Payment on behalf of the Assessee by the Husband & Son is qualified for the Section 54F exemption

Fact and issue of the case

This appeal has been filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)–Kanpur-4, (“CIT(A)”) dated 20.09.2021 pertaining to the Assessment Year (“AY”) 2018-19

The Revenue has taken the following grounds

On facts and circumstances of the case and in. law, the Ld. CIT(A) erred in restricting the addition to the tune of Rs. l4,93,596/- as the Ld. CIT(A) has appreciated the fact that the investment in the purchase of new property was not made by the assessee herself but was made by the other family members

On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of surrendered income of Rs, 1,00,00,000/- as the surrendered was made by the son of assessee, voluntarily and alter due consultation with the assessee, and the surrendered was based on the difference of stock and unexplained cash found during the course of survey proceedings

On facts and circumstances of the case and in law, the CIT(A) failed to allude to the relevant facts & circumstances and misread the facts to arrive at the conclusion

The assessee is an individual engaged in the business of purchase and sale of gold, silver and diamond jewellery in the name & style M/s. Pushpanjali Jewels. Survey under section 133A of the Income Tax Act, 1961 (the “Act”) was conducted at her business premises on 30.05.2018. During the course of survey, the stock was got valued by an approved valuer who valued the stock at Rs. 5,57,34,223/- as against the value as per books at Rs. 4,63,31,680/-. During survey, statement of Shri Himanshu Mittal, Son of the assessee was recorded. He surrendered an amount of Rs. 1 crore as undisclosed income for the previous year relevant to AY 2018-19

For AY 2018-19 the assessee e-filed her return on 31.10.2018 declaring income of Rs. 23,44,850/-. The case was selected for scrutiny. Statutory notices along with questionnaire were issued and complied with. The assessee submitted written reply and supporting documents before the Ld. Assessing Officer (“AO”) who completed the assessment on total income of Rs. 1,52,39,610/- including therein addition of Rs. 28,94,757/- on account of denial of exemption under section 54F claimed by the assessee and addition of Rs. 1 crore under section 69A of the Act being the amount surrendered by Shri Himanshu Mittal, son of the assessee during the course of survey

The assessee appealed before the Ld. CIT(A)

The Ld. CIT(A) applied the provisions of section 54F(1)(b) of the Act, and computed the exempt value of capital gain at Rs. 14,93,596/- as against the assessee’s claim of Rs. 28,94,757/- by recording his findings in para 6.4 to 6.8 as under

I have carefully perused the observation of the AO in the matter of disallowance of claim of exemption u/s 54F of .IT Act of Rs. 28,94,757/-. The AO observes that in the matter of claim of exemption u/s 54F, the payments towards new property have been made by SH. Sharad Chand Mittal (HUF), SH. Sharad Chand Mittal in his individual capacity and Sh. Himanshu Mittal along with the appellant, however the same is required to be made out of sales of the old property on which capital gain is derived. On the other hand, the AR submits that, the facts of the case are that the assessee had sold old property for a consideration of Rs. 58,50,000/- and computed LTCG of Rs. 28,94,757/- which was claimed exempt u/s 54F because assessee purchased a property on 19.09.2018. These facts are not in dispute since appellant purchased the property in her name and made the payment of Rs. 9,05,478/- from her account and the balance payment of Rs. 20,49,765/-was made by her husband on individual capacity and on the capacity of Karta of HUF and her son for purchase of new property. The AR submits that the disallowance of capital gain of Rs. 28,94,757/- is patently wrong since the new property has been purchased and the investment has been made in the name of the appellant. The appellant also submits that as per the provisions of section 54F of IT Act there is provision that the new asset should be purchased in the name of the appellant and the same has been done therefore underlying condition of benefit of exemption is duly fulfilled

From the facts of the case, it has been found that the appellant had sold immovable property on 03.03.2018 at Rs. 58,50,000/- and for computation of capital gain, she claimed Indexed Cost of Acquisition of Rs 29, 55,243/-, thus capital gain has been computed at Rs. 28,94,757/-. Further the appellant purchased a residential property vide sale deed dated 19.09.2018 and the payments for the same are made as under

Date	Amount	Remarks
17.10.2012	3, 28,000/-	Ch No 281071 by Sharad Chand Mittal HUF (Karta is Husband)
17.10.2012	4,21,000/-	Ch No 281070 by Sharad Chand Mittal HUF (Karta is Husband)
09.01.2013	4, 21,000/-	Ch No 15141 by Sh Sharad Chand Mittal (Husband)
18.01.2013	3,28,000/-	Ch No 285804 by Sh. Himanshu Mittal (Son)
19. 10.2016	6, 00, 000/-	Ch. No 106321 by Sh. Himanshu Mittal (Son)
21.05.2018	9,05,478/-	Ch No. 830172 by Smt. Anjali Mittal (Assessee)

From the above it is clear that the total payment of Rs. 30,03,478/- has been made which includes cost of new asset of Rs. 28,31,600/- as per sale deed dt. 19.09.2018 and stamp duty. These payments for purchase of property have been made by Sh. Sharad Chand Mittal (HUF), Sh. Sharad Chand Mittal and Sh. Himanshu Mittal along with the appellant

The appellant has relied on the decision of CIT vs Kapil Kumar Agarwal, (2016) 66 taxmann.com 191 (Punjab & Haryana) in which it has been observed that the assessee has to purchase or construct a house property during the period specified under Section 54F of the Act in order to get benefit there under. Section 54F of the Act nowhere envisages that the sale consideration obtained by the assessee from the original capital asset is mandatorily required to be utilized for the purchase or construction of a house property No provision has ‘been made by the statute that in order to avail benefit of Section 54F of the Act, the assessee has to utilize the amount received by him on sale of original capital asset for the purposes of meeting the cost of the new asset. Once that is so, the assessee was entitled for benefit under section 54F of the Act. Further reliance has been placed on the following decisions

Neelam Handa vs. 1TO; 1TA No. 384/Del/2016; (ITAT-Delhi)

ITO vs K.C Gopalan; (1999) 107 Taxman 591 (Ker)

Sunil Sachdeva vs. ACIT; ITA No. 4179/Del/2011 (ITAT Delhi)

From the careful perusal of the above judicial pronouncements, it can be seen that there is no limitation that only the sales proceeds of the original asset should be used for the purchase of the new asset to avail the benefit of exemption u/s 54F of IT Act. Therefore the benefit of exemption available u/s 54F of IT Act is allowed to the appellant

Observation of the court

We have carefully considered the rival submissions and perused the record. The case of the assessee during assessment and appellate proceedings was that no difference was found in the quantity of stock. The difference of stock mentioned by the Ld. AO was only due to the fact that the approved valuer valued the stock on the basis of market price whereas the assessee had valued the closing stock as per accounting policy, namely cost or realisable value whichever is lower which method the assessee had followed year after year consistently. Since it is not a case where excess stock in quantity was found in survey, difference on account of valuation cannot form the basis of any addition. The assessee had produced before the Ld. AO all the bills which constituted the stock as on the date of survey which has not been considered and reliance was placed on the value adopted by the approved valuer as prevailing on the date of survey. This approach is not correct

Before the Ld. CIT(A) the assessee challenged the authority of the son to the impugned surrender without her written authority and in her absence when she was hospitalised and her son too was under influence of medication. Copy of discharge summary of the assessee and medical prescription of her son was brought on record. During survey it was brought to the notice of the survey team that the assessee who actively looks after the affairs of business was not available owing to her ill-health and was admitted in hospital. On such facts and circumstances of the case, it can not be said that the surrender was voluntary and after due consultation with the assessee. Hon’ble Supreme Court has held in Khader Khan Son’s case (supra) that section 133A does not empower any Income Tax authority to examine any person on oath, hence, any such statement has no evidentiary value and any admission made during such statement cannot by itself be made the basis for addition. Moreover, the Ld. CIT(A) considered the statement of the son of the assessee recorded during survey and noticed that he had explained that the shortage in cash and cash found at the time of survey was due to the fact that all the entries in the account books were not written up to date. To our mind, the delay in retraction by the assessee as pointed out by the Ld. AO cannot be of much significance when admittedly the assessee did not declare the surrendered amount in the return filed by her on 31.10.2018 just after a few months of the survey. This is also indicative of the fact that the surrender was not voluntary and with the consent of the assessee. The CBDT circulars mentioned by the Ld. CIT(A) in para 7-8 of his appellate order emphasise that there should be no coercion to admit undisclosed income and that admissions should be backed by credible evidence. Facts reveal that during survey, element of coercion cannot be ruled out and credible evidence to support the surrender was also lacking. We, therefore, concur with the findings of the Ld. CIT(A) and reject ground No. 2

Ground No. 3 is of general nature not requiring adjudication

In the result, appeal of the Revenue is dismissed

Order pronounced in the open court on 6th April, 2023