DEPUTY COMMISSIONER OF INCOME TAX-42(1)(1), MUMBAI vs. SHRI AMRISHCHANDRA AGARWAL, MUMBAI

Shri Amrishchandra Agarwal, Plot No. 13/A, 5th Floor, Agarwal Vs Golden Chamber, Fun Republic Road, New Link Road, Andheri (West), Mumbai - 400053 [PAN : ADGPA3105M] ……………. Respondent Appearance For the Appellant/Department : Shri Manoj Kumar Sinha For the Respondent/Assessee : Shri Satish Mody Date Conclusion of hearing : 26.07.2023 Pronouncement of order : 31.07.2023

O R D E R Per Rahul Chaudhary, Judicial Member: By way of the present appeal the Revenue has challenged the order, 1. dated 24/02/2023, passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘the CIT(A)’] for the Assessment Year 2018-19, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 23/04/2021, passed under Section 143(3) read with Section 144B of the Income (Assessment Year: 2018-19) Tax Act, 1961 (hereinafter referred to as ‘the Act’).

The Appellant has raised following grounds of appeal: 2. "1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 22,50,000/- made by the AO as compensation paid to slum dwellers for vacating plot of land claimed as cost of improvement as the assessee of failed to submit copy of agreement for vacating plot of land.

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the disallowance of deduction of Rs. 6 54F of the Act, merely on submission of MOU made by the assessee which is not a legally enforceable agreement.” The relevant facts in brief are that the Assessee, a resident 3. individual, filed return of income for the Assessment Year 2018-19 on 04/10/2018 declaring total income of INR 3,24,44,230/- which included capital gain from sale of immoveable property. The case of Appellant was selected for scrutiny under E-Assessment Scheme, 2019. During the course of assessment proceeding, the Assessee filed computation of capital gains arising from sale of immovable property being 50% share in land (Plot No. 695A & 695B) at Shimpoli, Borivali, Mumbai. On perusal of the same, the Assessing Officer noted that the Assessee has increased the cost of acquisition of the asset by the compensation for vacating the plot of INR 22,50,000/- and has also claimed deduction of INR 6,35,10,646/- under Section 54F of the Act. Since the Assessing Officer was of the view that the Assessee had failed to substantiate the aforesaid claim/deduction, the Assessing Officer reduced the cost of acquisition by INR 22,50,000/- being Assessee share in the compensation allegedly paid for getting the land vacated and denied deduction claimed under Section 54F of the Act after making other additions/disallowance. The Assessing Officer computed the Long (Assessment Year: 2018-19) Term Capital Gain arising from the sale of the asset at INR 12,60,47,425/- as against INR 2,13,62,672/- computed by the Assessee.

3.1. Being aggrieved, the Assessee preferred appeal before the CIT(A). The Assessee explained before the CIT(A) that while computing capital gains the cost of acquisition of asset was increased by INR 22,50,000/- since the aforesaid amount represented Assessee’s share in the aggregate amount of INR 75,00,000/- paid to the slum dweller for vacating the land. In support the Assessee placed reliance upon the document showing receipt by various persons who received the money which was paid by way of demand draft drawn on Axis Bank, Varsova and the copy of demand drafts filed by the Assessee during the course of assessment proceedings. As regards, the claim for deduction under Section 54F of the Act it was contended by the Assessee that the Assessee had purchased residential property being Flat No. 501 and 502, amalgamated and being used as single residential unit, in building known as Satra Residency from Mr. Ashish Agarwal. For the same the Assessee had already paid consideration of INR 11,00,00,000/- in terms of Memorandum of Understanding dated 08/06/2018. A copy of the Memorandum of Understanding dated 08/06/2018 was also placed before the CIT(A). The aforesaid submissions of the Assessee found favour with the CIT(A) who accepted the contentions of the Assessee and taking into account the documents placed on record, directed the Assessing Officer to increase the cost of acquisition by INR 22,50,000/- and also allow deduction under Section 54F of the Act while computing long term capital gains vide order, dated 24/02/2023.

3.2. Being aggrieved by relief granted by CIT(A), the Revenue has (Assessment Year: 2018-19) preferred the present appeal.

Ground No. 1 raised by the Revenue pertains to order of CIT(A) 4. accepting the contention of the Assessee to increase the cost of acquisition of the asset by INR 22,50,000/-.

4.1. The Ld. Departmental Representative, relying upon paragraph 10.2 of the order impugned, submitted that the CIT(A) had granted relief to the Assessee without complying with the requirement of Rule 46A of the Income Tax Rules, 1962. He submitted that on perusal of Assessment Order, it can be seen that documents referred mentioned in paragraph 10.2 of the order passed by the CIT(A), were not filed during the assessment proceedings. Since the CIT(A) had failed to call for the remand report before taking the additional evidence into consideration, the additional evidence filed by the Assessee could not have been relied upon. Thus, the order passed by the CIT(A) was bad in law.

4.2. Per contra, Ld. Authorised Representative for the Assessee submitted that no additional evidence was filed before the CIT(A) and submitted that the statement giving details of parties to whom payments were made along with the details of demand drafts and copy of cheques were placed before the Assessing Officer during the assessment proceedings. However, the Assessing Officer failed to appreciate and consider the same. The Ld. Authorised Representative placed on record copy of document being receipt issued by parties receiving the payment and the corresponding details of demand draft number an amount filed before the Assessing Officer.

4.3. Having considered the rival submission and on perusal of record we find that aggregate payment of INR 75,00,000/- was made to 27 (Assessment Year: 2018-19) persons by way of different demand draft drawn on Axis Bank, Varsova. The persons receiving the payment have also signed the receipt dated 29/07/2015. The Assessee has claimed his share to be INR 22,50,000/- being half of 60% share of INR 75,00,000/- as the Assessee has only sold 50% of his share. After the taking into account the details and documents, which were also filed by the Assessee during the assessment proceedings, the CIT(A) has granted relief to the Assessee by allowing INR 22,50,000/- to be added to the cost of acquisition of asset for the purpose of computing capital gains. In view of the aforesaid, we do not find any infirmity in the order passed by CIT(A) in this regard. Accordingly, Ground No. 1 raised by the Revenue is dismissed.

Ground No. 2 raised by the Revenue pertains to claim of deduction 5. under Section 54F of the Act. The Assessee had claimed deduction under Section 54F of the Act contending that the Assessee had purchased residential unit, being Flat No. 501 and 502 in a building known as Satra Residency which were amalgamated and were being used as a single unit, for a consideration of INR 11,00,00,000/- from Mr. Ashish Agarwal through Memorandum of Understanding, dated 28/06/2018. The Assessing Officer denied deduction as the Assessee failed to provide purchase deed or other corroborated documents.

5.1. In appeal before the CIT(A), it was contended on behalf of the Assessee that the Memorandum of Understanding dated 08/02/2018 was similar to a letter of allotment issued by a builder and therefore, as per Circular No. 171, dated 15/10/1986, and Circular No. 672, dated 16/12/1993, issued by the Central Board of Direct Taxes, the same was sufficient to establish purchase of asset by the Assessee. Further, the Assessee had already paid INR 11,00,00,000/- through (Assessment Year: 2018-19) banking channel. Therefore, the Assessee was entitled to claim deduction under Section 54F of the Act. Accepting the aforesaid contention of the Assessee the CIT(A) concluded that the Assessee was entitled to claim deduction under Section 54F of the Act.

5.2. The Revenue is now in appeal before us against allowance of deduction under Section 54F of the Act.

5.3. The Ld. Departmental Representative placed on record copy of Memorandum of Understanding, dated 08/06/2018, available in his records and submitted that the Memorandum of Understanding was not a registered document. It was also not attested or notarized. The name of the seller had been redacted to ensure that the Assessing Officer and CIT(A) are not able to identify the fact that the seller is the son of the Assessee. The Assessing Officer had asked the Assessee to file the purchase deed during the assessment proceedings. However, the Assessee failed to file purchase deed or any other corroborating documents. The CIT(A) has incorrectly granted relief to the Assessee by taking the Memorandum of Understanding between the Assessee and his son at par with a letter of allotment issued by a third party. Further, the judgments on which was reliance was placed by the Assessee before the CIT(A) pertain to the computation of period of holding and do not deal with the issue of transfer of ownership of the asset.

5.4. Per contra, the Learned Authorised Representative for the Assessee placed on record another copy of the Memorandum of Understanding wherein the name of the seller was not redacted and submitted that the same was filed with the Assessing Officer and CIT(A). He vehemently contended that the Memorandum of Understanding was sufficient to establish the purchase of residential unit by the 6 (Assessment Year: 2018-19) Assessee and there was no bar in claiming deduction under Section 54F of the Act in case of purchase of asset from a family member. Learned Authorised Representative submitted that since the name of the Assessee was already in the record of the society there was no need for the Assessee to execute a registered purchase deed. Further, the Assessee had already made payment of INR 11,00,00,000/- which fact was not disputed by the Assessing Officer. Thus, the Authorised Representative for the Assessee supported the order passed by the CIT(A).

5.5. We have heard the rival contention and perused the material on record. It is admitted position that the Memorandum of Understanding is neither registered nor attested and has been executed between father (i.e. the Assessee) and son. The CIT(A) had relied upon the contents of the Memorandum of Understanding without there being any corroborating material on record. We note that the name of the seller in the copy of Memorandum of Understanding placed on record has been partially redacted. However, perusal of the order passed by the CIT(A) show that the aforesaid aspects have not been examined or factored if by the CIT(A). There is nothing on record to support the submissions made by the Ld. Authorised Representative for the Assessee regarding actual payment of consideration of INR 11,00,00,000/- and the ownership status of the residential unit purchased by the Assessee as reflected in the records of the revenue authorities or the society. We also find merit in the contention of the Ld. Departmental Representative that the judgments on which reliance was placed by the Assessee in appellate proceedings before the CIT(A) were distinguishable on facts as the same dealt with the issue of computation of period of holding of the asset. In view of the (Assessment Year: 2018-19) aforesaid and taking note of the fact that before the CIT(A) it was contended on behalf of the Assessee that the assessment was framed without granting the Assessee a reasonable opportunity, we deem it appropriate to set aside the order passed by the CIT(A) allowing deduction under Section 54F of the Act, and remand this issue back to the file of Assessing Officer for fresh adjudication granting an opportunity to the Assessee to substantiate its claim of deduction under Section 54F of the Act by placing on record such documents/details as the Assessee may deem fit. All rights and contentions of the parties are left open. The Assessee shall be granted a reasonable opportunity of being heard. In terms of the aforesaid directions Ground No. 2 raised by the Revenue is treated as allowed for statistical purposes.

In result, the present appeal preferred by the Revenue is partly 6. allowed.

Order pronounced on 31.07.2023.