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Shri Prakashkumar B. Khatri Versus The CIT-IV, Ahmedabad

2015 (5) TMI 712 - ITAT AHMEDABAD

Revision u/s 263 - deduction under section 54F wrongly allowed - Held that:- The assessee had obtained the permission for construction of farm house on 21/12/006 for construction of 582 sq.meters. and subsequent to the approval, assessee incurred expenditure of ₹ 1.78 crore upto 31/03/2009. This shows that the said asset/residential house was pre-existing and not “a new asset” constructed/purchased within the period as laid down in Clause (a) & (b) of Sub-section 1 to Section 54 of the Act .....

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e is constructed after the date on which transfer took place only then the deduction u/s.54 is allowable for construction of new asset, i.e. residential house. Further, even if the provisions of section 54F are considered to be applicable to extension of existing house under construction, the allowable claim of exemption has to be restricted to the extent of investment/expenditure incurred in the said residential house subsequent to the transfer of original capital asset under consideration. So .....

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do not see any infirmity into the finding of ld.CIT that AO failed to examine the aspect of allowability of deduction u/s.54F of the Act. After considering the totality of facts, we deem it appropriate to modify the order of ld.CIT on this issue and restore the issue of allowability of deduction u/s.54F of the Act to the file of AO for decision afresh. - Decided in favour of assesse for statistical purposes. - I.T.A. No. 108/Ahd/2014, I.T.A. No. 1827/Ahd/2014 - Dated:- 30-4-2015 - Shri N. S. Sai .....

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nsolidated order for the sake of convenience. 2. First we take up the Assessee s appeal in ITA No.108/Ahd/2014 for AY 2010-11. The Assessee has raised the following grounds of appeal:- 1 Ld. CIT erred in law and on facts in invoking provisions of section 263 of the Act holding the assessment as erroneous & prejudicial to the interest of revenue to the extent of failure of AO to examine chargeability of profit on sale of land as business income as against Long Term capital gains. The order of .....

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red in law and on facts in directing AO to treat land sold as stock in trade and to tax sale transaction under the head profits and gains from business ignoring the fact that land sold held as investment since several years was valued at cost in the Balance Sheet. The order passed after due verification of the claim made by the appellant ought to have been upheld. It be so held now. 4 Ld. CIT erred in law and on facts in holding that order passed without ascertaining correctness of facts applyin .....

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u/s 54F of the Act since the profit from sale of land was to be treated as business income & not capital gain. Ld. CIT notwithstanding the observations that profit from sale of land be treated as business income continued to hold order as prejudicial & erroneous to interest of revenue on account of excess claim of deduction allowed by AO u/s 54F of the Act. This dichotomy on part of Id. CIT itself is indicative that correct & proper order passed in scrutiny assessment ought not to ha .....

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before the hearing of the appeal. 2.1. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as the Act ) was framed vide order dated 11/03/2013, thereby the Assessing Officer (AO in short) made addition of ₹ 1,42,881/- on account of difference in rate of land, disallowance of expenditure amounting to ₹ 86,244/- in respect of the maintenance of vehicle. The AO has .....

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(LTCG) by assessee in the return of income is to be brought to tax in the hands of the assessee as Business Income . He further directed the AO that the assessee s claim u/s.54 of the Act is to be disallowed and denied since the profit from sale of land is to be treated as business income and not as capital gain . Aggrieved by the order of the ld.CIT, the assessee is now in appeal before us. 3. Assessee is aggrieved by the order of the ld.CIT passed u/s.263 of the Act on the ground that the CIT .....

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made queries and after verifying the claim made assessment. The ld.CIT erred in law and on facts in holding that in the order passed by the AO without ascertaining correctness of the facts applying incorrect provisions of law made such order is erroneous and prejudicial to the interest of the revenue. The ld.CIT erred in law in disallowing the claim made u/s.54F of the Act. The ld.Sr.counsel for the assessee, Shri S.N.Soparkar reiterated the submissions made before the ld.CIT. He submitted that .....

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rsuance of the notices issued under s. 142(1) as well as s. 143(2) of the Act and after considering those materials and explanation, the ITO has come to a definite conclusion. And merely, because that a different view can be taken should not be the basis for revising the order passed u/s. 143(3) of the Act. Reliance is also placed on the judgement of Hon ble High Court of Gujarat rendered in the case of CIT vs. R.K.Construction Co. reported at 313 ITR 65 (Guj.). The ld.counsel for the assessee h .....

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bition with regard to a person carrying out business and at the same time, he can also make investment. Therefore, the ld.CIT was not justified in treating the transaction as a business transaction and not a transfer of capital asset. He submitted that for invoking the provisions of section 263 of the Act, the law is well settled now that twin conditions are to be satisfied, viz. (i) the order of the AO should be erroneous and (ii) prejudicial to the interests of the Revenue. He submitted that t .....

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s.263 of the Act is that on verification of the case record, it was found that the assessee was engaged in the business of development of land and is a builder. And in AY 2009-10, the assessee had offered income from sale of non-agricultural land as business income. The said land sold in Financial Year relevant to AY 2009-10 was originally agriculture land after conversion into non-agricultural land it was sold and the income was offered as business income. In fact, assessee obtained relief from .....

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ellers (2003) 259 ITR 502(Guj.) 3.1. On the contrary, ld.CIT-DR supported the order of ld.CIT and submitted that the AO has not made enquiry with regard to claim of the assessee. He further submitted the claim of the assessee u/s.54F of the Act is not allowable. Therefore, the order of ld.CIT is justified as the assessment order is not only erroneous but prejudicial to the interests of the Revenue. He further submitted that the deduction would be available only when the construction is made subs .....

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he ld.CIT called upon the assessee as to why the assessment order passed by the AO for AY 2010-11 should not be held to be erroneous and prejudicial to the interests of the Revenue and be set aside to that extent. The reason for issuing the notice as recorded by the ld.CIT is reproduced hereinbelow:- on perusal of the case records, following facts are noticed: (1)(i) Assessee is an individual engaged in the business of developer & builder and is also engaged in the wholesale trading of Potat .....

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77; 33,90,056/- (-)Rs.59,70,418/- Less:Exemptions u/s.54B/54D/54G etc.) Construction House NIL Sale ₹ 4,52,75,125/- NIL Construction dt.1.4.09 to 15.10.10 NIL Rs.2,58,18,842/- @ 57.03% NIL LTCG Rs.3,93,04,707/- @ 57.03 ₹ 2,24,15,474/-(-) 2,24,15,474/- Rs.1,68,89,233/- (ii) From the above working, it is apparent that sale price of land is taken at ₹ 4,52,75,125/- and cost of acquisition of land with improvement cost is taken at ₹ 59,70,418/-. Further assessee has claimed d .....

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me. In fact, assessee obtained relief from the Appellate Authority on the ground that the provisions of wealth tax were not attracted on the said land which had become business asset after conversion into non-agricultural land. (iii) In the year under consideration, the assessee, once again, converted one of his agricultural land holding at Revenue Survey No. 11 & 1036 of Sevasi, Baroda during the year under consideration (02/04/2009) .since, the said land was reflected under the head 'A .....

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er cancellation of development agreement with Vaibhav Construction Pvt. Ltd. dated 14/02/2008, assessee agreed to pay ₹ 1.30 crore for cost of construction and loss of profit as mutually arrived at and agreed upon. The development agreement dated 14/02/2008 with Vaibhav Corporation Pvt. Ltd. which is substantially owned by the assessee himself clearly proves that the land bearing Survey No. 11 & 1036 was intended for development and construction and the profit earned on this land eithe .....

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icial to the interest of revenue by allowing excess' deduction u/s. 54F of the Act without verifying the genuineness of sale / investment in residential house which is clear from the following observation. (i) It is also noticed that the total sale consideration of non-agricultural land is ₹ 6.01 crore and the assessee has taken sale consideration tat ₹ 5,77,71,445/- for working out the Long Term Capital Gain which itself is factually incorrect and the AO has not obtained any cla .....

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nstruct residential house, then only deduction from capital gain can be allowed as per Clause (a) & (b) of Sub-Section 1 of Section 54F. On verification of case record and the retails filed during the assessment proceedings, it is found that assessee has claimed deduction u/s. 54F on account of investment in construction of farm house at Kanchi, Sevasi. Total investment in Farm House Kanchi up to 15/10/2010 is claimed at ₹ 4,14,53,677.91. The assessee has claimed deduction to the exten .....

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31/03/2010 came to ₹ 3,01,53,651.91/-. It is established from the copy of account filed during the assessment proceedings and from the balance sheet as on 31/03/2009 that the farm house was already under construction much before sale of long term capital asset. ₹ 1.78 crore was already invested up to 31/03/2009. This shows that the said asset / residential house was pre-existing and not "a new asset" constructed / purchased within the period as laid down in Clause (a) & .....

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d in the said residential house subsequent to the transfer of original capital asset under consideration. As per assessee's own submission during the course of assessment proceedings, such amount invested /incurred in construction of presidential house subsequent to transfer of original asset i.e. from 27/01/2010 to 15/10/2010 amounted to ₹ 1,67,42,135/- only. Hence the assessee is not entitled to any deduction u/s. 54F of the I. T. Act or such claim of deduction was required to be res .....

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orrect sale consideration of NA land of ₹ 6.01 crore but taken wrong sale consideration of ₹ 5,77,71,445/- for calculating LTCG. 3)| (i) It is also seen that The case was selected through CASS to examine the source of cash deposit in some bank account as per AIR information. As per AIR information, total cash of ₹ 1,01,26,300/- was deposited in savings bank accounts with Indian Bank Account No.6008 of ₹ 21,08,000/-, ₹ 14,45,000/- in Savings Bank Account No. 16458 in .....

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r has also failed to seek any clarification from the assessee with respect to the wealth tax liability for the year under consideration. 4.1 In response thereto, the assessee made submissions vide letter dated 12/09/2013 and also made further submissions vide written submissions letter dated 03/10/2013. At the outset, the contention of the assessee is that these written submissions were not considered by the ld.CIT before passing the impugned order. We find that the ground for revising the asses .....

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evant to Assessment Year 2009-10 was originally agriculture land and after conversion into non-agricultural land it was sold and the income was offered as business income. It was observed by the ld.CIT that, in fact, assessee obtained relief from the Appellate Authority on the ground that the provisions of wealth tax were not attracted on the said land which had become business asset after conversion into non-agricultural land. Therefore, the ld.CIT was of the view that in the year under appeal .....

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he assessee that there is no prohibition under the law that an individual can have two portfolios, i.e. investment and business. The Revenue has not demonstrated under what provision of law, the assessee can be forced to treat its investment/fixed assets as stock-in-trade. The decision with regard to treating a particular asset as fixed asset or stock-in-trade is solely lies with the assessee and the Revenue has no role in this regard. Primarily, the inference with regard to whether it is an inv .....

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out of such transfer of the land as business income . Therefore, in view of the ld.CIT, the assessee was carrying out business. It is a settled position of law that a business man can be engaged into a business of sale and purchase of articles, goods and at the same time he can also make investment in such goods or articles as an investor. In a case of Jeweller, he can be engaged in the business of sale and purchase of jewellery, at the same time, he can also make investment in gold, jwellery an .....

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d deduction u/s.54F on account of investment in construction of farm house at Kanchi, Sevasi. Total investment in Farm House Kanchi upto 15/10/2010 is claimed at ₹ 4,14,53,677.91. The assessee has claimed decuction to the extent of investment during the period from 01/04/2009 to 15/10/2010 at ₹ 2,58,18,842/- in construction of house because of extended due date for filing of return of income u/s.139(1) for A.Y. 2010-11. It is further observed that in construction of farm house, it wa .....

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d land was purchased on 10/11/2004 and 26/08/2005 which is much before transfer of original capital asset on 27/01/2010, but the assessee has included even this cost in the cost of construction of house. So, the cost of construction of house from 27/01/2010 to 15/10/2010 comes to ₹ 1,33,32,029/- only as against ₹ 2,58,18,842/- claimed to have been incurred by assessee in the computation of income filed with the Return of Income. It is further established from the copy of account file .....

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ased within the period as laid down in Clause (a) & (b) of Sub-section 1 to Section 54 of the Act. It was further observed that the land on which the farm house was constructed for claim of deduction u/s.54F of the Act was purchased in 10/11/2004 and 26/08/2005 and also obtained construction approval in Decembner-2006, i.e. even before the purchase of land (original asset - purchased in October-2006 & February2007) which was sold during the previous year to generate long term capital gai .....

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the said residential house subsequent to the transfer of original capital asset under consideration. So far this reasoning is concerned, we find that the AO has allowed deduction without examining this aspect. Contention of the assessee is that the AO had raised a specific query in this regard and after considering the facts, submissions and case-laws allowed the deduction. But no such material is placed on record of this Tribunal that the AO during the course of hearing raised query with regar .....

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lowed for statistical purposes. 5. Now, we take up the assessee s appeal in ITA No.1827/Ahd/2014 for AY 2010-11. The assessee has raised the following grounds of appeal:- 1. Ld.CIT(A) erred in law and on facts in dismissing appeal filed by the appellant holding the same to be beyond jurisdiction of appellate proceedings before him. Ld.CIT(A) ought to have considered written submissions; documentary evidence and caselaws relied upon by the appellant and ought to have decided issue under appeal wh .....

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cision on the merits of the issue already decided by CIT passed proper and correct order while giving effect to the order u/s.263 of the Act. Ld.CIT(A) ought to have appreciated that the direction to pass appropriate orders after providing opportunity to appellant meant to decide issues on merits without blindly following directions as binding. It be so held now. 4. Ld.CIT(A) erred in law and on facts in dismissing grounds challenging nature of income as to whether business income or long term c .....

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