ACIT, Circle-13(1), Hyderabad V. Sri P. Ram Gopal Varma, Hyderabad

ITA 769/HYD/2014

• Counselvise Citation: 76922514 RSA 2014
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 28-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Assessment record
• Section: 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 769/HYD/2014 ASSESSMENT YEAR: 2008-09 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 13(1), HYDERABAD. VS. SRI P. RAM GOPAL VARMA, HYDERABAD. PAN - AGFPP4793C (APPELLANT) (RESPONDENT) REVENUE BY : SHRI RAJAT MITRA ASSESSEE BY : SHRI P. MURALI MOHAN RAO DATE OF HEARING : 08-07-2015 DATE OF PRONOUNCEMENT : 15 -07-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY DEPARTMENT IS DIRECTED AGAINST THE ORDER DATED 31/12/2013 OF LD. CIT(A)-V, HYDERABAD FOR THE AY 20 08-09. 2. THE FIRST EFFECTIVE GROUND OF THE DEPARTMENT IS AGAINST THE DECISION OF LD. CIT(A) IN RESTRICTING DISALLOWANCE OF EXPENDITURE CLAIMED AGAINST THE PROFESSIONAL INCOME TO 10%. 3. BRIEFLY THE FACTS ARE, ASSESSEE IS A FILM DIRECT OR. FOR THE AY UNDER CONSIDERATION, ASSESSEE FILED ITS RETURN OF I NCOME ON 07/10/2008 DECLARING TOTAL INCOME OF RS. 60,64,590. IN COURSE OF ASSESSMENT PROCEEDING, AO WHILE EXAMINING THE P&L A /C NOTICED THAT ASSESSEE DURING THE YEAR HAS RECEIVED AN AMOUNT OF RS. 1,15,66,110 AND CLAIMED EXPENDITURE OF RS. 55,92,186. AFTER VER IFYING THE DETAILS OF EXPENDITURE CLAIMED, AO OBSERVED THAT THE EXPEND ITURE INCURRED 2 ITA NO. 769 /HYD/2014 SRI P. RAM GOPAL VARMA ARE NOT SUPPORTED BY ANY VOUCHERS ETC., HE ALSO ALL EGED THAT ASSESSEE COULD NOT EXPLAIN THE LOGIC BEHIND INCURRI NG THE EXPENDITURE. AO OPINED THAT SINCE HE IS ONLY A DIRECTOR AND ALL EXPENSES RELATING TO A FILM ARE GENERALLY BORNE BY PRODUCERS, THERE I S NO JUSTIFIABLE REASON FOR ASSESSEE TO CLAIM THE EXPENDITURE. HOWEV ER, AO WAS OF THE VIEW THAT ASSESSEE COULD REASONABLY HAVE INCURR ED EXPENDITURE AMOUNTING TO 20% OF TOTAL EXPENDITURE CLAIMED OF RS . 55,92,186. ACCORDINGLY, HE ALLOWED AN AMOUNT OF RS. 11,18,437 WHILE ADDING BACK THE BALANCE AMOUNT OF RS. 44,73,748 TO THE INC OME OF ASSESSEE. BEING AGGRIEVED OF SUCH DISALLOWANCE, ASSESSEE PREF ERRED APPEAL BEFORE LD. CIT(A). 4. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AS WELL AS GOING THROUGH THE OBSERVATIONS MADE BY AO W AS OF THE VIEW THAT WHEN AO HIMSELF HAS ALLOWED 20% OF THE EXPENDI TURE CLAIMED, IT CANNOT BE SAID THAT THE EXPENDITURE CLAIMED IS NOT INCIDENTAL TO THE ASSESSEES PROFESSION. FURTHER, HE OPINED THAT ONLY BECAUSE ASSESSEE COULD NOT PRODUCE VOUCHERS, 80% OF THE EXP ENDITURE CANNOT BE DISALLOWED. LD. CIT(A) WAS OF THE VIEW THAT UNDE R THE FACTS AND PARTICULAR CIRCUMSTANCES OF THE CASE DISALLOWANCE O F 10% OUT OF THE EXPENDITURE CLAIMED WOULD BE REASONABLE. ACCORDINGL Y, HE DIRECTED AO TO RESTRICT THE DISALLOWANCE TO 10% OF THE TOTA L EXPENDITURE CLAIMED. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. THOUGH, IT MAY BE A FACT T HAT ASSESSEE BEFORE AO COULD NOT PRODUCE ANY VOUCHERS TOWARDS EX PENDITURE CLAIMED, BUT, AT THE SAME TIME, IT CANNOT BE ACCEPT ED THAT ASSESSEE HAS INFLATED HIS EXPENDITURE TO THE EXTENT OF 80%. THEREFORE, DISALLOWANCE OF 80% OUT OF THE TOTAL EXPENDITURE CL AIMED BY AO IS NOT AT ALL REASONABLE. MOREOVER, AO APART FROM MAKING G ENERAL OBSERVATION THAT ALL THE EXPENDITURE WOULD HAVE BEE N INCURRED BY PRODUCER, HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO JUSTIFY THE DISALLOWANCE OF 80%. IN THE AFORESAID VIEW OF THE M ATTER, WE DO NOT 3 ITA NO. 769 /HYD/2014 SRI P. RAM GOPAL VARMA FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) IN RESTRICTING THE DISALLOWANCE TO 10%, WHICH, IN OUR VIEW, IS ALS O REASONABLE. ACCORDINGLY, LD. CIT(A)S ORDER ON THIS ISSUE IS UP HELD BY DISMISSING THE GROUND. 6. THE NEXT ISSUE AS RAISED IN GROUND NO. 3 IS IN R ELATION TO ALLOWANCE OF ASSESSEES CLAIM OF EXEMPTION U/S 54F OF THE ACT. 7. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PRO CEEDING, AO NOTICED THAT IN THE RELEVANT FY ASSESSEE HAS SOLD A PLOT IN JUBILEE HILLS, HYDERABAD FOR A TOTAL CONSIDERATION OF RS. 1 ,50,00,000 AND COMPUTED LONG TERM CAPITAL GAIN OF RS. 1,06,64,262 WHEREAS HE ALSO CLAIMED EXEMPTION U/S 54 OF THE ENTIRE CAPITAL GAIN BY CLAIMING THAT HE HAS INVESTED THE ENTIRE SALE CONSIDERATION OF RS. 1 .50 CRORES IN CONSTRUCTION OF A HOUSE PROPERTY. WHEN AO CALLED UP ON ASSESSEE TO PRODUCE EVIDENCE TO SUBSTANTIATE HIS CLAIM OF EXEMP TION U/S 54F AND ESTABLISH THAT CONSTRUCTION OF NEW HOUSE HAS COMMEN CED WITHIN THE PERIOD OF THREE YEARS, AS ALLEGED BY AO, ASSESSEE A PART FROM SUBMITTING A LETTER INDICATING PAYMENT OF RS. 90 LA KHS TO GVR CONSTRUCTIONS PVT. LTD. TOWARDS ADVANCE FOR CONSTRU CTION AND AN AMOUNT OF RS. 12,50,000 TO A DEVELOPER TOWARDS PURC HASE OF RAW MATERIAL, DID NOT FURNISH ANY OTHER EVIDENCE TO SHO W THAT CONSTRUCTION OF HOUSE PROPERTY HAS BEEN MADE WITHIN THREE YEARS FROM THE DATE OF SALE. AO ALSO OBSERVED THAT ON ENQUIRY MADE WITH GV R CONSTRUCTIONS PVT. LTD., IT WAS FOUND THAT THE AMOUNT OF RS. 90,0 0,000 WAS RECEIVED BY THE SAID COMPANY FROM ASSESSEE TOWARDS INTEREST FREE UNSECURED LOAN AND THEY ALSO SAID THAT THEY HAVE REPAID THE S AID LOAN TO ASSESSEE DURING THE YEAR 2008-09 TO 2010-11. THUS, AO ALLEGING THAT ASSESSEE FAILED TO SUBMIT ANY EVIDENCE TO INDICATE THAT IT HAS COMPLIED TO THE PROVISIONS OF SECTION 54F OF THE AC T, DISALLOWED ASSESSEES CLAIM OF EXEMPTION UNDER THE SAID PROVIS ION. BEING AGGRIEVED OF THE DISALLOWANCE MADE BY AO, ASSESSEE PREFERRED APPEAL CHALLENGING THE SAME BEFORE LD. CIT(A). 4 ITA NO. 769 /HYD/2014 SRI P. RAM GOPAL VARMA 8. BEFORE LD. CIT(A) ASSESSEE CONTESTING THE DENIAL OF EXEMPTION CLAIMED U/S 54F BY AO STATED THAT HE IN FACT HAS IN VESTED THE ENTIRE CAPITAL GAIN IN CONSTRUCTION OF A RESIDENTIAL HOUSE WITHIN THE STIPULATED PERIOD OF THREE YEARS. AS FAR AS ALLEGATION OF AO W ITH REFERENCE TO THE PAYMENT OF RS. 90 LAKHS TO M/S GVR CONSTRUCTIONS PV T. LTD., ASSESSEE SUBMITTED THAT THOUGH, ASSESSEE HAD GIVEN ADVANCE OF RS. 90 LAKH TO THE SAID COMPANY FOR CONSTRUCTION OF HOU SE, BUT, THE SAID COMPANY ULTIMATELY RETURNED BACK THE AMOUNT TO ASSE SSEE AS DUE TO PREOCCUPATION THEY WERE NOT ABLE TO CONSTRUCT ASSES SEES HOUSE. AS FAR AS THE AMOUNT OF RS. 12,50,000 PAID TO M/S AZ DEVELOPERS , ASSESSEE SUBMITTED THAT THIS WAS TOWARDS SUPPLY OF MATERIAL, HOWEVER, THE SAID PARTY ALSO RETURNED BACK THE AMOU NT TO ASSESSEE AS DISPUTE AROSE BETWEEN THEM. IT WAS SUBMITTED BY ASS ESSEE THAT AFTER RECEIVING BACK THE SAID AMOUNTS, THE SAME WERE DEPO SITED INTO CAPITAL GAIN ACCOUNT SCHEME AND SUBSEQUENTLY WITHDR AWN AND INVESTED IN THE CONSTRUCTION OF RESIDENTIAL HOUSE A T PLOT NO. 48, SITE- 11, HAKEEMPET VILLAGE, FILM NAGAR, HYDERABAD BY ASS ESSEE HIMSELF WITHIN THE PERIOD OF THREE YEARS AS PRESCRIBED U/S 54F. THUS, IT WAS SUBMITTED BY ASSESSEE THAT AS CONDITIONS OF SECTION 54F WAS COMPLIED, DEDUCTION CLAIMED IS ALLOWABLE. IN SUPPOR T OF HIS CLAIM, ASSESSEE ALSO SUBMITTED A LETTER DATED 22/11/13 FRO M M/S GVR CONSTRUCTIONS PVT. LTD. WHEREIN IT WAS STATED THAT AN AMOUNT OF RS. 90 LAKH RECEIVED BY THEM WAS FOR CONSTRUCTION OF HOUSE OF ASSESSEE. 9. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, OBSERVED THAT ASSESSEE HAD ADVANCED AN AMOUNT OF RS . 90 LAKH AND RS. 12,50,000 TO TWO PARTIES FOR CONSTRUCTION OF HO USE BEFORE THE DUE DATE OF FILING OF RETURN FOR THE IMPUGNED AY. HOWEV ER, SINCE THOSE PARTIES DID NOT START CONSTRUCTION WORK DUE TO SOME REASON OR THE OTHER, THEY RETURNED BACK THE ADVANCES AND ASSESSEE HIMSELF TOOK UP CONSTRUCTION WORK AND INVESTED THE AMOUNT OF RS. 1. 50 CRORE BEFORE THE STIPULATED PERIOD OF THREE YEARS FROM THE DATE OF TRANSFER OF ORIGINAL ASSET. LD. CIT(A) RELYING UPON CERTAIN JUD ICIAL PRECEDENTS HELD THAT SINCE FROM THE BEGINNING ASSESSEES INTENTION WAS TO CONSTRUCT A 5 ITA NO. 769 /HYD/2014 SRI P. RAM GOPAL VARMA NEW HOUSE AND ULTIMATELY ASSESSEE ALSO UTILIZED THE AMOUNT OF RS. 1.50 CRORE TOWARDS CONSTRUCTION OF NEW HOUSE, IT IS ELIGIBLE FOR EXEMPTION U/S 54F. ACCORDINGLY, HE ALLOWED ASSESSEE S CLAIM. 10. LD. DR SPECIFICALLY DRAWING OUR ATTENTION TO TH E OBSERVATIONS MADE BY AO IN THE ASSESSMENT ORDER SUBMITTED BEFORE US, ASSESSEE DID NOT PRODUCE ANY SUBSTANTIVE EVIDENCE TO SHOW TH AT CAPITAL GAIN WAS INVESTED IN CONSTRUCTION OF A NEW HOUSE WITHIN THE STIPULATED PERIOD OF THREE YEARS AS PRESCRIBED U/S 54F. LD. DR SUBMITTED, AS FAR AS THE AMOUNT OF RS. 90 LAKH CLAIMED TO HAVE BEEN G IVEN TO M/S GVR CONSTRUCTIONS PVT. LTD. IS CONCERNED, ON ENQUIRY MA DE BY AO IT WAS FOUND THAT THE AMOUNT WAS ADVANCED TO THE SAID COMP ANY AS UNSECURED LOAN AND NOT FOR THE PURPOSE OF CONSTRUCT ION OF HOUSE. LD. DR SUBMITTED, ONLY AFTER COMPLETION OF THE ASSESSME NT AND IN COURSE OF PROCEEDING BEFORE LD. CIT(A), ASSESSEE HAD PRODU CED A LETTER FROM THE SAID COMPANY WHEREIN IT IS STATED THAT THE AMOU NT OF RS. 90 LAKH WAS GIVEN TOWARDS CONSTRUCTION OF HOUSE PROPERTY. T HUS, LD. DR SUBMITTED, THERE BEING NO EVIDENCE SUBMITTED BY ASS ESSEE TO ESTABLISH THE CLAIM THAT HE HAS INVESTED THE AMOUNT OF RS. 1.50 CRORE IN CONSTRUCTION OF A NEW HOUSE PROPERTY WITHIN THE STIPULATED PERIOD OF THREE YEARS, CLAIM OF EXEMPTION U/S 54F COULD NOT H AVE BEEN ALLOWED. HE THEREFORE SUBMITTED, MATTER MAY BE REMITTED BACK TO AO TO EXAMINE THE CLAIM OF ASSESSEE. 11. LD. AR, ON THE OTHER HAND, STRONGLY SUPPORTING THE ORDER OF LD. CIT(A) SUBMITTED BEFORE US, ALL INFORMATIONS WERE A VAILABLE IN THE RECORDS OF THE DEPARTMENT REGARDING CONSTRUCTION OF NEW HOUSE BY ASSESSEE. SPECIFICALLY REFERRING TO THE OBSERVATION S MADE BY LD. CIT(A) AT PARAS 6.3 AND 6.4 OF HIS ORDER, LD. AR SU BMITTED, WHEN LD. CIT(A) HAS RECORDED A FINDING OF FACT AFTER EXAMINI NG THE ASSESSMENT RECORD THAT ASSESSEE HAS INVESTED THE AMOUNT OF RS. 1.50 CRORE IN CONSTRUCTION OF A NEW HOUSE PROPERTY WITHIN THE STI PULATED PERIOD OF THREE YEARS, HIS FINDING CANNOT BE DISTURBED. 6 ITA NO. 769 /HYD/2014 SRI P. RAM GOPAL VARMA 12. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIALS ON RECORD. ON PERUSAL OF THE ASSESSME NT ORDER IT IS VERY MUCH EVIDENT THAT AO HAS GIVEN A CATEGORICAL FINDIN G THAT IN SPITE OF REPEATED REQUESTS, ASSESSEE APART FROM SUBMITTING A LETTER FROM M/S GVR CONSTRUCTIONS PVT. LTD. HAS NOT FURNISHED ANY E VIDENCE TO ESTABLISH HIS CLAIM THAT CAPITAL GAIN ARISING FROM SALE OF OLD HOUSE HAS BEEN INVESTED IN CONSTRUCTION OF A NEW HOUSE AS PER THE CONDITIONS OF SECTION 54F. FROM THE ORDER OF LD. CIT(A), IT IS SE EN THAT HE HAS ALLOWED ASSESSEES CLAIM OF EXEMPTION ON THE BASIS THAT ASSESSEE HAS UTILIZED THE AMOUNT OF RS. 1.50 CRORE IN CONSTR UCTION OF NEW HOUSE WITHIN A PERIOD OF THREE YEARS FROM THE DATE OF SAL E OF OLD PROPERTY. HOWEVER, ON WHAT BASIS HE HAS COME TO SUCH CONCLUSI ON IS NOT FORTHCOMING FROM THE ORDER. NO MATERIAL HAS BEEN BR OUGHT BEFORE US BY LD. AR TO DEMONSTRATE THAT ASSESSEE IN FACT HAS MADE INVESTMENT OF RS. 1.50 CRORE IN CONSTRUCTION OF NEW HOUSE WITH IN THE STIPULATED PERIOD OF THREE YEARS FROM THE DATE OF SALE AS PRES CRIBED U/S 54F. THOUGH WE ACCEPT THE VIEW EXPRESSED BY LD. CIT(A) T HAT NO DISALLOWANCE U/S 54F CAN BE MADE ONLY ON ACCOUNT OF DELAY IN DEPOSITING THE AMOUNT IN CAPITAL GAIN ACCOUNT SCHEM E, BUT, AT THE SAME TIME, ASSESSEE IS DUTY BOUND TO PROVE THE FACT THAT HE HAS CONSTRUCTED A NEW HOUSE WITHIN THE STIPULATED PERIO D AS PROVIDED U/S 54F. SINCE THERE ARE NO MATERIALS BEFORE US, WHICH COULD INDICATE THAT ASSESSEE HAS UTILIZED THE AMOUNT OF RS. 1.50 CRORES IN CONSTRUCTION OF A NEW HOUSE, WHEREAS AO IN THE ASSESSMENT ORDER HAS ALLEGED THAT ASSESSEE DID NOT PRODUCE ANY EVIDENCE WITH REGARD T O INVESTMENT IN HOUSE PROPERTY, IN THESE CIRCUMSTANCES, WE ARE UNAB LE TO AGREE WITH THE FINDING OF LD. CIT(A) ON THE ISSUE. MORE SO, WH EN HE HAS NOT PUT IT ON RECORD, THE EVIDENCE/MATERIAL ON THE BASIS OF WH ICH HE HAS COME TO HIS CONCLUSION THAT ASSESSEE HAS UTILIZED THE AM OUNT OF RS. 1.50 CRORE IN CONSTRUCTION OF A NEW HOUSE PROPERTY. IN A BSENCE OF EVIDENCE TO PROVE SUCH FACT, WE ARE UNABLE TO SUSTAIN THE OR DER OF LD. CIT(A). ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) A ND RESTORE THE MATTER TO THE FILE OF AO WITH A DIRECTION TO VERIFY ASSESSEES CLAIM OF 7 ITA NO. 769 /HYD/2014 SRI P. RAM GOPAL VARMA EXEMPTION U/S 54F. IF ASSESSEE IS ABLE TO ESTABLISH HIS CLAIM THROUGH PROPER EVIDENCE THAT HE HAS INVESTED THE AMOUNT OF RS. 1.50 CRORE IN CONSTRUCTION OF A NEW PROPERTY IN TERMS WITH CONDIT IONS IMPOSED U/S 54F, THEN, AO MUST ALLOW ASSESSEES CLAIM OF EXEMPT ION. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT, DEPARTMENTS APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2015. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 15 TH JULY, 2015 KV COPY TO:- 1) ACIT, CIRCLE 13(1), 2 ND FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD 500 082 2) SRI P. RAM GOPAL VARMA, 16/3, RT, PUNJAGUTTA COL ONY, PUNJAGUTTA, HYDERABAD 3) CIT(A)-V, HYDERABAD 4) CIT-1, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.` DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER