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Income Tax Appellate Tribunal, JAIPUR BENCHES,”B” JAIPUR
Before: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 27/JP/2018
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh jes’k lh0 ’kekZ] ys[kk lnL; ,oa Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 27/JP/2018 fu/kZkj.k o"kZ@Assessment Year : 2009-10 cuke Shri Vimal Kumar Agarwal, The ITO, Vs. 104-B,Shree Ji Nagar, Durgapura, Ward-6(4), Jaipur-302018. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABPPA 5997 E vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by: Shri Pawan Garg (C.A.) jktLo dh vksj ls@ Revenue by : Shri Karni Dan (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 04/02/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 08/02/2019 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 24.11.2017 of CIT (A), Jaipur for the assessment year 2009-10. The assessee has raised the following grounds:-
“1. That the Ld AO has grossly erred in initiating proceedings u/s 147/148 and Ld. CIT(A) further erred in conforming the action of AO. 2. That the Ld. CIT(A) had erred in disallowing the deduction claimed u/s 54F on the ground that assessee was already living in Shri Vimal Kumar Agarwal vs. ITO the same house and only extension and renovation could have taken place and cannot be considered as new construction. 3. The appellant craves the right to add, delete or alter any of the grounds of appeal either before or at the time of hearing of appeal.”
2. The assessee has also raised additional ground as under:- “1. That Principal Commissioner has not accorded proper satisfaction in terms of section 151 for reopening of assessment u/ 148.”
3. Since, the additional ground is legal in nature and was raised in respect of the approval granted by the Pr. CIT U/s 151 of the Act, therefore, the Bench the directed to the Department to produce the relevant record of approval granted by the ld. Pr. CIT. The ld. DR has produced the assessment record along with the approval granted by the Pr. CIT.
We have heard the ld. AR as well as ld. DR on the additional ground raised by the assessee. From the record produced by the ld. DR, we find that the ld. Pr. CIT has accorded the sanction for issuing notice U/s 148 of the Act on the reasons recorded by the AO. We further note that prior to the sanction granted by the Pr. CIT even the ACIT examined the record and given his comments. The ld. Pr.CIT after considering the reasons recorded by the AO has granted approval and Shri Vimal Kumar Agarwal vs. ITO therefore, having regard to the facts and circumstances of the case where the assessee has not disclosed the transaction of sale of the capital asset in question as well as the capital gain if any arising from the said sale in the original return of income filed by the assessee then the facts do not support the case of the assessee. Once, the assessee has not disclosed the transaction of sale and consequently capital gain then, it is a prima facie case made out by the AO which was considered by the ld. Pr. CIT while granting approval for issuing notice U/s 148 of the Act. The AO sent the proposal seeking approval U/s 151 of the Act by the record of reasons on 09.03.2016 which were considered by the ld. ACIT on 11.03.2016 and finally the Pr. CIT has granted approval on 21.03.2016. Therefore, it is manifest that the reasons recorded by the AO were duly considered by the ACIT and thereafter the Pr.CIT prior to granting approval for issuing notice U/s 148 of the Act. Hence, we do not find any substance or merits in the additional ground raised by the assessee, the same is dismissed.
Ground No. 1 is regarding validity of reopening of the assessment proceedings U/s 147/148 of the Act. The ld. AR of the assessee has submitted that the Assessing Officer while recording the reasons for reopening has stated that information was called for U/s 133(6) of the 3 Shri Vimal Kumar Agarwal vs. ITO Act, however, the assessee did not receive any notice issued by the AO U/s 133(6) of the Act. Further, the assessee filed its return of income on 06.07.2009 which was not considered by the AO at the time of recording the reasons for reopening of the assessment. Therefore, the Assessing Officer has not applied his mind while issuing notice U/s 148 of the Act as reasons recorded by the AO has not disclosed any direct connection between the reasons and formation of belief that any income has escaped assessment. The AO has even considered the entire sale consideration as income assessable to tax has escaped assessment. In support of his contention, he has relied upon various decisions and contended that the AO can reopen the assessment on the basis of belief and not on reasons to suspect. In the case of the assessee, the AO acted only on the basis of suspicion and therefore, it cannot be said that the reasons recorded by the AO has a direct connection with the belief that the income chargeable to tax has escaped assessment.
On the other hand, ld DR has submitted that the assessee has not disclosed the transaction of sale of capital asset and the income arising from the said transfer in the return of income. The AO subsequently received the information regarding the transaction of sale 4 Shri Vimal Kumar Agarwal vs. ITO of capital asset by the assessee and therefore, the said information received by the AO is a tangible material to form the belief that the income assessable to tax has escaped assessment. He has supported the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. The Assessing Officer has recorded the reasons for reopening of the assessee has held as under:-
“On the basis of information available on record for the year under consideration, the assessee has sold an immovable property of Rs. 851000/-. Information was called for u/s 133(6) of I.T. Act, in this regard which prior approval from Pr. CIT-II, Jaipur. Assessee has not furnished any reply/supporting evidence in response to notice U/s 133(6). Thus the assessee has failed to disclose fully and truly all material facts necessary for his/her assessment. Therefore, I have the reasons to believe that the above income of Rs. 851000/-, which is chargeable to tax has escaped assessment.”
There is no dispute that the assessee has sold the immovable property for consideration of Rs. 8,51,000/- and therefore, the information received by the AO regarding the sale of property by the assessee is factually correct. However, the assessee has not disclosed these transactions and income arising from these transactions in the return of 5 Shri Vimal Kumar Agarwal vs. ITO income filed on 06.07.2009. Even in the computation of income the assessee has not shown the transaction and therefore, it is a clear case of non discloser of the transaction itself. Further, the transaction of sale of immovable property in question is not exempt under the provisions of the Act but the element of income being the capital gain is certain in the transaction of sale of the immovable property in question. Though the assessee has claimed deduction u/s 54F of the Act, however, the deduction claimed by the assessee during the reassessment proceedings cannot absolved the assessee from the default of non discloser of transaction and computation of capital gain in the return of income as well as computation of total income annexed to the return of income. Hence, in view of the facts on record that the assessee has not disclosed the transaction of sale of immovable property and consequential capital gain arising from the said transaction in the return of income, the Assessing Officer was having the reasons to form a reasonable believe that the income arising from transfer of the immovable property has escaped assessment. It is not the case of a transaction which may not necessarily involved any element of income but the transfer of immovable property which otherwise not exempted from the tax has an essential element of income in itself. Hence, non Shri Vimal Kumar Agarwal vs. ITO discloser of the said transaction in the return of income and subsequent information received by the AO would tantamount the escapement of income assessable to tax.
As regards the issuing notice U/s 133(6) of the Act prior to the issuing notice U/s 148 of the Act when the assessee had not responded to the said notice then, it is not going effect the validity of reopening of the assessment and the information available with the AO for forming to belief that the income assessable to tax has escaped assessment. The notice issued U/s 133(6) of the Act is relevant only on the aspect whether the capital asset transferred by the assessee is otherwise exempt under the Income-tax Act. Once, the asset is not exempt then, deduction as claimed by the assessee U/s 54F of the Act in the reassessment proceeding shall not have any effect on the formation of belief at the time of record the reasons and issuing notice U/s 148 of the Act. Accordingly, we hold that the AO was having the reasons to belief that income assessable to tax has escaped assessment though the amount of capital gain which has escaped assessment is a subject matter of scrutiny in the reassessment proceedings. Accordingly, we do not find any substance in ground no. 1 of the assessee appeal. Shri Vimal Kumar Agarwal vs. ITO
Ground no. 2 is regarding disallowance of deduction U/s 54F of the Act. The assessee has computed the capital gain from the transfer of the land in question at Rs. 5,20,742/- which was claimed as deduction U/s 54F of the Act on the ground that the assessee has purchased immovable property situated at 104-B, Shri Ji Nagar, Durgapura, Jaipur. Further, the assessee has also claimed to have made an addition of construction of this immovable property during the year under consideration and claimed the deduction U/s 54F of the Act in respect of the cost of the construction. The AO denied the claim of deduction U/s 54F of the Act on account of addition made in the existing residential house of the assessee. The assessee challenged the action of the AO before the ld. CIT(A) but could not succeed.
Before us, the ld. AR of the assessee has submitted that the assessee has purchased the house situated at 104-B, Shri Ji Nagar, Durgapura, Jaipur which was row house without plasterwork, flooring, windows, gates, chowkhats, light and water fittings and connections etc. The assessee claimed that it has spent Rs. 3,21,000/- on completion of the ground floor which was not completed and thereafter the assessee has added first floor during the year under consideration.
Thus, the assessee has incurred the cost of construction of Rs. 8 Shri Vimal Kumar Agarwal vs. ITO 5,20,000/- for construction of first floor of the house during the year under consideration. Hence, the ld. AR has submitted that the construction of first floor is a construction of residential house as per the provisions of Section 54/54F of the Act and therefore, eligible for deduction U/s 54F of the Act. In support of his contention, he has relied upon the decision of Hon’ble Karnataka High Court in case of Mrs. Rahana Siraj vs. CIT 232 taxman 327 as well as the decision of Mumbai Benches of Tribunal in case of Saleem Fazelbhoy vs. DCIT 108 TTJ
The ld. AR has thus submitted that once the assessee has constructed the first floor of the house then, the same will be considered as construction of new house the eligible for deduction U/s 54F of the Act.
On the other hand, ld. DR has submitted that the benefit of Section 54F of the Act is available only when assessee purchased a new house or construct a new house within the stipulated period as provided U/s 54F of the Act. It is not the object and intention of the legislature to grant benefit of deduction in case of any modification or addition made in the existing house of the assessee. He has relied upon the orders of the authorities below and submitted that the ld. CIT(A) has relied upon the decision of Hon’ble Kerala High Court in case Meera Jacob vs. ITO. 9 Shri Vimal Kumar Agarwal vs. ITO
We have considered the rival submissions as well as relevant material on record. The Assessing Officer has not disputed the expenditure incurred by the assessee in respect of the work carried out on the ground floor of the house which was already in existence as well as a new first floor was constructed by the assessee on the existing ground floor for cost of Rs. 5,20,000/-. The AO has disallowed the claim U/s 54F of the Act on the ground that the benefit of section 54F cannot be granted in respect of the expenditure on renovation as well as addition made in the existing house. It is pertinent to note that a residential house as referred in Section 54F of the Act means a dwelling unit as per need and requirements of the assessee and his family.
Therefore, there cannot be a standard criteria in terms of size or shape of a residential house but it depends upon the requirements of the assessee or the family of the assessee. In the case in hand, the assessee stated that he purchased a row house constructed upto ground floor without plasterwork, flooring, windows, gates, chowkhats, light and water fittings and others connections etc. Therefore, to make the said structure upto ground floor as a living house the expenditure work carried out by the assessee will be considered in terms of construction of a new house though the original investment made by Shri Vimal Kumar Agarwal vs. ITO the assessee is prior to the time period U/s 54F of the Act. The cost of work carried out for making existing structure is a livable house will certainly be considered as the cost of construction of the house.
Therefore, if the work carried out in the existing the house is of such a nature that it is necessary to make the existing structure as a livable house as per minimum requirement of a residential house then, the said expenditure is eligible for construction U/s 54F of the Act.
As regards the cost of construction of first floor there is no dispute that a completely new structure was constructed by the assessee and the nature of construction is also not in dispute being a residential house. The objection of the Revenue is that it is only addition to the existing house and not construction of a new house.
However, in our considered opinion if the additional construction of first floor is the residential requirement of the assessee and his family then, the said additional construction of first floor will be considered as construction of new house. The purpose and object of granting the benefit of section 54F is to invest the net consideration of the existing asset for purchase of a residential house or construction of residential house. The provisions of Section 54F of the Act does not specifically requires that the construction of a residential house shall not be 11 Shri Vimal Kumar Agarwal vs. ITO reconstruction of the existing house. Only to distinguish two assets one which is sold by the assessee and one which has been acquired by the assessee the return used in the section is “existing asset” and “new asset” respectively. Therefore, even if the expenditure is incurred for construction of an additional floor of the existing ground floor as per bonafide need and requirements of the assessee and his family, the same would be treated as a construction of residential house as per the provisions of Section 54F of the Act. The Hon’ble Karnataka High Court in case of Mrs. Rahana Siraj vs. CIT (supra) while considering the issue of the expenditure incurred by the assessee for replacing of the flooring and alteration of kitchen as well as construction of compound wall and other repairs work has held in para 8 as under:-
“8. Insofar as the second substantial question of law is concerned, it is not in dispute that the property purchased by the assessee was habitable but had lacked certain amenities. The assessee has spent nearly about Rs.18 lakhs towards removal of mosaic flooring and laying of marble flooring, alteration of the kitchen, putting up compound wall, protecting the property with grill work and attending to other repairs. Section 54F of the Act provides that if the cost of the new asset, which is to be taken into consideration while determining the capital gain, the words used is “cost of new asset” and not “the consideration for acquisition of the new asset”. In law, it is permissible for an assessee to acquire a vacant site and put up a construction thereon and the cost of the new asset would be cost of land plus 12 Shri Vimal Kumar Agarwal vs. ITO
(+) cost of construction. On the same analogy, even though he purchased a new asset, which is habitable but which requires additions, alterations, modifications and improvements and if money is spent on those aspects, it becomes the cost of the new asset and therefore, he would be entitled to the benefit of deduction in determining the capital gains. The approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset is not eligible for deduction, is contrary to the statutory provisions. The said reasoning is unsustainable. To that extent, the impugned order passed by the Tribunal as well as the Lower authorities require to be set-aside and it is to be held that in arriving at cost of the new asset, Rs.18 lakhs spent by the assessee for modification, alterations and improvements of the asset acquired is to be taken note of. Thus, the second substantial question of law is answered in favour of the assessee and against the Revenue. Hence, we pass the following order:” Thus, the Hon’ble High Court has held that the expenditure incurred on a new asset for making it habitable will become the cost of new asset eligible for deduction U/s 54F of the Act. The Mumbai Benches of Tribunal in case of Saleem Fazelbhoy vs. DCIT (supra) is also considered this issue in para 8 as under:-
“8. Before parting with this issue, we would like to mention that there is distinction between expenditure incurred on making the house habitable and the expenditure on renovation. We may visualize a situation where assessee may buy a habitable house but the assessee may like to incur expenditure by way of renovation to make it more comfortable. He may not be happy with the quality of material used by the builder and, therefore, he may incur the expenditure on improvement of the house. Such 13 Shri Vimal Kumar Agarwal vs. ITO expenditure cannot be equated with the expenditure on making the house habitable. Whether the house purchased by the assessee was in a habitable condition or not would depend on the state of condition of the house at the time of purchase. Hence, this aspect would have to be kept in mind while adjudicating such issue.
In the present case, the AO as well as the learned CIT(A) had rejected the claim of the assessee on the ground that no expenditure could be considered for exemption under s. 54F which was incurred after the date of purchase. The AO had no occasion to examine the state of the condition of the house purchased by the assessee. Though the list of expenditure has been provided by the assessee, yet it is to be examined whether such expenditure was incurred to make the house habitable or just to make the house more comfortable. This aspect of the matter requires examination by the AO.
In view of the above discussion, we hold that the assessee is entitled to exemption under s. 54F with reference to the expenditure incurred for making the house habitable. However, the factual matrix requires examination. Accordingly, the order of the learned CIT(A) is set aside and the AO is directed to readjudicate the issue in accordance with the guidelines given by us and after considering the entire material produced by assessee before him. The assessee shall be given proper opportunity to represent his case.”
Accordingly, in the facts and circumstances of the case as well as following the decisions relied upon the assessee, we hold that the expenditure incurred by the assessee in carrying out the work for Shri Vimal Kumar Agarwal vs. ITO making is habitable as well as construction of first floor on the existing ground floor is eligible for deduction U/s 54 of the Act.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 08/02/2019
Sd/- Sd/- ¼ jes’k lh0 “kekZ ½ ¼fot; iky jko½ (Ramesh. C. Sharma) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 08/02/2019. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Vimal Kumar Agarwal, Jaipur. 2. izR;FkhZ@ The Respondent- ITO, Ward-6(4), Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 27/JP/2018} vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत