Shri. Kamlakar Moghe, V. Dy.Commissioner of Income-Tax,Circle-3, Nagpur

ITA 9/NAG/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1954 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M BHUSARI; B RAJARAM ADL
• Assessee Lawyers: M MANI; J M RANDE
• Keywords: Capital asset; Principle of natural justice; Cost of acquisition; Reasonable cause; Assessment record; Retraction
• Section: 69; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR E-BENCH, NAGPUR (THROUGH VIDEO CONFERENCE AT MUMBAI) BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO.9/NAG/2011 (AY: 2007-2008) SHRI KAM LAKAR MOGHE, 13, KALPATARU, 4 TH FLOOR, HATISKAR MARG, ABOVE ADARSH ENGLISH SCHOOL, PRABHADEVI, MUMBAI400 025. PAN:ABWPM 4380L VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE-3, ROOM NO.311, SARAF CHAMBER, SADAR, NAGPUR-440001. (APPELLANT) (RESPONDENT) I.T.A.NO.20/NAG/2011 (AY: 2007-2008) ASST. COMMISSIONER OF INCOME - TAX, CIRCLE-3, 3 RD FLOOR, SARF CHAMBER, SADAR, NAGPUR. VS. SHRI KAMLAKAR M. MOGHE, 4, CANAL ROAD, RAMDASPETH, NAGPUR. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M. MANI & J.M. RANDE REVENUE BY : SHRI B. RAJARAM, ADL. CIT & M.BHUSARI, CIT-DR DATE OF HEARING: 13.12.2012 DATE OF ORDER: 23.1.2013 O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. APPEAL I TA NO.9/NAG/2011 IS FILED BY THE ASSESSEE AND THE OTHER APPEAL ITA NO.20/NAG/2011 IS FILED BY THE REVENUE. BOTH APPEALS PERTAINING TO THE SAME ASSESSMENT YEAR 2007-08 AND THEY ARE FILED AGAINST THE ORDER OF SAME CIT (A)-II, NAGPUR DATED 4.11.2010. THE APPEA L WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. FIRSTLY, WE SHA LL TAKE UP ASSESSEES APPEAL AND THE ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 15 LACS MADE BY A O, WHICH WAS PAID TO HIS 3 NIECES TOWARDS SETTLEMENT OF THEIR INTEREST IN TH E PROPERTY AND WAS CLAIMED AS DEDUCTION U/S 48(I) OF THE IT ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, LD CIT (A) ERRED IN CONFIRMING ADDITION OF RS. 20 LACS MADE BY AO U/ S 69 OF IT ACT, 1961 IGNORING THE FACT THAT THIS AMOUNT WAS PAID ON 5.4. 2007 PERTAINING TO AY 2008-2009 AND THE SAME WAS OFFERED TO TAX IN AY 200 8-09. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE TH AT ASSESSEE IS A PENSIONER AND DERIVED INCOME FROM PENSION AND INTEREST ETC FILED RETURN D ECLARING TOTAL INCOME OF RS. 2,69,042/-. AO PROCESSED THE SAME AND DETERMINED THE TOTAL TAXA BLE INCOME OF RS. 1,27,63,105/-. IT 2 INCLUDES LONG TERM CAPITAL GAIN OF RS. 1,03,44,063/ -, INCOME FROM OTHER SOURCES RS.1,65,312/-, ADDITION U/S 69 OF RS. 20,00,000/- A ND UNDISCLOSED INCOME OF RS. 1 LACS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE CLAIMED DEDUCTION U/S 48 OF THE ACT AMOUNTING TO RS.60 LACS AS THE SA ME AMOUNT WAS PAID TO HIS THREE SISTERS (RS. 15 LACS TO EACH ONE 3 X RS. 15 LACS= RS. 45 LA CS) AND THREE NIECES (RS. 5 LAKHS TO EACH ONE 3 X RS. 5LACS=RS. 15 LACS). ASSESSEE CLAIMED TH E SAID DEDUCTION OUT OF THE SALE CONSIDERATION OF AN ANCESTRAL HOUSE PROPERTY LOCATE D AT NAGPUR. IN THIS REGARD, ASSESSEE RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT REPORTED IN 150 ITR 80. AO DID NOT AGREE WITH THE ASSESSEES REASONING FOR HIS CLAIM OF DEDU CTION AS THE ASSESSEE WAS THE ABSOLUTE AND THE ONLY OWNER OF THE PROPERTY, AS PER ASSESSEE S AFFIDAVIT DATED 6.7.2006 HAVING CLEAR TITLE, RIGHT AND INTEREST OVER THE PROPERTY, AND HI S THREE SISTERS AND 3 NIECES DID NOT HAVE ANY RIGHT OVER THE SAID PROPERTY AND THE SAME WAS DISAL LOWED BY THE AO. RELIANCE WAS MADE BY THE AO ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF ASHOK SOI VS. CIT [2004] (192 CTR 535) (DEL). ASSESSEE ALSO CLAIMED EXEMPTI ON U/S 54EC OF RS. 22 LACS WHICH WAS INCURRED FOR PURCHASE OF RURAL ELECTRIFICATION CORP ORATION LTD. BONDS. THIS AMOUNT OF RS. 22 LACS WAS ALSO DISALLOWED BY THE AO AS THE ASSESSEE HAS NOT COMPLIED WITH THE REQUIREMENTS OF SEC.54EC. AO ALSO MADE AN ADDITION OF RS.20 LAC S U/S 69 OF THE ACT, IN THE ABSENCE OF ANY PROOF AND SUBSTANTIATED EXPLANATION BY THE ASSESSEE IN THIS REGARD. AGGRIEVED WITH THE DECISION OF AO, ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLAT E AUTHORITY, IT WAS SUBMITTED THAT THE SUM OF RS 60 LAKHS HAS TWO SEGMENTS NAMELY RS 45 LA KHS PAID TO THREE SISTERS IN CONNECTION WITH THE TRANSFER OF THE ASSET AND RS 15 LAKHS PAID TO THE THREE NIECES. AFTER HEARING THE ASSESSEE AND CONSIDERING THE SUBMISSION, CIT (A) PA RTLY ALLOWED THE ASSESSEES APPEAL. CIT(A) CONFIRMED THE DISALLOWANCE OF RS 15 LAKHS PA ID TO THREE NIECES NOT ALLOWABLE DEDUCTION AND GAVE RELIEF OF RS 45 LAKHS AS ALLOWAB LE DEDUCTION AS THE SAID AMOUNT IS PAID IN CONNECTION WITH THE TRANSFER OF THE ASSET. WE SHALL TAKE UP THE ISSUE OF ALLOWABILITY OF THE CLAIM OF RS 45 LAKHS WHILE DEALING WITH THE APPEAL OF THE REVENUE. REGARDING THE DISALLOWABLE SUM OF RS 15 LAKHS, PARAS 3.6 TO 3.7 O F THE IMPUGNED ORDER ARE RELEVANT IN THIS REGARD AND THE SAME ARE REPRODUCED HERE UNDER: 3.6 I HAVE THOROUGHLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT RECORDS AND THE APPELLANTS SUBMISSIONS. AS FOR TH E PAYMENTS TO THE NIECES OF SHRI K.M. MOGHE, AO HAS HELD THAT THE AMOUNT OF RS. 15 LACS IS NOT IN ACCORDANCE WITH THE WILL OF SMT. KAMLABAI MOGHE BEC AUSE SHE HAS CLEARLY STATED IN HER WILL THAT THIS PROPERTY SHOULD BE GI VEN TO MY LEGAL HEIRS TWO SONS, THEIR SONS OR TO MY DAUGHTERS. FURTHER, ACC ORDINGLY TO THE AO LATE SHRI 3 P.M. MOGHE VIDE HIS WILL HAVE ALSO STATED THAT AFTE R HIS DEATH HIS LEGAL HEIRS WOULD HAVE NO CLAIM TO THE PROPERTY. THE APPELLANT S CONTENTION IS THAT THE PAYMENT OF RS. 15 LACS BY SHRI K.M. MOGHE IS DUE TO THE FACT THAT SHRI K.M. MOGHE HAD TO PAY RS. 5 LACS EACH TO HIS 3 NIECES (D AUGHTERS OF LATE MR. P.M. MOGHE) NAMELY MRS. DEV, MS. MOGHE AND MRS. JOTHAR T OWARDS THEIR PROPORTIONATE SHARE IN UNDIVIDED LAND ON WHICH THE BUNGALOW IS CONSTRUCTED AND WHICH WAS NOT GIVEN BY MR. P.M. MOGHE TO HIS SI STERS BY HIS WILL. THIS STATEMENT IS NOT IN CONSONANCE WITH THE FACTS NARRA TED ABOVE. 3.7 I AM IN AGREEMENT WITH THE FINDINGS OF THE AO. THE PAYMENTS MADE TO HIS NIECES BY SHRI K.M. MOGHE ARE NOT IN ACCORDA NCE WITH THE WILL OF HIS LATE MOTHER, SMT. KAMLABAI MOGHE. IN FACT, IT IS V ERY CLEAR FROM THE WILL OF SMT. KAMLABAI MOGHE THAT IN THE ABSENCE OF ANY MALE HEIRS TO HER SONS, THE PROPERTY WOULD BE INHERITED BY HER DAUGHTERS. IT I S IN ACCORDANCE WITH THIS WILL THAT THE ASSESSEES BROTHER, LATE SHRI P.M. MO GHE WAS BEQUEATHED HIS SHARE OF THE PROPERTY TO THE THREE SISTERS. THEREF ORE, THE DAUGHTERS OF SHRI P.M. MOGHE DID NOT HAVE ANY CLAIM ON THE PROPERTY A ND THE PAYMENTS TO THEM ARE NOT ON ACCOUNT OF ANY CLAIM ON THE PROPERT Y. THE PAYMENTS MADE BY SHRI K.M. MOGHE ARE A MERE APPLICATION OF HIS IN COME. THE THREE NIECES DID NOT HAVE ANY LEGAL CLAIM OVER THE PROPERTY AND ANY PAYMENT MADE TO THEM CANNOT BE SAID TO HAVE BEEN MADE IN CONNECTION WITH THE TRANSFER OF THE PROPERTY. THEREFORE, THE ACTION OF THE AO IN DI SALLOWING RS. 15 LACS REQUIRES NO INTERFERENCE AND IS SUSTAINED. 4. FROM THE ABOVE, IT IS EVIDENT THAT THE PAYMENT O F RS 5 LAKHS EACH FOR THREE NIECES IS CALLED FOR OR NOT. DURING THE PROCEEDINGS BEFORE U S, SHRI KAMLAKAR MOGHE- ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND P LACED RELIANCE ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. C. V. SOUNDARARAJAN REPORTED IN 150 ITR 80 IN SUPPORT OF HIS CLAIM THAT THE AMOUNT PAID TO HIS NIECES IS NECESSARY AND IT IS IN CONNECTION WITH TRANSFER OF PROPERTY. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RD AVAILABLE BEFORE US AND ALSO THE ORDERS OF THE REVENUE AUTHORITIES. WE ALSO PERUSED THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF ASHOK SOI VS. CIT (SUPRA) WHER EIN THE COURT HELD AS UNDER: ONLY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF CAPITAL ASSETS WOULD QUALIFY FOR DEDUCT ION UNDER SECTION 48(I). WHERE THE PERSON TO WHOM CERTAIN AMOUNTS WERE PAID TO SETTLE HIS CLAIMS HAD NO RIGHT, TITLE OR INTEREST IN THE PROPE RTIES IN QUESTION , THE AMOUNTS PAID CANNOT BE CONSIDERED TO HAVE BEEN PAID WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER , THE SAME WOULD NOT QUALIFY FOR DEDUCTION UNDER SECTION 48(I) WHILE DET ERMINING THE COST OF ACQUISITION FOR THE PURPOSES OF CAPITAL GAIN COMPUT ATION. 6. CONSIDERING THE ABOVE DECISION OF THE HONBLE DE LHI HIGH COURT FOR THE PROPOSITION THAT WHEN AN ASSESSEE PAID CERTAIN AMOUNTS TO SOMEO NE TO SETTLE THE CLAIMS, WHO HAD NO 4 RIGHT, TITLE OR INTEREST IN THE PROPERTIES IN QUEST ION , THEY CANNOT BE CONSIDERED TO HAVE BEEN PAID WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF PROPERTY AND THE AMOUNT CANNOT BE CLAIMED AS DEDUCTION U/S 48(I) OF THE ACT . THE RATIO IS APPLICABLE IN THE INSTANCE CASE AS THE THREE NIECES TO WHOM THE ASSESSEE HAD P AID AN AMOUNT OF RS. 15 LACS DID NOT HAVE ANY LEGAL CLAIM OVER THE PROPERTY AND THEREFOR E, THE AMOUNT PAID TO THEM CANNOT BE SAID TO HAVE BEEN MADE IN CONNECTION WITH TRANSFER OF THE PROPERTY. THE DECISION RELIED UPON BY THE ASSESSEE IN THE CASE OF CIT VS. C.V. SO UNDARARAJAN HAS NO APPLICATION AS THERE IS NO RELINQUISHMENT OF ANY RIGHT FOR WHICH THE AMO UNT IS CLAIMED TO HAVE BEEN PAID. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH E DECISION OF CIT (A) IN UPHOLDING THE DISALLOWANCE MADE BY THE AO DOES NOT CALL FOR ANY I NTERFERENCE. ACCORDINGLY GROUND NO.1 RAISED IN ASSESSEES APPEAL IS DISMISSED . 7. GROUND NO.2 RELATES TO ADDITION OF RS. 20 LACS U /S 69 OF THE ACT. RELEVANT FACTS ARE THAT THE ASSESSEE SOLD HIS PROPERTY FOR A SUM OF RS . 1.3 CR IN THE FY 2006-2007 AND EARNED CAPITAL GAINS. IN THIS REGARD, ASSESSEE FURNISHED C OMPUTATION OF CAPITAL GAINS AT NIL AFTER CLAIMING (I) DEDUCTION U/S 54 OF THE ACT AMOUNTING TO RS. 29 LAKHS; AND (II) INVESTMENT OF SUM OF RS. 22 LAKHS AS PER THE PROVISIONS OF SECTIO N 54EC OF THE ACT. THE IMPUGNED ADDITION OF RS 20 LAKHS IS PART OF THE AFORESAID INVESTMENT OF RS. 29 LACS IN AN HOUSE PROPERTY PURCHASED FROM M/S. SHRI APPASWAMI INFRASTRUCTURES (SAI). DURING THE ASSESSMENT PROCEEDINGS, IN SUPPORT OF SUCH PURCHASE, ASSESSEE SUBMITTED A COPY OF THE AGREEMENT OF SALE DATED 7.7.2006. AS PER THE SAID AGREEMENT, TH E MANNER AND THE DETAILS OF PAYMENT OF SALE CONSIDERATION ARE AS UNDER: MANNER OF PAYMENT I) RS. 20,00,000/ - PAID BY CASH II) RS. 9,00,000/ - PAID BY CHEQUE NO. 111745 DATED 7.7.2006 DRAWN ON S TATE BANK OF INDIA, RAMDASPETH BRANCH, NAGPUR-10. III) RS. 11,00,000/ - T O BE PAID FROM TIME TO TIME AS PER THE PROGRESS OF CONSTRUCTION BEFORE THE POSSESSION OF THE ABOVE SAI D APARTMENT 8. IN THE ASSESSMENT PROCEEDINGS, THE EXPRESSION PAID BY CASH BECAME THE BONE OF CONTENTION. IN SHORT, SINCE PAST TENSE IS USED IN T HE SAID EXPRESSIONS, AO CONCLUDED THE SUM OF RS 20 LAKHS WAS ACTUALLY PAID IN CASH TO THE DEV ELOPER. PER CONTRA , ASSESSEE MADE ELABORATE SUBMISSIONS AND CONTESTED THE ABOVE INTER PRETATION OF THE AO. AO VERIFIED THE RELEVANT RECORDS OF THE ASSESSEE AND PROPOSED TO MA KE ABOVE ADDITION OF RS. 20 LACS U/S 69 OF THE ACT. MEANWHILE, CONTRARY TO THE CLAIMS IN T HE RETURN OF INCOME, LD COUNSEL FOR THE 5 ASSESSEE FILED A LETTER DATED 7.12.2009, OPPOSING T HE SAID PROPOSAL AND INFORMED THEIR DECISION VIDE LETTER DATED 4.12.2009 TO WITHDRAW TH E CLAIM OF DEDUCTION U/S 54 GIVING THE REASON THAT THE SAID INVESTMENT HAS NOT MATERIALIZE D AND THE IMPUGNED AGREEMENT TO SALE STANDS CANCELLED. FURTHER THE ASSESSEE SUBMITTED, C ONSIDERING THE ABSENCE OF ANY DATE AGAINST THE SAID PAYMENT OF RS. 20 LACS IN CASH, NO ADDITION IS REQUIRED FOR THE ASSESSMENT YEAR 2007-2008. THE ASSESSEE REASONED WITH AO STATI NG THAT THE SAID AMOUNT OF RS. 20 LACS WAS NOT PAID IN CASH AND IN CASE THE PAYMENT IS REA LLY PAID, THE ASSESSEE SHOULD HAVE RECEIVED THE SAME FROM SAI CONSIDERING THE CANCELLA TION OF THE IMPUGNED AGREEMENT. AO REJECTED THE ABOVE EXPLANATION OF THE ASSESSEE AND TREATED THE SAME AS ACT OF AFTERTHOUGHT. THE MATTER TRAVELLED TO THE CIT (A) . THIS TIME, THE ASSESSEE FILED A LETTER FROM THE DEVELOPER- SAI ADDRESSED TO THE ITO INFORM ING NOT ONLY ABOUT THE CANCELLATION OF THE AGREEMENT BUT ALSO ABOUT NON-RECEIPT OF THE SAI D CASH OF RS. 20 LACS. THE CONTENTS OF THE SAID LETTER PLACED AT PAGE 30 OF THE PAPER BOOK AND THE SAME IS REPRODUCED IN LATER PARAGRAPHS OF THIS ORDER. WE FIND THAT THE SAID LET TER DIFFERS ENTIRELY IN CONTENTS QUA THE CONTENTS OF THE AGREEMENT TO SALE AND IT IS SIGNE D THIS TIME BY THE DEVELOPER. THE SAME WAS REMANDED TO THE AO FOR HIS COMMENTS IN VIEW OF THE PRINCIPLES OF NATURAL JUSTICE. AO EXAMINED THE ABOVE CONTENTS THAT THE AMOUNT OF RS. 20 LACS WAS PAID ONLY ON 5.4.2007 AND NOT PRIOR TO JULY 2006 (BEFORE THE PAYMENT OF RS 9 LAKHS BY CHEQUE) AND ANOTHER CASH PAYMENT OF RS. 5 LACS PAID IN CASH ON 7.4.2007 AND OPINED THAT THESE CASH PAYMENTS ARE DIFFERENT FROM THAT OF THE PAYMENTS MADE IN 2006 IE PRIOR TO THE PAYMENT OF RS. 9 LAKHS MADE BY WAY OF CHEQUE DATED 7.7.2006. IT IS THE CL AIM OF THE ASSESSEE THAT A SUM OF RS. 20 LACS WAS NOT PAID IN COMPLIANCE WITH THE TERMS AS P ER THE SALE AGREEMENT DATED 7.7.2006 AND THIS SALE AGREEMENT WAS CANCELLED IN VIEW OF TH E DELAYED PAYMENT AND THE ACTUAL PAYMENT OF RS. 20 LACS WAS PAID ONLY IN THE MONTH O F APRIL 2007 IE RELEVANT FOR THE AY 2008-2009. THEREFORE, AS PER THE ASSESSEE, NO ADDI TION IS CALLED FOR AY 2007-2008, HENCE, THE ADDITION OF RS. 20 LACS SHOULD BE DELETED. ON CONSIDERING THE ABOVE SUBMISSIONS, THE CIT (A), CONSIDERING THE EXPRESSION PAID BY CASH, WHICH IMMEDIATELY PRECEDES THE PAYMENT OF RS 9 LAKHS VIDE THE CHEQUE DATED 7.7.20 06, WHICH IS RELEVANT TO THE AY 2007- 2008, CONFIRMED THE ADDITION FOR THE AY 2007-2008. CIT(A) DISMISSED THE ASSESSEES ARGUMENT WHICH HAS THE SUPPORT OF THE DEVELOPER THA T IMPUGNED SUM OF RS 20 LAKHS RELATES TO THE CASH PAYMENT FOR THE AY 2008-09 MENTIONING T HAT THEY ARE TWO DIFFERENT CASH TRANSACTIONS. FURTHER, CIT (A) IS OF THE OPINION TH AT THE AMOUNT PAID IN APRIL, 2007 SHOULD BE EXAMINED INDEPENDENTLY. AGGRIEVED WITH THE SAME, AS SESSEE FILED THE PRESENT APPEAL WITH THE GROUND 2. 6 9. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL ARG UED IN THE E-COURT THROUGH VIDEO CONFERENCE AND REITERATED THE SAME ARGUMENTS MADE B EFORE THE REVENUE AUTHORITIES. IN BRIEF, AS PER THE ASSESSEE, THE EXPRESSION PAID BY CASH IS NOT PREFIXED OR SUFFIXED BY ANY DATE OF SUCH PAYMENT AND THEREFORE, IT IS NOT ACTED UPON; THE IMPUGNED SALE AGREEMENT DATED 7.7.2006 STANDS CANCELLED ON 15.1.2008. THE DEVELOPER REFUNDED THE OTHER PAYMENT OF RS 9 LAKHS TOO VIDE CHEQUE DATED 18.1.2008 WIDE CHEQUE NUMBER 242771 AND 242772. YES, ON CANCELLATION OF THE AGREEMENT DUE TO DELAY IN MAKING PAYMENTS AS PER THE TERMS OF AGREEMENT, THE ASSESSEE REENTERED INTO A PURCHASE A GREEMENT OF FROM THE SAME DEVELOPER AND AS PER THE TERMS, THE ASSESSEE MADE PAYMENT OF CASH THIS TIME AMOUNTING TO RS 25 LAKHS IN TWO INSTALLMENTS. THEREFORE, AS PER THE AS SESSEE, THE ADDITION OF RS 20 LAKHS U/S 69 OF THE ACT IS RELEVANT FOR THE AY 2008-09 ONLY AND THEREFORE, THE ADDITION IS UNCALLED FOR IN THE AY 2007-2008. 10. ON THE OTHER HAND, LD DR ARGUED STATING THAT TH ERE ARE MANY UNANSWERED QUESTION ON THIS ISSUE. THEY RELATE TO WHY DID ASSESSEE CLAI MED DEDUCTION U/S 54 IN THE RETURN IN RESPECT OF THE INVESTMENT IN FLAT, WHEN THE AGREEME NT IS NOT ACTED UPON BY PAYMENT OF CASH OF RS 20 LAKHS; HOW RS 20 LAKHS IS NOT PAID BUT RS 9 LAKHS IS PAID; WHY DID THE ASSESSEE CANCELLED THE AGREEMENT TO SALE ONLY IN 15.1.2008 I E DURING THE ASSESSMENT PROCEEDINGS THAT TO AFTER AO IS ALREADY SEIZED UP WITH THIS ISS UE OF CASH PAYMENT OF RS 20 LAKHS; WHY DID THE SAI WROTE LETTER TO THE ITO IF NOT FOR AVOIDING THE LIKELY ADDITIONS IN THEIR HANDS TOO AND TO ESCAPE FROM THE LIKELY PENAL PROVISIONS ETC. AS PER THE DR, THESE CANCELLATIONS OF SALE AGREEMENT DATED 7 TH JULY AND PAYMENT OF CASH OF 25 LAKHS IN APRIL 2007 ARE EFFECTS OF AFTERTHOUGHT AND SELF SERVING WHICH MUST BE DISMISS ED OUTRIGHT. LD DR SUMMED UP STATING THAT THE SAID AMOUNT OF RS 20 LAKHS WAS PAID ON OR BEFORE 7 TH JULY IN ACCORDANCE WITH THE PRACTICE OF THIS REAL ESTATE INDUSTRY IE CASH IS PA ID IN ADVANCE AND RS 9 LAKHS WAS PAID IN CHEQUE DATED 7 TH JULY, THE DATE OF THE AGREEMENT. THE LETTER OF CON FIRMATION SIGNED BY THE SAI-DEVELOPER IS A SELF SERVING PAPERS AND THEREFOR E, THEY SHOULD BE DISMISSED. REGARDING THE PAYMENT OF CASH OF 25 LAKHS (RS 20 LAKHS PLUS R S 5 LAKHS) IN APRIL 2007 RELEVANT FOR THE AY 2008-09, LD DR IS OF THE OPINION THESE PAYMENTS ARE NOTHING BUT THE PART OF THE ASSESSEES ATTEMPTS TO ESCAPE FROM THE ADDITION IN THIS AY AND PENALTIES IF ANY. THUS, AS PER THE LD DR, THE ORDER OF THE AO / CIT (A) IS REQUIRE D TO BE CONFIRMED WITHOUT ANY AMENDMENTS. 7 DECISION OF THE TRIBUNAL: 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORD ERS OF THE REVENUE AUTHORITIES AND THE PAPERS FILED BEFORE US. THE CASE OF THE ASSESS EE IS THAT THE ASSESSEE EARNED CAPITAL GAINS ON SALE OF HIS PROPERTY AND INTENDED TO AVAIL TO TAKE BENEFITS OF THE PROVISIONS OF SECTIONS 54 AND 54EC OF THE ACT. REGARDING EXEMPTI ON U/S 54 OF THE ACT, ASSESSEE UNDISPUTEDLY ENTERED INTO AN AGREEMENT WITH SAI FOR PURCHASE OF A FLAT AND THE SALE AGREEMENT DATED 7.7.2006 IS RELEVANT HERE. THE SAME WAS ACTED UPON FOR RS 9 LAKHS PAID ON 7 TH JULY, THE DATE OF THE AGREEMENT AND NOT ACTED UPON VIS A VIS THE UNDATED CONDITION OF CASH PAYMENT OF RS 20 LAKHS. ASSSESSEE CANCELLED SA ID AGREEMENT ON 15 TH JANUARY, 2008 DURING THE ASSESSMENT PROCEEDINGS. ONLY IN APRIL 20 07, ASSESSEE MADE THE PAYMENTS OF CASH OF RS 25 LAKHS FINALLY TO PURCHASE THE FLAT. ASSESSEE HAS THE SUPPORT OF THE DEVELOPER BY WAY OF LETTER ADDRESSED TO ITO. 12. ON THE OTHER HAND, THE CASE OF THE REVENUE IS T HAT THE CLAUSE-2 OF THE AGREEMENT HAS CLEAR MANDATE FOR PAYMENT OF RS. 20 LACS AND TH E SAME IS UNAMBIGUOUS AND WRITTEN IN PAST TENSE. IN TUNE WITH THE PRACTICE OF THE INDUST RY, THE ASSESSEE ACTED UPON THE SAID CONDITION AND ENTERED INTO AN AGREEMENT ON 7 TH JULY AND UNDISPUTEDLY FULFILLED THE OTHER CONDITION OF PAYMENT OF RS 9 LAKHS VIDE THE CHEQUE DATED 7 TH JULY. AS PER THE REVENUE, CONSIDERING THE THIRD CONDITION OF PAYMENT OF RS 11 LAKHS, THE EXPRESSION PAID IN CASH SHOULD BE READ AS ACTUALLY PAID AT THE TIME OF EN TERING INTO THE AGREEMENT ON 7 TH JULY. THE ASSESSEES ASSERTION ABOUT THE CANCELLATION OF A GREEMENT, SUBSEQUENT REFUNDS IN JAN 2008 AND THE SUBSEQUENT PAYMENTS OF CASH OF RS 25 LAKHS ARE PART OF THE ASSESSEES ATTEMPTS TO PROTECT HIMSELF FROM THE PROBLEMS OF INTEREST AND P ENALTIES. THE DOCUMENT FURNISHED BY THE DEVELOPER IS ALSO PART OF THE SAME ATTEMPTS. FURTH ER, THE ASSESSEES CONDUCT OF BOOKING A FLAT AS PART OF THE COMPLIANCE TO THE PROVISIONS OF SECTION 54, ENTERING INTO AGREEMENT WITH SAI, SUBSEQUENT CHEQUE PAYMENT OF RS. 9 LACS, MAKIN G CLAIM OF DEDUCTION IN THE RETURN OF INCOME, FURNISHING A COPY OF THE SALE DEED IN THE A SSESSMENT PROCEEDINGS BEFORE THE AO SHOWS THAT THE EXPRESSION PAID IN CASH REQUIRED T O BE ACCEPTED AS PAID AND NOTHING ELSE. 13. WE HAVE UNDERSTOOD THE RIVAL STANDS AND ANALYSE D THE AVAILABLE FACTS RELATING TO THIS ISSUE. THIS ISSUE CONSISTS OF VARIOUS EVENTS NAMELY EVENT OF ENTERING THE AGREEMENT, GIVING EFFECT TO THE TERMS AND CONDITIONS, SCRUTINY PROCEE DINGS, FILING OF THE AGREEMENT, SHOW CAUSE NOTICE, RETRACTION OF CLAIMS OF DEDUCTION U/S 54, CANCELLATION OF AGREEMENT, REFUNDS OF THE EARLIER PAYMENTS, REPAYMENTS OF THE CONSIDERATI ON ETC. SOME OF THE DATES RELEVANT ARE AS FOLLOWS. 8 RELEVANT DATES: D ATE OF SALE OF THE PROPERTY DATE OF ENTERING INTO AGREEMENT 7 TH JULY 200 6 DATE OF PAYMENT OF CASH OF RS 20 LAKHS NIL DATE OF PAYMENT OF RS 9 LAKHS 7 TH JULY 200 6 VIDE CHEQUE NO. 111745 DATE OF ISSUE OF NOTICE U/S143(2) SC LETTERS TO THE ASSESSEE DATE OF CANCELLATION OF AGREEMENT 15.1.2008 DATE OF REFUNDS OF RS 9 LAKHS & OTHERS 18.1.2008 CHEQUE NO 242771 & 242772 DT OF RECEIPT OF CASH BY SAI 5 TH APRIL, 2007 UNANSWERED QUESTION ARE: 14. ON PERUSAL OF THE FACTS, WE FIND THAT THERE ARE MANY UNANSWERED QUESTION HERE AND SOME OF THEM ARE: REGARDING CLAUSE 2 OF THE AGREEMENT DATED 7 TH JULY 2006: WHY THE EXPRESSION PAID IS USED WHEN THE SAME IS NOT ACT UALLY PAID; HOW DOES THE ASSESSEE EXPLAINS THAT THE PAID DOES NOT MEAN EITHER TO BE PAID OR NEVER TO BE PAID OR TO BE PAID BELATEDLY; OF THE THREE CONDITIONS MENTIONED IN C LAUSE 2, ONLY THE FIRST CONDITION IS NOT COMPLIED AND OTHER TWO ARE COMPLIED; WHY HE NOT COM PLIED WITH THE FIRST CONDITION RELATING TO CASH PAYMENT; WHY THE ASSESSEE FURNISHED THE RE TURN WITH THE CLAIM OF DEDUCTION U/S 54 WHEN HE HAS TO CANCEL THE AGREEMENT; WHY THE ASSESS EE HAS NOT PAID THE CASH BUT ONLY PAID THE CHEQUE OF RS 9 LAKHS; BUT FOR THE LIKELY PROBLE MS FROM THE INCOME TAX DEPARTMENT, WHY HE HAD TO CANCEL THE AGREEMENT; HOW EVENTS OF THE C ANCELLATION, REFUNDS TO THE ASSESSEE, REPAYMENTS BY THE ASSESSEE, ARE NOT A CASE OF AN A FTERTHOUGHT AND IT IS ONLY TO SAFEGUARD THE ASSESSEE FROM MANY LEGAL PROBLEMS ATTACHED TO THE ADDITIONS AS WELL AS PENALTIES; WHY THE ASSESSEE REBOOKED THE FLAT FROM THE SAME DEVELO PER/BUILDER IN THE SUBSEQUENT ASSESSMENT YEAR 2008-2009; WHY THE ASSESSEE MADE CL AIM OF EXEMPTION U/S 54 OF THE ACT, WHEN THE CAPITAL GAINS ARE NOT INVESTED IN THE IMPU GNED FLAT; HAS THE ASSESSEE DISCHARGED THE ONUS ETC. CONSIDERING THE FACT THAT THE CLAIM OF DEDUCTION IS ORIGINALLY MADE BY THE ASSESSEE IN THE RETURN OF INCOME AND ALSO THE ASSES SEES RETRACTION OF THE SAID CLAIM, THE ONUS IS CERTAINLY ON THE ASSESSEE TO ANSWER TO THE ABOVE. THEREFORE, THE ASSESSEE HAS FAILED TO DISCHARGE THE SAME. NOW WE SHALL UNDERTAKE THE D ISCUSSION ON THE BONA FIDE OF THE AGREEMENT TO SALE OF THE IMPUGNED FLAT IN GENERAL A ND THE CLAUSE 2 RELATING TO THE MANNER OF THE PAYMENT OF SALE CONSIDERATION OF RS 40 LAKHS. 9 15. ANALYSIS OF THE AGREEMENT: CLAUSE 2 OF THE AGRE EMENT DATED 7 TH JULY 2006 IS THE GENESIS OF ALL THE PROBLEMS AND THE SAID CLAUSE REA D AS FOLLOWS. MANNER OF PAYMENT I) RS. 20,00,000/ - PAID BY CASH II) RS. 9,00,000/ - PAID BY CHEQUE NO. 111745 DATED 7.7.2006 DRAWN ON STATE BANK OF INDIA, RAMDASPETH BRANCH, NAGPUR-10. III) RS. 11,00,000/ - TO BE PAID FROM TIME TO TIME AS PER THE PROGRESS OF CONSTRUCTION BEFORE THE POSSESSION OF THE ABOVE SAID APARTMENT 16. THE ABOVE CLAUSE CONTAINS THREE CONDITIONS RELA TING TO THE PAYMENT OF SALE CONSIDERATION OF RS 40 LAKHS WHICH CONSISTS OF 50:5 0 CASH AND CHEQUE PAYMENTS. IT REFERS TO RS 20 LAKHS OF CASH IN ONE INSTALLMENT AND RS 20 LA KHS BY WAY OF CHEQUE IN TWO INSTALLMENTS. UNDISPUTEDLY THE FIRST INSTALMENT OF RS 9 LAKHS WAS PAID AND THERE ARE NO ISSUES ON THIS AND ALSO ABOUT THE PAYMENT OF RS 11 LAKHS. THUS, SO FAR AS THE EXPRESSIONS PAID BY CHEQUE AND TO BE PAID BY CHEQUE ARE CONCERNED, THERE ARE NO DISPUTES. DISPUTE IS ONLY WITH REGARD TO THE FIRST CONDITION OF PAID BY CASH OF RS 20 LAKH S. IT IS THE CONTENTION OF THE ASSESSEE BEFORE THE AO IS THAT THE CONDITION AT (I) ABOVE IS NOT CO MPLIED WITH AND THE CONDITION AT (II) IS COMPLIED. IT IS NOT THE CASE OF THE ASSESSEE THERE IS NO SUCH PRACTICE PAYMENT OF PORTION OF THE CONSIDERATION IN CASH IN THE REAL ESTATE MARKE T AT NAGPUR AND THEREFORE, THE PAYMENT OF CASH DOES NOT ARISE AND THEREFORE NOT PAID OR PAID BELATEDLY. IN OUR OPINION, THE AGREEMENT IS IN TUNE WITH THE MARKET PRACTICE AND THEREFORE THERE IS NOTHING UNUSUAL IN THIS PAYMENT OF CASH OF COURSE WITH THE EXCEPTION OF PUTTING BLA CK AND WHITE ON PAPER. THEREFORE, THE SUBMISSIONS OF THE ASSESSEE HAVE TO BE DISMISSED. N OW WE SHALL TAKE UP DISCUSSION ON THE CONFIRMATION OF THE SELLER OF THE FLAT. 17. ANALYSIS OF THE CONFIRMATION LETTER FROM SAI : DURING THE ASSESSMENT PROCEEDINGS, AO RECEIVED A LETTER FROM M/S SAI AND THE CONTENTS OF THE SAME ARE AS UNDER: MR. K.M. MOGHE DESIRED TO PURCHASE A FLAT FROM US. THEREFORE, AN AGREEMENT OF SALE DATED 7 TH JULY, 2006 WAS ENTERED INTO WITH MR. MOGHE. IN THE SAID AGREEMENT IT IS MENTIONED THAT WE HAVE RECEIVED RS. 20 LACS IN CASH BUT THE DATE OF RECEIPT WAS NOT MENTIONED. AS MR. MOGHE DELAYE D THE PAYMENT AND THE SAID AMOUNT WAS ACTUALLY RECEIV ED BY US SUBSEQUENTLY FROM MR. MOGHE ON 5.4.2007 IN CASH. WE HAVE DULY RECORDED THE SAME IN OUR BOOKS ON THAT DATE. AGAIN MR MOGHE CANCELLED THE AGREEMENT ON 15.1.2008. AND WE HAVE REFUNDED THE ENTIRE AMOUNT RECEIVED FROM THEM BY CHEQUE DATED 18.1.2008 WIDE C HEQUE NUMBER 242771 AND 242772. 10 AS THERE IS NO INCOME FOR THE FIRM IN THE SAID TRAN SACTION AND AGAIN THE AMOUNT IS PAID BACK IN THE AY 2007-2008 YOU ARE REQ UESTED NOT TO ADD THE AMOUNT IN THE INCOME OF MY FIRM. 18. FROM THE ABOVE, IT IS THE SUBMISSION OF THE DEV ELOPER WHO SOLD THE FLAT AND SIGNATORY TO THE IMPUGNED AGREEMENT TO SALE DATED 7 TH JULY 2006 THAT IT IS AT THE INSTANCE OF THE ASSESSEE, THE SAID AGREEMENT IS CANCELLED ON 15 TH JANUARY, 2008 AND REASONS FOR THE SAME IS THE ASSESSEE DELAYED THE PAYMENTS. WE HAVE PAID ATT ENTION TO THE LANGUAGE OF THE LETTER AND FIND IT IS UNUSUAL THAT THE ASSESSEE DELAYED IN MAKING PAYMENT AND AGREEMENT IS CANCELLED FOR THE SAID REASON. NORMALLY, WHEN THE D ELAYED PAYMENTS ARE THE REASONS, THE DEFAULT BEING FROM THE SIDE OF THE ASSESSEE, IT IS FOR THE DEVELOPER TO INITIATE THE CANCELLATION OF THE IMPUGNED AGREEMENT AS HE IS THE AGGRIEVED PA RTY. CANCELING THE AGREEMENT ON 15 TH JANUARY, 2008, REFUNDING OF THE ACCOUNTED SUM TO TH E ASSESSEE ON 18 TH JANUARY 2008 AND FINALLY REENACTMENT OF THE PAYMENTS IN JAN 2007 SUF FERS FROM CREDIBILITY AND THEY ARE AIMED AT SALVAGE OF THE ASSESSEE. OF COURSE, IT HELPS THE ASSESSEE TOO AS SAID CASH OF RS 20LAKHS IS UNACCOUNTED BY THE DEVELOPER. THEREFORE, PRIMA FACIE , IN OUR VIEW, THE SAID LETTER IS SELF SERVING DOCUMENT FOR BOTH THE PARTIES OF THE AGREEM ENT. NOW WE SHALL FOCUS ON THE DISCUSSION GIVEN BY THE CIT(A) IN HIS ORDER ON THIS ISSUE. FINDING OF THE CIT(A): 19. CIT(A) GAVE HIS DECISION ON THIS ISSUE AND THE CONTENTS OF PARAS 6.4 AND 6.5 OF THE CIT (A) ORDER ARE RELEVANT IN THIS REGARD AND THE S AME ARE REPRODUCED HERE UNDER: 6.4 I HAVE CONSIDERED ALL THE RELEVANT MATERIAL ON RECO RD. AS STATED BY AO THAT AN AMOUNT OF RS. 20,00,000/- IS STATED TO H AVE BEEN PAID BY CASH IN THE AGREEMENT OF SALE. WHEN ASSESSEE WAS ASKED TO EXPLAIN THE SOURCE OF AMOUNT, THE ASSESSEE HAS MERELY STATED THAT THERE W AS NO PAYMENT OF SUCH AN AMOUNT OF RS. 20,00,000/- AS NO DATE OF PAYMENT WAS NOTED AGAINST THIS AND THE AGREEMENT OF SALE WAS SUBSEQUENTLY CANCELLE D. AO HAS CONSIDERED THE EXPLANATION OF THE ASSESSEE AND HELD AS FOLLOWS . AS REPRODUCED ABOVE, IT IS CLEAR THAT ENTRY OF CAS H IN PAYMENT DETAILS IS WRITTEN BEFORE THE ENTRY OF CHEQUE STATE D ABOVE, WHICH IS ENACTED UPON. THEREFORE, WITH COMMON SENSE AND UND ERSTANDING, IT CAN BE CONVENIENTLY INFERRED THAT WHEN IT IS WRITTE N PAID, IT MEANS THAT THE SUM MUST HAVE ALREADY BEEN PAID. THE AGREEMENT IS DULY RECORDED ON RS. 100 STAMP PAP ER AND IS DULY SIGNED BY THE PARTIES IN PRESENCE OF WITNESS. SO WHEN ONE OF THE PAYMENTS IS PROVED TO BE GIVEN AND THEREBY THE FACT THAT THE AGREEMENT IS ACTED UPON, IT IS OBVIOUS AND CERTAIN THAT THE PREVIOUS PAYMENT MUST ALSO HAVE BEEN PAID. 11 MORE IMPORTANTLY, IN SUPPORT OF THE CLAIM OF SECTIO N 54 MADE IN THE RETURN OF INCOME FILED, THE ASSESSEE HIMSELF FILED THIS AGREEMENT TO SALE IN HIS SUBMISSION DATED 13.11.2009. THE ASSE SSEE CLAIMED EXEMPTION U/S 54 OF RS. 29 LACS RELYING ON THIS AGR EEMENT 29 LACS WAS CLAIMED AS 20 + 9 LACS PAID ACCORDING TO THE A GREEMENT TO SALE. THEREFORE, IT IS OBVIOUS THAT THE AMOUNT OF RS. 20,00,000/- HAS BEEN PAID. 6.5 APPELLANTS CONTENTION THAT ADDITION IS TO BE M ADE FOR AY 2008-09 MAY BE CONSIDERED BY THE AO DURING THE COURSE OF AS SESSMENT PROCEEDINGS FOR AY 2008-09. THERE IS NO CASE MADE OUT THAT THE AMOUNT PAID TO THE BUILDER ON 5.4.2007 AND THE AMOUNT OF RS. 20 LAKHS SHOWN AS PAID IN THE AGREEMENT OF SALE ARE ONE AND THE SAME AMOUNT. FUR THER, THERE IS NO INFIRMITY IN THE ACTION OF THE AO IN ASSESSING THE AMOUNT IN THIS YEAR. THIS GROUND IS DISMISSED. 20. THE ABOVE PARAGRAPHS EXTRACTED FROM THE ORDERS OF THE CIT(A) AND AO PROVIDE THAT IT IS THE ASSESSEES OWN SUBMISSION THAT THE SUM OF RS 20 LAKHS WAS PAID IN CASH AND THE SAME IN SUPPORT OF HIS CLAIM OF DEDUCTION U/S 54 OF THE ACT. AGREEMENT TO SALE IS A VALID DOCUMENT AND THE ASSERTIONS OF THE PARTIES RELATING TO CASH PAYMENT OF RS 20 LAKHS IS TRUE CONSIDERING THEIR SIGNATURES IN THE PRESENCE OF THE WITNESS. WE ARE IN AGREEMENT WITH THE VIEWS OF THE CIT(A)/AO AND THE CONTENTS OF THE CLAU SE RELATING TO MANNER OF PAYMENT HAVE TO BE EITHER CORRECT OR INCORRECT AND THEY CANNOT B E PARTLY CORRECT (CONDITION (II); AND PARTLY INCORRECT (CONDITION (I) AS BEING ATTEMPTED BY THE ASSESSEE. WILL THE FLAT-SELLER SIGN ON ANY AGREEMENT AFFIRMING THE RECEIPT OF CASH OF RS 20 LA KHS WHEN THEY SAME IS NOT ACTUALLY RECEIVED BY HIM? IN OUR OPINION, THE ANSWER IS NEGA TIVE. THEREFORE, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) ON THIS ISSUE NEEDS N O INTERFERENCE. REGARDING THE ARGUMENT THAT THE ADDITION IF ANY HAS TO BE CONSIDERED ONLY FOR THE AY 2008-09, THE SAME DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION AND THE SHA LL BE EXAMINED AS WHEN THE GROUND IS RAISED IN APPROPRIATE AYS. IN ANY CASE, IT IS A SET TLED PRINCIPLE THAT THE SAME AMOUNT OF RS 20 LAKHS CANNOT BE ADDED TWICE IN TWO DIFFERENT AYS WHEN THE FLAT IN QUESTION IS SINGULAR IN NUMBER. ACCORDINGLY, GROUND NO.2 RAISED BY THE ASS ESSEE IS DISMISSED . 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. I.T.A.NO.20/NAG/2011 (AY: 2007-2008) (REVENUES APPEAL) 22. IN THIS APPEAL REVENUE RAISED THE FOLLOWING GROUNDS READ AS UNDER: 12 1. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE, THE LD CIT (A) ERRED IN ALLOWING THE DEDUCTION OF RS. 45 LACS CLAIMED U/S 48(I) OF THE IT ACT, 1961. 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE, THE LD CIT (A) ERRED IN ALLOWING DEDUCTION CLAIMED U/S 54EC FO R RS. 22 LACS INVESTED IN PURCHASE OF CAPITAL GAIN BONDS OF RURAL ELECTRIFICA TION CORPORATION LTD. 23. FACTS RELATED TO GROUND NO.1 ARE ALREADY DISCUS SED WHILE DEALING WITH THE GROUD NO 1 OF THE ASSESSEES APPEAL. BRIEFLY, THE ASSESSEE CLA IMED DEDUCTION OF RS 60 LAKHS WHILE WORKING OUT THE CAPITAL GAINS. WHILE RS 15 WAS PAID TO HIS NIECES AT THE RATE OF RS 5 LAKHS PER HEAD, THE ASSESSEE ALSO PAID RS. 45 LACS TO HIS THR EE SISTERS (RS. 15 LACS TO EACH ONE) BASING ON THE FAMILY SETTLEMENT. BEFORE US, LD CONSEL FOR THE ASSESSEE DEMONSTRATED THAT THE ASSESSEE IS UNDER OBLIGATION TO MAKE THE PAYMENT OF RS 45 LAKHS. FOR RELEVANT FACTS AND REASONING FOR GRANT RELIEF BY THE CIT(A) TO THE ASS ESSEE, THE ASSESSEE BROUGHT OUR ATTENTION TO THE CONTENTS OF PARAS 4.1 TO 4.3 OF THE IMPUGNE D ORDER. WE PERUSED THE SAME AND IN VIEW OF THEIR IMPORTANCE, THESE PARAGRAPHS ARE REPR ODUCED HERE UNDER: 4.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE SUBMISSIONS OF THE APPELLANT. IT IS NOT DISPUTED THAT APPELLAN TS SISTERS HAVE A RESIDUARY RIGHT ON THE PROPERTY APPELLANT INHERITED FROM HIS MOTHER. THE FACT REMA INS TO BE CONSIDERED IS WHETHER THE APPELLANTS SISTERS HAD ANY OVER RIDING TITLE IN THE PROPERTY AND WHETHER THE PAYMENTS MADE TO THEM CAN BE TREAT ED AS AN EXPENDITURE IN CONNECTION WITH THE TRANSFER . 4.2. THE FACT THAT EMERGES IS THAT THE THREE SISTER S HAD AN INHERENT CLAIM ON THE PROPERTY VESTED BY THE WILL OF THE MOTHER. SMT. KAMLABAI MOGHES WILL HAS CLEARLY STATED THAT THE PROPERTY W OULD BE PASSED ON TO HER TWO SONS AND THREE DAUGHTERS AND NOT TO ANY OTHER LEGAL HEIRS. AS IS SEEN FROM THE NARRATION OF EVENTS THE SISTERS DULY RECEIVED THEIR SHARE OF THE PROPERTY FROM THE ELDER BROTHER, SHRI P.M. MOGHE WH O BEQUEATHED HIS SHARE OF THE PROPERTY TO THE THREE SISTERS IN ACCORDANCE WITH THE WILL OF HIS LATE MOTHER. THE ORIGINAL WILL WAS MADE SMT. K AMLABAI MOGHE IN MARATHI AND HER INTENTION AS TO WHO SHOULD INHERIT AND ENJO Y THE PROPERTY HAS BEEN MADE ABUNDANTLY CLEAR. IT IS TRUE THAT SMT. KAMLAB AI MOGHE IN HER WILL HAS NOT SPELT OUT THE TERMS AND CONDITIONS THAT ARE TO BE ADHERED TO WHEN THE PROPERTY IS SOLD. HOWEVER, ANY REASONABLE PERSON K EEPING IN MIND THE INTENTION EMBODIED IN THE LAST WILL AND TESTAMENT O F HIS MOTHER WOULD CONSIDER IT NECESSARY TO HONOUR THE STATED AND IMPLICIT COND ITIONS IN THAT WILL. HYPOTHETICALLY SPEAKING, IF THE DEMISE OF SHRI KAML AKAR MOGHE HAD TAKEN PLACE PRIOR TO THE SALE OF THE PROPERTY, THE THREE SISTERS WOULD HAVE INHERITED THE PROPERTY AS PER THE WILL OF THE MOTHER, IN THE ABSENCE OF ANY MALE DESCENDANTS IN THE FAMILY. THEREFORE, WHEN THE PROPERTY WAS SOLD BY SHRI MOGHE AN INHERENT RESIDUARY RIGHT OF THE SISTER S HAD TO BE DULY TAKEN INTO ACCOUNT TO OBTAIN A CLEAR TITLE OF THE P ROPERTY. THEREFORE, WHEN THE PROPERTY WAS SOLD BY SHRI MOGHE AN INHEREN T RESIDUARY RIGHT OF THE SISTERS HAD TO BE DULY TAKEN INTO ACCOU NT TO OBTAIN A CLEAR TITLE OF THE PROPERTY. THEREFORE, THE ACT OF SH RI K.M. MOGHE IN 13 SEEKING TO COMPENSATE EACH TO HIS THREE SISTERS IS IN ACCORDANCE WITH THE WILL OF THE MOTHER AND IS AN EXPENDITURE INCURRE D IN CONNECTION WITH THE TRANSFER. THE PAYMENT MADE IN ACCORDANCE W ITH THE TERMS OF THE FAMILY SETTLEMENT DATED 7.7.2006 ENSURED THAT SHRI K.M. MOGHE COULD TRANSFER THE PROPERTY ALONG WITH A CLEAR , MARKETABLE AND VALID TITLE. 4.3 THE DECISION OF THE BOMBAY HIGH COURT IN CIT VS . SHKUNTALA KANTILAL 190 ITR 56 RELIED UPON BY THE AR IS RELEVANT. IN T HE SAID DECISION IT HAS BEEN HELD AS FOLLOWS. SO FAR AS CLAUSE (I) OF SECTION 48 IS CONCERNED, T HE EXPRESSION USED BY THE LEGISLATURE IN ITS WISDOM IS WIDER THAN THE EXP RESSION FOR THE TRANSFER. THE EXPRESSION USED IS THE EXPENDITURE I NCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER. THE EXPRESSION IN CONNECTION WITH SUCH TRANSFER IS, CERTAINLY WIDER T HAN THE EXPRESSION FOR THE TRANSFER. HERE AGAIN, ANY AMOUNT THE PAYME NT OF WHICH IS ABSOLUTELY NECESSARY O EFFECT THE TRANSFER WILL BE AN EXPENDITURE COVERED BY THIS CLAUSE. IN OTHER WORDS, IF, WITHOU T REMOVING ANY ENCUMBRANCE INCLUDING THE ENCUMBRANCE OF THE TYPE I NVOLVED IN THIS CASE, SALE OR TRANSFER COULD NOT BE EFFECTED, THE A MOUNT PAID FOR REMOVING THAT ENCUMBRANCE WILL FALL UNDER CLAUSE (I ). THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE SALE CONSIDERATION RE QUIRES TO BE REDUCED BY THE AMOUNT OF COMPENSATION. 4.4 THE AMOUNT OF RS. 45 LACS IS, THEREFORE, HELD T O BE PAYMENT IN CONNECTION WITH THE TRANSFER OF THE PROPERTY AS PER PROVISIONS OF SECTION 48(I). AO WILL, HOWEVER, INTIMATE THE CONCERNED OFFICER WH O HAS JURISDICTION OVER THE CASES OF THE THREE SISTERS, MRS. INDU KALE, LATE MR S. SINDHU SINHA AND MRS. VEENA WADEKAR TO INITIATE NECESSARY ACTION TO BRING THE AMOUNT TO TAX IN THE HANDS OF THE RECIPIENTS. THIS GROUND IS PARTLY ALL OWED. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. IT IS TRUE THAT THE THREE SISTERS OF THE ASSESSEE P OSSESS RESIDUARY RIGHTS IN THE PROPERTY, WHICH WAS SOLD BY THE ASSESSEE AND THEREFORE, THEY ARE ENTITLED TO THE PART CONSIDERATION AND THEREFORE, THE SAID PAYMENTS OF RS 45 LAKHS MAD E TO THREE SISTERS AT THE RATE OF RS 15 LAKHS EACH, IS THE EXPENDITURE WHOLLY AND EXCLUSIVE LY IN CONNECTION WITH THE TRANSFER OF THE PROPERTY. CONSIDERING THE ABOVE SETTLED POSITION IN THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT, WE ARE OF THE OPINION THAT THE ORDER OF CIT (A) DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.1 RAISED BY T HE REVENUE IS DISMISSED AND THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 25. GROUND NO.2 RELATES TO THE ELIGIBILITY TO INVES T RS. 22 LACS IN CAPITAL GAIN BONDS OF RURAL ELECTRIFICATION CORPORATION LTD U/S 54EC OF T HE ACT. BRIEF FACTS IN THIS REGARD ARE THAT THE ASSESSEE INVESTED THE AMOUNT IN THE REC BONDS F OR AN AMOUNT OF RS. 22 LACS ON 27.1.2007. AO POINTED OUT THAT THE INVESTMENT WAS MADE BEYOND PERIOD OF SIX MONTHS FROM 14 THE RECEIPT OF SALE CONSIDERATION. IN REPLY TO THE QUERY OF AO, ASSESSEE SUBMITTED THAT THE DELAY CAUSED DUE TO NON-AVAILABILITY OF THE REC BONDS WHICH PREVENTED HIM TO INVEST WITHIN THE PERIOD OF 6 MONTHS. BEING NOT SATISFIED WITH THE REASONING OF THE ASSESSEE, AO MADE AN ADDITION OF RS. 22 LACS TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED WITH THE DECISION OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE CIT (A). 26. DURING THE COURSE OF FIRST APPELLATE PROCEEDING S, CIT (A) ALLOWED THE ASSESSEES CLAIM OF DEDUCTION ON THE AMOUNT OF RS. 22 LACS AND PARA 5.0 OF THE IMPUGNED ORDER IS RELEVANT IN THIS REGARD WHICH READS AS UNDER: I HAVE GONE THROUGH THE FACTS OF THE CASE. THE AO HAS STATED THAT THE ASSESSEE HAS INVESTED THE AMOUNT ON 27.1.2007, WHIC H IS BEYOND THE TIME LIMIT OF SIX MONTHS WITHIN WHICH THE INVESTMENT IS TO BE MADE. THE APPELLANTS REPRESENTATIVE HAS STATED THE REASONS FOR DELAY OF ONE MONTH IN INVESTING IN THE REC BONDS ARE THAT THE REC BONDS WERE NOT AVAIL ABLE. ACCORDING TO THE ASSESSEE, HE WAS PREVENTED FROM MAKING THE INVESTME NT WITHIN THE TIME LIMIT AS THE REC BONDS WERE AVAILABLE TILL 22.1.2007. TH E DECISION OF THE HONBLE BOMBAY TRIBUNAL IN THE CASE OF CELLE PLAST VS. DCIT [2010] TIOL 60 ITAT (MUM) SUPPORTS THE ASSESSEES CASE. THE HONBLE TR IBUNAL HAS HELD THAT THE DELAY IN PURCHASE DUE TO NON AVAILABILITY OF BONDS WAS A REASONABLE CAUSE AND THE APPELLANT WAS HELD TO BEEN TITLED TO EXEMPTION U/S 54EC ON THE AMOUNT OF RS. 22 LACS. HOWEVER, AS POINTED OUT BY AO IN ASSE SSMENT ORDER AS FULL VALUE OF CAPITAL GAIN IS NOT INVESTED CLAIMED BY THE ASSE SSEE, THE EXEMPTION WOULD BE RESTRICTED PROPORTIONATELY. THIS GROUND IN ALLO WED. 27. AGGRIEVED WITH THE ORDER OF THE CIT (A) ON THIS ISSUE, REVENUE FILED AN APPEAL BEFORE THE TRIBUNAL. 28. BEFORE US, LD DR RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND LD COUNSEL RELIED ON THE ORDER OF THE CIT (A). 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE. AS PER ASSESSEE, HE COULD NOT INVES T IN REC BONDS WITHIN THE STIPULATED PERIOD OF SIX MONTHS BECAUSE OF NON-AVAILABILITY OF REC BO NDS TILL 27.1.2007. IN OUR OPINION, ASSESSEE WAS PREVENTED BY A REASONABLE CAUSE FROM P URCHASING THE REC BONDS WITHIN SIX MONTHS PERIOD FROM THE DATE OF SALE CONSIDERATION B Y A REASONABLE CAUSE OF NON-AVAILABILITY OF BONDS. THEREFORE, WE UPHELD THE ORDER OF THE CI T (A) ON THIS ISSUE AND THE DECISION OF CIT (A) DOES NOT CALL FOR ANY INTERFERENCE. ACCOR DINGLY, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED . 30. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . 15 31. IN THE RESULT, THE APPEALS OF BOTH ASSESSEE AN D THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JANUARY, 2013. SD/- SD/- (R.K. GUPTA) (D. KARUNAKARA R AO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 23.1.2013 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR NAGPUR, BENCH, ITAT, NAGPUR. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI