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Income Tax Appellate Tribunal, BANGALORE BENCHES “B” , BANGALORE
Before: Shri Chandra Poojari, AM & Smt.Beena Pillai, JM
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “B” , BANGALORE Before Shri Chandra Poojari, AM & Smt.Beena Pillai, JM ITA No.1616/Bang/2016 : Asst.Year 2012-2013 M/s.Fabsun Engineering The Dy.Commissioner of Private Limited, No.A/2, Vs. Income-tax, Kastel No.5, Cornewell Road Circle 3(1)(2), Bengaluru – 560 025 Bengaluru. PAN : AAACF2575Q. (Appellant) (Respondent) Appellant by : Sri.Balram R. Rao, Advocate Respondent by : Smt.Swapna Das, JCIT-DR Date of Date of Hearing : 30.01.2020 Pronouncement : 31.01.2020 O R D E R Per Chandra Poojari, AM : This appeal filed by the assessee is directed against the order of the CIT(A), dated 30.06.2016. The relevant assessment year is 2012-2013.
The assessee has raised the following grounds:- “1. The order of CIT(A) is erroneous both on facts and in law and is liable to be set aside. 2. The ld.CIT(A) erred in disallowing claim of exemption of Rs.1,20,00,000/- claimed under section 54G of the Income Tax Act. 3. The ld.Commissioner failed to appreciate the fact that the Appellant company had opened an account at Canara Bank, Langford Town branch, and the said capital gains were deposited in the said capital gains bank account and the said amount was subsequently utilized in the development of industry as per the provisions of section 54G of the Act. 4. The ld.CIT(A) as well as the Assessing Officer failed to provide sufficient opportunity to the Appellant company to put forth its case.
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For these and other grounds that may be urged at the time of the hearing of the appeal, the appellant prays that the appeal may be allowed.”
Briefly stated the facts of the case are that the assessee has claimed deduction u/s 54G of the I.T.Act at Rs.1,20,00,000 stating that the assessee has invested the sale proceeds of transfer of capital asset invested in the development of industry as required u/s 54G of the Act by investing a sum of Rs.1.20 crore. It was also stated by the assessee that it has deposited unused capital gain in his bank account with Canara Bank opened under the capital gains account scheme, from which amount was used for the development of the industry as per the provisions of section 54F of the Act. It was noticed by the Assessing Officer that for claiming deduction u/s 54G, the assessee has to furnish details with regard to purchase of new plant and machinery for setting up the business of the industrial undertaking in the new location. The A.O. was of the opinion that the assessee failed to establish with necessary evidences, as the conditions stipulated u/s 54G have not been satisfied and therefore, the claim of deduction u/s 54G was disallowed by him.
Against this the assessee carried the matter in appeal before the CIT(A). It was stated by the assessee before the CIT(A) as under:-
(i) Your appellant Company invested the proceeds of sale in developing an industrial and research centre. We
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are enclosing herewith a copy of the Valuation Report in this regard. (ii) It was held by Income Tax Appellate Tribunal Mumbai in the case of Dy.Commissioner of Income-tax v. Enpro Finance Ltd., that, if the amounts are utilized for acquisition of Assets for the purpose of its business, this should qualify for the purpose of exemption u/s 54G as there is no requirement that the land and building should be used for the purpose of the business of industrial undertaking. (iii) Section 54G(1) is clear that construction of building for the purpose of his business is one of the condition to avail the exemption and your Appellant case fairly and squarely falls under this provision. (iv) Your Appellant has honestly invested the money in developing the business unit as such deserved to have a liberal approach in this connection.
After considering the submission of the assessee, the CIT(A)observed as under:-
“7.1 The submissions made by the appellant have been examined. It is claimed that the company has invested the sale proceeds in developing an Industrial and Research Centre in the new location. To substantiate this claim the appellant ha furnished the copy of the valuation report dated 15/03/2014 prepared by M/s Prasad & Prasad Associates in respect of land and building situated at Sy no 121 Hadonahally village, Doddabalapur Taluk, Bangalore rural district. The submission made by the appellant have been examined. From the valuation report it is noticed that the property referred for valuation consisted of 21 Guntas 0 nonagricultural land in Sy no 121, Hadonahally village along with a RCC roof building (ground floor) and 900 sft of plinth area. The property is stated to be belonging to Smt Namrata Mally and Mr. Suraj Shetty, daughter and son of Mr. N.C. Shetty. The property was valued at rupees Rs.1 ,30,00,000/-.
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7.2 From the submissions made by the appellant and the information available in the valuation report, the following important points emerge.
(i) The property under reference comprises of non- agricultural land and a RCC roofed building of about 900 sft of plinth area. From the description and location of the property it appears that the property under reference is a farmhouse of the owners Smt Namrata Mally and Mr. Suraj Shetty. (ii) From the description of the property there is absolutely no indication that it was meant for any industrial use. (iii) The property is owned by Smt Namrata Mally and Mr. Suraj Shetty and there is absolutely no evidence to indicate that any investment has been made by the appellant company in the said property. (iv) There is absolutely nothing to indicate that the appellant had installed any plant and machinery in the said property for the purpose of his business or has transferred the business establishment of his earlier undertaking to the new location. 7.3 Considering the above, it is clearly evident that there is nothing in the valuation report which would indicate that the appellant company has made any investments in a new asset as per the provisions of section 54G of the Income Tax Act. It is very relevant to note that the property under reference is neither owned by the appellant company nor has it made any investment in plant and machinery in the new location for the purpose of the appellant's business. No evidence has been furnished by the appellant to establish the fact that it had relocated its existing business concern to the new property. It is also relevant to note that section 54G of the Act applies to capital gains arising from transfer of assets in connection with shifting of an industrial undertaking situated in an urban area to a non-urban area. Therefore, the primary condition for claiming deduction under this section is that the assessee must have shifted its industrial undertaking from an urban area to a new location in any non-urban area. For this purpose the appellant is required to acquire building or land for the purposes of setting up the new industrial undertaking and shift the original assets of the earlier establishment to the new location. In the present case, the appellant has not been able to establish this fundamental condition. The appellant has not been able to provide any evidence either before the assessing officer or during the appellate proceedings to establish the fact
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that it has shifted the original assets for transferring the existing establishment to the new location. Similarly no evidence has been furnished to establish if the appellant had purchased new plant and machinery for the purpose of setting up its industrial undertaking in the new location. 7.4 In fact no evidence, whatsoever, has been furnished by the appellant to substantiate its claim that it has incurred any expenditure in connection with sifting of the industrial undertaking to the new location. Although the appellant has furnished the copy of the bank statement in Canara Bank to show that amounts had been withdrawn from the bank, purportedly, for making investment in the new undertaking, the narrations made in the bank statement gives no indication to this effect. The bank statement only indicates that an amount of Rs.30,00,000 and Rs.70,00,000/- was withdrawn on 26/09/2011 from the said bank account. Similarly various amounts are stated to have been transferred to the account of Mr. N. C. Shetty and Mr. Suraj Shetty. However, no other information is evident from the bank statement or has been furnished by the appellant to explain the purpose for which these amounts were withdrawn or transferred. No details have been furnished in this regard to explain the nature of expenses incurred by the appellant utilizing these funds. In this regard it is very relevant to note that just because money was withdrawn or transferred from the bank account of the appellant; it doesn't necessarily imply that the same amount has been utilized for incurring expenditure in connection with sifting of the industrial undertaking to the new location. The appellant has not furnished any corroborating evidence for having made any specific investments or for incurring any specific expenditure in this regard. Therefore, the claim of the appellant for having made an investment of Rs.1,20,00,000/- as per the provisions of section54G of the Act remains completely unsubstantiated. 8. Considering the above facts it is very much evident that the conditions stipulated under section 54G of the Income Tax Act are not satisfied." The appellant has not furnished any evidence either before the assessing officer or during the appeal proceedings to establish the fact that it has made investments for setting up the industrial undertaking in the non-urban location. The only evidence furnished by the appellant is the copy of the valuation report valuing the property comprising of land and building at Rs.1,30,00,000/-. But this property is not even owned by the appellant company and apparently, no evidence has been furnished to substantiate if any investment was made by the appellant company for setting up the industrial undertaking in this property. The appellant 'has
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clearly failed to substantiate its claim that the sale proceeds were invested for developing an Industrial and Research Centre in the new location. Therefore, considering all the material facts discussed above and the prescribed legal provisions, the appellant is not found to be eligible to claim deduction under section 54G of the Act. The addition of Rs.1 ,20,00,000/- made by the assessing officer by disallowing the deduction claimed by the appellant uls 54G of the Act is accordingly, confirmed. The grounds of appeal raised in this regard are dismissed.
Against this, the assessee is in appeal before us. The learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned Departmental Representative submitted that the assessee failed to establish that amount deposited in capital gains exemption scheme account with Canara Bank are actually used for acquisition of plant and machinery in new location for the purpose of assessee’s business. According to the DR, the primary condition for claiming deduction u/s 54G that the assessee must have shifted its industrial undertaking from an urban area to a new location in any non-urban area. For this purpose, the assessee is required to acquire building or land for the purposes of setting up the new industrial undertaking and shift the original assets of the earlier establishment to the new location. According to the DR, this condition was not fulfilled and no evidence has been furnished by the assessee before the lower authorities. In reply to this, the learned AR drew our attention to ground No.4 of the memorandum of appeal stating that sufficient opportunity of hearing has not been given to the assessee. If sufficient opportunity has been given to the assessee, the assessee would have been in a position to explain
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how it has satisfied the condition stipulated in section 54G of the Act.
We have heard the rival submissions and perused the material on record. Before the lower authorities, the assessee has filed bank account statement with Canara Bank showing the withdrawals of Rs.30 lakh and Rs.70 lakh on 26.09.2011 from the said bank account. According to the Income Tax Authorities the said amount has been transferred to the account of Sri. N.C.Shetty and Sri.Suraj Shetty and no other information has been furnished to the Revenue to show that the end utilization of this amount. The assessee has only furnished one valuation report dated 15.03.2014 valuing the land and building at Rs.1.30 crore given by M/s.Prasad & Prasad Associates in respect of propriety situated at No.121, Hadonahally village, Doddabalapur Taluk, Bangalore rural district. The said property consists of 21 guntas of non- agricultural land in survey No.121, Hadonahally village along with a RCC roof building and 900 sft. of plinth area. The said property stated to be belonging to Smt.Namrata Mally and Mr.Suraj Shetty, daughter and son of Sri.N.C.Shetty. The property was valued at Rs.1.30 crore. If no efforts were made by the lower authorities to see whether this property was reflected in the assessee’s balance sheet as on 15.03.2014 and the lower authorities not carried out necessary inquiry regarding the transfer of funds from Canara Bank account and the end utilization of this fund is not verified. The assessee’s contention is that if it had given adequate opportunity of
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hearing by the lower authorities, it could have explained the investments whether it was reflected in assessee’s balance sheet. It was also stated before us that acquisition of assets for the purpose of business is sufficient to qualify the deduction u/s 54G of the Act and there is no requirement that the land and building should be used for the purpose of business of the industrial undertaking in the assessment year under consideration. In other words, if the amounts received on transfer of capital asset being machinery or plant or building or land or any rights in building or land used for the purposes of the business of an industrial undertaking situated in an urban area etc. As per section 54G capital gain invested in purchase of new machinery or plant for the purpose of business of the industrial undertaking, for the purpose of business in non-urban area, is qualified for deduction u/s 54G of the Act. In other words, the phrase “of the industrial undertaking”, which is there in clause 1(a) is conspicuously missing in clause 1(b). Hence, the law clearly makes a distinction between the eligible purposes for utilization of the amount of capital gains as held in (33 CCH 0300 Mum Trib) in the case of DCIT v. Enpro Finance Ltd. – order dated 27th June, 2012]. Further in the above judgment, it was held as under :-
“10. A close reading of this section brings out very clearly that whereas under section 54G(1) (a), the requirement is that the new machinery or plant has to be purchased for the purposes of the business of the industrial undertaking, section S4G(1)(b) merely requires that the acquisition of building or land or construction of building should be for the purposes of its business in such non- urban area. In other words, the phrase "of the industrial undertaking", which is there in clause l(a) is conspicuously missing in clause 1(b). Hence, the law clearly
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makes a distinction between the eligible purposes for utilization of the amount of capital gains. 11. The said section exempts capital gains on compulsory acquisition of land or building or any rights in land or building forming part of the industrial undertaking and used for the purposes of the business of the industrial undertaking, provided the amount of capital gains are used for acquiring any other land or building or any rights therein or constructing any building for the purposes of shifting or re-establishing the said undertaking or setting up another industrial undertaking. Section 54D mandates that, for the capital gains to exempt, the new land or building or rights therein acquired, have to be used only for either shifting or reestablishing or establishing an industrial undertaking (and no other purpose). In contrast, section 54G of the Act permits the use of capital gains for acquiring land or building or constructing building for the purposes of (any) business in the non-urban area. 12. "For the purpose of business" was interpreted by the Hon'ble Bombay High Court in the case of Krishna Sahakari Sakhar Karkhana Ltd v. CIT 229 ITR 577:- "The expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits". Its range is wide: It may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. The only limitation is that it should be for the purpose of the business, that is to say, the expenditure incurred should be for the carrying on of business and assessee should incur it in his capacity as a person carrying on the business". 13. Further in the case of CIT vs. Lake Palace Hotels and Motels (P) Ltd, 251 ITR 0644, the Hon'ble Rajasthan High Court interpreted: "a perusal of the scheme of section 32A of the Income Tax Act, 1961, makes it abundantly clear that investment in anything which can be termed in a generic sense as plant
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and machinery used for the purposes of business has not been made eligible to claim investment allowance and a deduction in respect of such investment, but only such plant and machinery used in business which fulfils further essential conditions and requirements required for laying claim to such deductions. The key words used in this section are for the purpose of business of construction, manufacture or production of any article or thing". Therefore, as clause-b of sub section (1) of section 54G does not use its specific phrase 'for the purpose of its business of under taking' except that the business should be in non-urban area. Therefore, it can be interpreted that assessee should carry on any business in non urban area. If the amounts are utilized for acquisition of assets for the purpose of its business, this should qualify for the purpose of exemption under section 54G as there is no requirement that the land and building should be used for the purpose of the business of industrial undertaking.” 6.1 Section 54G exemption is eligible in which the land and building and other capital assets sold is situated in urban area, the assessee established an industrial undertaking in non urban area, the assessee is entitled for exemption. The establishment of industrial undertaking to be satisfied the requirement of section 54G. The scheme of section 54G was to deurbanize and remove industries from populated area and promoting industrialization in under-developed areas. Section 54G is a provision intended for promoting growth of this country. In such a circumstances, giving very narrow interpretation to the said section will defeat the very purpose thereof. As per section 54G, the assessee should invest the amount of capital gain arising from the transfer of the capital asset situated in urban area mentioned in section 54G within a period of one year before the sale of original asset and balance
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part may be invested within a period of three years after the sale / transfer of asset. Hence, the A.O. to give benefit of section 54G by verifying the investment so made by the assessee within a period of one year prior to sale of asset or within the period of three years after the sale or transfer of such capital asset.
6.2 The learned DR pleaded that the issue may be sent back to the files of the CIT(A) and he has to obtain a remand report from the Assessing Officer, because this issue has not decided by the CIT(A). In our opinion, if we remand back the issue to the files of the CIT(A), he has to call for remand report from the A.O. before deciding the same and no useful purpose would be served. Hence we prefer to remit the issue to the files of the Assessing Officer for fresh consideration.
6.3 Being so, in our opinion, the Assessing Officer has to see whether the capital gain arising out of the transfer of assets mentioned in section 54G of the Act is utilized for the acquisition of assets for the purpose of its business, should be qualified for the purpose of exemption u/s 54G, as there is no requirement that the land and building should be used for the purpose of business of the industrial undertaking. In view of this, we remit the entire issue in dispute to the files of the Assessing Officer to examine the issue afresh after giving an opportunity of being heard to the assessee. The assessee shall place necessary evidences to substantiate its claim and co- operative with the Assessing Officer. It is ordered accordingly.
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In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on this 31st day of January, 2020. Sd/- Sd/- (Smt.Beena Pillai) (Chandra Poojari) JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore ; Dated : 31st January, 2020. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-3, Bengaluru. 4. The Pr.CIT-3, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore