TMI Blog2014 (3) TMI 1001X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Therefore, it cannot be presumed that the assessee would not have disclosed the capital gain which was disclosed only as a result of search. It is a fact on record that the AO has accepted the sale consideration disclosed by the assessee. The enhancement in income determined by the AO is not because of suppression of income or non disclosure of income by the assessee but due to disallowance of exemption claimed u/s 54 of the Act. Therefore, considering the totality of facts and circumstances of the case, we are of the view that in the facts of the present case, initiation of proceedings u/s 153C of the Act is not maintainable. Accordingly, the assessee’s ground on this issue deserves to be allowed. - Decided in favour of assessee. Entitlement to exemption u/s 54 - Held that:- The facts and materials in the present case clearly indicate that the property concerned is a residential house with all the amenities. Only because it has ACC roof, it cannot be considered to be a temporary structure. The decisions relied upon by the assessee also support such view. So far as AO’s finding that assessee has purchased two separate properties (new asset) is concerned, the same is also f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments relating to the assessee were found and seized, as a result of which, a notice u/s 153C of the Act was issued to the assessee on 20.09.2010 calling upon him to file his return of income for the assessment year under dispute as well as preceding assessment years starting from 2003-04. In response to the notice issued u/s 153C of the Act, the assessee filed his return of income on 21.10.2010 declaring total income of ₹ 51,15,783/- which included long term capital gain of ₹ 49,81,625/-. In course of the assessment proceedings, the assessing officer on going through the seized materials noted that the seized materials marked as Annexure- A/GRR/PO/1 contained a sale deed as per which assessee sold a house property at door no.24-1-31, Sambamurthy Road, 2nd Lane, Babujipet, Vijayawada admeasuring 979 Sq.yds. with 1120 Sq.ft. of RCC structured area to M/s. Minerva Grand Hotels Pvt. Ltd. on 14.11.2007. The seized material also contained detailed computation of capital gain in case of the assessee and his mother Smt. G. Bangaramma in the hand writing of Shri Gadiraju Ramakrishnam Raju, the father of the assessee. During the search proceedings, a statement was recorded fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Grand Hotels Pvt. Ltd. for a total consideration of ₹ 3 crores on 14.11.2007. He further noted that out of the sale consideration of the aforesaid properties, the assessee has purchased two assets through Possessory Sale Agreement-cum-GPA dated 22.12.2007 executed by Sri Datla Venkata Satyanarayana Raju and Shri Datla Gopi Krishnam Raju in favour of the assessee. The asset sold by above named persons are 959 Sq.yds. and 773 Sq.yds. (total 1732 Sqyds.) pertaining to the same survey number i.e. survey no.10/5A Part of Chinawaltair, Visakhapatnam with ACC shed in one part stated to have been jointly constructed by them for a sale consideration of ₹ 2,07,84,000/-. The assessing officer noted that though the two assets were sold through a single deed but the sellers Shri Datla Venkata Satyanarayana Raju and Shri Datla Gopi Krishnam Raju received the sale consideration separately amounting to ₹ 1,15,08,000/- and ₹ 92,76,000/- respectively. The sale deed further mentioned that the properties are contiguous forming a single block of the total extent of 1732 Sq.yds. Subsequently, the vendors jointly got constructed a residential house, which was assessed to tax as do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment agreement, the assessee has intended to alienate the property for development purpose and he has no intention to construct a residential house property as intended by the Act. He therefore issued a show cause notice to the assessee proposing to disallow the claim of exemption u/s 54 of the Act. Though the assessee submitted a detailed explanation objecting to disallowance of exemption u/s 54 of the Act, the assessing officer however rejecting such explanation of the assessee disallowed the exemption claimed u/s 54 of the Act observing as under:- 1) The assessee contends that the original asset is a single unit though registered in two pieces which is not acceptable as the original properties were purchased on different dates for different sale considerations and the scheduled properties are as described in the sale deeds are one is house property and the other one is a vacant land. Hence, they are two different properties. 2) The assessee submitted that the sale of original assets resulted in capital gains and for availing the exemption u/s.54, a house was purchased from father and son through a common sale deed as the father and son were joint holders of the ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment was made for claiming deduction u/s.54 on 22.12.2007 in a house property and till date, I have not alienated/transferred the said property and by 22.12.2010, the said period of 3 years will be over. He submitted that the agreement with Vaibhav Gold Coast Pvt. Ltd., has not taken effect till date excepting the advances received from them by Shri Gadiraju Ramakrishnam Raju. I have neither received any advance nor have parted with any possession rights. For alienation of property, there must be a transfer within the meaning of Section 2(47). Mere intention to sell the property is not enough to deny exemption u/s.54. Since the agreement has not proceeded with further, mere intention does not preclude the assessee from claiming exemption u/s.54 or u/s.54F. The above contention of the assessee is not acceptable because after purchase of the new asset on 31.7.2008. within two days i.e., on 2.8.2008, the assessee along with other family members has entered into an agreement with M/s.Vaibhav Gold Coast Pvt. Ltd., Visakhapatnam. As per the agreement, the developer shall construct a multi-storied building in the said land, subject to approval by the competent authority, compr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso received the advance of ₹ 6 crores from M/s. Vaibhav Gold Coast Private Limited which is a part of agreement and the money is still with the assessee till date. 5) The assessee in his submissions dated 15.12.2010 further contended that the Department in its letter pointed out that the assessee did not show income from house property in the returns of income for the earlier assessment years and the property should chargeable to tax under the head income from house property to claim exemption u/s.54 and drawn attention to the CBDT Circle No.538 dated 12.7.1989. As per the said circular, income of self-occupied residential house is chargeable under the head income from house property even though in certain circumstances such income may be computed at nil or at negative figure by virtue of Section 23(2) r.w.s.24. A person is therefore entitled to claim exemption u/s.54 even in respect of selfoccupied residential house. As already stated the said residential house in Vijayawada which I have sold is self-occupied residential house. The assessee has rightly quoted the CBDT Circular that the property sold should be shown under the head income from house property eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was mentioned that the properties are contiguous forming a single block of the total extent of 1732 sq.yards. Subsequently, the vendors jointly got constructed a residential house and assessed to tax bearing D.No.2-48-7, Asst. No.3900071907. But, as seen from the House Tax pass book issued by the Municipal Corporation, Visakhapatnam, with Property Tax Asst.No.3900071907 from the year 2004 onwards, the property with ACC roof shed was only assessed to tax in the name of Shri D.V. Satyanarayana Raju. However, in the registered sale deed the sellers claimed to have jointly constructed a residential house and assessed to tax. 6. The Ld. A.R. submitted before us that the proceeding u/s 153C of the Act was initiated solely on the basis of the registered sale deed dated 14.11.2007 and a computation of income made by the assessee s father Sri Gadiraju Ramakrishnam Raju in case of the assessee and Smt. Bangaramma. The Ld. A.R. submitted that the registered sale deed is a public document and under no circumstances can be considered as an incriminating material. So far as the computation of income in the hand writing of Sri Gadiraju Ramakrishnam Raju is concerned, the Ld. A.R. submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the capital gain from sale of the property. It was further contended by the Ld. A.R. that since provisions contained u/s 148 of the Act and 153C of the Act are mutually exclusive, where action can be initiated u/s 148 of the Act, the provisions of section 153C of the Act cannot be invoked. He therefore contended that the proceeding initiated u/s 153C of the Act is void. 9. We have heard the contentions of the parties and perused the orders of the revenue authorities as well as other materials on record. We have also carefully applied our mind to the decisions relied upon by the parties. It is apparent from the assessment order that the assessing officer has proceeded u/s 153C of the Act. However, we may observe that while dealing with assessee s ground on this issue in para-7 of his order extracted herein above, the CIT(A) has recorded a finding of fact that warrants were in the name of the assessee. Hence, if search and seizure operation was conducted in pursuance of such warrant, notices u/s 153A of the Act had to be mandatorily issued to the assessee. If that is the conclusion of the CIT(A), then the very edifice of the assessment order u/s 153C of the Act would collapse, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the AO having jurisdiction over such other person and that AO shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A 10. A plain reading of the aforesaid provision makes it clear that two conditions have to be satisfied for initiating proceedings under section 153C of the Act. Firstly, the AO must be satisfied that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A. Secondly, after being satisfied that it belongs to a person other than the persons to whom seized, he shall handover the seized material to the AO having jurisdiction over such other person and that AO shall proceed against such other person by issuing notice for assessing or reassessing for such material. Thus, the primary condition for assumption of jurisdiction under section 153C of the Act is the seized materials must belong to the person against whom proceedings under section 153C is sought to be initiated. As would be evident from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire payment shown on the paper total-up to around ₹ 10 to ₹ 12 lakhs and there is nothing in this paper to show that this belongs to the assessee trust or has any connection with it. Page 61 contains certain calculations which do not suggest that it has anything to do with assessee trust. Page No. 64 is no doubt a letter signed by the Chairman and Managing Trustee of Sri Rama Educational Trust. The letter is a certificate issued to whom-so-ever it may concern, certifying that certain works of construction are entrusted to M/s.HNR construction, a proprietorship concern of Sri Tangi Hari Narayana. This though is on assessee's letter head is a general certificate which is issued to HNR Construction and there is nothing either incriminating in this document suggesting any unaccounted transactions. This certificate only says what is already declared in the books of accounts of assessee. In my opinion if 153C proceedings can be initiated based on such general letters that would be stretching the law a bit too far. If that is the intention of the lawmakers then 153C proceedings can be initiated against all assesses whose letter heads/visiting cards are found during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson. However, there is a distinction between the two provisions in as much as under s. 153C notice can be issued only where the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong to such other person, whereas under s. 158BD if the AO is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under s. 132 or whose books of account or other documents or assets were requisitioned under s. 132A, he shall proceed against such other person under s. 158BC. 13. Thus a condition precedent for issuing notice under s. 153C and assessing or reassessing income of such other person, is that the money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned should belong to such person. If the said requirement is not satisfied, resort cannot be had to the provisions of s. 153C of the Act. 14. Examining the facts of the present case in the light of the aforesaid statutory scheme, it is an admitted position as emerging from the record of the case, that the documents in question, namely the three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions for assuming jurisdiction under section 153C are not satisfied. So far as the decisions relied upon by ld D.R. in support of his contention, after carefully applying our mind to the ratio laid down therein, we observe that the decisions are distinguishable on facts and do not apply to the facts of the assessee s case. In that view of the matter, we do not find any infirmity in the order of the CIT(A) in holding the initiation of proceedings under section 153C to be ab initio void and consequently annulling the assessments for all the aforesaid assessment years. Accordingly, we uphold the same by dismissing the grounds taken by the department. 10. The ITAT Delhi Bench in case of V.K. Fiscal Services Pvt. Ltd. Vs. DCIT in ITA Nos.5460 to 5465/Del/2012 on a conspectus of decisions of different high courts as well as different benches of ITAT also expressed the view that in absence of incriminating material belonging to assessee, proceeding u/s 153C cannot be initiated. Hon ble A.P. High Court in a judgement dated 12.7.2003 in ITA No.266 of 2013 in case of M/s. Hyderabad House Pvt. Ltd. Upheld the decision of the ITAT Hyderabad bench, wherein it is held that computation of u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d exemption u/s 54 of the Act, basically on the following reasons: 1) Assessee has sold two properties (original assets) and purchased two separate properties i.e. (i) a land and another a land with house. 2) the so called house is actually a temporary structure, hence conditions of section 54 of the Act is not satisfied. 3) For claiming exemption u/s 54 of the Act the residential house must be either occupied by assessee or deriving income from house property. 4) The assessee has entered into a development agreement within 3 days of purchase of property which clearly shows the intention of the assessee is to commercially exploit the property and not to construction of a residential house. 13. Though, the CIT(A) agreed with the assessee that statutory provisions do not require that the house property sold should have been generating income in the past. However, the CIT(A) ultimately upheld the view of the AO in denying exemption claimed u/s 54 of the Act. 14. The Ld. A.R. countering each of the reasons for denial of exemption submitted before us that the assessee has actually sold a single property and not two properties as concluded by the assessing officer. Draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see that he has purchased the property for construction purposes is very much clear. It was further contended that even the development agreement also ultimately could not go through and had to be cancelled and was not acted upon. Therefore, the assessing officer was incorrect in observing that the assessee had no intention of constructing a house property on the land so as to entitle it to avail exemption u/s 54 of the Act. In support of such contention, the assessee relied upon a number of decisions which are as under: 1. V.A. Tharabai Vs. DCIT (2012) 14 ITR (Trib) 15 (Chennai) 2. ACIT Vs. Narendra Mohan Uniyal (2009) 34 SOT 152 (Del) 3. Subhash Chand Kapoor Vs. ITO (2010) 46 DTR (Agra) (Trib) 314 4. Ravindra K. Mariwala Vs. JCIT (2003) 81 TTJ (Mum) 589 15. The Ld. AR refuting the finding of the AO that assessee has purchased two separate properties (new assets), one a land and another a house, hence the assessee is not entitled for exemption u/s 54, submitted that assessee actually has purchased a land with a house and not two separate properties. In this context, the Ld. AR drew our attention to the sale agreement dated 22.12.2007 and final sale deed dated 31.7.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property initially purchased vide sale deed dated 28.6.1942 vide registered document no.2040/1942. The schedule of property at page 114 and 119 also makes it clear that the property in question is a single property though it has been sold under two separate documents. However, that by itself would not make it two separate properties. That besides the site plan of the property at page 10 of the paper book, which is part of the original sale deed, clearly shows that the property is a single property consisting of a structure facing the road and vacant land in the backyard. Therefore, it cannot be considered to be two separate properties as concluded by the assessing officer and also affirmed by the CIT(A). So far as the conclusion of the revenue authorities that it is only a temporary structure and cannot be considered as a residential house, we are not able to agree with the same. The materials on record clearly show that the structure standing over 1000 s.ft. cannot be considered to be a temporary structure constructed for the security of the property. The photograph as well as the lay out plan of the structure clearly shows that it is a residential house with two bed rooms, kitch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidential house. Therefore, before expiry of the period of three years as allowed u/s 54 for construction, the AO cannot deny such exemption to assessee. Therefore, considering the totality of facts and circumstances in the light of ratio decided in the decisions relied upon by the Ld. A.R., we are of the view that assessee will be entitled to exemption u/s 54 of the Act. 18. In the result, assessee s appeal is allowed. ITA No.361/Vizag/2013: 19. Ground nos.5 and 6 to 10 are identical to similar grounds raised in ITA No.360/Vizag/2013. Following our decision therein, we allow the grounds. In addition to the aforesaid grounds, Ld. A.R. in course of hearing raised one more issue by contending that while claiming exemption u/s 54 of the Act, the assessee had restricted the claim to one property purchased for ₹ 1,97,52,000/- on 31.7.2008 and did not make the claim in respect of investment made in another property purchased on 24.3.2008 for ₹ 61,60,000/-. The Ld. A.R. submitted that since the assessing officer has dealt with the relevant factual details relating to the investment made in the above two properties which is available in para 5 of the assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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