DASARU SANYASAIAH SETTY,VISAKHAPATNAM vs. THE ACIT, VISAKHAPATNAM

The order of the learned Commissioner of Income Tax (Appeals)-2, Visakhapatnam is contrary to the facts and also the law applicable to the facts of the case.

The learned Commissioner of Income Tax (Appeals) ought to have held that the notice issued u/s 148 of the Act is not in accordance with law and is liable to be quashed as invalid and further he ought to have held that the re- assessment proceedings are liable to be quashed as void-ab-initio.

Without prejudice to the above,

Any other ground that may be urged at the time of appeal hearing.

Ground No.1 and 4 are general in nature which does not require

Ground No.2 is related to the validity of the notice issue u/s 148 of the Income Tax Act, 1961 (hereinafter called as ‘Act’). No such ground was raised by the assessee before the Ld.CIT(A) and no petition was filed by the assessee before this Tribunal for admission of the additional ground. The Ld.AR also did not make any argument, therefore, this ground is dismissed

Ground No.3 consists of two issues, one is related to the computation of capital gains adopting the fair market value (FMV) of Rs.40,000/- per acre as against Rs.1,00,000/-claimed by the assessee as on 01/04/1981. The second issue is related to the deduction u/s 54F of the Act.

Ground No.3(a) is related to the computation of capital gains adopting the cost of acquisition being the fair market value as on 01.04.1981 at Rs.40,000/- per acre, as against the claim of the assessee at Rs.1,00,000/- per acre. During the assessment proceedings, the Assessing Officer (AO) found that the assessee had sold the property of 5.30 acres of urban land situated at Survey No.161/1, Vepagunta, Pendurthi along with Dasari Satyanarayana, which was ancestral property received from the grandfather for a consideration of Rs.3,46,00,000/-. The assessee being 50% share holder, received his share of Rs.1.73 crores. While calculating the capital gains, the assessee adopted FMV as on 01.04.1981 at Rs.1,00,000/- per acre and accordingly claimed the indexed cost of acquisition and admitted the capital gains. The AO conducted the enquiries with the Joint Sub Registrar, Visakhapatnam(SRO)for Survey

Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and furnished additional evidence u/s 46A pertaining to the cost of acquisition made by the VUDA, wherein the VUDA has acquired a piece of land belonging to the assessee in the year 1986 determining the cost at Rs.1,06,610/- per acre. The Ld.CIT(A) admitted the additional evidence and forwarded the same to the AO under Rule 46A for his comments/objections. The AO submitted the remand report stating that no information is available with regard to market value of the property as on 01.04.81 and further submitted that the said land acquisition was in 1988 which was prospective of 8 years from the date to be reckoned and related

Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us. During the appeal hearing, the Ld.AR argued that the fair market value as on 01.04.1981 was at Rs.1,00,000/- per acre which is fairly reasonable and be accepted. The AO and the Ld.CIT(A) would have accepted the fair market value claimed by the assessee at Rs.1 lakh per acre. In 1986, the VUDA has acquired land of the assessee for a consideration of Rs.1,06,610/- per acre and the land values in 1981 have increased steeply and there was no land available for purchase for less than Rs.1,00,000/- per acre. Therefore, the Ld.AR argued that the rate adopted by the assessee is fair and reasonable and requested to adopt the cost of acquisition to Rs.1,00,000/-.

On the other hand, the Ld.DR supported the orders of the Ld.CIT(A).

We have heard both the parties, perused the material placed on record. In this case, the assessee sold 5.30 acres of urban agricultural land along with co-owner Sri Dasari Satyanarayana situated at Survey No.161/1, Vepagunta, Pendurthi for a consideration of Rs.3,46,00,000/- and the assessee’s share was 1.73 crores being 50% share. The assessee has adopted the cost of acquisition being fair market value as on 1.4.1981 at Rs.1,00,000/- per acre. Either during the assessment proceedings or before the Ld.CIT(A), the assessee could not establish and submit any evidence to support his claim of fair market value as on 01.04.1981 at Rs.1,00,000/- per acre. The Sub Registrar Office also informed the AO that no information is available with regard to the valuation in Survey No.161/1, Vepagunta as on 01.04.1981. However, the Sub Registrar Office has supplied the information with regard to the value as on 01.04.1987 at Rs.9,000/- per acre. Taking the basis from the Sub Registrar value as on 01.04.1987, the AO worked backwards by applying price index and arrived at the value as on 1.4.1981 at Rs.6,430/- per acre and accordingly allowed the cost of acquisition of the assessee’s share at Rs.1,07,690/-. Against the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) estimated the fair market value as on 01.04.1981 at Rs.40,000/- per acre. During the appeal hearing, the Ld.AR vehemently supported the claim made by the assessee. The Ld.AR could not place any evidence to show the fair market value (FMV) as on 01.04.1981. The Sub Registrar value as on 01.04.1987 was Rs.9,000/- per acre ,hence, fair market value as per Sub Registrar office should be less than the sum of Rs. 9,000/- per acre

Ground No.3(b) is related to the disallowance of exemption claimed

Aggrieved by the order of the AO, the assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) was also under the impression that the property in the name of the assessee’s wife Smt.Ratna Kumari belonged to the HUF. The Ld.CIT(A) held that having no independent sources of income and the assessee’s failure to establish that the she has constructed the house from her own funds, the said house to be presumed to be belonging to the HUF and the assessee is not eligible for deduction u/s 54F.

With regard to the another house D.No.9-33/1, Gopalapatnam claimed to be commercial property, the Ld.CIT(A) viewed that the assessee failed to prove the said property as a commercial property and not a residential house. Since the rents are received from letting out of the property was assessed as income from the property, there is no case for allowing deduction u/s 54F. Accordingly, dismissed the appeal of the assessee.

Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR argued that the assessee owns only one house ie. Flat No.101, Jaya Enclave, Visakhapatnam. The second house at 9-33/1,Gopalapatnam, Visakhapatnam a commercial property and cannot be treated as a residential house. The first floor of the property was let out to Union Bank of India and the second floor was let out to Shri D.Satyanarayana Setty for Lakshmi Agencies, business concern and the ground floor was let out to Doctor for his profession. The property was assessed as a commercial property and the rents received were commercial rents and the property was used for commercial purpose. Though the rents are assessed as income from property, the said property cannot be held to be _ residential house. The Ld.AR further argued that whether the property is commercial or residential the income is offered as income from house property as per the Act. Since the property was used for commercial purpose and let out

On the other hand, the Ld.DR supported the orders of the Ld.CIT(A).

We have heard both the parties and perused the material placed on record. In this case, the revenue’s argument is that the assesse owns three residential houses, therefore, deduction u/s 54F is not allowable u/s 54F of the Act. As per section 54F of the Act, the assessee would be eligible for claiming the deduction u/s 54F, if the assessee does not own more than one residential house at the time of transfer of property. In this case, according to the AO the assessee owns 3 houses, therefore, the assessee is not entitled for exemption u/s 54F. The assessee explained that the house located at 53 &54 was belonging to the assessee’s wife and the same cannot be included in it’s properties. It is undisputed fact that the house was registered in the name of the assessee’s wife which is evidenced from the assessment order. The AO has expected the assessee to prove that the property was constructed from the sources of the assessee’s wife but not from the sources of HUF. The contention of the revenue to establish the sources of the assessee’s wife for construction is illogical and untenable. The facts show that the property at 53&54, Priya Gardens, Simhachalam was registered in the name of the assessee’s wife and the property was enjoyed by the assessee’s wife and the same is not disputed by the department. Once the property was registered in the name of the assessee’s wife, the same should not be considered in the hands of the assessee and reject the claim of the assessee for deduction u/s 54F of the Act. It is for the department to establish that the property No.53 and 54, Priya Gardens is constructed from the sources of the assessee and it was the property of the HUF. The same exercise was not done by the AO. Therefore, we are unable to accept the argument of the department to hold that the property was belonging to the assessee. Accordingly, the said argument is untenable and rejected.

The next issue is property at D.No.9-33/1, Gopalapatnam, Visakhapatnam. As per the submission of the assessee, the property is let out for commercial purposes and used for the commercial purposes, but not for residential purposes. The Ld.AR also submitted that ground floor was occupied by Doctor for his clinic, the first floor was occupied by Union

Inthe result, appeal of the assessee is partly allowed.

(at.gat ua) (fS. ca. aac fg) (V. DURGA RAO) (D.S. SUNDER SINGH)

The Commissioner of Income Tax-2, Visakhapatnam

The Commissioner of Income Tax (Appeals)-2, Visakhapatnam