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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
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)–III, Rajkot [CIT(A) in short] vide appeal no.CIT(A)-III/Rjt/0156/11-12 dated 22/11/2013 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 20/12/2011 relevant to Assessment Year (AY) 2009-10.
The assessee has raised following grounds of appeal:-
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 2 - 1. The Ld. CIT(A) has erred in law and facts in confirming addition of Rs.2,21,902/- in respect of deductions claimed U/s.54F. The disallowance needs deletion. 2. The Ld. CIT(A) has erred in law and facts in confirming addition of Rs.2700/- in respect of payment towards sales tax penalty. 3.1. The Ld. CIT(A) has erred in law and facts in confirming addition of Rs.21,500/- in respect of travelling expenses. The disallowance needs deletion. 3.2. The Ld. CIT(A) has erred in law and facts in confirming addition of Rs.21,500/- in respect of travelling expenses. The disallowance needs suitable reduction being very excessive. 4. Taking into consideration the legal, statutory, factual, accounting and administrat4ive aspects, no disallowance amounting to Rs.2,21,902/-, Rs.2700/- and Rs.21,500/- ought to have been confirmed. The disallowances need deletion. 5. Without prejudice, the assessment made is bad in law and deserves annulment. 6. Without prejudice, no adequate, sufficient and reasonable opportunity has been provided while passing assessment order. The assessment needs annulment. 7. Without prejudice, no adequate, sufficient and reasonable opportunity has been provided while passing appeal order. The assessment needs annulment. 8. The appellant craves leave to add/alter/amend and/or substitute any or all ground of appeal before the actual hearing takes place.
The first issue raised by the assessee in the ground no. 1 is that the Ld. Ld.CIT (A) erred in confirming the addition made by the Assessing Officer for Rs. 2,21,902/- on account of disallowance of deduction u/s 54Fof the Income Tax Act, 1961 (hereinafter referred to as "the Act").
Briefly stated facts are that the assessee is an individual and carrying out the business of Sarees printing job-work in the name and style of
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 3 - M/s. Pushpam Creation. The assessee derives income from proprietary concern, loss from house property and also has income from other sources. The assessee declared total income in return for Rs. 13,57,000/- only.
On verification of computation of income filed by the assessee, the AO noticed that the assessee while computing the income from long term capital gain, claimed deduction u/s 54F of the Act for Rs. 2,21,902/- for the purchase of residential building amounting to Rs. 18,90,140/- only. However, on verification of the sale deed, it was found that the said property is in the name of his wife i.e. Smt. Pushpaben Bharatbhai Bhuva.
As per the provision of section 54F of the Act, the deduction is allowable to the assessee who derives income from long term capital gain on transfer of capital assets. Hence, the AO was of the view that the assessee is not entitled to the deduction u/s 54F of the Act as the property was not purchased in the name of the assessee. Therefore, the AO accordingly disallowed the deduction claimed by the assessee of Rs.2,21,902/- and added to long term capital gain income of the assessee.
The aggrieved assessee, preferred an appeal before the Ld.CIT (A) who confirm the addition made by the AO by observing as under:
“4. I have considered carefully the submissions made by the appellant and the assessment order passed by the A.O. The A.R.
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 4 - has relied on the judgment of the Hon’ble Karnataka High Court in 349 ITR 80 to say that even if the property is registered in the name of the appellant’s wife, the benefits u/s.54F can be obtained. However, on perusal of the said judgment, it is noticed that it is rendered in a different context on different facts. Therefore, the same is not applicable to the facts of this case. As per the provisions of the Income Tax Act, 1961, the benefits u/s.54F are allowed to an assessee if the capital gains are reinvested in a new property either purchased or constructed in his or her name. Therefore, the Act does not contemplate if the property is registered in a different person’s name, the benefit u/s.54F can be made applicable. To that extent, the action of the A.O. in disallowing the claim made u/s.54F i\s in order. The addition thus made at Rs.2,21,904/- on this count is sustained.”
Being aggrieved by the order of the Ld.CIT (A), the assessee is in appeal before us.
The ld. AR before us submitted as under: “2. The disallowance made by the Ld.A.O. is erroneous. The Hon.Delhi High Court in the case of CIT v/s. Kamal Wahal 351 ITR 04 has concluded as under:
For the purposes of claiming deduction U/s.54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. A purposive construction is to be preferred as against a literal construction (copy enclosed).
Relying on the above decisions of the Hon.Delhi High Court it is humbly submitted that the disallowance made by the Ld.A.O. may kindly be deleted.”
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 5 - 10. On the other hand, the ld. DR vehemently supported the order of the AO.
We have heard the rival contentions and perused the materials available on record. The assessee in the case on hand has claimed deduction under section 54F of the Act amounting to Rs. 2,21,902/-on account of investment in the residential house property. The assessee purchased such house property in the name of his wife. However, the AO was of the view that the assessee can claim the benefit of deduction under section 54F of the Act if the investment is made in the residential house property in his name. As the assessee in the case on hand has not invested in his name and instead has invested in the name of his wife, therefore the deduction under section 54F of the Act was denied to the assessee. The Ld.CIT (A) subsequently confirmed the order of the AO.
On reading the provisions of section 54F of the Act, it was revealed that there is no mention that the assessee can claim the deduction under section 54F of the Act on the purchase of residential house property in the name of his wife. But we note that the courts have interpreted the provisions of section 54F of the Act liberally to the extent that the assessee will be eligible for deduction under section 54F of the Act if the investment has been made in the name of the spouse. In this regard, we find support and guidance from the judgment of Hon’ble Delhi High Court in the case of CIT Vs. Kamal Wahal reported in 351 ITR 4 wherein it was held as under:
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 6 - “Therefore, the predominant judicial view for the purposes of section 54F is that the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is also no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee's wife”
12.1. The above judgment entitles the assessee to claim the benefit of the deduction of long-term capital gain on account of the investment in residential house property under the provisions of section 54F of the Act if such investment is made in the name of the wife or person directly connected with the assessee. Thus the facts of the above case are squarely applicable to the facts of the case on hand subject to the caveat that there should not be any contributions from the side of the spouse/ connected person in such investment.
12.2. However, we note that there is no such finding in the order of authorities below evidencing that there was no capital contribution in the purchase of residential house property from the side of the wife of the assessee. Accordingly, we are of the view that this fact needs to be verified by the authorities below. Accordingly, we are inclined to restore this issue to the file of AO for the limited verification of the fact whether there were any contributions in the investment in residential property by the wife of the assessee. If yes, then the deduction under section 54F of the Act will be reduced proportionately.
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 7 -
12.3. We also note that the facts of the case were also similar to the facts of the case in the case of Mrs. Jenifer Bhide reported in 349 ITR 80 where the Hon’ble Karnataka High Court has given similar finding as discussed above in the case of CIT Vs. Kamal Wahal.
12.4. Hence, the AO will adjudicate the issue afresh in the light of the above discussion and accordance with the provisions of law. The ground of appeal of the assessee is allowed for statistical purposes.
The issue raised by the assessee in Ground No.2 is that Ld.CIT(A) erred in confirming the disallowance of Rs.2,700/- on account of payment towards sales tax liability.
The Assessing Officer during assessment proceedings found that the assessee has claimed a deduction of Rs.2,700/- on account of the payment made for a sales tax penalty. As per the Assessing Officer, such penalty is not allowable as deduction. Therefore, the same was disallowed and added to the total income of the assessee.
Aggrieved assessee, preferred an appeal to the Ld.CIT(A) who has confirmed the order of the Assessing Officer.
Being aggrieved by the order of Ld.CIT(A), assessee is in appeal before us.
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 8 -
The Ld.AR before us submitted as under:
“4. The Ld. A.O. has also disallowed an amount of Rs.2700/- claimed as expenses by the assessee in respect of sales tax penalty. Since payment towards sales tax penalty is also part of business expenses as per settled position no disallowance ought to have been made. The same may kindly be deleted.”
On the other hand, Ld.DR vehemently supported the orders of the authorities below.
We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates whether the penalty paid by the assessee under the sale tax Act is an allowable deduction under section 37(1) of the Act. The issue of penalty payment by the assessee is well settled now by the series of judgments wherein it was held that such amount could not be allowed as deduction. Regarding this, we find support and guidance from the judgment of Hon’ble Bombay High Court in the case of CIT Vs. Jolly Steel Industries (P) Ltd. reported in 236 ITR 881 wherein it was held as under: “The controversy was covered by the decision in CIT v. Vegetable Vitamin Foods Co. (P.) Ltd. [1994] 209 itr840, wherein it was clearly held that no part of the penalty levied under section 36(3) of the Bombay Sales Tax Act, as it stood at the material time, for delayed payment of sales tax, was compensatory and following the above decision, the payment made by the assessee was not allowable as deduction.”
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 9 - 19.1. We also find support and guidance from the judgment of Delhi High Court in the case of CIT Vs. Delhi automobiles reported in 272 ITR 381 wherein it was held as under:
“So far as the first question is concerned, on examination of the facts, the Tribunal has recorded that the amount was not paid by the assessee as penalty for late payment of sales tax but it was by way of interest. And if that be so, the answer is required to be given in favour of the assessee and against the revenue”
19.2. Though the above judgment is based on the interest for the delayed payment of sales tax, but an inference can be drawn which suggest that the penalty cannot be allowed as deduction.
In view of the above, there remains no ambiguity that the assessee is not entitled to the penalty of Rs. 2,700/- paid under the provisions of sales tax Act. Hence we do not find any reason to interfere in the finding of the Ld.CIT(A). Thus, the ground of appeal of the assessee is dismissed.
The issue raised in ground No.3 is that the Ld.CIT(A) erred in confirming the disallowance of Rs.21,500/- on account of traveling expenses.
The assessee during the year under consideration has claimed traveling expenses amounting to Rs.1,43,728/- only. However, the assessee during assessment proceedings failed to provide the supporting evidence in respect of such expenses. Therefore, the Assessing Officer in
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 10 - the absence of supporting evidence has made the disallowance of Rs.21,500/- being 15% traveling expenses and added to the total income of the assessee.
Aggrieved assessee, preferred an appeal to the Ld.CIT(A) who has confirmed the order of the Assessing Officer by observing that the assessee has not furnished sufficient supporting pieces of evidence in respect to traveling expenses.
Being aggrieved by the order of Ld.CIT(A) assessee is in appeal before us.
The Ld.AR before us submitted as under: “5. The Ld. A.O. has also disallowed an amount of Rs.17,250/- out of travelling expenses of Rs.1,43,728/- considering the same as of personal element. Since no specific entry of travel has been pointed out by the Ld.AO., to treat the disallowance as personal elements is erroneous and may kindly be deleted. Without prejudice, in either case the disallowance made at 15% being very excessive may kindly be reduced to a token figure.”
On the other hand, Ld.DR vehemently supported the orders of the authorities below.
We have heard the rival contentions and perused the materials available on records. The issue in the instant case relates to the disallowance of the traveling expenses made by the AO by observing that the personal element out of such expenses cannot be ruled out. The AO
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 11 - reached this conclusion because the assessee failed to furnish sufficient documentary evidence in support of traveling expenses. Thus the disallowance on an ad-hoc basis was made by the AO.
Same was the situation even before the Ld.CIT (A) as the assessee failed to furnish sufficient documentary evidence in support of traveling expenses. Therefore the disallowance made by the AO was confirmed by the Ld.CIT (A).
We further note that the Ld. AR before us has also not pointed out any specific infirmity in the order of the Ld.CIT (A). The Ld. AR has also not produced any documentary evidence specifying that the similar expenses were claimed in the earlier and the subsequent year. Thus in the absence of any assistance from the side of the Ld. AR we are inclined not to interfere in the finding of the lower authorities.
In the result, the appeal of the assessee is partly allowed for statistical purposes. This Order pronounced in Open Court on 04/03/2019
Sd/- Sd/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 04/03/2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
ITA No.47/RJT/2014 Bharatbhai Narsibhai Patel vs. ACIT Asst.Year – 2009-10 - 12 -
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)-III, Rajkot 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,राजोकट/DR,ITAT, Rajkot 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, राजोकट / ITAT, Rajkot 1. Date of dictation .. 01.3.2019 (dictation-pad 7- pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member … 01.3.2019 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…….4.3.19 7. Date on which the file goes to the Bench Clerk…………………4.3.19 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………………