Rako Mercantile Traders, Lucknow V. Deputy Commssioner of Income Tax, Range- 4, Lucknow

ITA 693/LKW/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2653 (ITAT-LUCKNOW)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 12-12-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset
• Section: 143(3); 54

Judgement Text

I.T.A. NO.693/LKW/2018 ASSESSMENT YEAR:2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO.693/LKW/2018 ASSESSMENT YEAR:2013-14 M/S RAKO MERCANTILE TRADERS, 29, DURGA PURI, BLUNT SQUARE, LUCKNOW. PAN:AADFR 3754 P VS. DY.C.I.T., RANGE-4, LUCKNOW. (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LEARNED CIT(A)-II, LUCKNOW DATED 26/11/2018 PERTAINING TO A SSESSMENT YEAR 2013- 2014. IN THIS APPEAL, THE MAIN GRIEVANCE OF THE AS SESSEE IS THE ACTION OF LEARNED CIT(A) BY WHICH HE HAS CONFIRMED THE ACTION OF ASSESSING OFFICER IN NOT ALLOWING THE DEDUCTION CLAIMED U/S 54G OF RS.60 ,70,996/-. 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE AS SESSEE HAD AN INDUSTRIAL UNIT OF MANUFACTURING PAINTS AT TALKATORA INDUSTRIA L ESTATE, AISHBAGH, LUCKNOW WHICH IS AN URBAN AREA. THIS LAND AND BUILD ING WAS TRANSFERRED TO SHRI RAKESH JAIN PROP. M/S PRAG POLYMERS DURING FIN ANCIAL YEAR 2011-12 FOR APPELLANT BY SHRI ASHOK SETH, F.C.A. RESPONDENT BY SHRI C. K. SINGH, D. R. DATE OF HEARING 21/02/2019 DATE OF PRONOUNCEMENT 08 / 0 3 /201 9 I.T.A. NO.693/LKW/2018 ASSESSMENT YEAR:2013-14 2 A CONSIDERATION OF RS.25 LACS AND LAND AT G-18, UPS IDC INDUSTRIAL AREA, CHINHAT DEVA ROAD I.E. NON-URBAN AREA. ON THE SAI D TRANSACTION THE ASSESSEE HAD CLAIMED EXEMPTION U/S 54G OF THE ACT I N ASSESSMENT YEAR 2012-13 WHICH WAS ALLOWED TO IT VIDE ORDER U/S 143( 3) DATED 29.03.2015. THE LAND AT G-18, UPSIDC INDUSTRIAL AREA, CHINHAT D EVA ROAD, NON-URBAN AREA, WAS NOT FOUND TO BE SUITABLE FOR VARIOUS REAS ONS AND HENCE TRANSFERRED TO M/S TRIVENI ALMIRAH FOR A CONSIDERAT ION OF RS.1.71 CRORE. THE PROCEEDS FROM THE SALE OF THIS LAND WAS INVESTED DU RING THE YEAR UNDER CONSIDERATION INTO PURCHASE OF LAND OF RS.1.74 CROR E WHICH WAS ADJACENT TO THE LAND SOLD AT CHINHAT DEVA ROAD WHICH IS A NON-U RBAN AREA AND INDUSTRIAL UNDERTAKING WAS SET UP TO CARRY ON THE M ANUFACTURING ACTIVITY. ON THE SAID TRANSACTION THE ASSESSEE HAS CLAIMED THE S URPLUS OF RS.60,70,996/- AS EXEMPT U/S 54G BEING GAIN ON SHIFTING OF INDUSTR IAL UNDERTAKING FROM URBAN TO NON-URBAN AREA. THE ASSESSING OFFICER DEN IED THE CLAIM U/S 54G DUE TO THE REASON THAT EXEMPTION U/S 54G IS ALLOWED WHEN THE INDUSTRIAL UNDERTAKING IS SHIFTED FROM URBAN TO NON-URBAN AREA IN THE YEAR IN WHICH SHIFTING TAKES PLACE. BEING AGGRIEVED WITH THE ACT ION, THE ASSESSEE WENT IN APPEAL BEFORE LEARNED CIT(A), THE LEARNED CIT(A) UP HELD THE ACTION OF THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL B EFORE US. 3. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE WAS RUNNING AN INDUSTRIAL UNIT OF MANUFACTURING PAINTS ETC. AT TALKTORA INDUSTRIAL ESTATE, AISHBIAGH, LUCKNOIV, WHICH IS AN URBAN AREA . THE LAND ON WHICH FACTORY WAS ESTABLISHED BELONGED TO UPSIDC. THE LAN D AND BUILDING THEREON WAS TRANSFERRED TO SHRI RAKESH JAIN PROPRIETOR OF M /S PRAG POLYMERS DURING FY 2011-12 FOR A SUM OF RS 25 LACS AND A LAND, G-18 , UPSIDC INDUSTRIAL AREA, CHINHAT DEVA ROAD, LUCKNOW. THE DETAILS OF TH ESE TRANSACTIONS ALONG WITH EVIDENCES ETC. WERE FILED, DURING ASSESSMENT P ROCEEDINGS OF I.T.A. NO.693/LKW/2018 ASSESSMENT YEAR:2013-14 3 ASSESSMENT YEAR 2012-13. THE PROFIT OF RS.1,24,39, 700/- FROM THE TRANSACTION WAS ACCEPTED IN ASSESSMENT YEAR 2012-13 . HE FURTHER SUBMITTED THAT THE LAND AT C-18, UPSIDC INDUSTRIAL AREA, CHINHAT DEVA ROAD, WHICH WAS PART OF THE SALE CONSIDERATION, WAS FOUND TO BE NOT SUITABLE FOR VARIOUS REASONS AND HENCE TRANSFERRED TO M/S TR IVENI ALMIRAH FOR A CONSIDERATION OF RS 1.71 CRORE. THE PROCEEDS FROM THIS LAND, WHICH WAS RECEIVED AS PART OF SALE CONSIDERATION OF SALE OF U RBAN LAND AND BUILDING AT AISHBAGH LUCKNOW, WAS INVESTED DURING THE YEAR UNDE R INVESTMENT INTO PURCHASE OF LAND RS.1,74,04,050/-. THE ASSESSEE HA D CLAIMED THIS SURPLUS OF RS.60,70,996/- AS EXEMPT U/S 54G BEING GAIN ON S HIFTING OF INDUSTRIAL UNDERTAKING FROM URBAN TO NON-URBAN AREA. AS PER LE ARNED COUNSELS ARGUMENTS, THIS GAIN WAS ALSO PART OF THE WHOLE PRO CESS OF SHIFTING. LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT SEC 54G PROVIDES FOR 3 YEAR PERIOD TO MAKE INVESTMENT OF GAIN. THE ASSESSEE HAS INVESTED THE ENTIRE GAINS OF FINANCIAL YEAR 2011-12 AND 2012-13 INTO BR INGING IN EXISTENCE THE NEW MANUFACTURING SET UP IN NON-URBAN AREA. HE SUB MITTED THAT LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION O F ASSESSING OFFICER. 4. LEARNED D. R., ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. THE PRIMARY CONDITION FOR ELIGIB ILITY OF THE EXEMPTION U/S 54G IS THAT EXEMPTION WILL BE AVAILABLE ONLY ON TRA NSFER OF A CAPITAL ASSET USED FOR PURPOSE OF BUSINESS UNDERTAKING FROM URBAN AREA TO A NON-URBAN AREA. IN THE CASE OF THE ASSESSEE IN THE YEAR UNDE R CONSIDERATION, THE TRANSFER OF CAPITAL ASSET USED FOR PURPOSE OF BUSIN ESS UNDERTAKING IS FROM A NON-URBAN AREA TO ANOTHER NON-URBAN AREA WHICH DOES NOT FULFILL THE PRIMARY I.T.A. NO.693/LKW/2018 ASSESSMENT YEAR:2013-14 4 CONDITION FOR ELIGIBILITY OF THE EXEMPTION U/S 54G. THE CONTENTION OF LEARNED A. R. THAT SHIFTING OF PREMISES WAS A CONTINUOUS PR OCESS WHICH ENDED WITH THE SALE OF LAND RECEIVED AS SALE CONSIDERATION HAS NO FORCE AS THE ASSESSEE HAD ALREADY AVAILED EXEMPTION U/S 54G IN THE EARLIE R YEAR TREATING THE LAND RECEIVED AS PART OF CONSIDERATION AS THE INVESTMENT IN NON-URBAN AREA AND IN THE YEAR UNDER CONSIDERATION THE CAPITAL GAIN HAS A RISEN FROM SALE OF LAND IN NON-URBAN AREA. THE LEARNED CIT(A) HAS VERY CATEGO RICALLY HELD THAT IN THE YEAR UNDER CONSIDERATION THE TRANSFER OF LAND WAS F ROM A NON-URBAN AREA TO A NON-URBAN AREA AND THEREFORE, SECTION 54G WAS NOT APPLICABLE. THE FINDINGS OF LEARNED CIT(A) ARE QUITE RELEVANT WHICH FOR THE SAKE OF CONVENIENCE ARE REPRODUCED BELOW: 7.1 ENACTMENT OF SECTION 54G BY THE LEGISLATURE W AS WITH AN INTENTION TO DEURBANISE POPULATED AREAS AND DE-INDU STRIALISE SUCH AREA BY ENCOURAGING INDUSTRIALISATION OF NON-U RBAN AREAS, WHICH WERE UNDER DEVELOPED. SECTION 54G IS A PROVIS ION INTENDED FOR PROMOTING INCLUSIVE GROWTH OF THE COUN TRY. 7.2 A PLAIN READING OF SECTION 54G SHOWS THAT EXEM PTION U/S 54G IS ON CAPITAL GAIN ARISING ON TRANSFER OF A CAP ITAL ASSET (WHICH CAN BE IN NATURE OF MACHINERY OR PLANT OR BU ILDING OR LAND) USED FOR PURPOSE OF BUSINESS OF INDUSTRIAL UN DERTAKING SITUATED IN AN URBAN AREA, EFFECTED IN COURSE OF SH IFTING OF SUCH INDUSTRIAL UNDERTAKING TO AN AREA NON URBAN AR EA. 7.3 SECOND REQUIREMENT IS THAT TRANSFER HAS TO BE E FFECTED IN COURSE OF, OR IN CONSEQUENCE OF, SHIFTING OF THE IN DUSTRIAL UNDERTAKING 'SHIFTING' DOES NOT MEAN THAT NEW INDUS TRIAL UNDERTAKING ESTABLISHED IN THE NON-URBAN AREA SHOUL D USE ONLY THE PLANT AND MACHINERY AND ITEMS TAKEN FROM TRANSF ERRED AREA. EXEMPTION U/S 54G IS AVAILABLE FOR PURCHASE OF NEW MACHINERY OR PLANT/ ACQUISITION OF BUILDING OR LAND, 'CONSTRU CTION OF BUILDING, SHIFTING OF ORIGINAL ASSET AS WELL AS EXP ENSES INCURRED FOR THESE PURPOSES. I.T.A. NO.693/LKW/2018 ASSESSMENT YEAR:2013-14 5 7.4 THIS SECTION PROVIDES FOR A TIME WINDOW OF FOU R YEARS STARTING FROM ONE YEAR PRIOR TO-THE DATE OF TRANSFE R AND ENDING THREE YEARS AFTER THE DATE OF TRANSFER. 7.5 THUS, THE OBJECT OF ENACTING SECTION 54G WAS T O DEURBANISE AND REMOVE INDUSTRIES FROM URBAN AREAS A ND PROMOTE INDUSTRIALISATION IN NON-URBAN AREAS WHICH ARE UNDER DEVELOPED IN ORDER TO PROMOTE INCLUSIVE GROWTH OF T HE COUNTRY. 8.1 THE APPELLANT HAS TO FULFILL THE CONDITIONS OUT LINED IN PARA 7 ABOVE IN ORDER TO CLAIM THE EXEMPTION U/S 54G. BASE D ON THE FACTS OF THE CASE, LET US EXAMINE WHETHER THE APPEL LANT SATISFIES THESE CONDITIONS IN ORDER TO CLAIM EXEMPTION U/S 54 G IN A.Y. 2013-14. 8.2 A.Y. 2012-13 (EXEMPTION U/S 54G CLAIMED BY AP PELLANT AND ALLOWED BY THE A.O.) A. IN THIS A.Y., THE APPELLANT HAD CLAIMED EXEMPTIO N U/S 54G WHICH WAS ALLOWED VIDE ORDER U/S 143(3) OF THE ACT, DATED 29.03.2015. B. THE APPELLANT HAD INDUSTRIAL UNIT OF MANUFACTURI NG PAINTS AT TALKATORA ESTATE, AISHBAGH, LUCKNOW (URBAN AREA). T HE SAID INDUSTRIAL UNDERTAKING (LAND AND BUILDING ETC.) WAS SOLD TO SHRI RAKESH JAIN PROP. M/S PRAG POLYMERS DURING F.Y. 201 1-12 FOR A SUM OF RS.25 LACS + LAND AT G-18, UPSIDC INDUSTRIAL AREA, CHINHAT DEVA ROAD (NON-URBAN AREA). THE SALE VALUE OF THE CAPITAL ASSET WAS SHOWN AT RS.1,25,84,700/-. THE PU RCHASE VALUE WAS SHOWN AT RS.1,45,000/-. INDEXED COST WORK ED OUT TO RS.11,38,250/-. THE CAPITAL GAIN ON THE SAID TRANSA CTION WORKED OUT TO RS.1,14,46,450/-. ON THIS CAPITAL GAIN EXEMP TION WAS CLAIMED U/S 54G OF THE ACT ALONG WITH PURCHASE OF N EW CAPITAL ASSET I.E. 'NEW POWDER COATING PAINT'. THE SAID EXE MPTION U/S 54G WAS ALLOWED TO THE APPELLANT VIDE ORDER U/S 143 (3) DATED 29.03.2015 AS THE APPELLANT HAD SHIFTED ITS INDUSTR IAL UNIT FROM AISHBAGH, LUCKNOW (URBAN AREA) TO G-18, UPSIDC INDU STRIAL AREA, CHINHAT DEVA ROAD, LUCKNOW (NON-URBAN AREA). THE RELEVANT PORTION OF ASSESSMENT ORDER FOR A.Y. 2012- 13 DATED 29.03.2015 IS REPRODUCED IN PARA 7 OF THE ORDER OF THE APPELLANT FOR A.Y. 2013-14. I.T.A. NO.693/LKW/2018 ASSESSMENT YEAR:2013-14 6 8.3 A.Y. 2013-14-(EXEMPTION U/S 54G CLAIMED BY APP ELLANT AND NOT ALLOWED BY THE A.O.) A. THE APPELLANT STATED THAT THE ASSET AT G-18, UPS IDC INDUSTRIAL AREA, CHINHAT DEVA ROAD, LUCKNOW (NON-UR BAN AREA) WAS NOT FOUND SUITABLE DUE TO VARIOUS REASONS . THIS WAS SOLD TO M/S TRIVENI ALMIRAH FOR CONSIDERATION OF RS .1.71 CRORE. THE COST OF THE ASSET WAS WORKED AT RS.1,10,29,004/ - (OPENING BALANCE 10084700 + ADDITIONS RS.944304). THIS GAIN OF RS.60,70,996/- WAS CREDITED TO PROFIT & LOSS ACCOUN T. B. THE PROCEEDS FROM SALE OF ASSET AT CHINHAT DEVA ROAD, LUCKNOW (NON-URBAN AREA) WAS INVESTED IN PURCHASE O F ASSET ADJACENT TO THE LAND SOLD AT UPSIDC INDUSTRIAL AREA , CHINHAT DEVA ROAD, LUCKNOW (AGAIN NON-URBAN AREA) FOR RS.1,74,04,050/-. C. THE APPELLANT HAD CLAIMED THE SURPLUS OF RS.60,7 0,996/- (AS OUTLINED IN PARA 8.3 (A) ABOVE) AS EXEMPT U/S 5 4G BEING GAIN ON SHIFTING OF INDUSTRIAL UNDERTAKING. D. THE A.O. HELD THAT IN A.Y. 2013-14 THE APPELLANT HAS SHIFTED THE INDUSTRIAL UNIT FROM ONE NON-URBAN AREA TO ANOT HER NON- URBAN AREA, THEREFORE, NO EXEMPTION U/S 54G IS ADMI SSIBLE. 8.4 A PLAIN READING SHOWS EXEMPTION U/S 54G IS ON C APITAL GAIN ON TRANSFER OF A CAPITAL ASSET USED FOR PURPOSE OF BUSINESS UNDERTAKING SITUATED IN AN URBAN AREA TO AN NON-URB AN AREA. THE OBJECT' OF ENACTING SECTION 54G WAS TO DE URBANISE AND REMOVE INDUSTRIES FROM URBAN AREAS AND PROMOTE INDUSTRIALISATION IN NON-URBAN AREAS. THIS IS THE P RIMARY CONDITION FOR ELIGIBILITY OF THE EXEMPTION U/S 54G. HOWEVER, IN THE CASE OF APPELLANT IN A.Y. 2013-14, THE TRANSFER OF CAPITAL ASSET USED FOR PURPOSE OF BUSINESS UNDER TAKING IS FROM A NON-URBAN AREA TO ANOTHER NON-URBAN AREA. TH IS ACTION OF THE APPELLANT DOES NOT GO DOWN WITH THE S PIRIT OF SECTION 54G WHICH IS A BENEFICIAL PROVISION FOR PRO MOTING THE SHIFTING OF INDUSTRIES FROM URBAN AREAS TO NON-URBA N AREAS. IN VIEW OF THESE FACTS, THE APPELLANT HAS NOT SATISFIE D THE PRIMARY CONDITION PRESCRIBED FOR ELIGIBILITY OF EXEMPTION U /S 54G. THUS, I.T.A. NO.693/LKW/2018 ASSESSMENT YEAR:2013-14 7 THE ACTION OF A.O. IS UPHELD AND THE GROUNDS OF APP EAL NO. 2 AND 3 ARE DISMISSED. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) WHICH IS AFFIRMED AND APPEAL OF THE ASSESSEE IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 08/03/2019) SD/. SD/. ( A. D. JAIN ) ( T. S. KAPOOR ) VICE PRESIDENT ACCOUNTANT MEMBER DATED:08/03/2019 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSISTANT REGISTRAR I.T.A. NO.693/LKW/2018 ASSESSMENT YEAR:2013-14 8 1. DATE OF DICTATION 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S 6.DATE OF UPLOADING, IF NOT, REASON FOR NOT UPLOADING 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH ORDER GOES FOR XEROX AND ENDORSEME NT 9. DATE ON WHICH THE FILE GOES TO THE O.S 10. THE DATE ON WHICH THE FILE GOES TO THE ASSISTAN T REGISTRAR FOR SIGNATURE ON THE ORDER 11.DATE ON WHICH FILES GOES TO DESPATCH SECTION FOR DESPATCH 12. DATE OF DISPATCH OF THE ORDER