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Income Tax Appellate Tribunal, LUCKNOW BENCH ‘B’, LUCKNOW
Before: SHRI A. D. JAIN & SHRI T. S. KAPOOR
PER T. S. KAPOOR, A.M.
This is an appeal filed by the assessee against the order of learned CIT(A)-II, Lucknow dated 26/11/2018 pertaining to assessment year 2013- 2014. In this appeal, the main grievance of the assessee is the action of learned CIT(A) by which he has confirmed the action of Assessing Officer in not allowing the deduction claimed u/s 54G of Rs.60,70,996/-.
The facts of the case, in brief, are that the assessee had an industrial unit of manufacturing paints at Talkatora Industrial Estate, Aishbagh, Lucknow which is an urban area. This land and building was transferred to Shri Rakesh Jain Prop. M/s Prag Polymers during financial year 2011-12 for
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a consideration of Rs.25 Lacs and land at G-18, UPSIDC Industrial Area, Chinhat Deva Road i.e. Non-Urban Area. On the said transaction the assessee had claimed exemption u/s 54G of the Act in assessment year 2012-13 which was allowed to it vide order u/s 143(3) dated 29.03.2015. The land at G-18, UPSIDC Industrial Area, Chinhat Deva Road, Non-Urban Area, was not found to be suitable for various reasons and hence transferred to M/s Triveni Almirah for a consideration of Rs.1.71 Crore. The proceeds from the sale of this land was invested during the year under consideration into purchase of land of Rs.1.74 Crore which was adjacent to the land sold at Chinhat Deva Road which is a Non-Urban Area and industrial undertaking was set up to carry on the manufacturing activity. On the said transaction the assessee has claimed the surplus of Rs.60,70,996/- as exempt u/s 54G being gain on shifting of industrial undertaking from urban to Non-Urban Area. The Assessing Officer denied the claim u/s 54G due to the reason that Exemption u/s 54G is allowed when the Industrial Undertaking is shifted from Urban to Non-Urban area in the year in which shifting takes place. Being aggrieved with the action, the assessee went in appeal before learned CIT(A), the learned CIT(A) upheld the action of the Assessing Officer. Now the assessee is in appeal before us.
Learned counsel for the assessee submitted that assessee was running an industrial unit of manufacturing paints etc. at Talktora Industrial Estate, Aishbiagh, Lucknoiv, which is an Urban Area. The Land on which factory was established belonged to UPSIDC. The land and building thereon was transferred to Shri Rakesh Jain proprietor of M/s Prag Polymers during FY 2011-12 for a sum of Rs 25 Lacs and a land, G-18, UPSIDC Industrial Area, Chinhat Deva Road, Lucknow. The details of these transactions along with evidences etc. were filed, during assessment proceedings of
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assessment year 2012-13. The profit of Rs.1,24,39,700/- from the transaction was accepted in assessment year 2012-13. He further submitted that the land at C-18, UPSIDC Industrial Area, Chinhat Deva Road, which was part of the sale consideration, was found to be not suitable for various reasons and hence transferred to M/s Triveni Almirah for a consideration of Rs 1.71 Crore. The proceeds from this land, which was received as part of sale consideration of sale of Urban Land and Building at Aishbagh Lucknow, was invested during the year Under investment into purchase of land Rs.1,74,04,050/-. The assessee had claimed this surplus of Rs.60,70,996/- as exempt u/s 54G being gain on shifting of Industrial Undertaking from Urban to Non-Urban area. As per learned counsel’s arguments, this gain was also part of the whole process of shifting. Learned counsel for the assessee further submitted that Sec 54G provides for 3 year period to make investment of gain. The assessee has invested the entire gains of financial year 2011-12 and 2012-13 into bringing in existence the new manufacturing set up in non-urban area. He submitted that learned CIT(A) was not justified in confirming the action of Assessing Officer.
Learned D. R., on the other hand, supported the orders of the authorities below.
We have heard the rival parties and have gone through the material placed on record. The primary condition for eligibility of the exemption u/s 54G is that exemption will be available only on transfer of a capital asset used for purpose of business undertaking from urban area to a non-urban area. In the case of the assessee in the year under consideration, the transfer of capital asset used for purpose of business undertaking is from a non-urban area to another non-urban area which does not fulfill the primary
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condition for eligibility of the exemption u/s 54G. The contention of Learned A. R. that shifting of premises was a continuous process which ended with the sale of land received as sale consideration has no force as the assessee had already availed exemption u/s 54G in the earlier year treating the land received as part of consideration as the investment in non-urban area and in the year under consideration the capital gain has arisen from sale of land in non-urban area. The learned CIT(A) has very categorically held that in the year under consideration the transfer of land was from a non-urban area to a non-urban area and therefore, section 54G was not applicable. The findings of learned CIT(A) are quite relevant which for the sake of convenience are reproduced below:
“7.1 Enactment of section 54G by the legislature was with an intention to deurbanise populated areas and de-industrialise such area by encouraging industrialisation of non-urban areas, which were under developed. Section 54G is a provision intended for promoting inclusive growth of the country.
7.2 A plain reading of section 54G shows that exemption u/s 54G is on Capital Gain arising on transfer of a Capital Asset (which can be in nature of machinery or plant or building or land) used for purpose of business of Industrial Undertaking situated in an URBAN AREA, effected in course of shifting of such Industrial Undertaking to an area NON URBAN AREA.
7.3 Second requirement is that transfer has to be effected in course of, or in consequence of, shifting of the Industrial Undertaking 'Shifting' does not mean that new Industrial Undertaking established in the Non-Urban Area should use only the plant and machinery and items taken from transferred area. Exemption u/s 54G is available for purchase of new machinery or plant/ acquisition of building or land, 'construction of building, shifting of original asset as well as expenses incurred for these purposes.
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7.4 This section provides for a time window of four years starting from one year prior to-the date of transfer and ending three years after the date of transfer.
7.5 Thus, the object of enacting section 54G was to deurbanise and remove industries from Urban Areas and promote Industrialisation in Non-Urban Areas which are under developed in order to promote inclusive growth of the country. 8.1 The appellant has to fulfill the conditions outlined in Para 7 above in order to claim the exemption u/s 54G. Based on the facts of the case, let us examine whether the appellant satisfies these conditions in order to claim exemption u/s 54G in A.Y. 2013-14.
8.2 A.Y. 2012-13 (Exemption u/s 54G claimed by appellant and allowed by the A.O.)
a. In this A.Y., the appellant had claimed exemption u/s 54G which was allowed vide order u/s 143(3) of the Act, dated 29.03.2015.
b. The appellant had Industrial Unit of Manufacturing paints at Talkatora Estate, Aishbagh, Lucknow (URBAN AREA). The said Industrial Undertaking (land and building etc.) was sold to Shri Rakesh Jain Prop. M/s Prag Polymers during F.Y. 2011-12 for a sum of Rs.25 Lacs + land at G-18, UPSIDC Industrial Area, Chinhat Deva Road (NON-URBAN AREA). The sale value of the Capital Asset was shown at Rs.1,25,84,700/-. The purchase value was shown at Rs.1,45,000/-. Indexed cost worked out to Rs.11,38,250/-. The Capital Gain on the said transaction worked out to Rs.1,14,46,450/-. On this Capital Gain exemption was claimed u/s 54G of the Act along with purchase of new Capital Asset i.e. 'New Powder Coating Paint'. The said exemption u/s 54G was allowed to the appellant vide order u/s 143(3) dated 29.03.2015 as the appellant had shifted its Industrial Unit from Aishbagh, Lucknow (URBAN AREA) to G-18, UPSIDC Industrial Area, Chinhat Deva Road, Lucknow (NON-URBAN AREA). The relevant portion of assessment order for A.Y. 2012-13 dated 29.03.2015 is reproduced in Para 7 of the order of the appellant for A.Y. 2013-14.
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8.3 A.Y. 2013-14-(Exemption u/s 54G claimed by appellant and not allowed by the A.O.)
a. The appellant stated that the asset at G-18, UPSIDC Industrial Area, Chinhat Deva Road, Lucknow (NON-URBAN AREA) was not found suitable due to various reasons. This was sold to M/s Triveni Almirah for consideration of Rs.1.71 Crore. The cost of the asset was worked at Rs.1,10,29,004/- (opening balance 10084700 + additions Rs.944304). This gain of Rs.60,70,996/- was credited to profit & loss account.
b. The proceeds from sale of asset at Chinhat Deva Road, Lucknow (NON-URBAN AREA) was invested in purchase of asset adjacent to the land sold at UPSIDC Industrial Area, Chinhat Deva Road, Lucknow (again NON-URBAN AREA) for Rs.1,74,04,050/-.
c. The appellant had claimed the surplus of Rs.60,70,996/- (as outlined in Para 8.3 (a) above) as exempt u/s 54G being gain on shifting of Industrial Undertaking.
d. The A.O. held that in A.Y. 2013-14 the appellant has shifted the Industrial Unit from one Non-Urban Area to another Non- Urban Area, therefore, no exemption u/s 54G is admissible.
8.4 A plain reading shows exemption u/s 54G is on Capital Gain on transfer of a Capital Asset used for purpose of business undertaking situated in an URBAN AREA to an NON-URBAN AREA. The object' of enacting section 54G was to deurbanise and remove industries from Urban Areas and promote Industrialisation in Non-Urban Areas. This is the primary condition for eligibility of the exemption u/s 54G.
However, in the case of appellant in A.Y. 2013-14, the transfer of Capital Asset used for purpose of business undertaking is from a NON-URBAN AREA to another NON-URBAN AREA. This action of the appellant does not go down with the spirit of section 54G which is a beneficial provision for promoting the shifting of Industries from Urban Areas to Non-Urban Areas. In view of these facts, the appellant has not satisfied the primary condition prescribed for eligibility of exemption u/s 54G. Thus,
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the action of A.O. is upheld and the grounds of appeal no. 2 and 3 are dismissed.”
In view of the above, we do not find any infirmity in the findings of the learned CIT(A) which is affirmed and appeal of the assessee is dismissed.
In the result, the appeal of the assessee stands dismissed.
(Order pronounced in the open court on 08/03/2019)
Sd/. Sd/. ( A. D. JAIN ) ( T. S. KAPOOR ) Vice President Accountant Member
Dated:08/03/2019 *Singh
Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Assistant Registrar
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Date of dictation 2. Date on which the typed draft is placed before the Dictating Member Other Member 3. Date on which the approved draft comes to the Sr. P.S./P.S. 4. Date on which the fair order is placed before the Dictating Member for pronouncement 5. Date on which the fair order comes back to the Sr. P.S./P.S 6.Date of uploading, if not, reason for not uploading 7. Date on which the file goes to the Bench Clerk 8. Date on which order goes for Xerox and endorsement 9. Date on which the file goes to the O.S 10. The date on which the file goes to the Assistant Registrar for signature on the order 11.Date on which files goes to Despatch section for Despatch 12. Date of Dispatch of the Order