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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
O R D E R PER L.P. SAHU, A.M.: This appeal filed by the Revenue is directed against CIT(A) - 6, Hyderabad’s order dated 14/03/2019 for AY 2016-17 involving proceedings u/s 143(3) of the Income Tax Act, 1961 ; in short “the Act on the following grounds of appeal:
1. The Ld. CIT(A) ought to have upheld the order of the A.O in disallowing the deduction of Rs.4,75,00,000/- as calculated by the assessee u/s.54GB of the I.T. Act.
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2. The Ld. CIT(A) was not justified in allowing the deduction u/s.54GB of the IT Act, as the company M/ s, Styrax Labs Ltd, in whose shares the assessee has invested, has not utilized the same for purchase of machinery, within one year from the date of subscription in equity shares.
3. The Ld. CIT(A) is not justified in holding the advance payments as purchase. 4. Any other ground that may be urged at the time of hearing”.
We notice at the outset that assessee’s instant appeal suffers from 337 days delay in filing before the ITAT. In this connection, ,the revenue has filed a petition for condonation of the said delay wherein, inter-alia it was submitted that due to lock down imposed by the Govt. of India to contain spread of Corona Virus, at the relevant point of time, caused the impugned delay in filing the appeal belatedly. Considered the submissions of the ld. DR that the assessee was prevented by reasonable cause for not filing the appeal within the stipulated time. We rely on Case law Collector Land Acquisition Vs. Mst. Katiji & Ors, 1987 AIR 1353 (SC) and University of Delhi Vs. Union of India, Civil Appeal No. 9488 & 9489/2019 dated 17 December, 2019, hold that such a delay; supported by cogent reasons, deserves to be condoned so as to make way for the cause of substantial justice. We accordingly hold that revenue’s impugned delay in filing this appeal is :- 3 -: Smt. Lakshmi Devi Suryadevera Hyd.
neither intentional nor deliberate but due to the circumstances beyond its control. The same stands condoned. Case is now taken up for adjudication on merits.
Briefly the facts of the case are that he assessee is an individual and filed her return of income for the AY 2016- 17 on 05.08.2016 declaring total income of Rs.55,34,510/-. Subsequently, the case was selected for limited scrutiny under CASS and accordingly, statutory notices issued u/s.143(2) / 142(1) of the Act to the assessee. The AR of the assessee furnished the information called for by the AO.
3.1 After verification of the information furnished by the assessee, the AO completed the assessment u/s.143(3) vide order dated 30.12.2018 determining the total income at Rs4,66,29,640/-. While doing so, the AO added an amount of Rs. 4,10,95,133/- towards long term capital gains by observing in the assessment order as under:
"During the scrutiny proceedings, it is observed from the documents submitted by the assessee that, the assessee claimed (i) cost of construction during F. Y. 2005-06 of Rs. 24,41,403/- (ii) cost of construction during F. Y. 2006-07 of Rs. 10,75,394/- (iii) Deduction u/s 54EC of Rs.50,OO,OOO!- (iv) Deduction u/s 54GB of Rs. 4,72,00,000. In response, the assessee submitted that, the assessee sold her property bearing Plot No. 260 admeasuring 600 Sq. Yds situated at MLA & MP's colony, Road No. 10C, Jubilee Hills, Hyderabad, in which the assessee has 50%, for a sale consideration of Rs. 12.00 Crores vide Registered sale deed Document
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No.OOOO/OOOO on 15.02.2016 which the same originally purchased by the assessee, with having 50% share, for a sale consideration of Rs.33,00,000/- excluding Registration charges of Rs. 4,51,220/- vide Registered Sale deed Document No. 3788/2004 on 07.10.2004. Accordingly, now the assessee admitted sale consideration at her hands at Rs. 6.00 Crores and cost of improvement took place, thereafter. With reference to the cost of construction during the F. Y. 2005-06 of Rs. 24,41,403/-, the assessee submitted that, the assessee along with other co-owner has constructed a triplex residential house spread over 5395 Sq. Ft., and the total cost of construction of the building was es. 70,33,594/- spread over two F.Ys. i.e. 2005-06 and 2006-07. Further, the assessee submitted that, the assessee claimed 50% of total cost of construction, towards his 50% share i.e. 2,698 i.e. 50% of 5,395 sq.ft., 50% Share, of Rs. 70,33,597/- i.e. Rs. 35,16,797/- (RS.24,41403 + Rs. 10,75,394) (without indexation). The assessee claimed that the main source for construction were sale proceeds from shares of . Mylan Laboratories Ltd. and loan from Mr. S. V. Rao. In support, the assessee submitted the copies of ledger extracts of construction. Disallowance on cost of construction: It was seen from the computation of the long term capital gains that the assessee had claimed cost of construction of the building at Rs.35,16,797/- (without indexation) towards 50% share i.e.2,698 i.e. 50% of 5,395 sq.ft. The assessee was asked to produce documentary proof in respect of the cost of construction claimed by her. The assessee only produced an account extract for the same no supporting bills were produced. The cost of construction claimed works out to around Rs, 1,300 per sft. As this appeared to be on an higher side, information was a obtained from Joint Sub-Registrar Hyderabad(South) dated 12,11,2018 regarding the cost
:- 5 -: Smt. Lakshmi Devi Suryadevera Hyd. of construction per sft. during the period of construction of the assessee was taken as per which the cost of construction given by the SRO for that period works out to Rs.475/- per sft taking average of the construction cost given by the SRO for the period under consideration. Even considering the fact that the assessee's construction is a superior quality the cost of construction would not be more than RS.800 per sft. As the assessee has not produced any documentary evidence except account extract and bank statement which cannot be correlated, the cost of the construction is worked out adopting Rs.800 per sft for 2,698 sft of constructed area of the assessee which works out to RS.21,58,400/and the indexation is allowed in the proportion claimed by the assessee as under: Total cost of construction worked out as above : Rs.21,58,400 (i)Proportionate cost of construction for the F. Y.2005-06: Rs. 14,98,387 (ii)Proportionate cost of construction for the F. Y.2006-07: Rs.6,60,013 With reference to the claim of deduction u/s 54EC of Rs. 50,00,000/- the assessee submitted that, the assessee subscribed to 500 bonds of National Highways Authority of India (NHAI) at Rs. 10.000 - each totalling to an amount of Rs. 50,00,000/- within six months period from the sale of the scheduled property. In support, the assessee submitted the copy of Bond Certificate issued by NHAI, in the name of the assessee, showing the deemed date of allotment as 31.08.2016. The supporting documents submitted by the assessee are duly verified as per the provisions of the section 54EC of the I. T. Act, 1961 and found to be in order.
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Disallowance of deduction claimed uls.54GB: During the course of assessment proceedings, it is observed that the assessee has claimed deduction u/s 54GB of the IT Act, 1961. In this regard the assessee was requested to furnish documentary evidence in support of her claim. In response to the same, the assessee vide letter dated 01.12.2018 filed its reply. I have carefully considered the submissions made by the assessee as well as evidence furnished. In this regard, the condition (iii) laid down u/s 54GB is reproduced hereunder: "(iii) the company has, within one year from the date of subscription in equity shares by the assessee utilized this amount for purchase. of new asset" In the instant case, the assessee has invested in the equity shares of Mis Styrax Laboratories Pvt. Ltd., on 30.07.2016. as per the share certificates issued by Mis Styrax Laboratories Ltd., As per the condition (iii) of sec.54GB of the I.T. Act, 1961, the company in which the assessee purchased equity shares have to purchase new asset within one year from date of subscription to the equity shares. Therefore, the company should have purchased new asset on or before. 30.01.2011. Accordingly, during the scrutiny assessment proceedings, the annual report of M/s Styrax Laboratories Pvt. Ltd., for the F. Y.2017-18 , as called for by DClT, Circle14(1), Hyderabad, is taken and verified. As seen from the schedule - Fixed assets of the company for the F. Y.2017-18 is enclosed as Annexure-l to this order, it is noticed that the additions in the Depreciation Schedule submitted relates only to the vehicle is at Rs.25,26,l12/- and there are no other assets including Plant & Machinery. From the above, it is clear that the condition (iii) laid down in the sec. 54GB has not been satisfied. Further, the case laws relied upon by the assessee are not relevant as these
:- 7 -: Smt. Lakshmi Devi Suryadevera Hyd. case laws do not pertain to the provisions of Sec. 54GB of the IT Act, 1961. Therefore the claim of deduction u/s 54GB is disallowed and added to the income returned. Accordingly, the Long term capital gains of assessee are recomputed as under:
Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and the CIT(A) after considering the submissions of the assessee, directed the AO to allow the assessee’s claim of deduction u/s 54GB by observing as under:
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Aggrieved by the order of the CIT(A), the revenue is in appeal before the ITAT.
Before us, the ld. DR besides relying on the order of the AO, contended that the CIT(A) was not justified in allowing the deduction u/s 54GB of the Act as the company M/s Styrax Labs Ltd. in whose shares the assessee has invested, has not utilized the same for purchase of machinery within one year from the date of subscription in equity shares, as per condition (iii) of section 54GB the company in which the assessee purchased equity shares have to purchase new asset within one year form the date of subscription to the equity shares. He, therefore submitted that the AO has rightly disallowed the assessee’s claim of deduction u/s 54GB and, hence, the order of the AO may be restored by setting aside the order of CIT(A).
The ld. AR of the assessee, on the other hand, relied on the order of the CIT(A) and submitted that out of sale consideration of Rs. 6,00,00,000/- received on transfer of ½ share of the residential property, the assessee had invested an amount of Rs. 4.75 crores towards subscription of equity in M/s Styrax Labs Ltd. and the assessee was allotted
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46,50,000 equity shares and thus acquired a 48.71% stake for which share certificates were issued for equity shares @ Rs. 10 per share. He submitted that M/s Styarx labs was incorporated on 16/03/2016 and was coming up with a Pharma plant at Vizag and these monies were invested in paying advances for purchase of plant and machinery. He submitted that the payment of advances taken to the purchase of machinery for the purpose and intent of section 54GB and, therefore purchases would be valid utilization for claim of deduction u/s 54GB of the Act. He, therefore, submitted that the CIT(A) after considering the facts of the case, directed the AO to allow the claim of the assessee u/s 54GB, hence, the order of the CIT(A) may be upheld.
We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The crux of the issue in dispute is that out of sale consideration of Rs. 6,00,00,000/- received on transfer of ½ share of the residential property, the assessee had invested an amount of Rs. 4.75 crores towards subscription of equity in M/s Styrax Labs Ltd. and the same was claimed as deduction u/s 54GB of the Act. The AO after scrutinizing the financials of the company for the FYs 2016-17 and 2017-18 concluded that as per the fixed assets schedule for the FY 2017-18, additions to the depreciation schedule show addition to vehicles valued at Rs. 25,26,112/- and there are no assets including plant and :- 17 -: Smt. Lakshmi Devi Suryadevera Hyd.
machinery and, hence, disallowed the claim of deduction u/s 54GB of the Act. The CIT(A), on the other hand, observed that the assessee had invested the net consideration received on transfer of the long term capital asset (transferred in February, 2016) in the equity shares of an eligible company before the due date of filing of return of income u/s 139(1) by subscribing to equity shares in July 2016 and the company has allotted the shares in July, 2016, The company M/s Styrax Labs has in its annual report for the FY 2016-17 in the notes to the balance sheet has vide note 2.5 mentioned that it had given advances amounting to Rs. 9.65 crores for purchase of capital goods. The purchases were made and the machinery was installed in the FY 2018-19. In view of the above observations, the CIT(A) held that the entire amount has been utilized for the purchase of new machinery or plant and is evident from the purchase invoices and notes to the financials. Accordingly, he directed the AO to allow the assessee’s claim of deduction u/s 54GB of the Act. The CIT(A) relied on the judgment of the Hon’ble Supreme court in the case of Fibre Boards (P) Ltd., 376 ITR 596, on which reliance placed by the assessee. On considering the totality of the facts and circumstances of the case, we do not find any infirmity in the decision of the CIT(A) in directing the AO to allow the assessee’s claim of deduction u/s 54GB of the Act. Accordingly, the grounds raised by the Revenue on this issue are dismissed.
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In the result, appeal of the revenue is dismissed in above terms. Pronounced in the open court on 6th January, 2022