SHRI LINGARAJU BANGALORE LINGAIAH ,BANGALORE vs. INCOME TAX OFFICER CIRCLE-6(2)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND SHRI. O.P MEENA, ACCOUNTANT MEMBER ITA 2892Bang/2018 Assessment Year : 2014 – 15

Shri Aditya B Lingaraju, Income Tax Officer, S/o Late Lingaraju Circle - 6(2)(1), Bangalore Lingaiah, Bangalore. #C-450, 1st Cross, 1st Stage, Peenya Industrial Estate, Vs. Behind Peenya Police Station, Bangalore-560 058.

ASSESSEE RESPONDENT

Assessee by : Shri. Guru Prasad, C.A Respondent by : Shri. S.T Seshadri, JCIT – DR

Date of Hearing : 22-01-2020 Date of Pronouncement : 20-04-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 31/07/2018 passed by Ld. CIT(A)-2, Bangalore for assessment year 2014-15 on following grounds of appeal: 1. The order of the Learned Assessing Officer (AO) and the order of ClT (Appeals) 6. l3engaluru in so far as it is against the Appellant is opposed to the Law, equity and weight of evidence, probabilities, facts and circumstances of the case.

Page 2 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 2. The Appellant denies himself liable to be assessed to total income of Rs. 2,80,41,600/- as against the returned income of Rs.74,59,410/- oil facts and circumstances of the case. 3. The Revenue is not justified in denying the exemption of the indexed cost of acquisition and improvement to the extent of Rs. 1,41.77.065/- oil facts and circumstances of the case. 4. The Revenue has erred in denying the Appellants claim of indexed cost of construction and improvement solely for the reason that the Appellant was not [it position to furnish primary records like bills/ vouchers, which pertained 10 to 12 years prior to the relevant assessment sear. Furthermore, the Appellant has established occurrence of unforeseen events i.e. floods based oil documentary evidences) which was completely beyond his control, in the sold industrial premise, that led to damage and destruction of accounting records and documents dating back several years. Claim for cost of improvements' for the property was based upon reliable records like earlier years' audited financial statements and tax records that were aailable at the auditor's premises which survived the floods. 5. The Revenue is not justified in denying the exemption under section 54G of the Act to the extent of Rs.69,90,935/- on the facts and circumstances of the case. 6. The Revenue ought to have appreciated that the exemption provision under section 54G of the ct is a beneficial provision and therefore to he liberally construed. 7. The Revenue has erred in denying the Appellant's claim of exemption under section 54G citing that industrial production has not begun at tile new industrial property acquired by the Appellant. III section 54G does not specify commencement of industrial production at the premise as a pre-condition for the grant of exemption. The emphasis is Oil purchase or acquisition of assets (in other than all urban area) by utilisation of proceeds of sale. in the course of or in consequence of shifting of the industrial undertaking, to be eligible for exemption of Capital Gains u/s 54G. 8. The Appellant denies the interest u/s 234 of the Act as there is no liability to additional tax as determined by the learned AO. Further. Interest u/s 234A has been levied without taking into account that the original return is filed

Page 3 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 within due date. Without prejudice, the rate, period and on what quantum the interest u/s 234B and C has been levied is not discernible from the order. 9. The Learned CIT (Appeals) 6, Bengaluru has relied solely upon the language contained in the registered sale deed of the industrial property sold by the Appellant and has arrived at erroneous conclusion without appreciating the overwhelming set of evidences placed on record that indicates existence of buildings. 10. CIT(A) has evidently erred in disregarding the totality of evidences available on record. She has hastily and perversely concluded without providing reasoned judgment although documents placed on record strongly point towards substantive basis to conclude in favour of the Appellant as regards allowance for cost of improvements. 11. The Learned CIT (A) has not only failed to consider corroborative and circumstantial evidences placed oil but also failed to provide reasonable opportunity of being heard to explain or provide reasons, thereby violating the principles of natural justice. 12. Without prejudice to the Appellants entitlement for allowance of cost of construction/ improvements, the CIT (A) has failed to appreciate that even if the land sold by the Appellant were to be a 'vacant land', which is a capital asset used for the purposes of business of an industrial undertaking situate in an urban area (as per clause (I) of section 54G), the benefit of exemption under section 54G is sustainable, so long as the investment is made in accordance with clause (2) of section 54G. 13. The only requirement prescribed by the statute under clause (b) of subsection (I) of Section 54G w.r.t to acquisition of land is that it should be 'acquired for the purposes of his business in the said area' (i.e. other than urban area). The statute does not prescribe commencement of industrial production as a pre-condition for availing exemption under Sec 54G. Accordingly, the AO and CIT(A) both have misinterpreted the requirements for eligibility of exemption under Sec 54G which is liable to be set aside and relief shall be allowed to the Appellant. 14. Without prejudice to Appellant's actual claim for cost of improvements, on the presumption that the Appellant is

Page 4 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 entitled for exemption under Sec 54G, it is sufficient to demonstrate only a fraction of (less than one fifth) cost of improvements because exemption Linder Sec 54G, will have positive effect of offsetting any disallowance of cost of improvements upto the extent of investment made by the Appellant to acquire the new industrial land. 15. The Appellant craves before the Honourable Tribunal to consider the fact that the investment made to purchase new land is significantly higher as compared to Capital gains from the sale of industrial land by the Appellant. This demonstrates bonafide intention of the Appellant to carry out investment in accordance with Sec 54G which should be given due weightage. 16. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above. 17. In view of the above 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 and appropriate relief be granted in the interest of justice and equity.

Brief facts of the case are as under: 2. Assessee is an individual, and filed his Return of Income for year under consideration on 24/11/2004 declaring income of Rs.74,59,410/- under the heads of Income from Business, Capital Gains and Income from Other Sources. 2.1. Ld.AO observed that during financial year relevant to assessment year under consideration, assessee sold industrial premises held by him along with all godowns and industrial sheds, vide Sale Deed dated 27/03/2014 for a consideration of Rs.2,16,00,000/-. Ld.AO observed that assessee then purchased land bearing Survey No.23/2 (measuring 11 guntas) and Survey No.24/2 (measuring 7 guntas) situated at Adakamaranahalli Viilage, Dasanapura Hobli, Bangalore North Taluk, Bangalore, along with industrial godown measuring about 3000 square feet,

Page 5 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 vide Sale Deed dated 11/04/2014 for a consideration of Rs.1,70,00,000/-. Total cost of acquisition to assessee was Rs.1,81,31,890/-. The said new industrial land purchased by assessee was outside the Bangalore urban limits as the property was situated outside the jurisdiction of BBMP, Bangalore. 2.2. Ld.AO observed that, assessee sold urban industrial property and earned long term capital gain of Rs.69,90,935/-. It was noted that, after allowing for indexed cost of purchase and improvements to the property sold, assessee claimed exemption of the long-term capital gain of Rs.69,90,935/- under section 54G of the Act, since he invested amount of Rs.1,81,31,890/- in purchasing new property for carrying on his business outside the urban limits. 2.3. Ld.AO determined taxable income at Rs.2,80,41,600/- vide Assessment order dated 15/12/2016. Ld.AO denied assessee claim of cost of improvement to the extent of Rs.1,41,77,065/- stating that he did not furnish any proof to substantiate cost of improvement on the sold property, Ld.AO also denied claim under section 54G to the extent of Rs.69,90,935/- stating that, assessee had not used new land for industrial purpose. 3. Aggrieved by additions made by Ld.AO, assessee preferred appeal before Ld.CIT(A) 6. 3.1. Ld.CIT(A) held that, assessee sold only vacant plot of land with no construction thereon. He thus wholly denied benefit of allowance of cost of construction or improvements. Ld.CIT(A) also determined that there was no transfer of ‘industrial undertaking', which entitles assessee to claim benefit of

Page 6 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 exemption under section 54G. He thus upheld the view of Ld.AO. and fully denied exemption claim by assessee under section 54G. 4. Aggrieved by order of Ld.CIT(A), assessee is in appeal before us now. 4.1. LdAR submitted that all grounds relates to denial of claim u/s.54G and denial of indexation of cost of improvement. 4.2. Grounds1-2 are general in nature. 4.3. Grounds 3,4,9-11 have been raised by assessee challenging denial of indexation to cost of acquisition and cost of improvement to the extent of Rs.1,41,77,065/-. 4.3.1. Ld.AR submitted that assessee over a period of time constructed industrial sheds and godowns on the aforesaid sold property. It has been submitted that assessee obtained sanction plans from competent authority and built godowns as per his business requirements and fund availability. It was submitted that, the cost of improvement was spread across several financial years and deduction is claimed accordingly. Ld.AR submitted that, subsequent to sale of original industrial property assessee has in terms of section 48 of the Act, deducted indexed cost of acquisition and indexed cost of improvement from sale proceeds and arrived at computed long term capital gains in accordance with law. 4.3.2. Ld.AR submitted that observations of ld CIT(A) that the original asset sold by assessee was vacant plot of land, and therefore there was no cost incurred for improvements, is totally misplaced, and contrary to facts. He submitted that CIT(A)’s recorded this view merely because, Schedule D in sale deed (of Original asset) did not mention about existence of buildings or

Page 7 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 godowns. Ld.AR submitted that Ld.CIT(A) erroneously concluded that, vacant plot of land was sold, disregarding host of credible evidences placed on record indicating contrary factual position. He further submitted that, Ld.AO did not raise any objection or made any observations about original asset being a vacant land. Placing reliance to Annexure 1 placed in paper book at page 16, Ld.AR submitted that Valuation report by S.S.Industrial Consultants, categorically mentions structures standing on the plot(original asset). He thus submitted that assessee cannot be denied indexation of cost of improvement for purposes of computing LTCG. 4.4. On the contrary, Ld.Sr.DR submitted that, assessee purchased original asset under consideration on 19/03/1999, from Karnataka Areas Industrial Development Board, as Proprietor of M/s.Raja Enterprises (copy of original purchase agreement is at page 1 of Annexure 1 in paper book). He submitted that, in the agreement recitals reveal that there existed certain building and erections at the time of purchase by assessee. Ld.Sr.DR submitted that valuation reports placed in paperbook by assessee at pages 8 -11 by S.S.Indutrial Consultants dated 04.01.2001, page 14-16 by SPR Associates dated 06.12.2012 states that prior to 2005-06, approximately 5258 sq.ft of building with RCC roof, 1197 sq.ft buildings with AC sheet roof existed and valuation report by SPR Associates dated 06.12.2012 at page 16, mentions construction of 500sq.ft building with AC sheet was constructed during 2005-06. Ld.Sr,DR submitted that all these valuation reports placed in paper book has not been subjected to verification. He submitted

Page 8 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 that assessee has not been able to establish any kind of further construction/improvement being done worth Rs.1,41,59,410/-, subsequent to the purchase of the land. He submitted that nothing is placed on record by way of any evidence to support the quantum of construction claimed by assessee. He this supported the observations made by authorities below. 4.4.1. In rejoinder, Ld.AR submitted that, due to heavy rains and flooding during 2013, May, records pertaining to his business were lost and assessee had to incur huge expenses towards cleaning of the mess caused due to calamity. He placed reliance on page 34 -37 of the same in support of hi contention, being claim made to Insurance company. 4.5. We have perused submissions advanced by both sides in light of records placed before us. Admittedly, we reject observation of Ld.CIT (A) that assessee sold vacant lot of land. Sufficient evidences have been presented by assessee in the paper book which proves that constructed buildings/sheds word there on the original plot. Further Ld.Sr.DR has not supported view taken by Ld.CIT (A) in this regard. The only reason for disallowing indexation of cost of improvement is that assessee could not establish the expenditure having made by way of bills/vouchers or any other evidences. Coming to quantification of construction/improvement carried out by assessee on plot purchased, there is mention of of some construction in the year 2005-06 being new building of 1400 sq.ft RCC roofing and shed 500 sq.ft with AC sheet roofing in valuation report dated 06/12/2012 by SPR Associates, placed at page 14 to Annexure 1 in paper book, The valuation report

Page 9 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 values new building constructed by assessee at Rs.1,000/- per sq.ft and Rs.800/- per sq.ft for shed, approximately valuing at 14 lakhs and 4 lakhs respectively. Further assessee has not been able to establish the balance amount being utilised for any other construction or any improvements carried out by assessee on the existing buildings. We are therefore unable to appreciate the quantification made out by assessee to the extent of Rs.1,41,77,065/-. Also that there is nothing on record to establish that various valuation reports referred to and relied upon by assessee have been before AO. 4.5.1. We therefore, in the interest of justice, direct Ld.AO verify the reports and to consider cost of improvement/construction in accordance with law. Ld.AO shall ascertain by way of proper enquiries regarding construction/improvements that originally existed at the time of purchase and any construction/improvements subsequently carried out by assessee on plot for purposes of computing capital gains in the hands of assessee. Accordingly these grounds raised by assessee stands partly allowed. 5. Ground No.5-7 and 12-15 are in respect of not granting exemption under section 54G to assessee on the premise that assessee did not fulfil necessary conditions for eligibility under section 54G of the Act. 5.1. Ld.AR submitted that 54G was denied by Ld.CIT(A) for the reason that, assessee sold vacant plot of land, whereas, Ld.AO denied exemption for the reason that, industrial production was not started on new industrial property acquired by assessee. It

Page 10 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 has been submitted by Ld.AR that, both these reasoning by authorities below is not the requirement to be satisfied by assessee as per section 54G of the Act. Referring to section 54G (1) of the Act, Ld.AR submitted that full value of capital gains was invested within period of 3 years from the date of sale of original asset by assessee. It has been submitted that authorities below do not dispute that assessee purchased another industrial unit outside Bangalore urban limits for consideration of Rs.1,70,00,000/-. Ld.AR in section 54G(1), emphasised on; “……transfer of capital asset being, machinery or plant or building or land or any rights in the building or land previously used for the purpose of business of industrial undertaking…… ” 5.2. Ld.AR thus submitted that assessee has complied with the requirement of section 54G and therefore benefit cannot be denied. 5.3. Ld.Sr.DR placed reliance upon orders passed by authorities below. 5.4. We have perused submissions advanced by both sides in light of records placed before us. A reading of section 54G(1) makes it clear that assessee is given a window of 3 years after the date on which transfer has taken place to purchase new machinery or plant, or, acquire building or land. The criteria that needs to be fulfilled by assessee is that, shift of such industrial undertaking should be to any area, other than an urban area, and assessee has within a period of one year before or 3 years after the date on which transfer of original asset took place, purchased new machinery or plant, or, acquired building or land for purposes of business, or, shifted original

Page 11 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 asset and transferred the establishment of such undertaking to such area and incurred expenses on such other purpose as may be specified in the scheme framed by central government for purpose of the section. 5.4.1. Hon’ble Supreme Court in case of Fibre Boards (P) Ltd. vs CIT reported in (2015) 62 Taxmann.com 135 held that, even an agreement to purchase is good enough, and that assessee cannot be denied exemption under section 54G for the reason that plant and machinery has not been purchased. It is clear that for the assessment year in question all that is required for the assessee to avail of the exemption contained in the section is to 'utilize' the amount of capital gains for purchase and acquisition of new machinery or plant and building or land. Admittedly, in present facts of the case, assessee has utilised capital gains for purchasing new land in an area other than urban area as specified under section 54G of the Act within the time period specified therein. 5.4.2. We therefore reject reasoning of Ld.AO to deny exemption claimed by assessee. Further, reasoning of Ld.CIT (A) has already been negated as the evidences relied upon by Ld.AR speaks in volumes, of structures existing on original assets, from the time the plot of land was transferred to assessee by Karnataka Industrial Areas Development Board. Thus, considering the totality of facts, respectfully following the ratio laid down by Hon’ble Supreme Court in case of M/s Fibre Board (P) Ltd vs CIT (supra), we hold that assessee is eligible for exemption under section 54G of the Act. The quantum of capital gains to be considered under section 54G would have to be

Page 12 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 computed in accordance with law. Ld.AO is directed to granting benefit u/s 54G while computing capital gains. Accordingly these grounds raised by assessee stands allowed. 6. As regards alternative plea raised by assessee in Ground No. 12-15 and, we direct Ld.AO to compute capital gains in respect of original asset sold by assessee in accordance with law. 7. Ground No. 8 raised by assessee is consequential in nature. In the result appeal filed by assessee stands partly allowed as indicated hereinabove. This order is pronounced by listing the case on notice board of Tribunal under proviso to Rule 34(4) of Income Tax Appellate Tribunal Rules 1963. Sd/- Sd/- (O.P MEENA) (BEENA PILLAI) Accountant Member Judicial Member

Bangalore, Dated, the 20th April, 2020. /Vms/

Copy to: 1. Assessee 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order Assistant Registrar, Income Tax Appellate Tribunal, Bangalore.

Page 13 of 13 ITA 2892/Bang/2018 A. Y : 2014 - 15 Date Initial On Dragon 1. Draft dictated on Sr.PS 04-03-2020 2. Draft placed before Sr.PS author 05-03-2020 3. Draft proposed & placed JM/AM before the second member 05-03-2020 4. Draft discussed/approved JM/AM by Second Member. 05-03-2020 5. Approved Draft comes to Sr.PS/PS the Sr.PS/PS 06-03-2020 6. Kept for pronouncement Sr.PS on 11-05-2020 7. Date of uploading the Sr.PS order on Website -- 8. If not uploaded, furnish Sr.PS the reason 11-05-2020 9. File sent to the Bench Sr.PS Clerk 10. Date on which file goes to the AR 11. Date on which file goes to the Head Clerk. 12. Date of dispatch of Order. No 13. Draft dictation sheets are Sr.PS attached