALL AS AGAINST THOSE WHO HAD THE BENEFIT OF EITHER FULL OR SHARED RESIDENTIAL ACCOMMODATION. IT WOULD BE INCORRECT TO CONSTRUE THAT A JOINT OWNERSHIP OR SHARED RESIDENTIAL ACCOMMODATION HAS ANY INHERENT DISADVANTAGE THAN A SOLE AND WHOLE OWNERSHIP ACCOMMODATION; A SHARED ACCOMMODATION MAY COME WITH HIGHER BENEFIT IN TE RMS OF SIZE, EXTENT QUALITY ETC., WHILE A SOLE ACCOMMODATION CAN BE AS SMALL AND MODEST A HOUSE FORMING PART OF A LOW OR MIDDLE INCOME GROUP HOUSING COLONY. A PERSON HAVING JOINT OWNERSHIP WITH ANOTHER COULD WELL HAVE THE ACCESS TO A LARGER PALATIAL ACCOM MODATION AND EVEN IF HE DOES NOT HAVE DEMARCATED SPACE AND AREA IN METES AND BOUNDS, HE COULD WELL HAVE AN EQUAL RIGHT WITH CO - OWNERS TO ENJOY THE ENTIRE ACCOMMODATION WITHOUT RESTRICTION. HENCE THE INTERPRETATION DRAWN IN THE CITED CASE LAW LOOKS AT THE ISSUE FROM A NARROW PERSPECTIVE AND, AS SUCH, CANNOT BE STRETCHED TO PROVIDE THE BENEFIT OF EXEMPTION TO PERSONS HAVING SHARED OWNERSHIP OF A HOUSE. (II) EVEN THE CLAIM OF COST OF IMPROVEMENT IN THE PAST YEARS IS NOT BORNE OUT FROM THE ASSESSMENT RECORD S OF THE ASSESSEE. IN NONE OF THE CAPITAL ACCOUNTS OF THE RELEVANT YEARS 1995 - 1996, 1998 - 1999, 2002 - 2003, 2003 - 04 AND 2006 - 07 DURING WHICH THE AGGREGATE OF THE ALLEGED DEVELOPMENT EXPENSES OF RS.14,10,200/ - HAVE BEEN CLAIMED, HAS ANY WITHDRAWAL FOR SUCH P URPOSE BEEN REFLECTED, WHICH INDICATES THAT THERE IS NO CORRESPONDING SOURCES OF EXPENDITURE FOR ANY ALLEGED EXPENDITURE TOWARDS DEVELOPMENT. HENCE, THE VERY CLAIM OF ANY DEVELOPMENT CHARGES APPEAR TO BE UNSUBSTANTIATED, AND, AS SUCH, THE BENEFIT OF DEDUC TION OF ANY INDEXED COST FROM THE GROSS CAPITAL GAINS CANNOT BE ALLOWED TO THE ASSESSEE. FURTHER, NO EVIDENCE WHATSOEVER HAS BEEN FURNISHED IN SUPPORT OF THE CLAIM OF TRANSFER EXPENSES OF RS.3 LAKHS FOR SELLING THE URBAN PROPERTY AT HYDERABAD. ACCORDINGL Y, NO DEDUCTION OF ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 6 ANY TRANSFER EXPENSES AS WELL AS DEVELOPMENT CHARGES ARE PERMISSIBLE FOR THE PURPOSE OF COMPUTING THE CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. (III) AGAIN, THE ASSESSEE HAS FAILED TO FULFILL THE CONDITION OF PURCHASE OF THE PROPERTY WITHIN A PERIOD OF TWO YEARS SINCE ADMITTEDLY NO SALE DEED HAS BEEN EXECUTED SO FAR. A MERE PAYMENT OF SALE CONSIDERATION DOES NOT, BY ITSELF, VEST THE OWNERSHIP OF THE NEW PROPERTY WITH THE ASSESSEE FROM A LEGAL PERSPECTIVE. THERE ALSO EXISTS ANOTHER L ACUNA THAT AS AGAINST THE TOTAL VALUE OF THE NEW RESIDENTIAL PROPERTY INCLUDING LAND AT RS.1.5 CRORES, THE ASSESSEE HAS PAID ONLY RS.1.2 CRORES AND ON ACCOUNT OF NON PAYMENT OF THE BALANCE SALE CONSIDERATION, THE ASSESSEE DOES NOT GET CLEAR TITLE OVER THE PROPERTY. ACCORDINGLY, IT CANNOT BE HELD THAT THE ASSESSEE HAS PURCHASED THE PROPERTY IN QUESTION WITHIN THE STIPULATED PERIOD OF TWO YEARS. ON THIS COUNT TOO, THE ASSESSEE IS DISENTITLED TO THE CLAIM OF EXEMPTION U/S 54F OF THE ACT. 3.3 THE ASSESSING OFFICER SHALL, THEREFORE, RECOMPUTED THE CAPITAL GAINS IN THE HANDS OF THE ASSESSEE BY DEDUCTING ONLY THE INDEXED COST OF ACQUISITION OF RS.1,21,195/ - FROM THE GROSS FIGURE OF THE ASSESSEES SHARE OF RS.2,10,68,050/ - AND SUBJECT THE BALANCE AMOUNT OF RS.2, 09,46,855/ - TO TAX WHILE GIVING EFFECT TO THIS ORDER. 8. NOW THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT A.O. HAS PROPERLY EXAMINED THE CLAIM OF DEDUCTION U/S 54F OF THE ACT AND HAVING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEES, HE HAS ACCEPTED THE CLAIM AND ALLOWED DEDUCTIONS U/S 54F OF THE ACT. IN SUPPORT OF HIS CONTENTION, HE HAS INVITED OUR ATTENTION TO THE COMPUTATION OF INCOME TOGETHER WITH ANNEXURE AND AUDIT REPORT , COPIES OF REPLIES FILED BEFORE THE ASS ESSING OFFICER AND COPY OF ACCOUNT WITH ORIENTAL BANK OF COMMERCE. FROM THE REPLY FILED BEFORE THE A.O. APPEARING AT PG.NO.27 OF THE COMPILATION OF THE ASSESSEES, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT HE HAS FURNISHED THE ENTIRE INFORMATION WITH REGARD TO THE SALE OF THE PLOT AT HYDERABAD AND THE INVESTMENT FOR PURCHASE OF RESIDENTIAL HOUSE AT HYDERABAD AND ALSO IN AGRICULTURAL LAND. SINCE THE ASSESSEE HAS FURNISHED ALL THE INFORMATION WITH EVIDENCE AND THE A.O. HAS APPLIED ITS MIND, THE FINDING OF THE A.O. CANNOT BE REVISED U/S 263 OF THE ACT FOR THE SIMPLE REASON THAT CIT FORMED A CONTRARY VIEW ON THE FACTS PLACED BEFORE HIM. ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 7 9. THE LD. D.R. ON THE OTHER HAND BESIDES PLACING HEAVY RELIANCE UPON THE ORDER OF CIT HAS CONTENDED THAT THROUGH TH E LETTER APPEARING AT PG.NO.27 OF THE COMPILATION OF THE ASSESSEE, THE A.O. WAS SIMPLY INFORMED ABOUT THE SALE OF PLOT AT HYDERABAD ON WHICH ASSESSEE HAS RECEIVED ITS 1/4 TH SHARE OF SALE CONSIDERATION AT RS.2,10,68,050/ - AND ALSO ABOUT THE INVESTMENT FOR PU RCHASE OF RESIDENTIAL FLAT AND IN AGRICULTURAL LAND. BUT FOR ALLOWING A DEDUCTION U/S 54F OF THE ACT, THE TIME FACTOR IS RELEVANT UNDER WHICH THE SALE CONSIDERATION IS TO BE FURTHER INVESTED AND THE RESIDENTIAL PROPERTY IS TO BE ACQUIRED. BEFORE CLAIMING DEDUCTION U/S 54F OF THE ACT, THE ONUS IS UPON THE ASSESSEE TO PLACE RELEVANT EVIDENCE ON RECORD TO ESTABLISH THAT HE HAS FULFILLED THE REQUISITE CONDITIONS ENVISAGED IN SECTION 54F OF THE ACT. AS PER SECTION 54F OF THE ACT, THE ASSESSEE SHOULD PURCHASE A RESIDENTIAL HOUSE WITHIN A PERIOD OF 2 YEARS FROM THE DATE OF TRANSFER OF ORIGINAL ASSET OR WITHIN A PERIOD OF 3 YEARS FROM THE SAID DATE CONSTRUCT A RESIDENTIAL HOUSE. MEANING THEREBY, THE PERIOD UNDER WHICH THE RESIDENTIAL HOUSE IS PURCHASED OR CONSTR UCTED IS QUITE RELEVANT TO DETERMINE THE CLAIM OF DEDUCTION U/S 54F OF THE ACT. AS PER PROVISO TO THE SECTION, ASSESSEE IS ONLY ELIGIBLE FOR DEDUCTION U/S 54F IF HE DOES NOT HAVE MORE THAN ONE RESIDENTIAL HOUSE OTHER THAN THE NEW ASSET ON THE DATE OF TRAN SFER OF THE ORIGINAL ASSET. ALL THESE INFORMATIONS ARE NEITHER AVAILABLE IN THE REPLY FILED BY THE ASSESSEES NOR VERIFIED BY THE A.O. BEFORE ALLOWING A CLAIM OF DEDUCTION U/S 54F TO THE ASSESSEE. ON SCRUTINY, THE CIT HAS VERIFIED THESE FACTS AND HAS NOTI CED THAT ASSESSEE OWNED TWO RESIDENTIAL HOUSES ON THE DATE OF TRANSFER OF THE CAPITAL ASSET. THE ASSESSEE HAS ALSO NOT ACQUIRED THE RESIDENTIAL HOUSE WITHIN A PERIOD OF TWO YEARS . H E HAS SIMPLY MADE THE PAYMENT TO SOME CONTRACTOR WHERE FROM IT IS NOT EST ABLISHED THAT ASSESSEE HAS EVER PURCHASED OR CONSTRUCTED ANOTHER RESIDENTIAL HOUSE WITHIN THE PERIOD PRESCRIBED U/S 54F OF THE ACT. THEREFORE, THE A.O. HAS ALLOWED THE CLAIM OF THE ASSESSEE WITHOUT APPLYING HIS MIND TO THE FACTS. THUS , HIS ORDER IS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE LD. D.R. FURTHER CONTENDED THAT CIT HAS RIGHTLY EXERCISED HIS JURISDICTIONS UNDER THE GIVEN FACTS AND HAS RIGHTLY SET ASIDE THE ORDER OF THE A.O. 10. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CA REFUL PERUSAL OF THE ASSESSMENT ORDER, THE ORDER OF THE CIT PASSED U/S 263 AND THE MATERIAL ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 8 AVAILABLE ON RECORD, WE FIND THAT WHILE ALLOWING A CLAIM OF THE ASSESSEE U/S 54F, THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE ONLY IN ONE PARA WITHOUT STATING ANY THING WHETHER THE ASSESSEE HAS FULFILLED THE REQUISITE CONDITIONS FOR CLAIMING THE DEDUCTION U/S 54F OF THE ACT. THE REPLY FILED BEFORE THE ASSESSING OFFICER IN THIS RECORD IS ALSO AVAILABLE AT PG.NO.27 OF THE PAPER BOOK AND FROM ITS PERUSAL, WE FIND THAT ASSESSEE HAS SIMPLY DISCLOSED THE RECEIPT OF ITS SHARE OF SALE CONSIDERATION ON SALE OF CAPITAL ASSET AND INVESTMENT MADE TOWARDS THE CONSTRUCTION OF RESIDENTIAL FLAT. BUT FROM THIS LETTER, IT IS NOT EVIDENT AS TO WHEN THE RESIDENTIAL FLAT WAS PURCHASED OR FINALLY CONSTRUCTED BY THE ASSESSEES. BUT FOR ALLOWING A CLAIM OF DEDUCTION U/S 54F, THE ASSESSEE IS REQUIRED TO ESTABLISH THAT HE HAS EITHER PURCHASED A RESIDENTIAL HOUSE WITHIN A PERIOD OF 2 YEARS FROM THE DATE OF TRANSFER OF THE CAPITAL ASSET OR HAS CONSTRUCTED THE RESIDENTIAL HOUSE WITHIN A PERIOD OF 3 YEARS FROM THAT DATE. BUT IN THIS RE GARD, NO EVIDENCE WAS PLACED BEFORE THE A.O. 11. DU RING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED ONE RECEIPT OF PAYMENT TO THE BUILDE R DATED 15.12.2006. BUT FROM THIS RECEIPT, IT IS NOT CLEAR WHAT WAS THE TERMS AND CONDITIONS OF THE CONSTRUCTION OF A RESIDENTIAL HOUSE AND WHEN WAS THE RESIDENTIAL HOUSE CONSTRUCTED. DURING THE COURSE OF HEARING, SPECIFIC QUERY WAS RAISED FROM THE ASSES SEE TO FURNISH THE AGREEMENT FOR THE CONSTRUCTION OF PROPERTY TO VERIFY THE TERMS AND CONDITIONS ON WHICH THE ASSESSEE INTEND TO ACQUIRE THE RESIDENTIAL PROPERTY BUT THE LD. COUNSEL FOR THE ASSESSEE HAS CANDIDLY ADMITTED THAT NO AGREEMENT WAS EXECUTED. ON LY ON THE BASIS OF THE RECEIPT IT IS VERY DIFFICULT FOR US TO DRAW AN INFERENCE THAT ASSESSEE HAS EVER INTENDED TO CONSTRUCT THE RESIDENTIAL HOUSE WITHIN A PERIOD OF 3 YEARS FROM THE DATE OF TRANSFER OF THE PROPERTY. WE HAVE ALSO EXAMINED THE JUDGEMENT O F THE MADRAS HIGH COURT IN THE CASE OF CIT VS. SADARMAL KOTHARI 302 ITR 286 RELIED BY THE ASSESSEE AND WE FIND THAT IN THAT CASE CONSTRUCTION WAS COMPLETED AND COMPLETION CERTIFICATE WAS OBTAINED WITHIN THE PRESCRIBED PERIOD. THEREFORE, IT WAS HELD THAT A SSESSEE HAS CONSTRUCTED THE RESIDENTIAL HOUSE WITHIN THE STIPULATED PERIOD. BUT IN THE INSTANT CASE, NOTHING HAS BEEN DEMONSTRATED BY THE ASSESSEES . H E HAS SIMPLY FILED A COPY OF THE PAYMENT WHERE FROM IT CANNOT BE DEDUCED AS TO WHEN THE RESIDENTIAL HOUS E WAS CONSTRUCTED AND POSSESSION ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 9 THERE OF WAS TAKEN BY THE ASSESSEES. THEREFORE, NO RELIANCE CAN BE PLACED ON THE AFORESAID JUDGEMENT REFERRED TO BY THE ASSESSEES. 1 2 . SO FAR AS OTHER ISSUE THAT ASSESSEE OWNED TWO PROPERTIES AT THE TIME OF TRANSFER OF THE CAPITAL ASSET ARE CONCERNED, WE ARE OF THE VIEW THAT AS PER THE PROVISO TO SECTION 54F ASSESSEE CAN CLAIM DEDUCTION U/S 54F IF HE DOES NOT HAVE MORE THAN ONE RESIDENTIAL HOUSE. IN THE INSTANT CASE, ADMITTEDLY THE ASSESSEE HAS ONE FULL - FLEDGED RESIDEN TIAL HOUSE AND IN SECOND RESIDENTIAL HOUSE ASSESSEE IS HAVING A 50% SHARE THEREIN. IT IS ALSO NOT CLEAR FROM THE FACTS WHETHER THE ASSESSEE OWNED AN INDIVIDUAL RESIDENTIAL UNIT IN THAT JOINTLY OWNED RESIDENTIAL HOUSE. ALL THESE FACTS REQUIRES A PROPER VE RIFICATION BUT WE DO NOT FIND FROM THE MATERIAL AVAILABLE ON RECORD THAT THE ASSESSING OFFICER HAS EVER APPLIED HIS MIND TO THESE FACTS. THEREFORE, WE ARE OF THE VIEW THAT THIS CLAIM OF DEDUCTION U/S 54F OF THE ACT WAS NOT PROPERLY EXAMINED BY THE ASSESSI NG OFFICER . THEREFORE, ITS ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THE CIT HAS RIGHTLY INVOKED HIS JURISDICTION U/S 263 OF THE ACT. WE THEREFORE, APPROVE HIS ACTION , BUT SO FAR AS ISSUE OF DISALLOWANCE OF CLAIM OF EXEMPTION U/S 54F BY THE CIT IS CONCERNED, WE ARE OF THE VIEW THAT CIT HAS NO JURISDICTION TO THRUST HIS WISDOM UPON THE ASSESSING OFFICER. HE SHOULD SIMPLY SET ASIDE THE ORDER OF THE A.O. AND RESTORE THE MATTER BACK TO HIM FOR ITS RE - ADJUDICATIONS AFTER MAKING NEC ESSARY VERIFICATIONS OF THE FACTS. WE THEREFORE, MODIFY THE ORDER OF CIT AND DIRECT THE A.O. TO RE - ADJUDICATE THE ISSUE OF CLAIM OF DEDUCTION U/S 54 F OF THE ACT AFTER MAKING NECESSARY VERIFICATION OF THE FACTS AS PER LAW. 1 3 . NEXT GROUND RELATE TO THE DE DUCTION OF EXPENDITURE INCURRED BY THE ASSESSEES AGAINST THE RECEIPT OF SALARY AND ALLOWANCES AT RS.4.8 LAKHS BY THE ASSESSEE IN HIS CAPACITY AS A MEMBER OF ANDHRA PRADESH LEGISLATIVE ASSEMBLY. FROM PERUSAL OF TH E ORDER OF THE A.O., WE FIND TH AT THE INDIV IDUAL EXPENDITURE I.E. THE SECURITY CAR EXPENDITURE OF RS.1.8 LAKHS, TELEPHONE EXPENDITURE OF RS.60,000/ - AND MEDICAL EXPENDITURE OF RS.36,000/ - WAS EXAMINED BY THE ASSESSING OFFICER. SINCE THE ENTIRE EXPENDITURE WERE NOT VERIFIABLE, THE A.O. HAS DISALLOW ED THE 20% OF THE SECURITY CAR EXPENSES WHICH COMES TO RS.36,000/ - . THE ENTIRE MEDICAL EXPENDITURE OF ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 10 RS.36,000/ - WAS ALSO DISALLOWED BY THE A.O. OUT OF TOTAL TELEPHONE EXPENDITURE OF RS.60,000/ - THE A.O. HAS ALLOWED THE EXPENDITURE OF RS.37,223/ - ON TH E BASIS OF THE EVIDENCE FURNISHED BEFORE HIM AND BALANCE WAS DISALLOWED. THIS ORDER OF THE A.O. WAS ALSO REVISED BY THE CIT FOR THE SIMILAR GROUND THAT A.O. HAS NOT APPLIED ITS MIND TO THIS ISSUE AND HAS ACCEPTED THE CLAIM OF THE ASSESSEE AFTER MAKING A P ART DISALLOWANCE. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSING OFFICER HAS PROPERLY EXAMINED THIS ISSUE AND BEING NOT CONVINCED FULLY WITH THE CONTENTION OF THE ASSESSEE, HE HAD MADE THE CORRESPONDING DISALLOWANCES. THEREFORE, IT IS NOT PROPER TO SAY THAT THE A.O. HAS NOT APPLIED HIS MIND TO THE FACTS OF THE CASE. 14. IN OPPUGNITION, THE LD. D.R. HAS PLACED HEAVY RELIANCE UPON THE ORDER OF THE CIT. 1 5 . HAVING GIVEN A THOUGHTFUL CONSIDERATION OF THE RIVAL SUBMISSIONS AND FROM A C AREFUL PERUSAL OF THE ORDER OF THE LOWER AUTHORITIES, WE FIND THAT THE A.O. HAS APPLIED HIS MIND TO THE FACTS OF THE CASE AND HAS EXAMINED EACH AND EVERY EXPENDITURE CLAIMED BY THE ASSESSEES A T THE RELEVANT POINT OF TIME . T HE RECEIPT OF SALARY AND ALLOWAN CES BY THE MLAS WERE CONSIDERED TO BE THE INCOME FROM OTHER SOURCES, THEREFORE, THE EXPENDITURE INCURRED TO EARN THAT MUCH OF INCOME IS ALLOWABLE U/S 57(III) OF THE ACT. THE A.O. HAS APPLIED THE SAME PRINCIPLE AND HAS MADE THE CORRESPONDING DISALLOWANCE A FTER HAVING OBSERVED THAT THE ENTIRE EXPENDITURE WERE NOT VERIFIABLE. SINCE THE A.O. HAS PROPERLY EXAMINED THIS ISSUE, IT CANNOT BE REVISED BY THE CIT U/S 263 OF THE ACT FOR THE SIMPLE REASON THAT HE HAS A DIFFERENT VIEW WITH RESPECT TO THE PARTICULAR ISS UE. WE THEREFORE DO NOT FIND OURSELVES IN AGREEMENT WITH THE ORDER OF CIT AND WE SET ASIDE HIS ORDER IN THIS REGARD. 1 6 . THE NEXT ISSUE RELATE TO THE ESTIMATION OF INCOME FROM THE PROPRIETARY CONCERN OF ASSESSEE NAMELY A.K.R. INDUSTRIES . IN THIS REGAR D, THE CIT NOTICED THAT THE ASSESSEE HAD RETURNED A NET PROFIT OF RS.1.28 LAKHS AS AGAINST THE TOTAL TURNOVER OF RS.1.10 CRORES. HOWEVER, A CLOSE EXAMINATION OF PROFIT AND LOSS ACCOUNT REVEALED THAT RENTAL INCOME OF RS.1.20 LAKHS WHICH HAS NO DIRECT ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 11 NEXUS WITH THE MANUFACTURING ACTIVITY OF THE ASSESSEE HAS ALSO BEEN INCLUDED IN THE NET PROFIT , T HEREBY SHOWING THE NET RESULT AT PATHETICALLY LOW FIGURE PROFIT OF BUSINESS OF RS.8,013/ - WHICH WORKS OUT TO BE ABYSMALLY LOW RATE OF 0.07%. THE CIT FURTHER OBSERV ED THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION REGARDING SUCH LOW FIGURE OF PROFIT, IT BECAME EVIDENT THAT ASSESSEE HAS NOT DISCLOSED ITS TRUE PROFIT IN ITS LINE OF MANUFACTURING ACTIVITY COMMENSURATE WITH THE NORMAL RATE OF PROFIT DISCLO SED BY OTHER ASSESSEES AT VARYING RATE S EXCEEDING 8%. HE ACCORDINGLY, COMPUTED NET INCOME FROM THE BUSINESS CLEAR OF DEPRECIATION AT RS.8,84,298/ - . NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSION THAT THE ACCOUNTS OF THE ASSESSEE WERE PROPERLY AUDITED BY THE CHARTERED ACCOUNTANT AND THE ASSESSING OFFICER WAS SATISFIED WITH THE ACCOUNTS BEFORE ACCEPTING THE CLAIM OF THE ASSESSEES. THEREFORE, THE CIT IS NOT CORRECT IN MAKING FURTHER ESTIMATION AFTER SETTING ASIDE THE ORDER OF THE A.O. 17. THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED THAT IN THIS REGARD NO QUERY WAS RAISED BY THE A.O. AS TO WHY FROM A TURN OVER OF RS.1.10 CRORES HOW THIS PROFIT AT RS.8,013/ - WAS SHOWN AND ALSO HOW THE RENTAL INCOME WAS INCLUDED IN THE BUSINESS INCOME OF THE ASSESSEES. SINCE THE A.O. HAS NOT EXAMINED THIS ISSUE AT ALL, THE CIT WAS RIGHT IN SETTING ASIDE THE ORDER OF THE A.O. IN THIS REGARD UNDER HIS REVISIONAL JURISDICTION. 1 8 . HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE RECORD, WE FIND THAT T HIS ISSUE WAS NEITHER EXAMINED BY THE A.O. THROUGH ANY QUERIES NOR WAS IT DISCUSSED IN THE ASSESSMENT ORDER. THEREFORE, FROM THE RECORD AVAILABLE BEFORE US, IT IS NOT CLEAR WHETHER THE ASSESSING OFFICER HAS EVER APPLIED ITS MIND TO THE FACTS. WHEREAS THE CIT HAS BROUGHT OUT A CASE THAT THE RENTAL INCOME WAS INCLUDED IN THE BUSINESS INCOME OF THE ASSESSEES AND MORE SO IF THE RENTAL INCOME IS EXCLUDED, THE PROFITS SHOWN BY THE ASSESSEES WAS ONLY 0.07%, WHICH IS NOT AT ALL POSSIBLE IN THE SAME LINE OF BUSINE SS. WE THEREFORE, OF THE VIEW THAT SINCE THE A.O. HAS NOT EXAMINED THIS ISSUE AT ALL DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CIT IS JUSTIFIED IN SETTING ASIDE HIS ORDER U/S 263 OF THE ACT AFTER INVOKING THE REVISIONAL JURISDICTIONS IN AS MUCH AS THE ORDER OF THE A.O. IS ERRONEOUS AND ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 12 PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE HOWEVER, DO NOT AGREE WITH THE ESTIMATION MADE BY THE CIT BECAUSE THE CIT HAS NO JURISDICTION TO THRUST UPON HIS WISDOM UPON THE ASSESSING OFFICER . A T THE MOST HE CAN S ET ASIDE THE ORDER OF THE A.O. WITH A DIRECTION TO RE - ADJUDICATE THE ISSUE AFTER MAKING NECESSARY VERIFICATION OF THE FACTS. THEREFORE, WE MODIFY THE ORDER OF THE CIT AND DIRECT THE A.O. TO RE - ADJUDICATE THE ISSUE AFRESH AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ALSO AFTER MAKING NECESSARY VERIFICATION OF THE FACTS AND EVIDENCE PLACED BEFORE IT. 1 9 . THE NEXT ISSUE RELATE TO THE CREDIT ENTRY OF RS.3,61,16,65 6 / - RECEIVED FROM ADITYA HOUSING INFRASTRUCTURE LIMITED. IN THIS REGARD, TH E CIT HAS TREATED THIS CREDIT ENTRY AS UNEXPLAINED CASH CREDIT AFTER HAVING OBSERVED THAT THIS ISSUE WAS NOT EXAMINED AT ALL BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. WHILE SETTING ASIDE THE ORDER OF THE A.O., THE CIT HAS OBSER VED AS UNDER: 6.2.1. WHEN REQUIRED TO FURNISH THE CONFIRMATORY LETTER FROM THE ALLEGED CREDITOR M/S. ADITYA HOUSING INFRASTRUCTURE LTD., FOR THE ALLEGED LOAN AMOUNT OF RS.3,61,16,656/ - , THE LEARNED AUTHORIZED REPRESENTATIVE SOUGHT TIME TO FURNISH THE SAM E. HOWEVER, DESPITE A COUPLE OF OPPORTUNITIES GRANTED AND TILL THE DATE OF PASSING OF THIS ORDER, NO CONFIRMATORY LETTER FROM THE ALLEGED PARTY HAD BEEN PRODUCED. THE SEQUENCE OF EVENTS BEGINNING WITH NON - DISCLOSURE IN THE ACCOUNTS (BALANCE SHEET) ANY LO AN CREDIT FROM M/S. ADITYA HOUSING INFRASTRUCTURE LTD., AND CLAIMING ONLY TWO MAJOR LOAN CREDITORS IN THE NAMES OF M/S. A. SUBBA RAJU AND CO., AND SMT. P. KRISHNA KUMARI, FOR THE FIRST TIME STATING DURING THE REVISIONARY PROCEEDINGS THAT A SUM OF RS.3,61,1 6,656/ - CREDITED TO HIS BANK ACCOUNT WITH ORIENTAL BANK OF COMMERCE, AMEERPET BRANCH, HYDERABAD, REFLECTS A LOAN FROM THE SAID PARTY FOR URGENT BUSINESS NEEDS, UNABLE TO EXPLAIN THE NON - UTILISATION OF THE BALANCE ALLEGED LOAN OF RS.1.3 CRORES, AND ENDING W ITH NON - PRODUCTION OF THE ESSENTIAL REQUIREMENT OF A CONFIRMATORY LETTER FROM THE ALLEGED CREDITOR, LEADS TO THE INESCAPABLE CONCLUSION THAT WHEN CAUGHT ON THE WRONG FOOT, THE ASSESSEE PROFFERS EXPLANATION WHICH HE IS UNABLE TO SUBSTANTIATE WITH COGENT EVI DENCE, OR THAT HIS EXPLANATION ITSELF DOES NOT INSPIRE CONVICTION IN VIEW OF THE FACT THAT THE NAME AND THE QUANTUM OF CREDIT DOES NOT FIGURE IN THE LIST OF CURRENT LIABILITIES IN THE BALANCE SHEET OF THE RELEVANT ACCOUNTING YEAR. IT IS A WELL SETTLED P ROPOSITION OF LAW ON THE ISSUE OF CASH CREDITS U/S 68 OF THE ACT THAT THE CONDITIONS OF ESTABLISHING THE IDENTITY OF THE CREDITOR, THE CREDITWORTHINESS OF THE CREDITOR INDICATING THE SOURCES OF FUNDS OF THE ALLEGED CREDITOR, AND THE GENUINENESS OF THE ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 13 TRAN SACTION AS TO THE MODE IN WHICH THE MONEY PASSED HANDS HAVE TO BE ESTABLISHED, AND ESTABLISHED CUMULATIVELY. IF ANY OF THE THREE CONDITIONS ARE NOT SATISFIED IN A GIVEN CASE, THE GENUINENESS OF THE LOAN/CREDIT REMAINS UNESTABLISHED AND THE ONUS REMAINS UN DISCHARGED BY THE ASSESSEE CLAIMING TO HAVE RECEIVED THE LOAN/CREDIT. APPLYING SUCH POSTULATION OF LAW IN THE ASSESSEES CASE, IT COULD BE OBSERVED THAT ALTHOUGH THE IDENTITY OF THE ALLEGED CREDITOR, BEING A COMPANY, INSPIRES CONVICTION, YET THE MOST CRUC IAL ASPECT OF ANY DECLARATION OF HAVING LENT AN AMOUNT OF RS.3,61,16,65 6/ - IS MISSING AND FURTHER THAT THE CREDITWORTHINESS OF SUCH PARTY TO THE EXTENT CLAIMED TO HAVE BEEN RECEIVED FROM IT AS ON THE DATE OF THE CLEARING OF THE AMOUNT INTO THE ASSESSEES A CCOUNT WITH THE ORIENTAL BANK OF COMMERCE, AMEERPET BRANCH, HYDERABAD IS CONSPICUOUSLY LACKING. SINCE THE NECESSARY INGREDIENTS OF THE IDENTITY OF THE CREDITOR ITS CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTION HAVE NOT BEEN SATISFIED CUMULATIVEL Y BY THE ASSESSEE, SUCH CREDIT HAS NECESSARILY TO BE TREATED AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. THE RELEVANT CASE LAWS ON THE SUBJECT AS ENUNCIATED ABOVE ARE ROSHAN DI HATTI VS. CIT [1977] 107 ITR 938 (SC); KALE KHAN MOHAMMAD HANIF VS. CIT [196 3] 50 ITR 1 (SC); SUMATI DAYAL VS. CIT [1995] 80 TAXMANN 89 AND 214 ITR 801 (SC); C. KANT & CO., VS. CIT5 [1980] 126 ITR 63 (CAL). IT MAY ALSO BE MENTIONED THAT ALTHOUGH THE DEPARTMENT OFTEN ACTS ON CONFIRMATORY LETTERS AS EVIDENCE, THE ONUS OF THE ASSESS EE DOES NOT GET DISCHARGED MERELY BY PRODUCTION OF SUCH CONFIRMATORY LETTERS (IN THE INSTANT CASE IT DOES NOT CONTAIN THE ESSENTIAL AND RUDIMENTARY INFORMATION) AS FOUND IN THE CASE OF CIT VS. UNITED COMMERCIAL INDUSTRIAL CO. PVT. LTD. 187 ITR 596 (CAL), N OR IS THE FACT THAT THE AMOUNT OF ALLEGED LOAN IS RECEIVED BY WAY OF ACCOUNT PAYEE CHEQUE MAKES IT SACROSANCT AS WAS POINTED OUT IN THE CASE OF CIT VS. PRECISION FINANCE PVT. LTD., 208 ITR 465 (CAL). EVEN THE INCOME - TAX FILE PARTICULARS, WHERE THE ALLEGED CREDITOR IS ASSESSED INDICATING THE JURISDICTIONAL OFFICER UNDER WHOM THE ALLEGED CREDITOR IS ASSESSED MAY NOT BE SUFFICIENT AS OBSERVED IN THE CASE OF CIT VS. KORLAY TRADING CO. LTD., 232 ITR 820 (CAL). THUS, THE ASSESSEES IS A FIT CASE WHERE THE ALLEG ED LOAN FROM M/S. ADITYA HOUSING INFRASTRUCTURE LTD., OUGHT TO HAVE BEEN TREATED AS BOGUS AND BROUGHT TO TAX AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. ALTERNATIVELY, THE PURPORTED LOAN COULD BE ASSESSED AS UNEXPLAINED MONEY U/S 69A OF THE ACT, IF IT I S HELD THAT A STATEMENT OF ACCOUNT OF THE ASSESSEE IN THE BOOKS OF THE BANK CANNOT BE TREATED AS FORMING PART OF THE ASSESSEES BOOKS OF ACCOUNTS. THE ASSESSING OFFICER HAVING NOT BROUGHT THE SAID AMOUNT TO TAX, IT HAS RESULTED IN LOSS OF REVENUE TO THE D EPARTMENT BY WAY OF NON CHARGING OF TAX TO THAT EXTENT. 6.3 THE ASSESSING OFFICER, THEREFORE, SHALL BRING TO TAX AN AMOUNT OF RS.3,61,16,656/ - AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT, OR, ALTERNATIVELY, AS UNEXPLAINED MONEY U/S 69A OF THE ACT. ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 14 20 . NOW THE ASSESSEE IS IN APPEAL BEFORE US WITH THE SUBMISSION THAT THIS ISSUE WAS EXAMINED BY THE ASSESSING OFFICER. HE HAS ALSO INVITED OUR ATTENTION THAT THE COPY OF THE BANK ACCOUNT APPEARING AT PG.NO.35 OF THE COMPILATION OF THE ASSESSEES IN WHICH CREDI T AND DEBIT ENTRIES ARE MADE. IT WAS FURTHER CONTENDED THAT THE A.O. HAS EXAMINED THESE BANK ACCOUNTS AND AFTER BEING CONVINCED WITH IT, HE HAS NOT MADE ANY DISALLOWANCE ON THIS ISSUE. 21 . THE LD. D.R. ON THE OTHER HAND HAS SUBMITTED THAT EVEN THIS DOC UMENT APPEARING AT PG.NO.35 IS NOT SUFFICIENT TO ESTABLISH THAT WHATEVER AMOUNT RECEIVED BY THE ASSESSEE FROM ADITYA HOUSING WAS RETURNED BACK DURING THE YEAR UNDER ACCOUNT. 22 . HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE BANK S TATEMENT, WE FIND THAT ASSESSEE HAS RECEIVED A SUM OF RS.3,61,16,656/ - THROUGH CLEARING BUT THE ENTIRE AMOUNT WAS RETURNED TO ADITYA HOUSING WITHIN THE SAME ACCOUNTING YEAR, THEREFORE, NOTHING WAS OUTSTANDING AT THE END OF THE FI NANCIAL YEAR FROM THE ASSES SEE AND THAT IS THE REASON THE A.O. DID NOT FEEL IT PROPER TO DISCUSS THE ISSUE IN THE ASSESSMENT ORDER. BUT IT IS NOT CLEAR FROM WHERE THE CIT HAS MADE THE AFORESAID OBSERVATIONS IN THIS REGARD. SINCE THE ENTIRE RECORD IS AVAILABLE BEFORE THE A.O. AND H E FEELS CONVINCED WITH THE RECORD ON ITS VERIFICATION, HE IS NOT REQUIRED TO DISCUSS THAT ISSUE IN THE ASSESSMENT ORDER. WE THEREFORE DO NOT FIND ANY MERIT IN THE ORDER OF THE CIT IN THIS REGARD. ACCORDINGLY, WE SET ASIDE THE SAME. 23 . SO FAR AS INITIAT ION OF PENAL PROCEEDINGS BY THE COMMISSIONER ARE CONCERNED, WE ARE OF THE VIEW THAT U/S 263 HE HAS NO JURISDICTION TO INITIATE THE PENAL PROCEEDINGS. IF HE FIND THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE CAN SET ASIDE THE SAME WITH THE DIRECTION TO THE A.O. TO RE - ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF EVIDENCE AVAILABLE ON RECORD OR AFTER MAKING A NECESSARY ENQUIRY OR VERIFICATION BUT HE HAS NO JURISDICTION TO INITIATE THE PENAL PROCEEDINGS HIMSELF. THER EFORE, THE ACTION OF THE CIT IS UNCALLED FOR AND WE SET ASIDE THE ORDER OF THE CIT RELATING TO INITIATION OF PENAL PROCEEDINGS. ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 15 ITA NO.399 OF 2009: 2 4 . THIS APPEAL IS ALSO PREFERRED BY THE OTHER CO - OWNERS OF THE SAME LAND ON WHICH CAPITAL GAIN WAS ACCRUED . IN THIS APPEAL, THE ASSESSEE HAS ASSAILED THE ORDER OF THE CIT MAINLY ON 2 GROUNDS, ONE WITH REGARD TO THE CLAIM OF DEDUCTION U/S 54F OF THE ACT AND THE SECOND WITH REGARD TO THE INITIATION OF PENAL PROCEEDINGS BY THE CIT. WITH REGARD TO THE CLAIM OF D EDUCTION U/S 54F, IT IS NOTICED THAT THE A.O. HAS ALLOWED THE CLAIM OF THE ASSESSEE AFTER HAVING A BRIEF DISCUSSION IN THE ASSESSMENT ORDER IN PARA - 3 AND COMPUTED THE NET CAPITAL GAIN AT RS.89,09,314/ - . THE CIT RE - EXAMINED THE ENTIRE CLAIM OF THE ASSESSEE S , HAVING INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT AND HAS OBSERVED THAT THE ASSESSEE HAS ARRIVED AT NET LONG TERM CAPITAL GAIN OF RS.1,91,34,879/ - AFTER SETTING OFF THE TRANSFER FACILITATION EXPENSES OF RS.3,07,500/ - AND INDEX COST OF ACQUISITION AND IMPROVEMENT OF RS.16,25,671/ - . AGAINST SUCH NET CAPITAL GAIN, THE ASSESSEE CLAIMED EXEMPTION U/S 54F OF THE ACT ON PURCHASE OF A RESIDENTIAL FLAT AT BANJARA HILLS, HYDERABAD IN THE NAME OF HIS WIFE FOR AN AMOUNT OF RS.67,78,285/ - AND ON THE ADVANCE GI VEN FOR PROPOSED CONSTRUCTION OF ANOTHER RESIDENTIAL FLAT AT HYDERABAD TO THE TUNE OF RS.1,94,99,000/ - . WHILE SCRUTINIZING THE ASSESSMENT OF THE ASSESSEE, THE A.O. HOWEVER RESTRICTED THE CLAIM OF EXEMPTION U/S 54F OF THE ACT TO INVESTMENT IN ONLY ONE PROP ERTY I.E. FLAT AT BANJARA HILLS, HYDERABAD AND ACCEPTED THE CLAIM OF THE ASSESSEE THAT APART FROM INVESTMENT OF SUCH NEW PROPERTY FOR THE FINANCIAL YEAR 2006 - 07 OF RS.67,78,285/ - , HE HAD ALSO INVESTED FURTHER SUM FOR THE FINANCIAL YEARS 2007 - 08 & 2008 - 09 A GGREGATING TO RS.35,93,477/ - WITH THE TOTAL INVESTMENT WORKING OUT TO RS.1,03,71,762/ - . AFTER MAKING THE ADHOC DISALLOWANCE OF RS.1,46,197/ - FROM THE SITE LEVELING AND DEVELOPMENT CHARGES, THE A.O. COMPUTED THE NET CAPITAL GAIN AT RS.89,09,340/ - AND ALLOW ED FULL EXEMPTION U/S 54F OF THE ACT. ON PERUSAL OF THE RECORD, THE CIT NOTICED THAT THE ASSESSING OFFICER HAS COMPUTED A LONG TERM CAPITAL GAINS INCORRECTLY AT RS.89,09,314/ - AND WRONGLY ALLOWED THE ENTIRE NET CAPITAL GAINS EXEMPTION U/S 54F OF THE ACT. ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 16 2 5 . THE CIT FURTHER OBSERVED THAT FOR MORE THAN ONE REASON, THE ASSESSEE DID NOT QUALIFY AT THE THRESHOLD STAGE FOR EXEMPTION HE CLAIMED U/S 54F OF THE ACT. THE ASSESSEE PRIMA - FACIE WAS DISENTITLED TO SUCH EXEMPTION FOR HAVING OWNED MORE THAN ONE RESIDEN TIAL HOUSE AS ON THE DATE OF THE DISPOSAL OF THE URBAN LAND IN RESPECT OF WHICH CAPITAL GAINS AROSE. CIT FURTHER OBSERVED THAT THE ASSESSEE VIDE HIS STATEMENT OF COMPUTATION ATTACHED TO THE RETURN OF INCOME HAS ADMITTED THAT HE HAD ALREADY OWNED TWO RESID ENTIAL PROPERTIES I.E. A FLAT AT VISAKHAPATNAM AND ANOTHER FLAT AT HYDERABAD IN RESPECT OF BOTH OF WHICH HE HAS OFFERED INCOME FROM HOUSE PROPERTY. SECONDLY THE NEW PROPERTY AT BANJARA HILLS IN RESPECT OF WHICH EXEMPTION HAS BEEN CLAIMED AND ALLOWED BY TH E A.O, HAS NOT BEEN PURCHASED IN THE NAME OF THE ASSESSEE BUT IN THE NAME OF HIS WIFE SMT. A. MADHAVI. THE CIT FURTHER OBSERVED THAT AS PER THE STATUTORY REQUIREMENT U/S 54F OF THE ACT, THE NEW PROPERTY IS TO BE ACQUIRED ONLY BY THE ASSESSEES AND NOT BY A NYBODY ELSE INCLUDING ANY FAMILY MEMBER OF THE ASSESSEES. THEREFORE, THE ASSESSEE HAS NOT FULFILLED THE REQUISITE CONDITIONS IN CLAIMING EXEMPTION U/S 54F OF THE ACT. CIT FURTHER OBSERVED THAT THE A.O. HAS COMMITTED A COMPUTATIONAL ERROR IN ALLOWING THE ENTIRE CLAIM OF THE EXEMPTION OF RS. 1 ,0 3,71,762/ - IN A NEW RESIDENTIAL FLAT AT BANJARA HILLS, HYDERABAD WITHOUT RESTRICTING THE SAME ON PRO - RATA BASIS AS STIPULATED U/S 54F(1)(B) OF THE ACT. APART FROM THIS, ASSESSING OFFICER HAS COMMITTED A FURTHER ERRO R IN GIVING EXCESS CREDIT FOR THE INVESTMENT IN THE NEW FLAT BY NOT DISALLOWING THE INVESTMENT MADE TO THE EXTENT OF RS.62,66,585/ - BEING THE LOAN OBTAINED FROM ICICI BANK WITH THE RESULT THAT THE NET CONSIDERATION TO THAT EXTENT REMAIN ED UN - INVESTED IN TH E NEW PROPERTY. FURTHER MORE, THE A.O. HAS ALSO OMITTED TO VERIFY WHETHER THE ASSESSEE SATISFIED THE CONDITION OF INVESTMENT IN THE PURCHASE OF NEW RESIDENTIAL FLAT AT BANJARA HILLS, HYDERABAD WITHIN THE PRESCRIBED PERIOD OF 2 YEARS SINCE ADMITTEDLY THE I NVESTMENT IN SUCH PROPERTY SPILLED OVER BEYOND THE ACCOUNTING YEAR 2006 - 07 TO THE ACCOUNTING YEAR 2007 - 08 AND 2008 - 09 AND ALSO PENDING THE FULL INVESTMENT IN THE RESIDENTIAL FLAT , WHETHER THE NET CONSIDERATION ( CAPITAL GAINS AMOUNT ) WAS DEPOSITED IN THE SP ECIFIC CAPITAL GAINS SCHEME SO AS TO ASCERTAIN WHE THER SUCH CONDITION WAS FULFILLED OR NOT. THE CIT FURTHER OBSERVED THAT IN LAST BUT NOT THE LEAST THE CLAIM OF TRANSFER FACILITATION EXPENSES AT RS.3,07,500/ - AND THE COST OF IMPROVEMENT OF ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 17 RS.13,57,060/ - COVERING A PERIOD OF 4 ASSESSMENT YEARS , THE VERACITY OF WHICH, PRIMA - FACIE QUESTIONABL E HAVE NOT BEEN EXAMINED AT ALL. 2 6 . THEREFORE, THE ORDER OF THE A.O. IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSEE WAS ASKED TO EXPLAIN O N ALL THESE POINTS. IN RESPONSE THERETO, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT CONDITION OF NOT OWNING MORE THAN ONE HOUSE ON THE DATE OF TRANSFER OF THE ORIGINAL ASSET IN RESPECT OF WHICH CAPITAL GAIN AROSE HAS NOT BEEN VIOLATED IN AS MUCH AS THE SECOND PROPERTY AT HYDERABAD BEING FLAT NO.B - 8, MADHAVI APARTMENT, HYDERABAD IS A COMMERCIAL PROPERTY AND NOT A RESIDENTIAL ONE AS IT WAS LET OUT TO A SOFTWARE COMPANY. WITH REGARD TO THE PERIOD OF INVESTMENT AND THE TIME LIMIT OF 2 YEARS FOR PURCH ASE OF PROPERTY, IT WAS CONTENDED THAT INVESTMENT IS TO BE MADE IN THE NEW RESIDENTIAL HOUSE WITHIN THE TIME ALLOWED UNDER ANY OF THE PROVISIONS OF SECTION 139 OF THE ACT. IT IS NOT NECESSARILY TO BE INVESTED WITHIN THE TIME PRESCRIBED U/S 139(1) ALONE. WITH REGARD TO THE EXPENDITURE INCURRED IN IMPROVEMENT, IT WAS CONTENDED THAT THE ASSESSEE STARTED DEVELOPING THE LAND IN RESPECT OF WHICH CAPITAL GAIN AROSE AT REGULAR INTERVALS RIGHT FROM THE YEAR 1995 UPTO 2005 - 06 ON SITE LEVELING EXPENSES. THE AGGREGA TE COST OF HIS SHARE WORKED OUT TO BE RS.13,57,060/ - WHICH TOGETHER WITH HIS SHARE OF LAND COST AND BENEFIT OF INDEXATION WORKED OUT TO RS.16,25,671/ - WHICH WAS SET OFF AGAINST THE GROSS CAPITAL GAINS RECEIVED. REGARDING THE INVESTMENT IN NEW FLAT IN THE NAME OF HIS WIFE SMT. MADHAVI, IT WAS CONTENDED THAT SINCE THE ENTIRE INVESTMENT IN THE NEW FLAT HAS BEEN RAISED BY THE ASSESSEE HIMSELF, PURCHASE OF SUCH PROPERTY IN THE NAME OF HIS WIFE COULD NOT DISENTITLE THE ASSESSEE FROM THE CLAIM OF EXEMPTION U/S 54 F OF THE ACT IN THE LIGHT OF THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF MIR G ULAB ALI KHAN VS. CIT 167 ITR 228 . WITH REGARD TO THE COMPUTATION OF CORRECT QUANTUM OF DEDUCTION, IT WAS STATED ON BEHALF OF THE ASSESSEE THAT THE ASSESSEE ERRONE OUSLY MADE A DEDUCTION OF THE ENTIRE AMOUNT OF INVESTMENT AND THE ASSESSING OFFICER ALLOWED THE INVESTMENT UPTO RS.1,03,71,762/ - IN STEAD OF RESTRICTING THE CLAIM ON PRO - RATA BASIS AS STIPULATED IN SECTION 54F(1)(B) OF THE ACT. HE HAS AGREED THAT THE SAID AMOUNT COULD WELL BE SUBJECTED TO TAX. ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 18 2 7 . THE CIT RE - EXAMINED ALL THE ISSUES IN THE LIGHT OF ASSESSEES CONTENTION BUT HE WAS NOT CONVINCED WITH IT AND HE FINALLY CONCLUDED THAT THE ORDER OF THE A.O. IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE R EVENUE. HE HOWEVER, DIRECTED THE A.O. TO DISALLOW THE EXEMPTION U/S 54F OF THE ACT AND COMPUTE CAPITAL GAIN IN THE HANDS OF THE ASSESSEES BY DEDUCTING ONLY THE INDEX COST OF ACQUISITION OF RS.1,21,195/ - FROM THE FIGURE OF ASSESSEES SHARE OF RS.2,10,68,05 0/ - . THE RELEVANT OBSERVATIONS OF THE CIT ARE EXTRACTED HEREUNDER: AFTER CAREFUL CONSIDERATION OF THE SUBMISSIONS AND CLARIFICATIONS AND ON PERUSAL OF THE RECORDS AND DOCUMENTS FURNISHED DURING THE REVISIONARY PROCEEDINGS, THE FOLLOWING OBSERVATIONS ARE MADE AND DECISIONS TAKEN: - (I) ADMITTEDLY, AS ON THE DATE OF SALE OR URBAN LAND AT HYDERABAD, WHICH IS THE SUBJECT MATTER OF CAPITAL GAINS, THE ASSESSEE WAS THE OWNER OF TWO HOUSE PROPERTIES, BEING ONE FLAT AT VISAKHAPATNAM AND ANOTHER FLAT AT HYDERABAD . IT HAS BEEN CLAIMED THAT ONLY THE FLAT AT VISAKHAPATNAM IS A RESIDENTIAL ONE BUT THE FLAT AT HYDERABAD IS A COMMERCIAL ONE WHICH IS USED AS OFFICE BY A SOFTWARE COMPANY, AND FOR SUCH COMMERCIAL USE THE AP ELECTRICITY DEPARTMENT HAS CHARGED TARIFF AT COM MERCIAL RATES AND NOT AT DOMESTIC RATES. A PERUSAL OF THE COPY OF THE LEAVE AND LICENSE AGREEMENT UNDOUBTEDLY INDICATES THAT THE ENTIRE STRUCTURE IN WHICH THE ASSESSEE OWNS A FLAT COMPRISES OF ONLY RESIDENTIAL APARTMENTS WHICH HAVE BEEN DESIGNED, APPROVED AND CONSTRUCTED FOR RESIDENTIAL PURPOSE. THUS, BY ITS NATURE, DESIGN AND UTILITY, THE FLAT OWNED BY THE ASSESSEE IS A RESIDENTIAL HOUSE AND NOT ANY COMMERCIAL PROPERTY. THEREFORE, MERELY BECAUSE THE TENANT OR THE LESSEE WISHES TO UTILIZE THE INTRINSICAL LY RESIDENTIAL PROPERTY FOR ANY OFFICE PURPOSE OR AN INAPPROPRIATELY FANCIFUL PURPOSE OR FOR ANY PRACTICAL PURPOSE FROM HIS POINT OF VIEW, THE NATURE OF SUCH PROPERTY AS RESIDENTIAL PROPERTY DOES NOT GET DILUTED. ON THE OTHER HAND, IF A PROPERTY WAS DESIG NED AND CONSTRUCTED FOR COMMERCIAL PURPOSE, THEN IT COULD NEVER BE TREATED AS A RESIDENTIAL ONE EVEN IF IT IS UTILIZED FOR RESIDENTIAL PURPOSE BY THE OCCUPANT. HENCE, THERE IS ABSOLUTELY NO SUBSTANCE IN THE CONTENTION OF THE ASSESSEE THAT SINCE THE TENANT UTILIZES THE PROPERTY FOR NON RESIDENTIAL AND OFFICE PURPOSE, ITS NATURE IS RENDERED COMMERCIAL. THE RATIO OF THE CITED CASE LAW OF RAJESH SURANA VS. CIT(SUPRA), INSTEAD OF HELPING THE ASSESSEE, CLEARLY GOES AGAINST HIM. IN THE CITED CASE, THE FACTS ARE THAT EXEMPTION U/S 53 WAS CLAIMED IN RESPECT OF A PLOT CONTAINING THE BOUNDARY WALL AND GARAGE CONSTRUCTED THEREON IN RESPECT OF WHICH THE EXEMPTION WAS CLAIMED U/S 53 OF THE ACT AS A RESIDENTIAL PROPERTY. HOWEVER, THE ASSESSEES PLEA WAS REJECTED BY THE ASSESSING OFFICER AND THE ITAT, AND ON FURTHER APPEAL TO THE HIGH COURT, THE HONBLE COURT HELD THAT THE LANGUAGE OF SECTION 53 OF THE ACT ONLY COMPREHENDS THAT THE ASSETS SHOULD HAVE TO BE ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 19 PREDOMINANTLY RESIDENTIAL BUILDINGS AND MAY HAVE LAND APPURTENANT THERETO AND NOT JUST AN OPEN PLOT OF LAND HAVING AN INSIGNIFICANT STRUCTURE, WHICH MIGHT UNDER SOME CONSTRAINTS, BE USED FOR RESIDENCE, OR WHICH MIGHT BE ACTUALLY USED BY SOME EMPLOYEE, AS A PERSON TAKING CARE OF PROTECTION OF THE PLOT, BUT WHICH WAS NOT DESIGNED TO BE USED AS A REGULAR RESIDENCE, THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION U/S 53 OF THE ACT. WHILE DISMISSING THE APPEAL, THE HONBLE COURT WENT TO HOLD THAT THE PREDOMINANT INTENTION OF THE NATURE OF CONSTRUCTION CAN BE THE DECISIVE FACTOR, AS TO WHETHER IT IS A RESIDENTIAL BUILDING, AS CONTRADISTIGUISHED FROM A COMMERCIAL BUILDING, OR ANY INDUSTRIAL BUILDING. EVEN OTHERWISE, THE CLAIM OF THE PAYMENT OF COMMERCIAL TARIFF TO THE ELECTRICITY DEPARTMENT DOES NOT COME TO THE RESCUE OF THE ASSESS EE FOR THE REASON THAT THE ELECTRICITY DEPARTMENT DOES NOT DISTINGUISH BETWEEN THE DESIGN OF THE PROPERTY AS RESIDENTIAL OR COMMERCIAL, IT MERELY GOES BY THE PURPOSE OF USE OF ELECTRICITY, WHETHER DOMESTIC PURPOSE OR FOR NON DOMESTIC PURPOSE. HENCE, SUCH RELIANCE CANNOT BE A CONCLUSIVE EVIDENCE TO SUPPORT THE CLAIM OF THE ASSESSEE. AGAIN, A PERUSAL OF THE COPY OF THE MUNICIPAL TAX RECEIPT GIVES THE INDICATION THAT THE MUNICIPAL TAXES HAVE BEEN PAID AT THE LOWEST RATES APPLICABLE TO THE RESIDENTIAL APARTME NTS. HENCE, THE ASSESSEE CAN BE SAID TO HAVE CLEARLY OWNED TWO RESIDENTIAL UNITS ONE AT VISAKHAPATNAM AND SECOND AT HYDERABAD WHICH FACT CLEARLY DISENTITLES HIM, AT THE OUTSET, FROM ENJOYING THE BENEFIT OF EXEMPTION U/S 54F OF THE ACT. EVENTHOUGH THE ASS ESSEE HAS PLACED RELIANCE ON THE DECISIONS MIR GULAB ALI KHAN VS. CIT (167 ITR 228), YET THE SAME HAS NO CONTEXTUAL RELEVANCE MERELY BECAUSE THE ENTIRE INVESTMENT IN THE NEW FLAT HAS BEEN MET BY THE ASSESSEE HIMSELF. ON THE OTHER HAND, THE DECISIONS OF BO MBAY HIGH COURT IN THE CASE OF PRAKASH VS. CIT AND OF DELHI HIGH COURT IN BIPIN MALIK (HUF) VS. CIT (SUPRA) ARE OF DIRECT RELEVANCE TO THE FACTS OF THE ASSESSEES CASE, ACCORDING TO WHICH SECTION 54F CONTEMPLATES THE INVESTMENT IN THE NEW PROPERTY IN THE N AME OF THE BENEFICIARY OF CAPITAL GAINS AND NOT ANYBODY ELSE. AGAIN, THE ASSESSEE HAS FAILED TO FULFILL THE CONDITION OF PURPOSE OF THE FLAT AT BANJARA HILLS, HYDERABAD, WITHIN TWO YEARS FROM THE DATE OF TRANSFER OF THE PROPERTY IN RESPECT OF WHICH CAPITA L GAINS AROSE AND, HAS, THUS, DISENTITLED HIMSELF FROM THE BENEFIT OF EXEMPTION U/S 54F OF THE ACT. ONCE AGAIN, THE CITED CASE LAW OF CIT VS. RAJESH KUMAR JALAN (SUPRA) HAS NO CONTEXTUAL RELEVANCE FOR THE REASON THAT IN SUCH CASE, THE ASSESSEE PLEADED FOR UTILIZATION OF THE SALE PROCEEDS IN THE PURPOSE OF A NEW PROPERTY UPTO THE TIME PROVIDED UNDER 139(4) UNDER WHICH PROVISION, HE FILED THE RETURN AFTER UTILIZING SUCH AMOUNT, WHEREAS THE INSTANT ASSESSEE HAS ALREADY FILED HIS RETURN IN TERMS OF SECTION 139 (1) BY FILING IT ON 31 ST OCTOBER, 2007. SINCE IT IS THE REQUIREMENT OF LAW UNDER SECTION 54AF(4) THAT THE ASSESSEE SHALL DEPOSIT THE UNUTILIZED NET CONSIDERATION WITH A NOTIFIED BANK UNDER THE CAPITAL GAINS ACCOUNT SCHEME BEFORE FURNISHING HIS RETURN FOR THE RELEVANT ASSESSMENT YEAR AND THE ASSESSEE HAVING NOT MADE SUCH DEPOSIT IN RESPECT OF THE UNUTILIZED AMOUNT OF RS.35,93,477/ - AS ON THE DATE OF FILING OF HIS RETURN FOR ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 2 0 THE ASSESSMENT YEAR 2007 - 08 I.E., 31.10.2007, SUCH UNUTILIZED AMOUNT WAS CLEARLY LIA BLE FOR CAPITAL GAINS TAX WHILE ASSUMING THAT THE ASSESSEE IS OTHERWISE ELIGIBLE FOR EXEMPTION U/S 54F FOR HAVING FULFILLED OTHER CONDITIONS. (II) EVEN THE CLAIM OF COST OF IMPROVEMENT IN PAST YEARS IS NOT BORNE OUT FROM THE ASSESSMENT RECORDS OF THE ASS ESSEE. IN NONE OF THE CAPITAL ACCOUNTS OF THE RELEVANT YEARS 1995 - 96, 2002 - 03, 2003 - 04, 2005 - 06 DURING WHICH THE AGGREGATE OF THE ALLEGED DEVELOPMENT EXPENSES OF RS.13,57,060/ - HAVE BEEN CLAIMED HAS ANY WITHDRAWAL FOR SUCH PURPOSE BEEN REFLECTED, WHICH IN DICATES THAT THERE IS NO CORRESPONDING SOURCES OF EXPENDITURE FOR ANY ALLEGED EXPENDITURE TOWARDS DEVELOPMENT. HENCE, THE VERY CLAIM OF ANY DEVELOPMENT CHARGES APPEAR TO BE UNSUBSTANTIATED, AND, AS SUCH, THE BENEFIT OF DEDUCTION OF ANY INDEXED COST FROM T HE GROSS CAPITAL GAINS CANNOT BE ALLOWED TO THE ASSESSEE. FURTHER, NO EVIDENCE WHATSOEVER HAS BEEN FURNISHED IN SUPPORT OF THE CLAIM OF TRANSFER EXPENSES OF RS.3,07,500/ - FOR SELLING THE URBAN PROPERTY AT HYDERABAD. ACCORDINGLY, NO DEDUCTION OF ANY TRANS FER EXPENSES AS WELL AS DEVELOPMENT CHARGES ARE PERMISSIBLE FOR THE PURPOSE OF COMPUTING THE CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. (III) EVEN THE COMPUTATION OF THE NET CAPITAL GAINS SUFFERS FROM A SERIOUS FLAW SINCE LOAN AMOUNT FROM THE BANK TO TH E TUNE OF RS.62,66,585/ - HAS BEEN WRONGLY TAKEN AS PART OF THE INVESTMENT FROM THE NET CAPITAL GAINS ASSUMING THAT THE ASSESSEE OTHERWISE QUALIFIES FOR EXEMPTION U/S 54F OF THE ACT. CONSEQUENTLY, THE ACTUAL COMPUTATION OF THE BENEFIT WOULD BE FAR REDUCED FROM THAT DETERMINED BY THE ASSESSING OFFICER. 3.3 THE ASSESSING OFFICER SHALL, THEREFORE, RECOMPUTED THE CAPITAL GAINS IN THE HANDS OF THE ASSESSEE BY DEDUCTING ONLY THE INDEXED COST OF ACQUISITION OF RS.1,21,195/ - FROM THE GROSS FIGURE OF THE ASSESSEE S SHARE OF RS.2,10,68,050/ - . 2 8 . NOW THE ASSESSEE HAS PREFERRED AN APPEAL AND REITERATED ITS CONTENTIONS AS RAISED BEFORE THE CIT UNDER REVISIONAL PROCEEDINGS. IT WAS ALSO CONTENDED ON BEHALF OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS RAISED A QUERY WITH REGARD TO THE CLAIM OF EXEMPTION U/S 54F OF THE ACT AND IT WAS DULY RE PLIED BY THE ASSESSEE THROUGH VARIOUS LETTERS APPEARING AT PG.NO.5 TO 12 OF THE COMPILATION OF THE ASSESSEES. IN THESE LETTERS, IT WAS ALSO STATED THAT DUE TO OVERSIGHT HE HAS CLA IMED DEDUCTION OF BOTH THE PROPERTIES U/S 54F OF THE ACT. IT WAS ALSO STATED BEFORE THE A.O. THAT ONE OF THE PROPERTY I.E. AT HYDERABAD IS NON - RESIDENTIAL PROPERTY AND WAS LET OUT FOR COMMERCIAL PURPOSE. RATHER IN REPLY IT WAS STATED THAT BOTH THE PROPER TY AT VISAKHAPATNAM AND HYDERABAD WERE NON - RESIDENTIAL FLATS. HE HAS ALSO GIVEN ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 21 THE FULL DETAILS OF THE INVESTMENT AND THE PURCHASE OF PROPERTY IN THE NAME OF HIS WIFE. ALL THESE DETAILS WERE DULY EXAMINED BY THE A.O. BEFORE ALLOWING A CLAIM OF THE ASSE SSEES. THEREFORE, ONCE THE A.O. HAS DECIDED THE ISSUE BY TAKING A POSSIBLE VIEW, ITS DECISION CANNOT BE REVISED ONLY FOR THE REASON THAT CIT IS HAVING A DIFFERENT OPINION ABOUT IT. IN RESPECT OF THESE CONTENTIONS A RELIANCE IS PLACED UPON THE JUDGEMENT I N THE CASE OF RAJESH SURANA VS. CIT 306 ITR 368 AND OTHER JUDGEMENTS IN WHICH IT HAS BEEN HELD THAT ONCE THE A.O. HAS TAKEN A PARTICULAR VIEW WHICH IS A PLAUSIBLE VIEW, HIS ORDER CANNOT BE REVISED ONLY FOR THE REASON THAT CIT HAS A DIFFERENT OPINION ON THA T ISSUE. 2 9 . THE LD. D.R. ON THE OTHER HAND HAS PLACED A RELIANCE UPON THE ORDER OF THE CIT. 30 . HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE RECORD, WE FIND THAT BEFORE ACCEPTING A CLAIM OF THE ASSESSEES U/S 54F OF THE ACT, THE A.O. HAS RAISED CERTAIN QUERIES TO WHICH REPLIES WERE FILED BY THE ASSESSEES IN WHICH HE HAS EXPLAINED THAT AT THE TIME OF THE SALE, THE PROPERTIES WHICH WERE CLAIMED TO BE OWNED BY THE ASSESSEES WERE NOT RESIDENTIAL PROPERTIES AND WERE LET OUT TO DIFFERE NT PERSONS FOR THEIR BUSINESS PURPOSE. THE ASSESSEE HAS ALSO CAME FORWARD BEFORE THE A.O. WITH REGARD TO HIS EXCESS CLAIM OF EXEMPTION U/S 54F OF THE ACT AND ALSO ABOUT THE LOANS TAKEN FROM THE ICICI BANK. WE THEREFORE, OF THE VIEW THAT THE ASSESSING OFF ICER HAS EXAMINED THE ISSUE WITH REGARD TO THE CLAIM OF EXEMPTION U/S 54F OF THE ACT AND HE HAS TAKEN A PLAUSIBLE VIEW. THEREFORE, HIS ORDER CANNOT BE REVISED. SO FAR AS COMPUTATION PART IS CONCERNED, THE ASSESSEE HIMSELF HAS AGREED BEFORE THE CIT DURING REVISIONAL PROCEEDINGS WITH THE COMPUTATION OF THE NET CAPITAL GAIN. IN THIS ASPECT, WE ARE OF THE VIEW THAT NET CAPITAL GAIN MAY BE RE - COMPUTED BY THE A.O. IN TERMS OF AGREEMENT MADE BY THE ASSESSE E BEFORE THE CIT IN PARA 3.1(IV) OF THE ORDER PASSED UND ER 263 OF THE ACT . SO FAR AS OTHER POINTS OF ELIGIBILITY OF EXEMPTION U/S 54F IS CONCERNED, WE ARE OF THE VIEW THAT A.O. HAS EXAMINED ALL ASPECTS BEFORE ALLOWING THE CLAIM OF EXEMPTION, WE THEREFORE, FIND NO MERIT IN THE ORDER OF THE CIT. ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 22 31 . SO FAR AS O THER ISSUE REGARDING INITIATION OF PENAL PROCEEDINGS ARE CONCERNED, WE ARE OF THE VIEW THAT CIT HAS NO JURISDICTION TO INITIATE THE PENAL PROCEEDINGS WHILE PASSING AN ORDER U/S 263 OF THE ACT. U/S 263 OF THE ACT, IF THE CIT IS NOT CONVINCED WITH THE ORDE R OF THE A.O., HE CAN SIMPLY SET ASIDE HIS ORDER TO DIRECT THE A.O. TO RE - ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF EVIDENCE EITHER BROUGHT OUT BY HIM OR PLACED BY THE ASSESSEE ON RECORD. THERE AFTER THE PENALTY PROCEEDINGS CAN BE INITIATED BY THE A.O. IF HE FORMS A BELIEF THAT ASSESSEE HAS EITHER CONCEALED THE INCOME OR HAS FURNISHED IN ACCURATE PARTICULARS. WE THEREFORE, DO NOT FIND ANY JUSTIFICATION IN THE SE DIRECTIONS OF THE CIT. ACCORDINGLY, WE SET ASIDE HIS ORDER IN THIS REGARD. ITA NO.400 OF 200 9: 32 . THROUGH THIS APPEAL THE ASSESSEE HAS ASSAILED THE ORDER OF CIT PASSED U/S 263 OF THE ACT MAINLY ON 3 GROUNDS. FIRST, WITH REGARD TO THE DEDUCTION U/S 54F OF THE ACT , SECOND WITH REGARD TO THE DEPOSIT OF RS.1 LAKH AND ITS ADDITION U/S 68 OF THE ACT AND THIRD FOR INITIATION OF PENAL PROCEEDINGS. WITH REGARD TO THE CLAIM OF EXEMPTION U/S 54F OF THE ACT, IT IS NOTICED THAT A.O. HAS ALLOWED THE CLAIM OF THE ASSESSEES HAVING MADE DISCUSSIONS IN HIS ORDER IN PARA NO.3 AND COMPUTED THE NET CAPITAL GAIN AT RS.88,11,101/ - . WHILE EXERCISING JURISDICTION U/S 263 OF THE ACT, THE CIT OBSERVED THAT AFTER SETTING OFF THE FACILITATION EXPENSES OF RS.3,07,500/ - AND INDEX COST OF IMPROVEMENT OF RS.16,44,546/ - FROM HER 1/4 TH SHARE OF SALE CONSIDERATION OF RS.2,10,68, 050/ - , THE ASSESSEE ARRIVED AT LONG TERM CAPITAL GAIN OF RS.1,91,16,004/ - . AGAINST SUCH NET CAPITAL GAIN, THE ASSESSEE CLAIMED EXEMPTION U/S 54F OF THE ACT IN RESPECT OF TWO RESIDENTIAL PROPERTIES VIZ., (A) RESIDENTIAL FLAT AT ALEKHYA S KAUSHIK MEADOWS , S ANTH A NAGAR, KONDAPUR , HYDERABAD (RS.52 LAKHS) AND (B) CONSTRUCTION OF ANOTHER RESIDENTIAL BUILDING TO BE UNDERTAKEN AT HYDERABAD BY M/S. ALLURI SUBBA RAJU & CO., (RS.1,07,00,000/ - ). HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMIT TED THAT BY MISTAKE, SHE CLAIMED EXEMPTION IN RESPECT OF SECOND PROPERTY FOR WHICH ADVANCE HAS BEEN MADE TO M/S. ALLURI SUBBA RAJU & CO., AND REQUESTED FOR WITHDRAWAL OF EXEMPTION THERE OF . IT WAS FURTHER OBSERVED BY THE CIT THAT AS REGARD S THE NEW PROPER TY AT KONDAPUR, THE ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 23 ORIGINAL BUILDER M/S. SHRILA TOWERS OPTED OUT HALF - WAY - THROUGH THE PROJECT AND LATER ON THE PROJECT WAS COMPLETED BY M/S. ALLURI SUBBA RAJU & CO., AND THE BALANCE OUTSTANDING AMOUNT TOWARDS THE PROJECT WAS ADJUSTED AGAINST THE PAYMENT M ADE SEPARATELY TO M/S. ALLURI SUBBA RAJU & CO., FOR THE SECOND PROPERTY , WHICH DID NOT FRUCTIFY. IT WAS CLAIMED ON BEHALF OF THE ASSESSEE THAT THE TOTAL INVESTMENT IN THE FIRST PROPERTY WAS TO THE TUNE OF RS.1,05,21,100/ - . BASED ON SUCH CLAIM, THE CAPIT AL GAINS OFFERED WAS TO THE TUNE OF RS.86,64,904/ - THE ENTIRE AMOUNT OF WHICH WAS CLAIMED AS EXEMPT U/S 54F OF THE ACT. WHILE FINALIZING THE ASSESSMENT PROCEEDINGS, THE A.O. HAS SIMPLY DISALLOWED 20% OF THE ALLEGED EXPENDITURE TOWARDS DEVELOPMENT AND IMPR OVEMENT OF THE LAND CLAIMED BY THE ASSESSEES. 3 3 . ON THESE F ACTS, THE CIT OBSERVED THAT THOUGH THE ASSESSEE PRIMA - FACIE DID QUALIFY FOR CLAIM OF EXEMPTION U/S 54F OF THE ACT YET FOR MORE THAN ONE REASONS THE EXEMPTION CLAIMED HAS BEEN EXCESS COMPUTED AND ALLOWED RESULTING IN LOSS OF REVENUE TO THE DEPARTMENT. THE CIT FURTHER OBSERVED THAT THROUGH WRITTEN SUBMISSIONS DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAS CLAIMED THAT INITIALLY DURING THE FINANCIAL YEAR A SUM OF RS.50 LAKHS WAS PAID TO THE DEVE LOPER M/S. SRILA TOWERS AND ANOTHER RS.2 LAKHS WAS PAID TO ALEKHYA HOMES AGGREGATING TO RS.52 LAKHS. HOWEVER, DUE TO THE DIFFERENCE S WITH THE DEVELOPER M/S. SRILA TOWERS THE AMOUNT OF RS.50 LAKHS WAS RETURNED, OUT OF WHICH AN AMOUNT OF RS.35,71,100/ - WAS GIVEN TO THE SECOND DEVELOPER M/S. ALEKHYA HOMES FOR CONSTRUCTION OF FLAT. THUS , THE NET AMOUNT THAT WAS PAID TO ALEKHYA HOME S WAS RS.37,71,100/ - WHICH AMOUNT COVERED THE COST OF SEMI - FINISHED FLAT, COST OF AMENITIES AND STAMP DUTY AND REGISTRATION CHARGE S ETC. LATER ON AN AMOUNT OF RS.66,8 0 ,000/ - WAS APPROPRIATED FROM M/S. A LLURI SUBBA RAJU & CO., FROM OUT OF WHICH AN ADVANCE PAID THEM OF RS.1,07,00,000/ - TO SUCH PARTY EARLIER FOR CONSTRUCTION OF ANOTHER HOUSE WHICH DID NOT FRUCTIFY AND , ACCORDINGLY , THE TOTAL COST OF KONDAPUR FLAT WORKED OUT TO RS.1,04,51,100/ - . THESE EXPLANATIONS WERE ACCEPTED BY THE A.O. BUT THE CIT OF THE VIEW THAT THE VARIOUS CONDITIONS PRESCRIBED U/S 54F WERE ALSO TO BE COMPLIED WITH BEFORE CLAIMING THE BENEFIT OF EXEMPTION U/S 54F OF THE ACT. HE ACCORDINGLY OBSERVED THAT INVESTMENT CLAIM OF RS.1,04,51,100/ - IN KONDAPUR PROPERTY NEEDS TO BE EXAMINED WHETHER THE PROVISIONS OF SECTION ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 24 54F(1)(B) OF THE ACT FOR RESTRICTING THE CLAIM OF EXEMPTION ON PRO - RATA BASIS ARE SATISFIED OR NOT. THE SECOND CONDITION WITH RESPECT TO THE ACQUISITION OF THE NEW RESIDENTIAL HOUSE WITHIN THE PRESCRIBED PERIOD OF 2/3 YEARS , AS THE CASE MAY BE , WAS ALSO NOT SATISFIED BY NOT PLACING A RELEVANT EVIDENCE. 34. BEFORE THE CIT, THE LD. COUNSEL FOR THE ASSE SSEE HAS APPEARED WITH THE SUBMISSION THAT ASSESSEE IS ENTITLED FOR THE EXEMPTION U/S 54F OF THE ACT. SO FAR AS COMPUTATION MADE BY THE A.O. RESULTED IN EXCESS GRANT, ONLY ON ACCOUNT OF NON - ADHERENCE OF THE PROVISIONS OF SECTION 54(1)(B) OF THE ACT FOR CO MPUTATION OF DEDUCTION ON PRO - RATA BASIS IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IT MAY BE WORKED OUT AND PROPORTIONATE DISALLOWANCE MAY BE EFFECTED. OTHERWISE, THE ASSESSEE HAS FULFILLED THE OTHER CONDITIONS ENVISAGED U/S 54F OF THE ACT. THE CIT EXAMINED THE MATERIAL AVAILABLE ON RECORD IN THE LIGHT OF ASSESSEES CONTENTION BUT WAS NOT CONVINCED WITH IT AND HE HAS DIRECTED THE A.O. TO ALLOW EXEMPTION U/S 54F OF THE ACT WITH REFERENCE TO THE INVESTMENT OF ONLY RS.39,23,858/ - ON P RO - RATA BASIS AND THE BALANCE AMOUNT SHALL BE BROUGHT TO TAX AS TAXABLE CAPITAL GAINS. THE RELEVANT OBSERVATION OF THE CIT IS EXTRACTED HEREUNDER: 3.2 AFTER CAREFUL CONSIDERATION OF THE SUBMISSIONS AND CLARIFICATIONS ON PERUSAL OF THE RECORDS AND DOCUM ENTS FURNISHED DURING THE REVISIONARY PROCEEDINGS, THE FOLLOWING OBSERVATIONS ARE MADE AND DECISIONS TAKEN: - (I) IT IS OBSERVED FROM THE INFORMATION AVAILABLE ON RECORD AND FURNISHED DURING THE REVISIONARY PROCEEDINGS THAT A SUM OF RS.36,52,758/ - HAS BEE N PAID TO M/S. ALEKHYA HOMES BY WAY OF PURCHASE OF SEMI - FINISHED FLAT, PROVISION OF AMENITIES, STAMP DUTY AND REGISTRATION EXPENSES ETC., WHICH STOOD PAID AND EXPENDED BY 31.3.2008. OTHER THAN SUCH AMOUNT, NO FURTHER INVESTMENT HAS BEEN MADE IN THE PURCHA SE/CONSTRUCTION OF THE SAID PROPERTY BY THE END OF THE RELEVANT ACCOUNTING YEAR. IT WAS ONLY AFTER ACQUISITION OF THE SEMI FINISHED PROPERTY VIDE A REGISTERED SALE DEED DATED 27 TH MARCH, 2008, THAT ANY FURTHER CONSTRUCTION COULD HAVE TAKEN PLACE IN RESPEC T OF THE SAID PROPERTY. IT IS THE CLAIM OF THE ASSESSEE THAT THE CONTRACT FOR FURTHER CONSTRUCTION WAS AWARDED TO M/S. ALLURI SUBBA RAJU & CO., FOR AN AMOUNT OF RS.66,80,000/ - AND THE TOTAL AMOUNT WORKED OUT TO RS.1,06,03,858/ - . HOWEVER, SUCH FIGURE IS A T VARIANCE WITH THE ORIGINAL FIGURE OF INVESTMENT OF RS.1,04,51,100/ - . NOTWITHSTANDING SUCH DISCREPANCY, IT WAS IMPERATIVE TO ASCERTAIN WHETHER THE BALANCE AMOUNT OF RS.66,80,000/ - WAS EVER DEPOSITED IN THE SPECIFIED ACCOUNT IN THE CAPITAL GAINS SCHEME BE FORE THE DUE DATE OF FILING OF THE RETURN U/S 139(1) FOR THE ASSESSMENT YEAR 2007 - 08. A FURTHER EXAMINATION REVEALS THAT NO SUCH DEPOSIT HAS BEEN MADE PENDING THE INVESTMENT IN THE CONSTRUCTION OF THE PROPERTY AS COULD BE INFERRED FROM THE ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 25 ADMISSION ON BE HALF OF THE ASSESSEE THAT AN AMOUNT OF RS.66,80,000/ - WAS APPROPRIATED FROM M/S. ALLURI SUBBA RAJU & CO., BY WAY OF ADJUSTMENT OF ACCOUNT WITH REFERENCE TO THE ADVANCE OF RS.1.7 CRORES MADE EARLIER TO THE SAID PARTY FOR CONSTRUCTION OF ANOTHER PROPERTY WHI CH EVENTUALLY DID NOT FRUCTIFY. IN THIS VIEW OF THE MATTER, THE CONDITION PRESCRIBED U/S 54F(4) REGARDING THE NECESSITY TO DEPOSIT THE UNUTILIZED NET CAPITAL GAINS AMOUNT IN THE SPECIFIED BANK ACCOUNT UNDER THE CAPITAL GAINS ACCOUNTS SCHEME REMAINED UNCOM PLIED WITH AND, AS SUCH, THE EXEMPTION U/S 54F OF THE ACT OUGHT TO HAVE BEEN RESTRICTED TO RS.39,22,858/ - COMPRISING OF COST OF THE SEMI FINISHED FLAT OF RS.25 LAKHS, COST OF AMENITIES OF RS.11,52,758/ - AND STAMP DUTY AND REGISTRATION EXPENSES OF RS.2,71,1 00/ - AND NOTHING MORE THAN THAT, AND WITH REFERENCE TO THE NET CONSIDERATION ON PRO - RATA BASIS. (II) EVEN THE CLAIM OF COST OF IMPROVEMENT IN THE PAST YEARS IS NOT BORNE OUT FROM THE ASSESSMENT RECORDS OF THE ASSESSEE. IN NONE OF THE CAPITAL ACCOUNTS OF THE RELEVANT YEARS 1995 - 96, 1998 - 99, 2002 - 03, 2003 - 04, AND 2006 - 07 DURING WHICH THE AGGREGATE OF THE ALLEGED DEVELOPMENT EXPENSES OF RS.13,73,300/ - HAVE BEEN CLAIMED, HAS ANY WITHDRAWAL FOR SUCH PURPOSE BEEN REFLECTED, WHICH INDICATES THAT THERE IS NO COR RESPONDING SOURCES OF EXPENDITURE FOR ANY ALLEGED EXPENDITURE TOWARDS DEVELOPMENT. HENCE, THE VERY CLAIM OF ANY DEVELOPMENT CHARGES APPEAR TO BE UNSUBSTANTIATED, AND, AS SUCH, THE BENEFIT OF DEDUCTION OF ANY INDEXED COST FROM THE GROSS CAPITAL GAINS CANNO T BE ALLOWED TO THE ASSESSEE. FURTHER, NO EVIDENCE WHATSOEVER, HAS BEEN FURNISHED IN SUPPORT OF THE CLAIM OF TRANSFER EXPENSES OF RS.3,07,500/ - FOR SELLING THE URBAN PROPERTY AT HYDERABAD. ACCORDINGLY, NO DEDUCTION OF ANY TRANSFER EXPENSES AS WELL AS DEV ELOPMENT CHARGES ARE PERMISSIBLE FOR THE PURPOSE OF COMPUTING THE CAPITAL GAINS IN THE HANDS OF THE ASSESSEE. 3.3 HENCE, THE ASSESSING OFFICER SHALL RECOMPUTED THE CAPITAL GAINS IN THE HANDS OF THE ASSESSEE BY, FIRST OF ALL, ALLOWING THE SET OFF OF ONLY T HE INDEXED COST OF ACQUISITION OF RS.1,21,195/ - FROM THE GROSS FIGURE OF THE ASSESSEES SHARE OF CAPITAL GAINS OF RS.2,10,68,050/ - AND DETERMINE THE NET CAPITAL GAINS AMOUNT OF RS.2,09,46,855/ - AND, SECONDLY, COMPUTE THE EXEMPTION U/S 54F WITH REFERENCE TO THE INVESTMENT OF ONLY RS.39,23,858/ - ON PRO - RATA BASIS AFTER WHICH THE BALANCE AMOUNT SHALL BE BROUGHT TO TAX AS TAXABLE CAPITAL GAINS. 3 5 . NOW THE ASSESSEE HAS PREFERRED AN APPEAL WITH THE SUBMISSION THAT CIT HIMSELF HAS ADMITTED IN HIS ORDER THAT ASS ESSEE HAS FILED THE WRITTEN SUBMISSIONS EXPLAIN ING THE DETAILS OF INVESTMENT AND THE CALCULATION OF EXEMPTION U/S 54F OF THE ACT. BESIDES, HE HAS ALSO INVITED OUR ATTENTION TO THE REPLY FILED TO THE QUERIES OF THE A.O. AND THE SAME IS AVAILABLE AT PG.1,2, 5 OF THE COMPILATION OF THE ASSESSEE. T HE A.O. HAS ACCEPTED THE CLAIM OF THE ASSESSEES AFTER HAVING APPLIED HIS MIND AND THE VIEW TAKEN BY THE A.O. CANNOT BE REVISED FOR THE SIMPLE REASON THAT CIT HAS DIFFERENT OPINION ABOUT THE CLAIM OF THE ASSESSEES. ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 26 36. TH E LD. D.R. ON THE OTHER HAND HAS PLACED A HEAVY RELIANCE UPON THE ORDER OF THE CIT. 37. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM CAREFUL PERUSAL OF THE ORDER OF THE LOWER AUTHORITIES AND THE MATERIAL PLACED BEFORE US, WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O. HAS APPLIED HIS MIND TO THE FACTS OF THE CASE ON THIS ISSUE. HE HAS ALSO RAISED A QUERY IN THIS REGARD AND IN RESPONSE THERE OF , REPLY WAS FILED ABOUT THE CLAIM OF EXEMPTION AND THE INVEST MENT IN THE RESIDENTIAL HOUSE. CIT HIMSELF HAS OBSERVED IN HIS ORDER THAT THE ASSESSEE HAS FILED THE WRITTEN SUBMISSIONS DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN WHICH HE HAS DISCLOSED THE INVESTMENT IN THE RESIDENTIAL ACCOMMODATION. THEREFORE, SIN CE THE ASSESSEE HAS FURNISHED THE PROPER EXPLANATIONS AND THE WRITTEN SUBMISSIONS WHICH WERE DULY EXAMINED BY THE A.O. BEFORE ACCEPTING THE CLAIM OF THE ASSESSEES, THE ASSESSMENT ORDER CANNOT BE REVISED ONLY FOR THE SIMPLE REASON THAT CIT DOES NOT AGREE WI TH THE VIEW TAKEN BY THE A.O. ON FACTUAL ASPECT THE A.O. HAS MADE THE NECESSARY VERIFICATION BEFORE ACCEPTING THE CLAIM OF THE ASSESSEES. SO FAR AS COMPUTATION OF CAPITAL GAIN IS CONCERNED, THE ASSESSEE HIMSELF HAS ACCEPTED BEFORE THE CIT THAT EXCESS GRA NT ONLY ON ACCOUNT OF NON - ADHERENCE TO THE PROVISIONS OF SECTION 54(1)(B) OF THE ACT FOR COMPUTATION OF DEDUCTION ON PRO - RATA BASIS MAY BE WORKED OUT AND A PROPORTIONATE DISALLOWANCE MAY BE EFFECTED. ONLY TO THIS EXTENT, THE ORDER OF THE ASSESSING OFFICER CAN BE REVISED. WE HAVE ALSO EXAMINED THE VARIOUS JUDICIAL PRONOUNCEMENTS IN THIS REGARD AND WE ARE OF THE VIEW THAT IF THE ASSESSING OFFICER HAS EXAMINED THE PARTICULAR ISSUE AFTER MAKING DETAILED VERIFICATION, THE FINDING OF THE A.O. SHOULD NOT BE REVI SED U/S 263 OF THE ACT UNLESS AND UNTIL IT IS PROVED THAT THE FINDING OF THE A.O. IS PERVERSE AND CONTRARY TO THE FACTS O R LAW. SINCE THE A.O. HAS TAKEN A VIEW IN THE LIGHT OF WRITTEN SUBMISSIONS AND THE DOCUMENTARY EVIDENCE PLACED BEFORE HIM, CIT IS NOT PROPER TO SET ASIDE HIS ORDER. BUT SO FAR AS EXCESS GRANT ON ACCOUNT OF NON - ADHERENCE TO THE PROVISIONS OF SECTION 54(1)(B) OF THE ACT FOR COMPUTATION OF DEDUCTION ON PRO - RATA BASIS IS CONCERNED, WE ARE OF THE VIEW THAT IT MAY BE RE - COMPUTED AND PROPORTI ONATE DISALLOWANCE MAY BE WORKED OUT AND BE EFFECTED. TO THIS EXTENT, WE APPROVE THE ORDER OF THE CIT. ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 27 3 8 . NEXT GROUND RELATE TO THE ADDITION OF RS.1 LAKH U/S 68 OF THE ACT. IN THIS REGARD, WE FIND THAT CIT HAS OBSERVED THE UNEXPLAINED DEPOSITS IN THE B ANK ACCOUNT AND WITH REGARD TO THE DEPOSIT OF CASH OF RS.1 LAKH, NO EXPLANATION WAS FURNISHED EITHER BEFORE THE A.O. OR BEFORE THE CIT. THEREFORE, HE HAS DIRECTED THE A.O. TO MAKE AN ADDITION OF RS.1 LAKH AS UNEXPLAINED CASH CREDIT U/S 68 OR ALTERNATIVELY AS UNEXPLAINED MONEY U/S 69A OF THE ACT. SINCE THE ISSUE WAS NOT EXAMINED BY THE A.O. IN HIS ORDER AND NOTHING IS BORNE OUT FROM THE MATERIAL AVAILABLE ON RECORD WHE THER THE A.O. HAS APPLIED HIS MIND TO THIS ISSUE, WE ARE OF THE VIEW THAT CIT HAS RIGHTLY EXERCISED HIS JURISDICTION U/S 263 ON THIS ISSUE AND REVISE THE ORDER. BUT SO FAR AS DIRECTION OF THE CIT FOR AN ADDITION OF THIS AMOUNT IS CONCERNED, WE ARE OF THE VIEW THAT CIT SHOULD HAVE ASKED THE A.O. TO EXAMINE THIS ISSUE AND TO PASS A NECESSARY OR DER AS PER LAW, INSTEAD OF MAKING AN ADDITION OF THE SAME. ACCORDINGLY, WE MODIFY THE ORDER OF THE CIT AND DIRECT THE A.O. TO RE - EXAMINE THE ISSUE AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 3 9 . LAST GROUND RELATE TO THE INITIATION O F P ENAL PROCEEDINGS. IN THIS REGARD, WE HAVE ALREADY OBSERVED IN THE FOREGOING APPEALS THAT U/S 263 OF THE ACT, THE CIT HAS NO JURISDICTION TO INITIATE THE PENALTY PROCEEDINGS. IT IS FOR THE ASSESSING OFFICER TO TAKE A VIEW IN THIS REGARD AFTER FRAMING T HE ASSESSMENT ON THE SET ASIDE ISSUES. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT IN THIS REGARD. 4 0 . IN THE RESULT, THE APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 18.11 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 18 TH NOVEMBER , 20 10 ITA 398 399 400/VIZ/2010 A KRISHNAM RAJU ETC. OF SAKHENETIPALLI 28 COPY TO 1 SRI ALLURI KRISHNAM RAJU, SAKHENETIPALLI, RAJOLU TALUK, E.G. DISTRICT 2 SRI ALLURI SRINIVASA RAJU, SAKHENETIPALLI, RAJOLU TALUK, E.G. DISTRICT 3 SMT. PENUMATSA VIJAYA LAKSHMI, SAKHENETIPALLI, RAJOLU TALUK, E.G. DISTRICT 4 THE CI T, RAJAHMUNDRY 5 THE CIT (A) , RAJAHMUNDRY 6 THE DR, ITAT, VISAKHAPATNAM. 7 GUARD FILE. BY ORDER SENIOR PRIVATE SEC RETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM