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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & Ms. MADHUMITA ROY
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–XI, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-XI/299/ACIT.Cir-6/12-13 dated 19/12/2013 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 21/02/2013 relevant to Assessment Year (AY) 2010-11.
The assessee has raised the following grounds of appeal:-
On facts and in law and in the circumstances of the appellant’s case, the Ld. CIT(A) has erred by sustaining the disallowance made by the Ld. AO. with regards to the exemption claimed u/s.54F of the Act for Rs.28,93,333/- when no such addition is called for.
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On facts and in law and in the circumstances of the appellant’s case, the Ld.CIT(A) has erred in not appreciating the fact that claim u/s.54F made in Return of Income is in accordance with law and further erred in directing A.O. to tax long term capital gain of Rs.28,93,333/- in A.Y. 2013-14 i.e. the year in which according to CIT(A) appellant has failed to comply with provisions of section 54F of the Act. He ought to have appreciated that LTCG of Rs.28,93,333/- cannot be taxed either in assessment year in which impugned property is sold or in A.Y. 2013-14. 3. On facts and in law and in the circumstances of the appellant’s case, the CIT(A) has erred in sustaining disallowance of expenses of Rs.2,59,394/- claimed u/s 57 of the Act as the these expenses have a direct nexus with interest income of Rs.5,79,963/- offered u/s.56 of the Act as “Income from other sources”.
The appellant craves leave to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.
The interconnected issue raised by the assessee in ground nos. 1 and 2 is that the Ld. CIT(A) erred in denying the exemption u/s 54F of the Act for Rs. 28,93,333/- only.
Briefly stated facts are that the assessee is an Individual and engaged in the business of manufacturing & trading of pharmaceuticals work. The assessee filed its return of income dated 28-09-2010 declaring income of Rs. 46,65,410/- only.
3.1. The assessee in the year under consideration has sold a plot of land for Rs. 50,00,000/- on 18-01-2010. Further the assessee purchased four plot of lands of Rs. 37,05,000/- each on 02-03-2010 with the intention to construct a residential house property thereon.
3.2. The assessee further deducted the cost of acquisition of Rs. 21,06,667/- and claimed exemption u/s 54F of the Act of Rs. 28,93,333/-
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from the sale consideration. Therefore assessee declared NIL income under long term capital gain.
3.3 The case of the assessee was selected for scrutiny under CAAS. The assessee was required to substantiate his claim under section 54F of the Act and the documents related to purchase of plot.
3.4 The assessee further submitted that the construction already started on aforesaid plot and substantial construction has been completed. The assessee in respect of construction of the property filed the following documents:
1) Bill copy of material purchased for construction 2) Receipt of payment towards the electricity connection.
3.5 Further, the assessee submitted that section 54F is a beneficial provision and therefore it should be read out liberally because the legislature intent to promote the investment in residential house.
3.6 The assessee without prejudice to the above further submitted that the addition should be made in the year in which the period of 3 years as specified under section 54F of the Act expires and not in the year in which the exemption was claimed. As such the period of 3 years were completed in the AY 2013-14.
3.6. However, the AO reject the contention of the assessee by observing that assessee did not file copy of construction plan approved by the Municipal Authorities. The AO further observed that the fact that construction has not been completed was admitted by the assessee. The AO further observed that
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the violation of the provision of section 54F of the Act was made in the year of exemption. Accordingly the AO disallowed the exemption claimed by the assessee u/s 54F of the Act of Rs. 28,93,333/- only.
Aggrieved assessee, preferred an appeal before Ld. CIT(A).
3.7. The assessee before the Ld. CIT(A) submitted that the assessee has applied for the approval for the commencement of construction with the Municipal Corporation on 03-08-2011. However the municipal corporation granted approval to him on 12-12-2012. Therefore it was not possible to construct the residential house within the remaining period of time.
3.8. However, the Ld. CIT(A) admitted the partial submission of the assessee by observing that the intention of the assessee for the purchase of plot for the purpose of construction of residential house is not in doubt as evident from the documents filed by him.
3.9. However, the construction was completed after the expiry of 3 years specified in section 54F of the Act. Accordingly the Ld. CIT(A) directed the AO that the addition should be made in the year in which the period of 3 years were completed after verifying the return submitted by the assessee for that year. Thus the Ld. CIT(A) deleted the addition made by the AO in the year under consideration.
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
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The learned AR before us filed a paper book running from pages 1 to 102 and submitted that the house was finally constructed dated 26-08-2019 as evident from the BU permission obtained from municipal Corporation of the Ahmedabad. The learned AR in support of his contention drew our attention on page 49 of the paper book. The learned AR also contended that there was indeed the delay in the construction of the house but the same was not in the control of the assessee. Accordingly he prayed that the assessee cannot be penalized by withdrawing the exemptions under section 54F of the Act in the present facts and circumstances.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the assessee was required to complete the construction of the house on or before 18-01-2013 corresponding to the assessment year 20013-14 but failed to do so. Actually the assessee finally constructed the house and received BU permission from the municipal Corporation of Ahmedabad dated 26-08-2019 as evident from the permission enclosed on page 49 of the paper book.
6.1. Thus, from the above discussion it is clear that the assessee has fulfilled conditions imposed under section 54F of the Act except the completion of the house within the time specified. It is a fact on record the assessee has made the investment in the land and construction of the house as discussed above which evidences that the assessee has substantially complied the provisions of section 54F of the Act. Thus, any delay in the completion of the construction of the house will not debar the assessee from
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claiming the exemption provided under section 54F of the Act. In this regard, we find support and guidance from the order of this tribunal in the case of Vinod Ugardas Patel in ITA number 529/Ahd/2014 wherein it was held as under:
“Thus, in the totality of circumstances, we consider it expedient that the matter is examined afresh after granting proper opportunity of being heard to the assessee. It will be open to the AO to verify the entire issue de novo and satisfy himself that the conditions of section 54F of the Act have been duly complied with. However, in the same vain, we clarify that mere delay in completion of construction activity of the residential house will not act as a fetter for eligibility of deduction under section 54F of the Act. The issue is thus set aside and remitted back to the file of the AO in terms of directions noted above.
In the result, appeal of the assessee is allowed for statistical purposes.”
6.2 Similarly, we also draw support and guidance from the judgment of Hon’ble Karnataka High Court in the case of CIT Vs. Smt. B.S. Shantha Kumari reported in 233 taxmann 347 wherein it was held as under:
"The intention of the legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are 'purchased' or 'constructed'. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming benefit under the said provision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favour of the assessee before the period stipulated, he cannot be denied the benefit of Section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under Section 54F of the Act".
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6.3. In view of the above, we hold that the assessee has substantially complied the provision of section 54F of the Act by acquiring the piece of land and commencing construction thereon. It is also pertinent to note that the amount invested by the assessee in the acquisition of land and construction of house was exceeding the amount of the sale consideration received by the assessee on the sale of plot as discussed above. Thus, it is not the case of Revenue that the investment made by the assessee is less than the amount required to be invested under the provisions of section 54F of the Act. Accordingly, we set aside the finding of the learned CIT (A) and direct the AO to delete the disallowance made by the AO. As such the exemption claimed by the assessee under section 54F of the Act is accepted. Hence the ground of appeal of the assessee is allowed.
The second issue raised by the assessee in ground no 3 is that the Ld. CIT(A) erred in confirming the Addition made by AO u/s 57 of the Act amounting to Rs. 2,59,394/-.
7.1. The AO during the assessment proceeding found that the Assessee has earned interest income of Rs. 5,79,663/- from the FDRs and deposits with the firms during the year. The AO further noted that the assessee has claimed interest expenses of Rs. 2,59,394/- against such interest income.
7.2. The assessee to substantiate its claim submitted that he has used borrowing fund in the investment to earn the interest income. There was a direct nexus between the deposit /advance and borrowings. Therefore it is a allowable expense.
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7.3. However, the AO rejected the contention of the assessee by observing that the assessee did not furnish any documentary evidence to justify that interest bearing funds were used in interest bearing deposit and advance.
7.4. The AO further noticed that the Assessee declared exempt income by way of dividend received from West Cost Pharmaceuticals. Therefore is clear that the interest bearing fund might be utilized for investment in this company. Therefore the interest expense is also not allowable u/s 14A of the Act. Thus the AO disallowed the interest expenses claimed by the assessee.
Aggrieved assessee preferred an appeal before the Ld. CIT(A) and reiterated the submission as made before the AO.
7.5 However, the Ld. CIT-A rejected the contention of the assessee by observing that the assessee failed to establish nexus between the interest expenses and interest income.
Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
The learned AR before us submitted as under:
“1. According to CIT(A) order appellant has failed to prove the direct Nexus. Therefore CIT(A) disallowed such expenses.
Interest expenses paid to the following parties, details of which are as under(Ref.computation of income P.B. pg no.2)
Veer corporation 36000 Veer interational 21,485
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Sonal patel trust 1,98,672 Amco bank 3,237 TOTAL 2,59,394
P.B. pg no.90, dated 11.09.09 Rs.13,00,000 have been received from sonal paterl trust & out of these 4 lacs was given to west coast pharma dated 15.09.2009.
P.B. pg no.97, dated 19.03.2010, 10,00,000 has been received from veer international & out of that 2 lacs was given to west coast pharma dated 25.03.2010.
Hence, in the interest of justice this ground shall be setaside to A.O. for verification & allow those interest expenses, which has direct nexus with interest income.”
On the other hand, the learned DR did not raise any objection if the matter is set aside to the file of the AO for fresh adjudication as per the provisions of law.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the assessee failed to justify whether the interest expenses were incurred against the interest income. Accordingly, the AO made the disallowance of such interest expenses in the absence of sufficient documentary evidence and further observed that the assessee has earned dividend income which is exempted from tax but no disallowance was made by the assessee under the provisions of section 14A read with rule 8D of Income Tax Rules. As such the AO was of the view that the borrowed fund has been utilized in making the investments which are giving rise to the
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exempted income. The view taken by the AO was subsequently confirmed by the learned CIT (A).
10.1. Admittedly, there was no disallowance made by the authorities below under section 14A read with rule 8D of income tax rule against the dividend income which is exempted under section 10(34) of the Act. Thus, in our considered view no disallowance of such interest can be made for the interest expenses under the provisions of section 14A read with rule 8D.
Now, coming to the issue whether the impugned interest expense has been incurred by the assessee against the impugned interest income as discussed above. Indeed the onus lies on the assessee to furnish the sufficient documentary evidence in support of his contention. But he failed to do so before the authorities below.
11.1. However, the learned AR before us has pleaded to restore the matter to the file of the AO for fresh adjudication as per the provisions of law and assured to file the requisite documents. The request made by the learned AR for the assessee was not objected by the learned DR for the revenue. Though in our considered view, the assessee has failed to furnish the necessary documentary evidence, but in the interest of justice and fair play we are inclined to give one more opportunity before the AO to raise his points of contentions. Accordingly, we remit the ground of appeal of the assessee to the file of the AO for fresh adjudication as per the provisions of law. Hence, the ground of appeal of the assessee is allowed for the statistical purposes.
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In the result, the appeal of the assessee is partly allowed for the statistical purposes. This Order pronounced in Open Court on 20/01/2020
Sd/- Sd/- (Ms. MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 20/01/2020
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-XI, Ahmedabad 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 13.1.2020 (word processed by Hon’ble AM in his computer by dragon) 2. Date on which the typed draft is placed before the Dictating Member 16.1.2020 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….21.1.2020 7. Date on which the file goes to the Bench Clerk…………………21.1.2020 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………