CHINTAPALLI SUBHAKARA RAO(HUF) ,VIJAYAWADA vs. ACIT, CIRCLE-(2)1, VIJAYAWADA

आदेश /O R D E R

PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [(CIT(A)], Vijayawada vide Appeal No.292/CIT(A)/VJA/2013-14 dated 29.08.2017 for the assessment year (A.Y)2008-09.

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the Act. For ready reference, we extract relevant part of the order of the Ld.CIT(A) from para No.5.1 to 5.9 which reads as under : 5.1. Admittedly, in the original assessment order u/s 143(3) dt.2l .12.2010 the AO has rejected the claim of the appellant u/s 54F of the Act on the ground that 1) the assesses claimed that the property was purchased in the HUF capacity of the assessee, whereas, as per the nomenclature used in the sale deed (page -7 & 8 of Doc.No.2299/2007 dt.18.05.2007)the claim of the HUF is not valid. 2) the assesses is having two residential buildings situated at Kaleswararao Road, Suryaraopet Vijayawada and Tadigadapa Vijayawada. Any of the conditions mentioned u/s 54F is not being satisfied in this case either in his individual capacity or HUF capacity. In the present appeal, the only ground of appeal is that the Assessing Officer erred in rejecting our claim of deduction u/s 54F in respect of the investment in purchase of a residential house made in the HUF status, even after the facts which are on record have been noted in the 154 order and further stating that the assessee has not produced any further evidence in support of his claim u/s 54F. 5.2. To find out the veracity of the contention of the appellant and the findings of the AO in his original assessment order where appellant's claim of deduction was rejected, relevant assessment record and survey record have been examined. Such examination revealed the following facts: 1) From the nomenclature used in the impugned sale deed executed by the appellant along with fifteen other co-owners, it appears that the appellant has purchased the impugned land in big individual capacity vide Doc.Nos.94/69 dated 07.01.1969, 3787/69 dated 24.10.1969, 35/71 dated 02.01.1971 totaling to 456 sq.yards out of which, he has sold 281 sq.yards to his sister Smt. Kilaru Leela Kumari W/o Buchibabu through two sale deeds vide Doc.Nos.4180/69 dated 27.11.1969 & 1200/1970 dated 21.04.1970 to the extent of 140.50 sq.yards each. He further purchased 112.70 sq.yards jointly with his father Sri Ch.Atchaiah and sister Smt K. Leela Kumari vide Doc.No.2028/7I dated 02.07.1971. 2) Appellants father, Sri Chintapalli Atchaiah, has purchased 445 sq.yards in his individual capacity through three purchase deeds vide Doc.Nos.96/69. 3788/69 and 34/71 dated 07.01.1969, 24.10.1969 & 02.01.1971 respectively. As per the Will executed by Sri Chintapalli Atchaiah on 04.04.2007, all his share title and rights in the scheduled property are bequeathed to the appellant who got the absolute rights over the property. 3) Along with the written submissions filed by the appellant during the course of appellate proceedings on 12.02.2016, the appellant produced photo copy of

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partition deed executed among Sri ChntapaIli Bhushaiah (grand father of the appellant) and his four sons namely Sri Chintapalli Atchaiah (father of the appellant), Sri Ramachandra Rao, Papa Rao & Lakshma Rayudu (paternal uncles of the appellant). This document got registered before the SRO, Gannavaram vide Doc.No.2539/1943 dated 23.07.1943 as per which, appellant's father got 5.05 acres of agricultural land and three thousand rupees of cash total worth Rs.4,000/-. Thus, the appellant contended that the income originated and accrued from the aforesaid property, his father has developed the business and invested in purchase of the share in the commercial site, which constitutes his HUF. 4) As per the partition deed executed among Sri Ch.Subhakar Rao and his children Sri Ch.AniI Kumar, Ch.Jahnavi dated 04.07.1994 registered before the SRO, Vijayawada vide DocNo.5657/94; HUF properties were partitioned and the appellant got the impugned property as his share. Though, it is complete partition, no share was evolved to Smt. C.Leela, wife of the Kartha HUF, which proves that the appellants share of properties were evolved to the smaller HUF of Sri C.Subhakar Rao, wherein, Sri Subhakar Rao is the kartha and his wife will be a coparcener. This view has been supported by the honourable AP High Court decision in the case of Premchand Vs. CIT reported in 148 ITR 440. From the above documentary evidences, the appellant could establish the existence of the HUF and as such, it is proved that the capital gain derived from the sale of the impugned property is assessable in the hands of the appellant HUF only. 5.3. Regarding the claim of deduction u/s 54F of the Act, the appellant contended that, by virtue of payment of Rs.50 lakhs advance to M/s SHL Ventures for purchase of a residential flat at Hyderabad, it is entitled for deduction u/s 54F of the Act. On the one hand, in the consequential order passed by the AO in order to give effect to the rectification order of the CIT(Appeals), the finding of the AO is that the property belongs to the individual capacity only and does not belong to HUF. 5.4. In the ground of appeal, the appellant contended that the Assessing Officer erred in rejecting the claim of deduction u/s 54F in respect of the investment in purchase of a residential house made in the HUF status, even after the facts which are on record have been noted in the 154 order and further stating that the assessee has not produced any further evidence in support of his claim u/s 54F. In this regard, I have examined the evidences available on the assessment record, Survey folder and evidences submitted by the appellant in support of its contentions. Such examination revealed that 1) Shri Chintapalli Subhakara Rao has filed his individual return of income for the AY 2008-09 on 31.07.2008 with PAN ABPPC7314K' before the ITO,

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Ward-2(1), Vijayawada vide Ack.No.7511003654 as per which, he has disclosed an Unsecured Loan of Rs.48,46,865.51 from M/s Ch.Subhakara Rao— HUF. On the investments side, he has disclosed Rs.50,00,000/-. against M/s SHL Ventures. 2) Similarly, in the return of income filed in the individual capacity for the AY 2009-10 vide Ack.No.7511002957 also, an unsecured loan of Rs.48,46,865.51 was disclosed from M/s Ch.Subhakara Rao – HUF. On the investments side, Rs.50.00 lakhs was disclosed as investment with SHL Ventures. 3) In the return of income filed by Sri Ch.Subhakara Rao (individual) for the AY 2007-08 vide Ack.No7511003682 before the ITO, Ward-2(1) dated 31.07.2007, an unsecured loan of Rs.3,26,552.51 from Ch.Subhakara Rao - HUF was disclosed. A. BALANCE SHEET AS ON 31.03.2007 (PAN :ABPPC7314K) PARTICULARS AMOUNT 31.03.2007 A. SOURCES OF FUNDS 02 326,552.51 02. LOAN FUNDS : - Unsecured loans SCHEDULE NO.2 326,552.51 LOAN FUNDS : - Unsecured Loans : - Ch.Subhakara Rao-HUF

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INVESTMENTS & DEPOSITS - Shares : - Srinivasa Hatcheries Limited 20,900.00 - Kakatiya Cement Sugar & Industries Limited 10,000.00 - Optimix Multi Manager 70,000.00 - Others : 2,000.00 - SHL Ventures 5,000,000.00 - Telephone Deposit 2,000.00 Total 5,102,900.00 C. BALANCE SHEET AS ON 31.03.2009 (PAN :ABPPC7314K) PARTICULARS AMOUNT 31.03.2009 A. SOURCES OF FUNDS 02 4,846,865.00 02. LOAN FUNDS : - Unsecured loans SCHEDULE NO.2 4,846,865.00 LOAN FUNDS : - Unsecured Loans : - Ch.Subhakara Rao-HUF 02. INVESTMENTS & DEPOSITS 04 6,402,900.00 SCHEDULE NO.4 INVESTMENTS & DEPOSITS - Shares : - Srinivasa Hatcheries Limited 20,900.00 - Kakatiya Cement Sugar & Industries Limited 10,000.00 - Optimix Multi Manager 70,000.00 - Others : 2,000.00 - SHL Ventures 5,000,000.00 - Telephone Deposit 2,000.00 - Mutual Funds 1,300,000.00 Total 6,402,900.00 5.5. From the above, it is clear that, even before the sale of the impugned property, there exists the HUF of the appellant and it has lent some amounts to Sri Ch.Subhakara Rao, individual with PAN ABPPC7314K. It is further evident that the residential house property against which the claim u/s 54F was made was purchased in his individual capacity. 5.6. During the course of survey operations conducted u/s 133A of the Act on 03.02.2010, a statement was recorded from Sri Chintapalli Subhakara Rao, S/o Atchaiah at his clinic ‘Childrens Hospital', 29-10-1, Vijayawada. In the said statement, vide answer to question number-9, he has stated that the sale consideration received by the HUF was invested for purchase of a residential flat in SHL Ventures, High Tech city, Hyderabad. Relevant part of the statement is reproduced as under: Q.9) As seen from the Balance Sheet filed for the AY 2008-09, you have disclosed M/s C.Subhakara Rao(HUF) as creditor for

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Rs.48,46,865.51. Please explain the nature of transaction with sources thereof comparing with the outstanding shown as on 31.03.2007 at Rs.3,26,552/51. A) The sale consideration received by my HUF status vide document No.2299/2007 dt.18.05.2007 have been invested for purchase of a residential flat in SHL Ventures, Hi-tech city, Hyderabad. 5.7. Copy of the document evidencing payment of advance (Earnest Money for the agreement of sale) relied upon by the appellant in support of its claim for deduction u/s 54F of the Act was executed among M/s SHL Ventures and four others as vendors, M/s SHL Ventures as agreement holder and Dr. Chintapalli Subhakara Rao and his son Mr.Chintapalli Anil Kumar as purchasers. The terminology used in the said document is as under: 'This Agreement of Sale is made on this 11th day of July 2008, at Hyderabad. Executed by and between: 1. M/s SHL Ventures a Registered Partnership Firm….. 2……... . . . AND Dr.Chintapalli Subhakar Rao S/o C. Atchaiah Aged 65 years Occupation: Doctor R/o 29-10-2, Narasimharao Naidu Street, Suryaraopet, Vijayawada - 520 002 Mr.ChintapaIli Anil Kumar S/o Dr.C.Subhakar Rao, Aged: 35 Years. Occupation : Software Engineer R/o 29-10-2, Narasimharao Naidu Street, Suryaraopet, Vijayawada- 520 002 represented by his father and GPA holder Dr.C.Subhakar Rao Vide Regd.Doc.No. 1543/9 dated 27th July 1991 regd. At S.R.O. Vijayawada. From the above nomenclature, it is clear that the residential property was purchased by Sri Chintapalli Subhakar Rao in his individual capacity along with his son, Sri Anil Kumar. Had the same been purchased in HUF status, it should have been mentioned in the document as "C.Subhakar Rao-HUF represented by its Kartha Dr.Chintapalli Subhakar Rao' as in the case of his son where it has been specifically mentioned that represented by his father and GPA holder. From the above observations and findings, it is clear that 1) The appellant has derived LTCG on sale of the impugned commercial property as evident from the partition deeds, sale deed and other relevant material evidences; 2) The investment for purchase of residential flat was made by Sri C.Subhakar Rao in his individual capacity but not in his HUF capacity;

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3) The appellant has not paid any tax on the admitted long term capital gain from the impugned sale transaction in his HUF capacity even though he derived taxable LTCG from the said transaction even after claiming deductions u/s. 54F of the Act 4) The appellant HUF has filed its return of income only consequent to a survey operation by the department, which is evident from nonpayment of any advance tax or even not obtaining any PAN till 2010 even though the impugned sale had taken place during May 2007 itself; Though a sum of Rs.2,61,310/-- was claimed as self assessment tax paid in the statement of total income in the case of appellant HUF return, no such payment was made. 5) When the department compelled the appellant to file a return of income and to offer LTCG, the advance payment by Sri C.Subhakar Rao (Individual) for purchase of a residential flat was attributed to the HU status by the appellant as an afterthought so as to avoid the taxable LTCG derived from the impugned sale transaction. 5.9. In view of the above, I find no infirmity in the rejection of appellant's claim of deduction u/s 54F of the Act by the Assessing Officer.”

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of HUF vide acknowledgement dated 13.03.2010 for the A.Y.2008-09 and claimed the deduction u/s 54F for an amount of Rs.50,00,000/-. From the sale deed dated 21.07.2012 which was placed in paper book page Nos.47 to 62, in page No.51, it is clearly written that the sum of Rs.46,58,600/- was paid through cheque No.206956 on Coastal local Area Bank Ltd. on 09.07.2207 from HUF account. The assessee also placed construction agreement in page No. 68 to 74 of the paper book, as per the paper book page No.69, sums of Rs.3,41,400/- vide cheque No.206956 dated 09.07.2007 drawn on Coastal Local Area Bank Ltd., Vijayawada and a sum of Rs.22,70,661/- vide cheque No.416121 dated 29.07.2010 were also paid from HUF account. From the above details, furnished by the assessee, it is clear that the assessee has sold the property of HUF and acquired the apartment or the residential house in the nucleus of the HUF. The funds are flown from the account of HUF. Though the assessee has acquired the property in his own name, the residential house was declared in the HUF return. Therefore, merely for registering the property in the name of the individuals, the deduction cannot be denied. The beneficial provision should be interpreted liberally. In the capacity of HUF, the assessee is satisfying the conditions laid down for deduction u/s 54F which was not disputed by the AO. On similar facts, this Tribunal in the case of Grandhi

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Nageswara Rao (HUF) Vs. ACIT, Central Circle-2 in I.T.A.No.142/Viz/2017 dated 09.02.2018 held that the residential house acquired in one of the co- parceners name, from the funds of the HUF is entitled for deduction u/s 54F. For the sake of clarity and convenience, we extract relevant part of the order of the Tribunal in the case cited in para No.6 which reads as under : “6. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The HUF has sold the property and received 1/6th share of consideration amounting to Rs.20,00,000/- out of which contributed Rs.15 lakhs towards purchase of new property and the remaining amount of Rs.25 lakhs was contributed by the co-parcener for acquiring the new property. Both the HUF and co-parcener of the property have entered into a memorandum of understanding to transfer the property in the name of HUF after complete repayment of the loan, which was granted to the individual co-parcener Mr. G. Rama Murthy Setty, S/o Nageswara Rao. The assessee also declared the rental income in its hands and the loan is being repaid by the HUF. Co-parcener is one of equal shareholder of the HUF. Under the similar facts and circumstances, the coordinate bench of ITAT, Chennai in the case of Purnachand & Family (HUF) cited (supra) held that the property acquired in the name of Karta is entitled for the deduction u/s 54F of the Act. For ready reference, we extract para Nos.6 to 10 of the order cited (supra). “6. We have considered the rival submissions on either side and perused the material available on record. The assessee sold a capital asset namely diamond and claims exemption on the capital gain under section 54F of the Act. The assessing officer rejected the claim of the assessee on three grounds :-- (1) First, the capital asset was purchased in the individual name of coparcener of HUF. (2) Borrowed funds were used for purchase of the new asset and not the sale proceeds of the diamond. (3) There was no construction on the new asset. 7. As regards the investment made in the individual capacity, even though HUF is an independent assessable unit under Income Tax Act, under the common law, HUF cannot be considered to be a legal entity. The HUF has to be represented through any one of the coparceners. Therefore, when the assessee HUF invested the funds in the name of any one of the coparcener, it has to be construed that the investment was made in the name of HUF. When the nucleus of the HUF fund was used for purchase of a property in the name

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of any one of the coparcener, the property belongs to the HUF, even though the property was registered in the individual name of one of the coparcener. The property belongs to all the coparceners in equal shares as members of HUF. Therefore, the assessing officer is not justified in rejecting the claim of the assessee especially, when the investment was made in the name of Karta of HUF.”

Order pronounced in the open court on 28th November, 2018.

Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated : 28.11.2018 L.Rama, SPS

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आदेश की प्रधिधलधप अग्रेधर्ि/Copy of the order forwarded to:- 1. अपीलाथी / The Appellant - Dr.Chintapalli Subhakara Rao (HUF), Represented by Smt. C.Leela (Kartha), D.No.29-10-1, Narasimhanaidu Street, Suryaraopet, Vijayawada 2. प्रत्याथी / The Respondent – The Asst.Commissioner of Income Tax, Circle- 2(1), Vijayawada 3. The Pr.Commissioner of Income Tax, Vijayawada 4. The Commissioner of Income Tax (Appeals),Vijayawada 5. धिभागीय प्रधिधिधि, आयकर अपीलीय अधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6. गाडा फ़ाईल / Guard file

आदेशािुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, VISAKHAPATNAM