Land owned as an investment is taxable under the “capital gain” heading

Fact and issue of the case

This is an appeal filed by the assessee directed against the order of the ld. Commissioner of Income Tax (Appeals) – 2, Nagpur [‘the CIT(A)’] dated 12.03.2019 for the assessment year 2015-16.

The appellant raised the following grounds of appeal :-

On the facts and in circumstances of the case and in law, the learned CIT(A) erred in stating that the subject, whether proper approval was taken before converting limited scrutiny into complete scrutiny being administrative measure cannot be taken up.

On the facts and in the circumstances of the case and in law the learned CIT (A) erred in upholding the addition of Rs 1,00,85,013/- made by the AO as income under the head business and profession rightly declared as income under the head capital gains.

On the facts and in circumstances of the case and in law, the learned CIT(A) ought to have considered

(i) intention of the assessee

(ii) period of holding

(iii) consistency in treating the sale of another pieces of same land as income under the head capital gain in subsequent years.

On the facts and in circumstances of the case and in law, the learned CIT(A) erred in upholding the denial of exemption u/s 54F of Rs 51,31,063/-made by the AO rightly claimed as exemption u/s 54F by the appellant.

Any other ground which may be preferred at the time of hearing.”

Briefly, the facts of the case are as under :-

The appellant is an individual engaged in the business of builders and land developers. The return of income for the assessment year 2015-16 was filed through e-filing on 25.03.2016 declaring a total income of Rs.49,64,470/-. Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax, Circle-3, Nagpur (‘the Assessing Officer’) vide order dated 28.12.2017 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.1,01,58,080/-. While doing so, the Assessing Officer made addition of Rs.1,00,85,013/- being the profits arising out of the sale of land, treating as an income from business as against the claim of the appellant that it is a nature of capital gains. The factual background leading to the above additions as follows :

The appellant along with one Shri Sadik F. Kachchhi purchased a land bearing Khasara No.73/1, Area 0.60 Hectare for a consideration of Rs.2,00,000/- on 25.05.2005. The cost of investment on the said land was shown in the balance sheet as on date of acquisition and continued to be shown so till the date of sale. During the previous year relevant to the assessment under consideration, the said land was sold to 21 different parties for a consideration of Rs.1,01,44,000/- and, accordingly, the appellant had computed the capital gains and sought exemption on the capital gains on investment in the residential property as prescribed under the provisions of section 54F of the Act. The claim for exemption u/s 54F of the Act was denied by the Assessing Officer on the following grounds :-

(i) The appellant is engaged in the business of builders and developers and a dealer of land.

(ii) The appellant had indulged into transactions of purchase and sale of land in the earlier years also and same was treated as business income.

(iii) The land was sold to 21 different parties after dividing the plots into 21 pieces, which according to the Assessing Officer indicate the intention of the appellant is only to hold it as business asset.

(iv) The Assessing Officer also held that the mere reflecting concerned asset as investment in fixed asset in the balance sheet does not conclusively prove that it is investment not stock in trade and there was no agricultural activity on the said land was carried out.

The assessee also held other asset of investments. The sum and substance of the conclusion of the Assessing Officer is that since the appellant is a dealer in land and sold the land by dividing plots into 21 different pieces, the land was only as business assets and, therefore, the profit arising on the sale of said land only results in the business profits not as a capital gains. The Assessing Officer also referred to the decision of the Hon’ble Supreme Court in the case of G. Venkataswami Naidu & Co. vs. CIT, 35 ITR 594 in support of the proposition that when the land was purchased with the intention of re-sell of profits, it is a transaction in the nature of trade and, accordingly, the Assessing Officer assessed the profits arising on sale of said land as “business profits” as against the claim of the appellant that the profits are in the nature of “capital gains”. Accordingly, denied the claim of exemption u/s 54F of the Act.

On an appeal before the ld. CIT(A), the CIT(A) after referring to the plethora of judgements upheld the findings of the Assessing Officer.

Being aggrieved, the appellant is before is in the present appeal.

The ld. AR submitted that the asset was purchased in the year 2005 and was shown as a part of the fixed asset in the balance sheet. It is contended that the finding of the Assessing Officer that the assessee himself had divided the land into pieces is contrary to the facts as the layout of the said land was approved by local authority much before the acquisition by the appellant. He also filed the copy of the permission of the local authorities. He further contended that :-

The land was continued to be investment in the books of account till the date of sale.

The assessee is entitled to hold two different portfolios i.e.

(i) stock in trade and

(ii) investment.

The fact that the land was sold after gap of decade, no borrowed funds were utilized for the purpose of acquiring the said lands indicates the intention of the party to hold against on investment.

In the light of the above submissions, she pleaded that the orders of the lower authorities should be reversed and set-aside.

On the other hand, ld. CIT-DR placing heavily reliance on the orders of the lower authorities submitted that when the land was divided into pieces it clearly establish motive of assessee to hold the land ‘stock in trade’.

Observation of the court

We heard the rival submissions and perused the material on record. The issue in the present appeal relates to whether or not the surplus arising from the sale of land constitutes “capital gains” or “business income”. It is undisputed fact that the appellant had acquired the subject land in the year 2005 for consideration of Rs.1,01,44,000/- along with one Shri Sadik F. Kachchhi and the land was shown as a part of the fixed asset in the balance sheet and this treatment in books of account continued to be so till the sale of land. Admittedly, no borrowed funds were utilized for acquisition of the said land and assessee also holding some other lands as a part of investment and is also a dealer in lands. In the return of income, the appellant had offered the profit arising on sale of land as “capital gains” and sought the exemption of capital gains by investing of this sale proceeds in the residential house u/s 54F of the Act. The assessee also maintained the distinction between the “stock in trade” and “investment”. The appellant is also a dealer in land and the profits on the sale of land in the earlier year were shown as “business profits”. The Assessing Officer relying upon the decision of the Hon’ble Supreme Court in the case of G. Venkataswami Naidu & Co. (supra) held that the assessee acquired the land only with the intention to re-sell the property since he had not carried out any agricultural activity on the said land. The Assessing Officer took into consideration the fact that the land was sold to 21 different parties and, accordingly, denied the claim for exemption u/s 54F of the Act. On appeal before the ld. CIT(A), the ld. CIT(A) referred to plethora of decisions confirmed the findings of the Assessing Officer relying on two factors i.e. (i) the business of the appellant has been to carry out the regular transaction in purchase and sale of different pieces of land and (ii) the assessee is a dealer in the land. This approach of the ld. CIT(A) while confirming the action of the Assessing Officer cannot be appreciated as it is settled position of law that the assessee is entitled to maintain two different portfolios i.e. stock in trade as well as the investment. This is also clarified by the CBDT in the context of taxing the profits in respect of sale transaction and shares and securities vide CBDT Circular No.4 of 2007 dated 04.05.2007. The assessee had treated the transaction of purchase of land as investment in the books of account by showing this as a part of the fixed asset. It is settled position of law that to determine whether a particular transaction is an adventure in the nature of trade or investment, the test to be applied is intention of the party at the time of acquisition of the property as held by the Hon’ble Supreme Court in the case of G. Venkataswami Naidu & Co. (supra). If there is any material on record to indicate that the intention of the party is only to re-sell the asset for profit, no doubt it is a stock in trade. In the present case, the land was sold after the gap of decade and there was no material to show that the appellant had acquired the land only with the intention to re-sell the land for profit. The assessee is undoubtedly entitled to hold two different portfolios in respect of the same kind of asset i.e. stock in trade and investment. The Hon’ble Gujarat High Court in the case of CIT vs. Rewashanker A. Kothari, 283 ITR 338 held as under :-

“The Commissioner had expressed prima facie opinion to the effect that the assessee was doing business in shares and the shares purchased by him were held as stock-in-trade. By holding that the Assessing Officer had failed to inquire about the real nature of the transaction, the Commissioner also opined prima facie that the transactions available on record revealed that the assessee was a dealer in shares. [Para 6]

However, even if one proceeds on the footing that the Commissioner had not expressed any opinion and had merely set aside the assessment while exercising powers under section 263, nonetheless, when an appeal is preferred against such an order, the Tribunal is well within its jurisdiction to examine as to whether the Commissioner had rightly exercised jurisdiction under section 263. In the process, if the Tribunal examines the facts and evidence which are available on record before the Commissioner at the time of framing of order under section 263, it cannot be stated that the Tribunal has committed any error in recording findings in relation to such facts and evidence on record. In the instant case, all that the Tribunal had done was whether, in light of the record which was available before the Commissioner when he exercised the jurisdiction under section 263, it was possible to come to the conclusion that the assessment order was both erroneous and prejudicial to the interest of the revenue. [Para 7]

In each case, it is the total effect of all relevant factors and circumstances that determine the character of the transaction. Each case has to be determined on the total impression created on the mind of the Court by all the facts and circumstances disclosed in a particular case. One of the principal tests is whether the transaction is related to the business normally carried on by an assessee. The nature of the commodity would also be a relevant factor. It is equally well-settled that, merely because the original purchase was made with the intention to re-sell, if an enhanced price could be obtained, that by itself is not enough to infer that an assessee is carrying on business. However, though profit motive in entering into a transaction is not decisive, if the facts and circumstances indicate that the purchase of the asset was made solely and exclusively with an intention to re-sell the asset at a profit, it would be a strong factor for inferring that the transaction was in the nature of business. [Para 10]

On the application of the aforesaid tests, if the matter was examined, it was apparent that not only the Tribunal had applied the correct tests, but had also drawn the right inference. The findings of fact recorded by the Tribunal on the basis of evidence available before it could not be termed to be without any evidence, and once that was so, it was not possible to state that the Tribunal committed any error when it concluded that the assessment order was not erroneous. That as a consequence, the Commissioner could not have assumed jurisdiction under section 263 as stated hereinbefore, once an assessee has exercised its right to file a statutory appeal against the order of Commissioner made under section 263, the Tribunal is bound to examine whether Commissioner had rightly invoked provisions of section 263. The basic requirement for this is satisfaction of the twin conditions envisaged by the section, namely, the assessment order is erroneous and prejudicial to the interests of the revenue. It is equally well-settled that if the Assessing Officer has taken a view of the matter which is reasonably possible in the factual matrix, the Commissioner cannot exercise powers under section 263, merely because it is possible to record a different conclusion on the same set of facts and circumstances. [Para 12]

On facts, the Tribunal had taken note of the fact that there was a long gap between the date of acquisition of the shares and their sale and that some of the shares sold in the relevant accounting period were purchased at least 3 years ago, while some other shares were purchased as far back as in 1971, i.e., a period of about 14 to 15 years. Furthermore, in the reply to the show-cause notice issued, the assessee had categorically stated that he was a partner in a firm having business of building materials, hardware items, etc., and neither the firm nor the assessee were carrying on any business in shares. That the assessee had been duly filing wealth-tax returns right from assessment year 1957-58 and the shareholding on respective valuation dates had duly been shown as wealth on account of investment. These facts had not been disputed by the Commissioner. [Para 13]

Therefore, in the light of above discussion, the impugned order of the Tribunal did not suffer from any infirmity. The Tribunal had rightly concluded that the order made by the Commissioner under section 263 was not sustainable, and that, on facts, the income was required to be taxed under the head ‘Capital gains’ and not as ‘Income from business’. [Para 14]”

In the facts and circumstances of the present case, it does not indicate that the purchase of land was made with the intention to re-sell. The Hon’ble Supreme Court in the case of CIT vs. Associated Industrial Development Co. (P.) Ltd., 82 ITR 586 held as under :-

“The High Court went beyond the matters which were the subject-matter of controversy before the departmental authorities and the Tribunal. It was never the case of the assessee at any stage that although it was a dealer in shares those shares which were the subject-matter of sale were held by way of investment. It had maintained throughout that all the shares were held by it as an investor and that it could not be regarded as a dealer because the shares did not form its stock-in-trade. That case of the assessee was negatived because of the extensive dealings and other facts and circumstances which were taken into consideration. The figure of purchases and sales as also of the profits relating to the years 1954 to 1957 justified the view that although up to a certain point of time it had been assessed as an investor, the multiplicity of the transactions occurring successively over the years supported the departmental stand that the assessee had ceased to be an investor and had become a dealer. Whether a particular holding of shares is by way of investment or forms part of the stock-in-trade is a matter which is within the knowledge of the assessee who holds the shares and it should, in normal circumstances, be in a position to produce evidence from its records as to whether it has maintained any distinction between those shares which are its stock-in-trade and those which are held by way of investment. The assessee, in the instant case, made no attempt whatsoever to make out a case that the shares which had been sold were a part of its capital investment. Nor did it place any material from which it could be established that those shares had been treated in its books differently from other shares held by it. The mere fact that the sale proceeds were paid into the overdraft account in which admittedly proceeds of sale of all the shares held by the assessee were being credited as and when the sales were made and that these shares had not been sold with any amount of frequency could not be regarded as sufficient to establish that these shares had been held by way of investment. Even otherwise it was for the Tribunal to give its decision on facts and since no decision was invited from the Tribunal as to whether the shares in question had been held by way of investment it was not open to the High Court to give its finding on that question which was essentially one of fact and which it was within the jurisdiction of the Tribunal to determine.

Hence, the Tribunal was justified in holding that the profit arose to the assessee in the course of its business as a dealer in shares and as such was liable to be assessed as a revenue receipt.”

In the present case, undisputedly the appellant had made a distinction between those lands which are stock in trade and those lands which are held by investment. Therefore, none of the factors considered by the Assessing Officer can militate against the claim of the appellant that it is an investment and the profit arising out of the sale of this land is assessable to tax under the head “capital gains”. Therefore, the orders of the lower authorities are hereby reversed and set-aside. Thus, the grounds of appeal raised by the assessee are allowed.

In the result, the appeal filed by the assessee is allowed.

Order pronounced on this the 24th day of June, 2021.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Investment made in a new home within the delayed return due date is eligible for the Section 54F Exemption

Fact and issue of the case

The instant appeal at the instance of the assessee is directed against the order dated 25.06.2019 passed by the Commissioner of Income Tax (Appeals), Jamnagar (‘the CIT(A)’), arising out of the assessment order dated 30.06.2017 passed by the Learned DCIT, Circle-2, Jamnagar under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2015-16, whereby and where under the claim of exemption under Section 54F of the Act to the tune of Rs.10,53,975/- has been disallowed.

We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.

The brief facts leading to this case is this that the assessee, an individual, filed the return of income on 05.08.2015 declaring total income of Rs.59,37,270/-, which was subsequently revised at Rs.48,83,290/- by filing the revised return of income on 31.10.2015. Such revised return of income was filed to claim deduction of Rs.10,53,975/- under Section 54F of the Act on account of purchase of residential building by the appellant. In fact, on 05.11.2014, the assessee sold her immovable property being a godown for a consideration of Rs.60 Lakhs and the long term capital gain out of that was also offered to tax by filing the original return. Within one year of such sale of property, the appellant purchased the residential house on 07.10.2015 for a sum of Rs.12 Lakhs and claimed deduction 10,53,975/- under Section 54F of the Act by filing revised return of income. Upon selection of the case under scrutiny, the assessment was finalized under Section 143(3) of the Act in terms of the original return of income at Rs.59,37,270/- rejecting the claim of deduction to the tune of Rs.10,53,975/- under Section 54F of the Act as per the revised return filed by the appellant on the ground that the appellant had not invested the fund into capital gain scheme before purchase of the residential property before filing of the return of income under Section 139(1) of the Act. The case of the Revenue is this that the appellant is not entitled for exemption under Section 54F of the Act, since the unutilized amount was not deposited by him before the due date of filing of return of income under Section 139(1) of the Act. On this aspect, both the authorities below relied upon the judgment passed in the matter of Suleman Merchant passed by the Hon’ble High Court of Bombay, wherein it was held that the amount which has not been invested either in purchase or in construction of house has to be deposited in the specified accounts before the due date of filing of return of income under Section 139(1) of the Act. On the other hand, series of a judgment has been relied upon by the assessee in support of his case to this effect that if the investment in the residential property is made within the time limit of Section 139(4) of the Act, the deduction under Section 54F of the Act is allowable. In fact, the judgment passed by the Hon’ble Karnataka High Court in case of CIT vs. K. Ramachandra Rao, reported in (2015) 56 Taxmann.com 163 (Karnataka HC) was basically relied upon. Some other judgments observing a liberal approach should be taken by interpreting the provision of Section 54 of the Act were also relied upon by the appellant. The judgment passed by the Co-ordinate Bench in the case of Shrawankumar G. Jain vs. ITO, reported in (2018) 99 taxmann.com 88 (ITAT-AHD) was also relied upon by the appellant.

We have considered the entire aspect of the matter and the judgments relied upon by the respective parties. Hon’ble Karnataka High Court in the case K. Ramachandra Rao (supra) dealt with a similar case wherein following observation was made:

In the present case, the assessee purchased new asset on 05/10/2009 and had transferred the original asset on 8/01/2008. As per Section 54F (1) of the Act, the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place. As per the judgment of Hon’ble Karnataka High Court, the provisions of section 54F(4) would not be attracted in the event if the assessee has purchased or constructed the residential house within the period prescribed under section 54(1) of the Act. In the case in hand, there is no dispute with regard to the fact that the assessee had purchased within two years [the period prescribed u/s.54(F(1)] a new asset on 05/10/2009 from the date of transfer of the original asset. The Revenue has not cited or placed on record any contrary judgment by the Hon’ble Jurisdictional High Court or Hon’ble Supreme Court. Therefore, respectfully following the ratio laid down by the Hon’ble Karnataka High Court in the case of CIT v. K. Ramachandra Rao (supra), we hereby set aside the impugned order and direct the AO to re-compute the assessed income after granting the benefit of section 54F of the Act to the assessee.”

Requirement to deposit net consideration as per Section 54F(4) not attracted if assessee has purchased a new residential house within due date specified under Section 139(4)

Section 54F exemption eligible on amount not deposited but invested in purchase of new house within due date specified under Section 139(4)

Observation of the court

In that view of the matter, the Hon’ble Karnataka High Court has been pleased to laid down the ratio to this effect that when the assessee has purchased a new residential house within due date specified under Section 139(4) of the Act from the date of transfer of the original asset, requirement to deposit net consideration received by the assessee in capital gain account scheme as per Section 54F(4) of the Act, would not be attracted and the assessee would be eligible to benefit of exemption under Section 54F of the Act. Taking into consideration the ratio laid down by the Hon’ble Karnataka High Court, we find that the assessee’s case is squarely covered under the same, as the assessee within one year from the sale of asset at a consideration of Rs.60 Lakhs the long term capital gain whereof was also offered to tax by filing original return, purchased the residential house on 07.10.2015 for a sum of Rs.12 Lakhs and claimed deduction of Rs.10,53,975/- under Section 54F of the Act by filing revised return of income and entitled to relief as claimed for exemption under Section 54F of the Act to the tune of Rs.1,10,53,975/-. Thus, the addition made by the Revenue is not justifiable and hence, deleted.

In the result, assessee’s appeal is allowed.

This Order pronounced on 30/05/2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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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

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

DCIT-Vs-Anjali-Mittal-ITAT-Delhi-2

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