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Assessee by Shri Yogesh Shah, A.R. Department by Shri Vinod Kumar Sr.DR Date of Institution of Appeal 19/01/2023 Date of hearing 05/07/2023 Date of pronouncement 05/07/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned National Faceless Appeal Centre, Delhi (in short, the ld. NFAC)/learned Commissioner of Income Tax, (Appeals) [in short the ld. CIT(A)] dated 28/12/2022 for the Assessment Year (AY) 2014-15 wherein the assessee has raised following grounds of appeal: “(1) The learned CIT(A), NFAC, Income Tax Department has erred in disallowing claim of exemption U/s 54F of the Act from the income of Long Term Capital Gain received on sale of land at Mota Varachha, Surat though a residential house was constructed by utilizing sale consideration received on sale of land and thereby fulfilling all the relevant conditions as prescribed under Section 54F of the Act. On the facts and in the circumstances of the case, the exemption U/s 54F be given to the appellant in the interest of justice. (2) That the learned CIT(A) has erred in not deciding ground of charging interest U/s 234A, 234B, 234C on the facts and the said interest Dhansukhlal Ramanbhai Mali Vs ITO charged U/s 234A, 234B, 234C to be deleted from computation tax demand. (3) That the learned CIT(A) has erred in not dropping of penal actions initiated U/s 271(1)(c). On the facts and in the circumstances of the case the said penal actions to be dropped. (4) The appellant may be permitted to rectify to amend to modify grounds of appeal duly raised and to introduce new grounds of appeal.”
2. Brief facts of the case are that the assessee is individual and engaged in the business of trading of flowers, filed his return of income for A.Y. 2014-15 on 01/10/2014 declaring total income of Rs. 6,79,670/-. The case was selected for scrutiny. During the assessment, the Assessing Officer noted that the assessee has shown/computed long term capital gain on the sale of immovable property and received Rs. 1.13 crore as his share. The assessee apart from claiming indexation cost and deduction under Section 54EC of the Income Tax Act, 1961 (in short, the Act), also claimed deduction under Section 54F of the Act of Rs. 55.00 lacs. The assessee was asked to substantiate the claim/deduction of Section 54F of the Act. The assessee in response to show cause notice, submitted that the assessee has spent/invested such amount on construction and repair of residential house and furnished construction agreement with for persons namely S/Shri Ashok N Savaj, Madhu K Sangani, Mehul M Khunt and Alpesh D Savaj. In order to verify the claim of assessee, summon under Section 131 was issued to all the four person to attend the office of Assessing Officer alongwith supporting documents to justify the transaction. The Assessing Officer recorded that no one Dhansukhlal Ramanbhai Mali Vs ITO attended his office on the given date on 09/09/2016. However, their written submission was received in Tapal. All those persons stated that they did not carry out any construction activity for assessee in A.Y. 2014- 15. On verification of their return of income, the Assessing officer noted that they were doing some other work. The Assessing Officer issued a detailed show cause notice by narrating all the facts and show caused as to why long term capital gain should not be recalculated/ disallowed. The Assessing officer further recorded that in response to show cause notice, the assessee preferred application under Section 144A of the Act before JCIT, Range-2(3), Surat on 17/10/2016. Considering the submission of assessee, the ld. JCIT issued direction on 01/12/2016. Direction to the assessing officer are duly recorded in para 7 of assessment order. On the issue of Section 54F, the ld. JCIT directed to examine the bonafide claim of Section 54F of the Act and to make enquiries and investigation. The assessee was also work were also advised to produce persons who carried out construction before the Assessing officer with all relevant bills, vouchers, payments etc.
3. As per directions of ld. JCIT, the Assessing Officer issued fresh show cause notice on 09/12/2016. Contents of which assessment order recorded in para 8 of assessment order. In response to show cause notice, the assessee filed its response/reply dated 21/12/2016. The Assessing Officer recorded that no supporting documents like bill, Dhansukhlal Ramanbhai Mali Vs ITO voucher, invoices, ledger account etc. was furnished. The Assessing Officer held that the assessee failed to produce the contractors who made the repair and construction work. Summons were issued to the contractor, they failed to appear. The assessee was asked to produce the contractor vide notice dated 22/08/2016 and 09/12/2016. None of the contractor was produced. The construction contractor are engaged in different vocations in different financial years, they have not derived construction in any financial year. The amount deposited in their bank account was withdrawn immediately in cash. The payment of transaction is handiwork of assesse by merely passing entry into bank account of four local friends and withdrawing the amount to reduce the capital gain and accordingly disallowed the claim of Section 54F and added Rs. 55.00 lacs to the income of assessee.
4. Aggrieved by the additions in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed written submissions. The submission of assessee are recorded on page 3 to 6 of order of ld. CIT(A). In the submission, the assessee submitted that agreement with contractors who executed the contract with labour and material during F.Y. 2014-15. Their bank statement was also furnished. The payments were made through account payee cheques. The assessee stated that they have no connection with their subsequent withdrawal in cash. The statement of some of the Dhansukhlal Ramanbhai Mali Vs ITO contractors were recorded by the Assessing Officer. No opportunity was given to the assessee for cross examination of such persons. The assessee requested to re-examine the contractors but such request was declined by Assessing Officer. The assessee also furnished ledger of construction account and the affidavits of all the contractors confirming the facts that they carried out construction/ repair in FY 2014-15.
The ld. CIT(A) after considering the submissions of assessee, upheld the order of Assessing officer by holding that four persons who allegedly constructed the residential house denied having undertaking any such construction. All four persons are engaged in entirely different business i.e. brokerage, diamond brokerage and embroidery. Soon upon receipt of cheque from assessee, cash was withdrawn from their bank account. The claim of assessee that sale proceed was invested in the construction of residential house does not appear to be correct. The assessee has filed affidavit of four persons dated 26/12/2022, which are merely an afterthought. A notarized contract have no much relevance when all four contractors clearly stated that they have not undertaking any construction activity. Further aggrieved, the assessee has filed present appeal before the Tribunal.
I have heard the submissions of learned Authorised Representative (ld. AR) of the assessee submits and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue. The ld. AR of the assessee Dhansukhlal Ramanbhai Mali Vs ITO submits that the assessee has sold jointly owned immovable property and received Rs. 1.13 crore as his share. The assessee invested part of sale consideration on construction/repair of residential house and claimed exemption under Section 54F of Rs. 55.00 lacs. The Assessing Officer disallowed such exemption and ld. CIT(A) confirmed the action of Assessing Officer. The assessee made contract with four contractors for flooring work from Ashokbhai Nanubhai Savaj of Rs. 9,62,480/-, plumbing, fencing, POP and colour work from Madhubhai Kanubhai Sangani of Rs. 13,56,880/- structural and slab work from Mehulbhai Manubhai Khunt of Rs. 17,37,520/- and Masonry plaster work from Alpeshbhai Dhanjibhai Savaj of Rs. 14,43,120/-. The ld. CIT(A) also confirmed the action of Assessing Officer on the ground that four persons who construction residential house denied of having undertaken such construction activity.
The ld. AR of the assessee submits that during assessment proceedings, summon under Section 131 of the Act was issued to the contractors. Summons were issued on 29/08/2016 to present on 09/09/2016. The summons might have been issued for A.Y. 2014-15 whereas the construction was done by these contractors in A.Y. 2015-16. The contractors instead of appearing, filed their reply by mentioning that they did not carry out construction work in A.Y. 2014-15. The contractors have denied execution of work in A.Y. 2014-15. The assessee filed Dhansukhlal Ramanbhai Mali Vs ITO affidavit of all four contractors. To remove misconception of Assessing Officer about exact year of construction and to correct the reply by contractors before the Assessing Officer. The ld. CIT(A) disregarded the affidavits of contractors by taking a view that it is an afterthought plea. The contents of affidavit are not afterthought. No cross examination of such contractors was made by Assessing Officer or ld. CIT(A). The ld. AR of the assessee submits that he has filed copy of affidavits and details of payments made to contractors. The ld. AR submits that claim of assessee for deduction under Section 54F is bonafide and may be allowed.
In alternative submission, the ld. AR of the assessee submits that the ld. CIT(A) has not considered the affidavit of contractors confirming of repair work during F.Y. 2014-15, therefore, matter may be restored back to the file of Assessing Officer to consider the confirmation of contractors afresh.
On the other hand, the ld. Sr. DR for the revenue supported the orders of lower authorities. The ld. Sr. DR submits that the assessee failed to substantiate the claim that the assessee invested the part of capital gain on construction of new residential house. The assessee has not furnished any detail of raw material purchased for alleged renovation/repair of house. The assessee failed to substantiate his claim either before Assessing Officer or before the ld. CIT(A). No evidence is filed about the Dhansukhlal Ramanbhai Mali Vs ITO ownership of residential house allegedly reconstruction/renovation/ resurfaced. In absence of evidence of ownership or claim of expenses on such renovation, the assessee is not eligible for the deduction under Section 54F of the Act.
In short rejoinder, the ld. AR of the assessee submits that he has furnished complete details about the ownership and still ready to produce all such evidences if the matter is restored back to the file of Assessing Officer for consideration the claim under Section 54F afresh.
We have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the Assessing Officer disallowed the deduction under Section 54F of the Act by taking a view that the assessee claimed renovation of residential house. The assessee claimed that renovation was undertaken through contractors. Notices under Section 131 was issued to the contractors. All the contractors failed to appear before the Assessing Officer. All the contractors filed their reply in Tapal. In the reply, they have denied of having undertaken such construction work. The ld. CIT(A) confirmed the action of Assessing Officer with similar observation that the alleged contractor denied of having undertaken such work. The payments made to the contractors were withdrawn in cash immediately on clearings cheque.
Dhansukhlal Ramanbhai Mali Vs ITO 12. Before us, the ld. AR of the assessee vehemently submitted that he has filed affidavit of all the contractors and further submitted that contractors denied of undertaking any work in F.Y. 2013-14 rather undertaken such work in F.Y. 2014-15. The ld. AR of the assessee further submitted that the payments were made through account payee cheques in the month of October, 2014. On the objection of ld. Sr. DR about the ownership of the reconstructed/renovated residential property, the assessee submitted that he is ready to prove the ownership if matter is restored back to the file of Assessing Officer to consider the confirmation of contractors filed in the form of affidavit. Considering the fact that the assessee has filed affidavits of four contractors before the ld. CIT(A) who discarded such affidavits by taking view that the affidavits are afterthought. Considering the fact that ownership of residential house reconstructed was not examined by the lower authorities and that the assessee has filed affidavit of four contractors confirming that they undertook various repair works. Therefore, we deem it appropriate to restore the issue back to the file of Assessing Officer to examine the claim of deduction under Section 54F afresh. The ld. AR of the assessee is directed to provide complete details of all the expenses and to bring all four contractors for their examination before the Assessing Officer if so desired and to comply all such direction of Assessing Officer for investigating the genuineness of claim under Section 54F of the Act. In Dhansukhlal Ramanbhai Mali Vs ITO the result, the grounds of appeal raised by the assessee are allowed for statistical purpose.
13. In the result, this appeal of assessee is allowed for statistical purposes only. Order pronounced on 05/07/2023 in open court.