SRI. G.A. RAMASWAMY REDDY,BANGALORE vs. ITO, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BANGALORE

BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

ITA No.286/Bang/2014 (Assessment year: 2008-09)

Shri G.A.Ramaswamy Reddy, No.173, Gunjur Village, Varthur Hobli, Bangalore. … Appellant PAN:AANHR 4650 L Vs. Income-tax Officer, Ward 7(3), Bangalore. … Respondent

Appellant by : Shri Suresh Muthukrishnan , CA Respondent by : Shri Sunil Kumar Agarwala, JCIT(DR)

Date of hearing : 27/06/2016 Date of pronouncement : 20/07/2016

O R D E R Per INTURI RAMA RAO, AM : This is an appeal filed by the assessee directed against the order of the CIT(A)-III, Bangalore, dated 20/12/2013 for the assessment year 2008-09.

ITA No.286/Bang/2014 Page 2 of 13 2[a]. The order of re-assessment is bad in law and void- ab-initio for want of requisite jurisdiction especially, as there was no income escaping assessment having regard to the reasons recorded by the learned A.O. and consequently, the order of re-assessment passed by the learned A.O. requires to be cancelled. 2[b] The reopening of the assessment is also bad in law as the mandatory requirements to assume jurisdiction u/s 147 of the Act have not been complied with and consequently, the order of re-assessment passed by the learned A.O. requires to be cancelled. 2[c]. The reassessment u/s.147 of the Act is patently illegal as the A.O. assumed jurisdiction u/s.147 of the Act only to verify the correctness of the claims made by the appellant and there was no reason to believe that income has escaped assessment. 3. The learned CIT[A] erred in upholding the restriction of exemption u/s.54F to Rs.28,00,000/- as against the sum of Rs.53,57,950/- claimed and substantiated by with the existence of the resources to make such investment by the appellant under the facts and in the circumstances of the appellant's case. 3.1 The learned CIT[A] ought to have appreciated that the provisions of Section 142[A] of the Act, empower the making of a reference to the Valuation Officer for purposes estimating the understatement in the cost of construction for making any addition uls.69A or 69B of the Act and therefore, the reference made to determine the cost of construction with a view to deny exemption u/s.54F of the Act, was ultra-vires the provisions of Section 142[A] of the Act and the resultant denial of the exemption u/s. 54F of the Act on that score was also illegal and liable to be vacated. 4. The learned CIT[A] erred in upholding the denial of the exemption u/s.54B of the Act, being the re-investment made in the agricultural lands ignoring the evidence of the agreement to sell furnished without even summoning and examining the seller even though specifically prayed for under the facts and in the circumstances of the appellant's case.

ITA No.286/Bang/2014 Page 3 of 13 4.1 The learned CIT[A] is not justified in observing that the appellant was not entitled to the exemption as the reinvestment in agricultural lands were made in the name of G R Srinivasa Reddy, one of his son and co-parcener of the appellant joint family and not in the name of the appellant HUF, which ground for denial of the exemption is totally opposed to law and facts of the appellant's case and hence, the denial of exemption, which is on erroneous appreciation of the settled position of law requires to be vacated. 4.2 The learned CIT[A] is not justified in upholding the reference to the DVO at Hyderabad for purposes of evaluating the investment in the agricultural lands despite the fact the appellant has provided the agreement to sell given by the Seller in support of the amounts paid by the appellant for the purchase of the agricultural lands. The reference is totally unauthorised under the provisions of Section 142[A] and consequently, the denying of exemption u/s. 54B of the Act requires to be vacated. 5. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, 6the appellant denies himself liable to be charged to interest u/s 234-A and 234-B of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled. 6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs. ”

ITA No.286/Bang/2014 Page 4 of 13 vide sale deed dated 29/10/2007 for a consideration of Rs.1,62,50,000/-, issued a notice under section 148 of the Act asking the assessee to file return of income for the assessment year 2008-09. In response to the said notice, the assessee filed return of income on 14/07/2010 declaring ‘nil’ income after claiming exemption under section 54F of Rs.53,57,590/- and an amount of Rs.1,11,32,000/- under the provisions of sec.54B of the Act. Subsequently, after issuing notice under section 143(2), assessment was completed by the AO vide order dated 28/12/2011 passed under section 143(3) r.w.s. 147 of the Act at a total income of Rs.1,36,59,950/- restricting deduction claimed under section 54F to Rs.25,27,950/- and the claim for exemption under section 54B of Rs.1,11,32,000/- was denied. The AO allowed the benefit of deduction under section 54F only to Rs.28 lakhs on the ground that the assessee had failed to furnish proof in respect of construction of house done by the assessee. On referring the matter to the Valuation Cell, the Valuation Officer [VO] estimated cost of construction at Rs.28 lakhs. The same was allowed by the AO. In respect of claim for exemption under section 54B, the AO disallowed the claim on two grounds - (i) consideration paid for purchase of another agricultural land situated at Tirupathi was only Rs.4,65,000/- and (ii) the agricultural land was purchased in the name of G.R.Srinivasa Reddy who is claimed to be a coparcener of the assessee.

ITA No.286/Bang/2014 Page 5 of 13 4. Being aggrieved, an appeal was preferred before the CIT(A), who vide impugned order, dismissed the appeal. It was, inter alia, contended that the very initiation of re-assessment proceedings was bad in law for the reason that the AO had no reason to believe that income escaped assessment. On merits of the addition, it was contended that the AO had no jurisdiction to refer the matter of valuation to the DVO for purposes of determining the cost of construction in the new house. Thus, it was contended that the AO was not justified in restricting the benefit of deduction Rs.28 lakhs. As regards denial of benefit under section 54B, it was contended that since the property was sold belonging to HUF, new agricultural land was brought in the name of coparcener and therefore, benefit cannot be denied. As regards consideration paid for acquisition of new agricultural land at Tirupati, it is contended that the AO ought to have considered agreement to purchase the property wherein the consideration of Rs.1,62,50,000/- has been shown to have been paid to the seller of agricultural land. The above contentions of the assessee were rejected by the CIT(A) vide paras.4.3 and 4.7 as follows:

“4.3. I have carefully considered the issue before me. It is not disputed that no return of income was filed by the appellant for AY 2008-09. Based on information received from CIB as detailed in the assessment order, AO has sought details of transactions. Taking into account reply furnished by assessee, reasons were recorded which formed the ground for the AC to believe that income had escaped assessment for AY 2008-09. The reasons recorded were communicated to the appellant vide letter dt. 09-01-2012 by the AO, as requested by the appellant. The fact of a high

ITA No.286/Bang/2014 Page 6 of 13 value sale transaction entered into by the appellant during the previous year relevant to AY 2008-09 and the fact that no return has been filed by the appellant clearly emerge from a perusal of the reasons recorded by appellant. The AC thus had a valid prima fade reason to reopen the assessment by issue on notice u/s 148. The mere mention by the AG that the claims of the assessee that exemption u/s 54B and u/s 54F have to be verified cannot be interpreted to mean that AO had no reason to believe that income has escaped assessment. As is evident from the records information was initially received from the CIT(CIB) regarding the transactions from the appellant. Based on this it was ascertained by the AO that no return of income had been filed by the assessee for AY 2008-09, on the ground that the entire capital gains was subject to exemption u/s 54B and u/s 54F. On a prima fade appreciation that these claims were not ascertainable, AO concluded that the income of the assessee has escaped assessment. Thus the contention of the appellant that assessment has been reopened to merely "verify" the claim of the appellant is misplaced and misconceived. It is not as if the AO had reopened the assessment to make roving enquiries. As the correctness of the basic claims made by the appellant vide letter dt. 25-03-2010 were called into question by non filing of a ROI for AY 2008-09, the action of the AG was justified. The basic fact that remains is that there was a failure on the part of the assessee to disclose all material facts. It is a belief that income has escaped assessment is not subject to the judgment of a court. This has been laid down by the Hon'ble Supreme Court in the case of Phool Chand Bajrang Lai v. ITO 203 ITR 456 and in the case of Raymand Wollen Mills v. ITO 236 ITR 34. Considering the facts and the judicial decisions above, this ground is dismissed.” “4.7 I have carefully considered this issue. The main reason on which the exemption has been denied by the AO is that the sale deed reveals that the property is purchased in the name of the individual Sri G R Srinivasa Reddy while the sale consideration of Rs. 1,62,50,000/- has been received by the HUF. In this regard it is necessary to note that as per provisions of Sec 54B it is the assessee who transfers the capital asset in the nature of agricultural land, who is required to purchase agricultural lands to be eligible for exemption u/s 54B. There is no possibility of a lateral

ITA No.286/Bang/2014 Page 7 of 13 purchase of agricultural land by a family member qualifying for the exemption u/s 54B.”

5.1 Learned authorized representative of the assessee vehemently argued that the AO ought not to have assumed jurisdiction under section 147 simply for the purpose of verification of the claim for exemption under section 54F and 54B of the Act. In this regard, has relied on the decision of the jurisdictional High Court in the case of C.M.Mahadeva Vs. CIT in ITA No.795/2009 dated 27/08/2015 and as regards restriction of the claim for exemption under section 54F, the only contention advanced on behalf of the assessee is that the AO had no jurisdiction to refer to the VO for purpose of determining the cost of construction in the new house. Thus, it was contended that the addition made on illegal reference to VO cannot be sustained. As regards the deduction under section 54B, learned authorized representative of the assessee contended that since the assessee is an HUF, property can be purchased in one of the names of coparceners and therefore, the claim cannot be denied on the ground that new agricultural land was purchased in the name of another person. In this regard, he placed reliance on the decision of the jurisdictional High Court in the case of Director of Income- tax, International Taxation vs. Mrs.Jennifer Bhide reported in 15

ITA No.286/Bang/2014 Page 8 of 13 taxmann.com 82 (Kar) and the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Gurnam Singh (170 Taxman 160)(Pun. & Har.). As regards the consideration paid for acquisition of new agricultural land at Tirupati, learned authorized representative of the assessee submitted that the agreement to sell property dated 25/1/2008 should have been taken into consideration in case he doubts the veracity of the agreement and the AO should have summoned the seller of the property by exercising statutory powers vested with him under section 131 of the Act.

5.2 On the other hand, learned Departmental Representative relied on the orders of the lower authorities.

ITA No.286/Bang/2014 Page 9 of 13 “Income escaping assessment. 147. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;” Thus, failure to file return of income pre-supposes existence of taxable income especially when huge consideration was received on account of sale of property. It is now settled law that at the time of issuing notice under section 147, it is not incumbent upon the AO to prove conclusively that income escaped the assessment from tax. Reliance can be had to the decision of the Hon’ble Apex Court in the case of Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC) and Raymond Woollen Mills Ltd. vs ITO & others (1999)236 ITR 34. Thus, the contention that the AO was not justified assuming jurisdiction under section 147 cannot be accepted having regard to the law laid down in the decision of the Hon’ble Apex Court cited supra. Hence, grounds of appeal challenging validity of the re-assessment are dismissed.

ITA No.286/Bang/2014 Page 10 of 13 house, the findings of the AO that the assessee had failed to furnish proof or evidence in support of investment in the new house of Rs.53,53,590/- remains uncontroverted. The assessee, neither before the CIT(A) nor before us, made any efforts to file any evidence in support of the cost of construction of Rs.53,53,590/-. Needless to say onus lies on the assessee to file proof in support of the return of income filed by him. Failure to do so enables the AO to use his best judgment and he has used one of the methods of referring the matter to the DVO. Therefore, the AO was justified in restricting the addition to a sum of Rs.28 lakhs. Thus, the grounds of appeal challenging the action of the AO restricting the deduction u/s 54F to Rs.28 lakhs are dismissed.

ITA No.286/Bang/2014 Page 11 of 13 the Hon’ble Punjab & Haryana High Court in the case of Paramjit Singh vs ITO (2010) 195 taxman 273 held as follows: "… According to section 91 of the Act when terms of a contracts, grants or other dispositions of property has been reduced to the form of a documents then no evidence is permissible to be given in proof of any such terms of such grant or disposition of the property except the document itself or the secondary evidence thereof. According to section 92 of the 1872 Act once the document is tendered in evidence and proved as per the requirements of section 91 then no evidence of any oral agreement or statement would be admissible as between the parties to any such instrument for the purposes of contradicting, varying, adding to or subtracting from its terms. According to illustration ‘b’ to section 92 if there is absolute agreement in writing between the parties where one has to pay the other a principal sum by specified date then the oral agreement that the money was not to be paid till the specified date cannot be proved. Therefore, it follows that no oral agreement contradicting/varying the terms of a document could be offered. Once the aforesaid principal is clear then ostensible sale consideration disclosed in the sale deed dated 24-9-2002(A.7) has to be accepted and it cannot be contradicted by adducing any oral evidence….” In the present case, only unregistered agreement to sell was produced before the AO as well as before us. Even in the agreement to sell, only an amount of Rs.1,10,82,000/- was shown to have been paid thus leaving a balance of only Rs.50,000/- to be paid. The assessee had not produced any evidence to show that purchase consideration was flown out of assessee and final sale deed was executed on 3/3/2008 for a consideration of Rs.4,65,000/- and the sale deed was duly registered. Now it is trite law that in respect of transactions in immovable properties, consideration shown in the instrument of

ITA No.286/Bang/2014 Page 12 of 13 sale deed registered alone has to be considered unless and until contrary is proved. In the circumstances, the contention of the assessee that sale consideration of Rs.1,11,32,000/-was paid is devoid of any merit. In our considered opinion, this claim is bereft of any evidence and merely made to escape tax liability. As regards the contention that the property can be registered in the name of other person also does not stand test of law, as the primary requirement of provisions of sec.54F are that new property should be purchased in the name of assessee alone. Reliance placed by the learned AR of the assessee on the decision of the Hon’ble Punjab & Haryana High Court in the case of Mrs.Jennifer Bhide (supra) and the decision of Hon’ble Karnataka High Court in the case of C.M.Mahadeva (supra) are not applicable to the facts of the case. In those cases, the name of another person was appearing in the sale deed along with assessee. Furthermore, it was shown that purchase consideration had flown out of the assessee. In the circumstances, courts have held that merely because another name was added as a co-owner shall not preclude the assessee from claiming exemption u/s 54F of the Act. In the present case, the assessee had not filed an iota of evidence that purchase consideration, if at all, actually passed on, had flown out of assessee’s funds. The assessee’s name was not figuring at all in the property bought by G.R.Srinivasa Reddy. The recitals to the sale deed, do not also indicate that the property was purchased for and on behalf of and for benefit of the

ITA No.286/Bang/2014 Page 13 of 13 assessee i.e. HUF. In the circumstances, we find it difficult to accept the contention of the assessee and all the contentions raised by the assessee are bereft of any merit. These grounds of appeals are also dismissed.

Order pronounced in the open court on 20th July, 2016

sd/- sd/- (ASHA VIJAYARAGHAVAN) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Place : Bangalore D a t e d : 20/07/2016 srinivasulu, sps Copy to : 1 Appellant 2 Respondent 3 CIT(A) Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order Assistant Registrar Income-tax Appellate Tribunal Bangalore