ITO 19(1)(3), MUMBAI vs. GIRDHARILAL ASUDANI (HUF), MUMBAI

Being aggrieved, the assessee filed an appeal before the CIT(A), the assessee filed all the details with documentary evidence to show that the assessee (HUF) is the rightful owner of the impugned property. The proceeds accrued on the sale of the same belonged to the assessee giving rise to the LTCG. After considering the submissions and documentary evidences, Ld. CIT(A) held that the assessee (HUF) was the owner of the property, and accordingly, the capital gain arising on sale of the same gave rise to income assessable under the head Capital Gains in the hands of the assessee.

Before us, the detailed arguments have been made by both the sides. Ld. DR has supported the order of AO and submitted that in this case the assessee has taken advantage of the fluctuation in the market rate of TDR and used it as a colorable device to create TDR in the hands of the assessee to reduce the burden of tax. The Ld. DR prayed for restoration of AO’s order and setting aside that of Ld. CIT(A)’s order.

On the other hand, the Ld. Counsel for the assessee vehemently supported the order of Ld. CIT(A). It was submitted that the assessee-HUF had purchased this property in the year 1987 and since then the same has been shown in the balance sheet of assessee-HUF. The Ld. Counsel has drawn our attention to the various pages filed in the paper book showing income tax return, wealth tax return filed by the assessee-HUF, wherein the aforesaid property has been shown under the ownership of assessee-HUF. It has been further submitted that the impugned asset was a capital asset owned by the assessee-HUF and therefore the sale proceeds of this property belonged to the assessee and the income arising there- from has been rightly shown as income from LTCG in the hands of the assessee- HUF.

It was also submitted that the action of the AO is self contradictory in the sense that on the one hand the AO has alleged that the impugned property did not belong to assessee-HUF and on the other hand, the income from the sale of same has been assessed in the hands of the assessee-HUF. Both the things are not possible simultaneously. If AO’s allegation is accepted that this property does not belong to HUF, then no income should be assessed in the hands of the assessee- HUF, and thus, viewed from any angle, the action of the AO in treating the impugned income as income from other sources was illegal and contrary to the facts, and therefore it has rightly been reversed by the Ld. CIT(A).

We have gone through the submissions made by both the sides, the orders of authorities below and material placed before us. The Ld. CIT(A) has observed and held as under:

Ground b): The brief facts regarding the ground no. 2 are that the AO did not grant benefit of deduction u/s 54F of the Act on the ground that since the income of the assessee was treated as income from other sources, deduction u/s 54F was not available and therefore, the AO denied the benefit of section 54F of the Act. The AO also denied the benefit of section 54F on the ground that the assessee has not purchased the property within a period of two years from the date of sale. As per section 53 of the Transfer of Property Act, 1882 to complete the transaction possession of the property should be exchanged between the parties. But in this case, the assessee has neither entered into any sale agreement nor taken possession of the property within the stipulated period.

Being aggrieved, the assessee contested the matter before the Ld. CIT(A) and the Ld. CIT(A) after considering the documentary evidences and contentions of the parties granted relief u/s 54F to the assessee. Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us.

The Ld. DR submitted that the assessee is not eligible for deduction u/s 54F of the Act as the assessee did not enter into agreement of purchase for acquiring new property within a stipulated period as required under the provisions of section 54F of the Act and the deduction was claimed merely on the basis of allotment letter. In support of this contention the Ld. DR placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Milan Sharad Ruparel v. ACIT 27 SOT 61 (MUM.) to contend that the assessee was not eligible for deduction u/s 54F of the Act, for this reason also that the assessee had used borrowed funds for making investments in new property, which was not permissible in the eyes of law. It was also submitted that the additional evidence were considered by the Ld. CIT(A) and therefore this issue should be sent back to the file of the AO for fresh application of mind.

On the other hand, the Ld. Counsel submitted that there is no additional evidence before the Ld. CIT(A) and therefore this allegation is factually incorrect. He further placed reliance on the decision of Hyderabad Bench of the Tribunal in the case of Narasimha Raju Rudra Raju vs ACIT 143 ITD 586 (Hyderabad) for the proposition that section 54F has nowhere envisaged that the assessee has to utilize the same funds which were received on sale of old assets, for the purpose of making investment in the new assets. It was further submitted that there was actually no loan and this allegation is also factually correct. It was lastly submitted that finding recorded by the Ld. CIT(A) are factually correct as per law and facts and these should be upheld.

We have gone through the submissions made by both the sides, the orders of lower authorities and material placed before us. We have specifically asked the Ld. DR that what additional evidences were submitted. In response, Ld. DR could not point out that exactly what evidences were additional evidences. It was noted from the index of the paper book that the assessee has certified that all the evidences were before the both the lower authorities, except written submissions filed before the Ld. CIT(A). The Ld. DR was not able to point out any defect in the certified copy and was not able to controvert the same. This paper book was filed much earlier i.e. on 31.12.2013. In case, it was felt that the certificate was not correct then it was incumbent upon the Ld. DR to file counter affidavit to negate the certificate or at least he should have brought on record that certificate was not correct. It is not fair to make attempt to create confusion in the casual and irresponsible manner. Thus, in absence of any contrary material brought before us, we dismiss this argument of Ld. DR.

It is further noted by us that as per section 54F, it is not mandatory to invest the same amount in the new assets which has been received on sale of old asset, as there is no requirement of there being a nexus in the receipts of old asset and amount invested in the acquisition of new assets. Further, there is no such requirement that to claim deduction u/s 54F, amount to be invested in the new assets should be from the own funds, or that assessee cannot utilize borrowed funds for investment in new assets. It may be noted here that the time period available for making investment u/s 54F is within the period of one year before or two/three years after the date of which the transfer of original asset took place. Thus, if as per law, the assessee is allowed, to make investment even one year before the date of transfer, then how can it be logical to say that the same very funds which have been received on account of sale of old assets, should be invested for the acquisition of new assets. Further, there is no embargo u/s 54F to utilize borrowed funds for the purpose of making investment into new assets. The object of section 54F is granting tax concessions to the assessees as well as promotion of housing in the country. Under these circumstances, how an assessee should plan his financial affairs, should be left upon on the wisdom of the assessee only. Thus, no such requirement which has been prescribed under law, should be read by the Revenue on its own.

The AO’s allegation that deduction u/s 54F was not available since the impugned capital gain shown by the assessee was treated as income from other sources, is also not sustainable, as it has also already been decided in the earlier part of this order that aforesaid income is to be treated as income from capital gain on sale of long term capital assets.

Other objection raised by the AO for not granting deduction u/s 54F is that the assessee had not taken possession of the property nor entered into sale agreement for the same. In this regard, it was submitted by the Ld. Counsel that for claiming deduction u/s 54F it is not necessary that the assessee should become the owner of the property by a registered document only. In this regard, reliance has been placed upon the following decisions: a) CIT V/s T N Arvinda Reddy (1997) 12 CTR 423 (SC) b) CIT V/s Ajit Singh Khajanji 297 ITR 95 (MP)

We have considered the rival submissions, perused the record placed before us and also gone through the cases relied upon by both the parties. We find that full payment of purchase value of asset has been made by the assessee before filing of the return of income for the year under consideration. Thus, the assessee has utilized the amount for acquiring new assets before filing the return of income. In our consider view, the requirement of law has been met by the assessee.

As regard the legal ownership issue is concerned, we find that under the income tax law, the concept of defacto ownership is recognized and accepted. The reliance has been placed upon the CBDT Circular No. 471, dated 15-10- 1986. It is further noted that an agreement was entered into by and between the parties and registered also. According to the AO, letter of allotment by the builder to the assessee does not tantamount to purchase and hence the assessee had not purchased the property within the stipulated period. In our view, understanding of the AO is not in accordance with law as has been discussed in the judgments quoted above, wherein it has been held that registration of property is not sine- qua-non for ownership of the property, especially in the context of income tax law. Further, in our considered view the registration of property is not mandatory condition as per law for grant of deduction u/s 54F of the Act. Thus, we find that the objections of the AO are not legally sustainable in the eyes of the law. The Ld. CIT(A) has dealt with each of them in a proper manner. Therefore, no interference is called for in the order of Ld. CIT(A). Ground raised by the Revenue is therefore rejected.

With regard to the Ground no. c), the AO made addition of Rs.12,29,185/- u/s 68 of the Act on the ground that the assessee sold TDR to M/s Harmony Residency at the rate of Rs.2711.11 per sq.mt., as against the market rate of Rs.3752.97 per sq.mt..

The Ld. DR reiterated the facts of the case and relied upon the order of AO.

On the other hand, the Ld. Counsel submitted that there is no such criteria that on the basis of average value, the addition should have been made u/s 68 of the Act and much less on the basis of presumption and assumption. It was submitted that the AO has taken decision without any material in his possession and without any reference to the fact that the assessee has not received any amount over and above the agreement value. It was also submitted that the burden was on the Revenue to prove that the actual consideration was more than the value has paid by the assessee, and in support of this contention he has placed reliance on the judgment of Hon’ble Supreme Court in the case of K. P. Varghese v. ITO 131 ITR 597 (SC).

We have gone through the submissions made by both the sides, the orders of authorities below and material placed before us. We find that there are no entries in the books of account of assessee with respect of this receipt and therefore, the same could not have been added to the total income of the assessee u/s 68 of the Act. It is further noted that this addition has been made on the basis of mere estimation and guess work. It has been recorded by the Ld. CIT(A) that the TDR rates are determined by the market force and there is no thumb rule to determine the market value, therefore, solely relying upon the same market rate, and without binging any concrete material on record and in possession of the AO, he could not have made this addition. We find that the Ld. CIT(A) has deleted the same after recording correct findings. Therefore, we do not find any force in the contentions of Ld. DR and we are not inclined to interfere with the order of Ld. CIT(A). Accordingly, Ground raised by the Revenue stands dismissed.