Deduction U/s. 54F not allowable if constructed house are not habitable

As seen from the above provisions of section 54F, the assessee is required to purchase with a period of one year before or two years after the date on which the transfer took place or constructed within a period of three years after the date of transfer, any new residential house. Before the lower authorities, the learned AR took a plea that the assessee has purchased the house bearing No. 1-50/3 at Kokapet village, Hyderabad vide sale deed dated 15.12.200. The AR also taken a plea that the assessee made a payment of Rs. 106 lakhs towards improvement thereof and being so, the assessee has appropriated the sale consideration for the purpose of a new house, the benefit u/s. 54F has to be given. To verify the facts of the case, the Assessing Officer carried on inquiry and found that there was no construction as mentioned in the sale deed. Instead, there was a small construction consisting of two rooms made of hollow bricks located from south to north measuring about 200 sq. ft. as against 600 sq. ft. in the sale deed. The assessee taken a plea before the lower authorities that this construction was used by servants as their residence. However, the Assessing Officer brought on record that the said construction was not fit for human habitation and also there is no evidence of carrying out  any improvement after purchasing the property by the assessee. It is also brought on record that the assessee failed to substantiate the claim that some servants are staying in that construction.

9. Before us, the assessee repeated the arguments as made before the lower authorities. However, not placed necessary evidence in support of the claim of whatsoever to show that the said construction is in habitable condition. A construction in inhabitable position cannot be equated with a residential house. If a person cannot live in a premises, then such premises cannot be considered as a residential house. In our opinion, investment in the construction would be complete as a house only when such house becomes habitable. This view of ours is supported by the decision of co-ordinate Bench in the case of Saleem Fazelbhoy vs. DCIT in 106 ITD 167 (Mum) and Sonia Gulati (115 Taxman 231). The evidence brought on record by the Assessing Officer clearly shows that the property purchased by the assessee would not fall within the description of residential house. Being so, the claim of the assessee cannot be allowed u/s. 54F of the Act. This view is also supported by the co-ordinate Bench in the case of Smt. Rohini Reddy (supra).

10. Now coming to the additional investment of Rs. 106 lakhs said to be made on the construction of the above property as the payment has been made by cheque. It is brought on record by the Assessing Officer that the assessee has received back majority of the amount from the contractor to whom payment has been made. The contention of the assessee’s counsel is that the contractor Sri K. Eswar Reddy has confirmed the construction of AC sheets shed with two rooms and compound wall for the entire site area. Even if there is construction of a shed that construction cannot be considered as residential house so as to grant deduction u/s. 54F. As we discussed earlier, a residential house means, the house which is fit for habitation. Further a property not fit for residential purpose and which is only a temporary structure cannot be construed as residential house. In other words, we do not mean that a house means a palatial house. On the other hand, a house means a habitable building. Considering the facts of the present case, whatever construction shown by the assessee cannot be considered as “residential house” u/s. 54F of the Act. The popular meaning of the word “house” is a place or a building used for habitation of persons. “Residential house” is a dwelling house as distinguished from a house of business, warehouse, office, shop, etc. In other words, residential house is a building used as a place of abode in which people reside or dwell in contra distinction in one which is used for commercial or business purposes. Since a house is called residential house with reference to the purpose of its users, it may not be necessary that somebody should live in it continuously. It is enough if it was a house for residence. Therefore, the assessee’s plea cannot be considered as there is a residential house as the said structure cannot be considered as a dwelling unit and the investment claimed by the assessee is not eligible for deduction u/s. 54F of the Act. Being so, the claim of the assessee cannot be allowed u/s. 54F of the Act. Accordingly, we confirm the order of the CIT(A) on this issue.

INCOME TAX APPELLATE TRIBUNAL, HYDERABAD

ITA No. 705/Hyd/2011 – Assessment year 2007-08

Smt. Usharani Kalidindi vs. The Income Tax Officer

ITA No. 572/Hyd/2012 – Assessment year 2004-05

Sri K. Bala Vishnu Raju vs. The Asst. CIT

ITA No. 704/Hyd/2011 – Assessment year 2007-08

Sri K. Bala Vishnu Raju vs. The Add. CIT

Date of pronouncement: 15.03.2013

ORDER

PER CHANDRA POOJARI, AM:

These three appeals by different assessees are directed against the different orders of the CIT(A)-IV, Hyderabad dated 31.1.2012. Since the issues involved in these appeals are common, they are clubbed together, heard together and are being disposed of by this common order, for the sake of convenience. First we will take up the appeal in ITA No. 705/Hyd/2011.

ITA No. 705/Hyd/2011 (By Smt. K. Usharani):

2. The assessee raised the following grounds:

(i) The order of the learned CIT(A) is against law, weight of evidence and probabilities of the case.

(ii) The learned CIT(A) erred in upholding the denial of deduction claimed by the appellant u/s. 54 of the IT Act, 1961.

(iii) The learned CIT(A) ought to have appreciated that the appellant has invested Rs. 90,40,000 in acquiring the new asset viz., a residential house bearing No. 1-50/3, in Block No. 8, Sy. No. 102/ Part A at Kokapet having built up area of 600 sq. ft which is evidenced by sale deed dated 15-12-2006 duly registered in favor of the appellant and by furnishing clinching evidence in support of construction of a house together with compound wall.

(iv) Having found as a fact that the appellant has made payments of Rs. 1,06,00,000/- towards additional investment and also having found that additional construction was also admittedly made, the learned CIT(A) erred in negating the claim of additional investment in toto.

(v) On the facts and in the circumstances of the case, the learned CIT(A) ought to have held that any amount of capital gain held as not appropriated towards acquisition of the new asset is to be assessed in the previous year in which the period of three years from the date of transfer of the original asset expired.

(vi) For the above grounds and such other grounds that may be urged at the time of hearing, the appellant prays that the appeal be allowed. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.

3. Brief facts of the issue are that the assessee filed return of income declaring income at Rs. 17,54,250 along with agricultural income of Rs. 4,52,000. The Assessing Officer determined the income at Rs. 2,16,34,695 as against the returned income in addition agricultural income of Rs. 4,52,000. In this case the assessee sold a  house situated at Dwarakapuri Colony, Hyderabad for a consideration of Rs. 2.3 crores. After reducing the cost of acquisition, improvement and expenses related to transfer, the capital gains were arrived at Rs. 1,98,26,085. Out of such capital gains, the assessee claimed deduction of Rs. 1,96,40,000 u/s. 54 and finally arrived at a taxable capital gains of Rs. 1,86,085.

3.1 For supporting the claim of deduction u/s. 54, during the course of assessment proceedings, the assessee had submitted a sale deed dated 15.12.2006, whereby a house ad measuring 600 sq. ft. had been purchased by the assessee for Rs. 80,00,000. It was submitted by her that she had incurred an additional amount of Rs. 1,06,00,000 on the house so purchased. The said amount was, therefore, also added to the value of the house purchased. On being required to furnish the details of the additional work undertaken, the assessee submitted that the said amount had been paid towards earth filing with mouram, laying of BT Road, construction of rooms, breaking and removal of boulders etc. The Assessing Officer issued summons to the persons, to whom the payments were made for such works. In response, Sri K. Eshwar Reddy, Sri K. Krishna Reddy and Sri V. Satyanarayana Rao submitted that they could not complete the works undertaken and, therefore, major amounts were returned back to the assessee.

3.2 The Assessing Officer further deputed the Inspector attached to her office for necessary verification. Vide his report dated 1.12.2009, the Inspector submitted that on physical verification of the site, he could find only a small construction, consisting of two rooms, that too with hollow bricks. It was also found by him that the said construction was located from South to North, whereas it was shown as from West to East in the Sale Deed. Besides, the plinth area of the structure was about 200 sq. ft. only, and not 666 sq. ft, as mentioned in the sale deed. It was found that the construction was covered with a sheet of asbestos roof and the entrance was covered with an iron door. There was no lock or hinge to the said door, and therefore, the construction was open to  all. It was also noticed that there was an open window, without any iron grill or door to close it. The construction did not have any electricity or water facility. Besides, there was no indication of fire place therein to suggest any cooking activities. The Inspector, on an examination of the surroundings, concluded that nobody was residing there. He also mentioned that nobody was available at that site on the day of his visit and that there were no houses in and around half kilometer radius of the site. He also observed grass growing over the entire site, besides some bushes. Accordingly, he concluded that the place was not a habitable one. The Inspector also enclosed photographs taken by him of the above mentioned construction. He also reported that he could not find any signs of demolished construction in the south west corner of the site, where, originally, a building should have been existing as per the site plan enclosed with the sale deed. The Inspector also met the Sarpanch of Kokapet Village, who accompanied him to the site. The Sarpanch, who is born and brought up in Kokapet itself, stated that no hills or boulders were existing at the said site as per his knowledge. The Inspector did not find even any mouram or bitumen road inside the compound wall. He only found a road made up of quarry dust, that too only outside the boundary wall. The Assessing officer noted that though the assessee had submitted a quotation mentioning that a bitumen road was proposed to be laid from the main road to the site, the surrounding circumstances did not support the argument of the assessee. He noted that it is generally the responsibility of the person developing the venture to lay the roads and that the assessee also had purchased the plot in such a venture only. In View of the report of the Inspector, the Assessing Officer brought his findings to the notice of the assessee and provided one more opportunity for arranging a second visit, in case she differed with the same. Copies of the photos taken by the Inspector were also forwarded for her comments.

3.3 Vide a letter dated 23.12.2009, the assessee submitted that the additional construction, for which the amounts were advanced, though started, could not be completed due to certain disputes. It was  submitted that the actual amounts spent for preliminary works are not justifiable by the present physical appearance after a lapse of nearly 3 years. However, the assessee did not offer any comments on the Assessing Officer’s request for a second visit for disproving the observations of the Inspector. The assessee could not also explain the existence of the building with a plinth area of 600 sq. ft.

3.4 The Assessing officer further noted that Sri K. Eshwar Reddy, in his reply dated 10.12.2009, had submitted that he had constructed an AC Sheet shed with two rooms and a compound wall for the entire site. The Assessing Officer felt that the construction seen by the Inspector on the site was the additional construction undertaken by Sri K. Eshwar Reddy only. She, therefore, concluded that in view of the same, the house claimed as purchased vide document No. 838/7 dated 15.12.2006 must have been demolished and, therefore, the same was not in existence at the time of the IT Inspector’s visit.

3.5 The Assessing Officer further noted that though the assessee did not avail the opportunity of the second visit offered by him, she filed a letter dated 23.12.2009, wherein the claimed for additional construction appeared to have been taken back. The assessee had requested to allow the deduction to the extent of the value mentioned in the sale deed, along with the stamp duty. The Assessing Officer, therefore, opined that the assessee was not in a position to establish the existence of a residential house, having a plinth area of 600 sq. ft., nor the additional works undertaken by her. He opined that had the works really been undertaken, as claimed, nothing would have prevented her from arranging a second visit and explaining the indications of the preliminary works executed and the existence of the said 600 sq. ft house.

3.6 In view of the above, the Assessing Officer concluded that the assessee had only tried to hoodwink the Department from all angles. It was only after her claim regarding additional works was questioned with reference to the site visit report and the statements of the persons  claimed as having done the works, that the assessee took back her claim regarding additional works and requested for allowance of deduction to the extent of Rs. 90,40,000 only, which is the cost of the purchase of the house. She noted that on physical inspection, even the house claimed as purchased through the sale deed was also not visible and only two rooms constructed subsequently were physically available. Therefore, he concluded that the house purchased by the assessee must have been demolished and what was found was only a site and a make believe house of two rooms with hollow bricks.

3.7 Having arrived at the above findings, the Assessing Officer opined that the purpose of enactment of sec. 54 is encouraging the housing sector. He opined that for availing such exemption, the proceeds from the capital gains should be invested in a residential house. He noted that even though “residential house’ is not defined in sec. 54, it normally means a place where people can eat, drink and sleep. In this regard, he relied on the decision of the Mumbai Bench of this Tribunal in the case of ITO v. Rasiklal N Satra (98 ITD 335). He noted that in assessee’s case, ‘the house’ mentioned in the sale deed was not in existence at the time of Inspector’s visit and the assessee failed to prove its existence. Even the new construction, as found by the Inspector, was not a place where people could eat, drink and sleep. There was no indication of any servant residing in the said construction. Further, there was no place to cook food. Besides, the grass and bushes found there also established that nobody was residing there. Accordingly, he concluded that what was constructed by the assessee was not a residential house as envisaged in sec. 54. Since the assessee did not come forward with any evidence to prove the existence of the house with a built up area of 600 sq. ft., the Assessing officer inferred that the assessee had accepted his conclusion that the house transferred through the sale deed was not in existence at all as on date. Referring to the decisions in the cases of ITO v. Pawan Kumar Garg (97 ITD 575) (Chd), Pawan Kumar Garg v. CIT (163 Taxman 383) (P&H)  and Rita Gaur v. DCIT (90 ITD 24) (Luck). He concluded that deduction u/s. 54 is not available, if an assessee purchases only a site.

3.8 The Assessing Officer further noted that as per the sale deed, the assessee had purchased the house situated on an area of 2541 sq. yards and the extent of the built up area mentioned therein was 600 sq. ft. only. He noted that the site was situated about 1 Km from Kokapet village and there were no houses in and around half a kilometer thereof. Accordingly, in his view, the construction ad measuring 600 sq. ft. had no value and therefore, it could be concluded that the assessee had paid the sale consideration towards purchase of land only and not for any construction. However, he noted that in the annexure attached to the sale deed, the ‘house’ had been stated to be ‘new’. Accordingly, he opined that this proved that the description so given proved that the sale deed had been got registered as a ‘sale deed’ in respect of purchase of a house of 600 sq. ft only for the purpose of getting deduction under sec. 54. He observed that the assessee had claimed having incurred additional construction charges after the purchase of the site, which, in fact, were received back by her, as stated by the persons concerned.

3.9 Accordingly, the Assessing officer did not allow the deduction u/s. 54 of the Act for the purchase of the house property, after rejecting the claim of the expenditure towards construction charges. Since the assessee failed to furnish any evidence regarding the payment of Rs. 10,000/- at the time of acquisition of the building sold, such expenditure was also not allowed. The Assessing Officer has also enclosed the photographs of the new construction and the plot, besides the road made up quarry dust, as annexure to the Assessment order.

4. On appeal the CIT(A) observed that the Assessing Officer found that there was no construction from West to East, as shown in the sale deed. Instead, there was a small construction, consisting of two rooms, made of hollow bricks, located from South to North. Besides, the plinth area of the structure found existing was also about 200 sq. ft. only, as against 600 sq. ft, mentioned in the sale deed. Further, while it was  claimed by the assessee that the said ‘house’ was being used as ‘residence’ by one of the servants of the assessee, the spot verification showed that the place was not a habitable one on account of the nature of construction and absence of any evidence regarding use thereof. Besides, the Inspector did not find any sign of any demolished construction in the South-West corners of the site, where the building had been shown as existing in the site plan enclosed with the sale deed. In view of these findings, the Assessing officer concluded that the assessee was not in a position to establish the existence of a residential house having plinth area of 600 sq. ft. or any additional work undertaken by her for its improvement. She concluded that the house purchased by the assessee must have been demolished and what was visible during the field inquiry was only a site and a make believe house of two rooms, made of hollow bricks. It is further seen that the findings of the Assessing officer on account of such field inquiry could not be rebutted by the assessee even after being provided an opportunity for the same.

4.1 The CIT(A) observed that it is clear that even if the 600 sq. ft. house had been purchased along with the land concerned, the assessee is not eligible to claim deduction u/s. 54F on this account. It is clear that the deduction u/s. 54F is available in respect of a ‘residential house’. On the other hand, the structure, existing on the plot of land as per the sale deed at the time of purchase, cannot be considered as a ‘residential house’. It is the claim of the assessee’s representative that the structure had been treated as a ‘residential house’ in view of certain judicial precedents. In this connection, it is seen that in the case of Manoharlal v. ITO (Taxation 76(6)-52), the Delhi Tribunal had opined that the plot of land, surrounded by a boundary wall, and having a room, with a roof constructed thereon, was to be considered as a ‘house property’, even though there was no latrine or bathroom therein. However, it is clear that the said decision had been rendered in connection with the erstwhile sec. 53 of the IT Act, 1961. As against this, the legislative intention of granting exemption under sec. 54F is to  give encouragement to housing. In fact, the Tribunal Hyderabad Bench in the case of ITO v. Rohini Reddy (122 ITD 1) have opined that since the expression “Residential House” is not defined under the Act, the purposive meaning has to be adopted to such expression, instead of going by the technical meaning assigned under various enactments or by the meaning given in the dictionary. They opined that the totality of the circumstances in the said case indicated that the property purchased was never intended to be used as a ‘residential house’, either by self occupation or for letting out. In view of the said decision of the Tribunal Hyderabad Bench, as also the clear legislature intention behind sec. 54F, the CIT(A) was of the view that in view of the findings of the Assessing officer during the field enquiry, the construction of 600 sq. ft. on the impugned land, even if existing at the time of purchase thereof, cannot qualify as a ‘residential house’. Besides, looking to the status of the assessee, it is clear that she would have never intended to use the house ad measuring 600 sq. ft. for her self occupation. It is also clear that despite contending that the same was being used as residence by one of her servants, the said claim remains unsubstantiated and the facts gathered during the field inquiry rather betray such claim. Accordingly, he concluded that the assessee is not eligible for any deduction u/s. 54F even on account of the investment of Rs. 90,40,000 in the purchase of the land at Kokapet and the alleged structure thereon.

4.2 With regard to the claim of additional investment of Rs. 1,06,00,000 towards improvement of the above property, the CIT(A) observed that though the assessee had made payments towards the same through cheques and the payees have also confirmed having received the said amounts before the Assessing officer, majority of the amounts so given have been admittedly received back by the assessee. Further, Sri K. Eshwar Reddy in his reply dated 10.12.2009, confirmed having constructed an AC Sheet Shed with two rooms and compound wall for the entire site. It is clear that, for the reasons mentioned in the above paragraph, even such construction cannot qualify for a  residential house, so as to claim exemption under sec. 54F of the Act. Besides, the CIT(A) agreed with the view of the Assessing officer that there should have been some signs of improvements even after three years at the time of inspection. However, it is clear that the field enquiries only revealed a small construction of hollow bricks consisting of two rooms, while there were no signs of any roads made with mouram or quarry dust inside the compound wall.

4.3 As regards the claim of the assessee that the amount of Rs. 1,06,00,000 advanced to contractors should be considered as an ‘appropriation’ towards purchase of the new house property within due time, the CIT(A) was of the opinion that even though the assessee had time for such construction till three years from the sale of the original asset, the amounts had indeed been returned by them. Though it is claimed that the amounts were returned due to certain disputes, the assessee has not brought any evidence on record to the effect that she intended them to resume the work after settling the alleged dispute. Accordingly, the CIT(A) concluded that despite the fact that there was outflow of such amounts, as evidenced by cheque payments made to the contractors, the same did not amount to either investment or ‘appropriation’ of such amounts for a new residential house. He was of the view that the decision in the case of Jagannath Singh Lodha vs. ITO (148 Taxman 1) (Jodh.), relied upon by the representative of the assessee, it is not applicable to the assessee’s case, as in assessee’s case, no new house has been acquired by the assessee within the stipulated time.

4.4 In view of the above discussions, the CIT(A) held that he found no infirmity in the computation of capital gains by the Assessing Officer without allowing any deduction claimed under sec. 54 for the purchase of new house property, as also, the rejection of the assessee’s claim regarding incurrence of additional construction charges. Accordingly, He rejected the grounds raised by the assessee.

5. The learned AR submitted that the assessee by way of letter dated 23.12.2009 had submitted before the Assessing officer that the document evidencing purchase of house shows a house existing thereon with a built up area of 600 sq. ft. The total investment of Rs. 90,40,000/- was made for the purchase of the said house, including the payments towards registration charges and commission paid. The assessee had also intimated the Assessing officer that the said house was being used as ‘Residence’ by one of the servants of the assessee. The AR further submitted that the additional construction, for which purposes amounts were advanced, though started could not be completed due to certain disputes. He also submitted that the actual amounts spent for preliminary works were not susceptible for justification by physical appearance at the time of visit of the Inspector, due to lapse of period of 3 years.

5.1 The AR averred that the Assessing officer denied the claim of deduction made by the assessee. However, the Assessing Officer found as a fact that the assessee had purchased a house with 600 sq. ft. of construction in December, 2006 itself. Besides, evidence regarding substantial expenditure paid through cheques for the purpose of building construction had also been filed before the Assessing Officer. He averred that the Assessing officer also got enquiries caused from the persons to whom the said amounts were paid and recorded that one of them confirmed having built the compound wall for the entire site and also an AC shed with two rooms. The AR contended that in view of the above, it is clear from the record that the assessee had acquired a house within the stipulated time and had also incurred expenditure for making additional construction thereon. He submitted that sec. 54(2) stipulates that the amount of capital gain, which is not appropriated by the assessee towards the purchase of the new asset within one year before the date on which the transfer of the original asset took place, or which is not utilized for the purchase or construction of the new asset before the date of furnishing the ROI under sec. 139 shall be deposited  before furnishing such return in a Capital Gain’s Account scheme account and for the purpose of sub sec. (i), the amount, if any, already utilized by the assessee for the purchase of construction of a new asset together with the amount so deposited shall be deemed to be the cost of the new assets. The AR submitted that as per the proviso to sec. 54(2), if the amount deposited under that sub section is not utilized wholly or partly for the purchase of construction of a new house within a period specified in sub sec. (i), then the amount not so utilized shall be charged under sec. 45 as the income of the previous year in which the period of 3 years from the date of transfer of original asset expires.

5.2 The learned AR submitted that in view of the evidence regarding payments made by the assessee to various contractors for building construction and the findings of the enquiries made by the Assessing Officer, if the Assessing Officer decided to act upon the information gathered by him and to use the same against the assessee, he should have put the same to the assessee for rebuttal. He claimed that the conclusions drawn by the Assessing Officer are one sided, without observing the principles of natural justice.

5.3 The AR also submitted that the cases relied upon by the Assessing Officer are distinguishable, as in the case of ITO vs. Pawan Kumar Garg (97 ITD 575 (Chd), there was no construction at all and in order to claim exemption when the return was selected for scrutiny, two small rooms had been hurriedly constructed. The AR pointed out that in the case of Smt. Neeta Gaur v. DCIT (90 ITD 24) (Luck) also the claim of construction on the plot of land was not on the record.

5.4 The learned AR further submitted that the assessee had purchased a house bearing number 1-50/3, incurring an expenditure of Rs. 90,40,000/-, within one year after selling her house at Punjagutta and, therefore, such purchase was qualified for deduction under sec. 54 of the Act. He submitted that in the case of Manoharlal vs. ITO (supra) it has been held that as the plot of land was surrounded by a boundary wall and a room was constructed with a roof, it would be a house even  though it did not contain a bath room etc. The AR contended that in the assessee’s case, the purchase deed confirms that the previous owner had applied for permission and constructed a house on the site at Kokapet. Under the circumstances, the deduction u/s. 54 should have been allowed to the extent of Rs. 90,40,000/- in the light of such evidence.

5.5 The AR, with regard to the allowance of deduction for the balance amount, submitted that the assessee had fulfilled the conditions for claiming the exemption by entering into agreements and paying the total amount of Rs. 1,06,00,000 to various contractors well before the due date for furnishing of her return of income. He averred that in view of her inability to adduce evidence that the amounts were utilized for additional construction in respect of the house bearing number 1-50/3, Kokapet, the Proviso to sec. 54(2) ought to have been applied and the charge ability to capital gain should have been postponed to the year in which the period of 3 years from the transfer of her house expired. The representative cited the decision in the case of Jagannadh Singh Lodh vs. ITO (148 Taxman l) (Jodh), wherein the assessee had sold a plot for Rs. 5 lakhs and immediately thereafter had entered into an agreement to purchase a residential house and had also paid earnest money of Rs. 2 lakhs. Though the agreement did not materialize, the said assessee ultimately purchased a flat within 2 years. While the Assessing officer rejected the claim of deduction u/s. 54 on the ground that the amount meant for reinvestment had not been deposited in the Capital Gains Account Scheme, the Tribunal held that the technical violation of not depositing the amount did not come in the way of the assessee and directed to allow the deduction.

5.6 The AR submitted that in the case of the present assessee also the amount meant for additional construction had been paid by means of cheques to the contractors and, therefore, in the light of the above decision, the payments to contractors ought to have been held as having satisfied the stipulations of sec. 54(2), as those were only for the sake of further construction of the property purchased by the assessee  at Kokapet. He submitted that the Assessing officer should have allowed the deduction to the extent of investment made in purchase of the house bearing number 1-50/3, Kokapet and should have directed that the amounts not utilized would be liable for assessment in the assessment year 2010-11.

5.7 The AR further submitted that the Assessing officer omitted to exclude the commission of Rs. 30,000 paid by the assessee in connection with the sale of her house at Punjagutta, which constituted expenditure incurred wholly and exclusively in connection with the transfer and was eligible for deduction as per sec. 48(i) of the Act. He submitted that necessary evidence in this regard has been filed before the Assessing officer and the claim of deduction was denied by him without assigning any reason.

6. The DR relied on the order of the CIT(A) and also on the order of the Tribunal in the case of ITO v. Smt. Rohini Reddy (122 ITD 1) wherein held that benefit of exemption u/s. 54 is allowable only when the property sold as well as property purchased by the assessee are intended to be used as residential houses; neither the roofed structure built on the land sold by the assessee was self occupied or let out or intended to be used as residence, nor the two plots purchased by the assessee with small temporary structure covered with asbestos roofing were meant to be used as residential house and, therefore, assessee is not entitled for exemption u/s. 54 of the Act.

7. We have heard both the parties and perused the material on record. Section 54F reads as follows:

“54F. (i) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or 23[two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a  residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45(

[Provided that nothing contained in this sub-section shall apply where—

(a) the assessee,—

(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or

(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.]

Explanation.—For the purposes of this section,—

“net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

(2) Where the assessee purchases, within the period of [two years] after the date of the transfer of the  original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property “, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (i), shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.

(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (i) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred.]

[(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (i) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (i), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (i), then,—

(i) the amount by which

(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (Ti), exceeds

(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (Ti) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.”

8. As seen from the above provisions of section 54F, the assessee is required to purchase with a period of one year before or two years after the date on which the transfer took place or constructed within a period of three years after the date of transfer, any new residential house. Before the lower authorities, the learned AR took a plea that the assessee has purchased the house bearing No. 1-50/3 at Kokapet village, Hyderabad vide sale deed dated 15.12.200. The AR also taken a plea that the assessee made a payment of Rs. 106 lakhs towards improvement thereof and being so, the assessee has appropriated the sale consideration for the purpose of a new house, the benefit u/s. 54F has to be given. To verify the facts of the case, the Assessing Officer carried on enquiry and found that there was no construction as mentioned in the sale deed. Instead, there was a small construction consisting of two rooms made of hollow bricks located from south to north measuring about 200 sq. ft. as against 600 sq. ft. in the sale deed. The assessee taken a plea before the lower authorities that this construction was used by servants as their residence. However, the Assessing Officer brought on record that the said construction was not fit for human habitation and also there is no evidence of carrying out  any improvement after purchasing the property by the assessee. It is also brought on record that the assessee failed to substantiate the claim that some servants are staying in that construction.

9. Before us, the assessee repeated the arguments as made before the lower authorities. However, not placed necessary evidence in support of the claim of whatsoever to show that the said construction is in habitable condition. A construction in inhabitable position cannot be equated with a residential house. If a person cannot live in a premises, then such premises cannot be considered as a residential house. In our opinion, investment in the construction would be complete as a house only when such house becomes habitable. This view of ours is supported by the decision of co-ordinate Bench in the case of Saleem Fazelbhoy vs. DCIT in 106 ITD 167 (Mum) and Sonia Gulati (115 Taxman 231). The evidence brought on record by the Assessing Officer clearly shows that the property purchased by the assessee would not fall within the description of residential house. Being so, the claim of the assessee cannot be allowed u/s. 54F of the Act. This view is also supported by the co-ordinate Bench in the case of Smt. Rohini Reddy (supra).

10. Now coming to the additional investment of Rs. 106 lakhs said to be made on the construction of the above property as the payment has been made by cheque. It is brought on record by the Assessing Officer that the assessee has received back majority of the amount from the contractor to whom payment has been made. The contention of the assessee’s counsel is that the contractor Sri K. Eswar Reddy has confirmed the construction of AC sheets shed with two rooms and compound wall for the entire site area. Even if there is construction of a shed that construction cannot be considered as residential house so as to grant deduction u/s. 54F. As we discussed earlier, a residential house means, the house which is fit for habitation. Further a property not fit for residential purpose and which is only a temporary structure cannot be construed as residential house. In other words, we do not mean that a house means a palatial house. On the other hand, a house means a habitable building. Considering the facts of the present case, whatever construction shown by the assessee cannot be considered as “residential house” u/s. 54F of the Act. The popular meaning of the word “house” is a place or a building used for habitation of persons. “Residential house” is a dwelling house as distinguished from a house of business, warehouse, office, shop, etc. In other words, residential house is a building used as a place of abode in which people reside or dwell in contra distinction in one which is used for commercial or business purposes. Since a house is called residential house with reference to the purpose of its users, it may not be necessary that somebody should live in it continuously. It is enough if it was a house for residence. Therefore, the assessee’s plea cannot be considered as there is a residential house as the said structure cannot be considered as a dwelling unit and the investment claimed by the assessee is not eligible for deduction u/s. 54F of the Act. Being so, the claim of the assessee cannot be allowed u/s. 54F of the Act. Accordingly, we confirm the order of the CIT(A) on this issue.

ITA No. 572/Hyd/2012 (Sri Bala Vishnu Raju)

11. This appeal by the assessee is directed against the order of the CIT(A)-IV, Hyderabad dated 31.1.2012 for A.Y. 2004-05. In this appeal the assessee’s grievance is with regard to non-granting of deduction u/s. 54 of the Act.

12. Facts relating to the issue are that the assessee had declared proceeds from the sale of ‘house property’, bearing No. 8-2-293/82/A, Road No. 2, Jubilee Hills, Hyderabad at Rs. 50 lakhs during the year. Capital gains had been determined at Rs. 39,98,098 and all of such gains was claimed exempt u/s. 54 of the Act.

12.1 On a consideration of the provisions of sec. 54(1) of the Act, the Assessing Officer noted that the said section deals with the profit on sale of property used as a residential house, which could be either self occupied or let out, and the income wherefrom is chargeable under the head ‘Income from House Property”. He noticed that the assessee had  not declared any income under the head ‘House Property” in respect of the property so sold. He further noticed that the address given by the assessee in his return of income showed that the property so sold was not even self occupied. By way of a show-cause notice dated 2.12.2010, therefore, he sought to deny the claim of deduction u/s. 54. Besides, he also communicated to the assessee that he is not entitled to exemption u/s. 54F also, as the new asset acquired by the assessee was a vacant plot.

12.2 In the reply dated 15.12.2010, the AR of the assessee contended that the property sold was a residential property only, as evidenced from the purchase documents. Explaining the reasons for not offering the income from the said house property to tax, it was argued that even though said property had been let out in the initial years, the same became vacant later, as no person took the same on lease. It was also contended that since the assessee was residing at a place other than the above said house property due to his employment, he could not occupy the same for his residence. Therefore, it was contended that as per sec. 23(2)(b), the Annual Value of such property is to be taken at ‘Nil’.

12.3 The AR further submitted that the condition for deduction u/s. 54 is “chargeability” of income from such property under the head ‘Income from the House Property’ and that the section never prescribes that the income from such property should have been assessed to tax in earlier years under the said head. He averred that such qualification has been put to determine the nature of the property only and nothing else, and therefore, even if no income from such property was actually offered to tax in earlier years, this could not disentitle the assessee from deduction u/s. 54 of the Act. The AR submitted that the properties purchased on 25.3.2004, for which claim u/s. 54 was made, are indeed house properties. However, there is vacant land also, appurtenant to such house properties. It was stated that the assessee wished to construct further building on such vacant land, which is appurtenant to residential house property purchased.

12.4 The learned AR also submitted that the Board’s Circular No. 667 dated 18.10.1993 clarifies that if the amount of capital gain for the purpose of sec. 54, and net consideration for the purpose of sec. 54F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction u/s. 54/54 F, provided that the acquisition of plot and also the construction thereon, are completed within the period specified in these sections. The representative submitted that as per the said circular, the assessee is entitled to invest the sale proceeds in purchase of plot and complete the construction of house within 3 years from the date of sale of house property, i.e. 4.2.2007, as the date of sale deed is 4.2.2004. The AR pleaded that the assessee intended to construct further building on such land, and therefore, the conditions of investment in house property should be considered as satisfied, as the sale proceeds were invested in a residential house property, which was having some vacant land and the assessee proposed to construct buildings, in addition to the existing portion of such land.

12.5 On a consideration of the submissions of the AR, the Assessing Officer noticed that as per the Agreement of Sale cum GPA registered on 4.2.2004, the property consisted of land admeasuring 980 sq. yards, with a built up area of 350 sq. ft. The said built up area of 350 sq. ft. was claimed as a residential house. However, from the sketch attached to the sale deed, it was noticed that the same was a structure consisting of three rooms of 10 ft. x 10 ft. each only. On the contrary, the Assessing Officer opined that sec. 54 requires that the property sold should be a building or land appurtenant thereto and the building should be a residential house. He observed that the 350 sq. ft. structure in the assessee’s case could not be treated as a building, as in order to be a residential house, the structure should have the character of a residential unit, with the bare minimum amenities which make it a liveable unit. He felt that in a small structure of 350 sq. ft., such bare minimum amenities could not be present, and therefore, the same cannot be considered as a liveable residential unit.

12.6 The AR submitted that the property sold had been assessed by the Municipal Authorities. A tax payment receipt for the year 2010-11 was also filed. However, the Assessing Officer observed that this could not change the character of the property, as the tax receipt pertained to the year 2010-11, whereas the property had been sold in the year 2003- 04 itself. He also observed that the present status of the property was not known. In addition to this, the Assessing Officer observed that the assessee had himself stated that the property was being used by the employees of the owners, who were in charge of security. Accordingly, he felt that the property could not be treated as a residential building.

12.7 The Assessing Officer observed that the very structure of the constructed area was such as showed that the assessee did not intend to use the same for his residence or to let it out. It could have been used as a garage or servant quarter. However, to be treated as a residential building, the structure should be predominantly as residential building, having a land appurtenant thereto, and not just an open plot of land, having some insignificant structure. He also referred to the decision of the Tribunal in the case of ITO Vs. Smt. Rohini Reddy (122 ITD 1) (313 ITR (AT) 346). Besides, he referred to the decisions in the cases of D. P. Mehta vs. CIT (251 ITR 521)(Del.) and Rajesh Surana v. CIT (306 ITR 368) (Raj). The Assessing Officer observed that the said cases squarely covered the facts of the assessee’s case and considering the view expressed therein, the structure of 350 sq. ft. in the assessee’s case could not be treated as an asset in the nature of buildings or land appurtenant thereto or a residential house. With regard to the contention of the assessee that the condition for deduction u/s. 54 is only “chargeability” of income from such house property under the head ‘Income from House Property’, the Assessing Officer observed that the land in the assessee’s case could not be considered as a residential unit, the annual value whereof would be chargeable under the head ‘Income from house property’.

12.8 With regard to the claim of investment in purchase of property by the assessee, the Assessing Officer further noted that the assessee had purchased the property, being land admeasuring 770 sq. yards and a structure of 100 sq. ft. on 25.3.2004. He noted that as per the description, it consisted of a vacant plot of land with an insignificant structure of 100 sq. ft. (a room of 10 ft. x 10 ft.), which could not be treated as a residential building. He noted that as per the provisions of sec. 54, an assessee has to, within a period of 1 year before or two years after the sale of original property, or within a period of 3 years from the date of sale, construct a residential house. However, as per the description itself, the property purchased could not be considered as a residential building, so as to fulfil the investment conditions laid down u/s. 54. In the light of the judicial pronouncements mentioned above, he held that the insignificant structure of 100 sq. ft. could not be treated as a residential house.

12.9 The assessee vide letter dated 20.12.2010 had further submitted that the new plot bought by the assessee consisted of two rooms. However, the Assessing Officer wondered as to how two rooms could be constructed in the built up area of 100 sq. ft. and even if those are so constructed, whether those would be habitable. He also noted that the plot admittedly fell within the Green Zone of Jubilee Hills, wherein no housing plans were being approved. Accordingly, he concluded that this also showed that there was no construction of residential building in the new property, as claimed by the assessee.

12.10 With regard to the reliance of the assessee on Board’s Circular No. 667 dated 18.10.1993, the Assessing Officer noted that despite being given repeated opportunities no details/proof of investment were filed by the assessee. He observed that had the assessee made any such investment, such details/proof would have been produced. In the absence thereof, he held that the assessee did not make any investment for being eligible for exemption u/s. 54. On appeal the CIT(A)  confirmed the order of the Assessing Officer. Against this the assessee is in appeal before us.

13. The learned AR submitted that the CIT(A) ought to have considered the fact that the property sold by the assessee was a residential house. The CIT(A) ought to have followed the decision of the Tribunal in the case of ITO v. Dr. Uma Challa (ITA No. 755/Hyd/2007 dated 24.10.2008) which supports the case of the assessee. The AR submitted that the CIT(A) ought to have appreciated the evidence brought on record and ought to have held that the assessee is entitled to exemption u/s. 54 of the Act. The AR submitted that the assessee sold the property No. 8-2-293/82/A/854-S and 854-S/1 and issue relating to chargeability of capital gain came up for consideration for the A.Y. 2007-08. The assessee’s claim for exemption has not been accepted by the Assessing Officer. Assessee could not succeed before the CIT(A). The assessee filed appeal before the Tribunal. The said appeal numbered as ITA No.704/H/11 has been heard on 02-01-2013 before the “A” bench of the Tribunal. The AR submitted that detailed submissions made by the assessee before the lower authorities in support of the contention that property purchased qualifies as a residential house may kindly be considered as part and parcel of these submissions. The AR submitted that in the light of the submissions made in the preceding paragraphs the claim of the assessee for exemption in respect of the Long Term Capital Gain of Rs. 39,98,098/- may be directed to be allowed.

13.1 The AR submitted that it is already established on record that the assessee has invested an amount of Rs. 75,50,000 on acquisition of a new asset within the same financial year (FY 2003-04). The purchase consideration exceeded not only the amount of capital gain computed but even the net consideration received on sale of property which gave rise to long term capital gain. In this view of the matter, the assessee is entitled to exemption in respect of the capital gain computed in his case since he has utilised Rs. 75,55,000 in the financial year 2003-04 itself on acquisition of a new property. In this connection the  AR relied on the decision of the Tribunal in the case of Sri M. Janardhana Reddy vs ITO, in ITA No. 1238/Hyd/2006 dated 30.03.2009 wherein it was held that as per the proviso to sec. 54F in a case where the assessee has not constructed a house within the stipulated period, then the capital gain shall be charged u/s. 45 as income of the previous year in which the period of 3 years expires. To the same effect are the provisions of Sec. 54. The provisions of sec. 54 and 54F being similar in this regard, the AR submitted that exemption claimed u/s. 45 may be allowed in A.Y. 2004-05.

14. The learned DR submitted that the term “Residential House” has not been defined in the Income-tax Act, 1961. The meaning of the term, therefore, has to be appreciated in terms of the common parlance. That a ‘residential house ‘would mean a building or a hut, which is meant for human habitation and is fit for the same. In this case, it had not been specifically established that the shed existing on the plot of land was fit for human habitation, a super structure on any piece of land can be fit for human habitation if it is having facilities like water, electricity, etc.

14.1 The DR submitted that the structure of 350 sq. ft. existing on 980 sq. yards of the land sold by the assessee on 4.2.2004, which comprised of 3 rooms of 10 ft. x 10 ft. each, cannot be considered as fit for human habitation. In fact, despite relying on the specific finding of the Tribunal in the above case, the assessee has not been able to furnish any evidence to the effect that the said built up area was fit enough to be used for human habitation. Obviously, for being habitable by human beings, the unit should have had the basic amenities like a place for cooking/kitchen, toilet and bathroom, approach road within the plot, etc. However, no evidence in this regard could ever be produced. The assessee could not furnish any evidence regarding any electricity or telephone or tap water connection having been granted to the said structure, which could have made it a liveable unit.

14.2 The DR further submitted that even though it has been contended that the said house had earlier been let out, no evidence to support such contention could ever be filed. No such income has been proved as ever disclosed to the Department. Besides, even the Municipal Tax payment receipt does not support the contention of the assessee, as the same pertains to the year 2010-11, whereas the nature of the house property is to be examined in the financial year 2003-04. Since the assessee has not been able to substantiate his claim that the 350 sq. ft. structure on the plot was a liveable unit, it is clear that the decision of the Tribunal in the case of Dr. (Smt.) Uma Challa (supra) cannot be applied to the facts of the present assessee.

14.3 The learned DR submitted that from the decision of the Tribunal in the case of Smt. Rohini Reddy (supra), as also the decisions in the cases of D. P. Mehta and Rajesh Surana (supra), it is clear that the asset for the purpose of sec. 54 should be predominantly a residential building, which may have land appurtenant thereto. It cannot be just an open plot of land, having some insignificant structure, which, even though having been used under some constraints by some employee for the protection of the plot, would not fulfil the character of a ‘residential house’. Accordingly, he submitted that there is no infirmity in the view of the Assessing Officer that the structure of the 350 sq. ft. on the plot of land sold by the assessee during the year does not fulfil the basic condition for eligibility for exemption u/s. 54 of the Act.

14.4 The DR further submitted that for the reasons mentioned above, the investment made by the assessee in the property purchased for claiming exemption u/ s. 54 also cannot be considered as an investment in a residential house. Obviously, the property purchased by the assessee consisted of 100 sq. ft. of structure on 770 sq. yards of land only. Even if the said structure had two rooms, it can be clearly envisaged that such structure could not have been used as a liveable unit. Under the circumstances, it is clear that the claim of the assessee u/s. 54 fails even on this account.

14.5 As regards the assessee’s reliance on Board’s Circular No. 667  dated 18.10.1993, the learned DR submitted that in the assessment proceedings for the A.Y. 2007-08, the assessee could not establish having incurred any expenditure for construction of any building on the plot under reference. The findings of the Assessing Officer have been upheld in the appellate order dated 31.1.2011 too. The assessee has not been able to furnish any further evidence to take a different view of the matter. Accordingly, the DR submitted that the reliance of the assessee on the said circular, as also the judgement of the Madras High Court in the case of CIT vs. Sardarmal Kothari (302 ITR 286), therefore, is of no consequence.

15. We have heard both the parties and perused the material on record. In this case also regarding claim u/s. 54, the assessee made investment in 980 sq. yards of land with a small shed claiming that it is measuring 350 sq. ft. But on verification by the Assessing Officer, it was found that it is only 100 sq. ft. and unfit for human residence. Being so, it cannot be considered as residential house in terms of section 54F of the Act. The structure of 350 sq. ft. existing on 980 sq. yards of the land sold by the assessee on 4.2.2004, which comprised of 3 rooms of 10 ft. x 10 ft. each, cannot be considered as fit for human habitation. In fact, despite relying on the specific finding of the Tribunal in the above case, the assessee has not been able to furnish any evidence to the effect that the said built up area was fit enough to be used for human habitation. Obviously, for being habitable by human beings, the unit should have had the basic amenities like a place for cooking/kitchen, toilet and bathroom, approach road within the plot, etc. However, no evidence in this regard could ever be produced. The assessee could not furnish any evidence regarding any electricity or telephone or tap water connection having been granted to the said structure, which could have made it a liveable unit.

15.1 The investment made by the assessee in the property purchased for claiming exemption u/ s. 54 also cannot be considered as an investment in a residential house. Obviously, the property purchased  by the assessee consisted of 100 sq. ft. of structure on 770 sq. yards of land only. Even if the said structure had two rooms, it can be clearly envisaged that such structure could not have been used as a liveable unit. Under the circumstances, it is clear that the claim of the assessee u/s. 54 fails even on this account. The said construction does not have basic amenities like toilet or bathroom or arrangements for water and electricity and the impugned construction is not fit for human dwelling and is not in a habitable condition. Being so, the claim of the assessee is rejected. Further as discussed in earlier paras of this order, relating to ITA No. 705/Hyd/2011, we are inclined to confirm the order of the CIT(A) on the same reasons.

ITA No. 704/Hyd/2011 (K. Bala Vishnu Raju)

16. This appeal by the assessee is directed against the order of the CIT(A)-IV, Hyderabad for the assessment year 2007-08.

17. The assessee raised the following grounds:

(i) The order of the learned CIT(A) is against law, weight of evidence and probabilities of the case.

(ii) The CIT(A) erred in upholding the disallowance of the appellant’s claim for deduction u/s. 48 in spite of explanations offered by the appellant apart from evidence produced in the form of approved municipal plans, property tax receipts, confirmations from contractors, receipts issued by contractors who undertook improvements to the properties and statements recorded from some of the contractors.

(iii) On the facts and in the circumstances of the case, the CIT(A) ought not to have disregarded the evidence adduced by the appellant as to the cost of improvement in respect of the properties situated at Road Nos. 36 and 44, Jubilee Hills, Hyderabad in toto.

(iv) The CIT(A) erred in upholding the addition of Rs. 47 lakhs made under Sec. 69 of the IT Act.

(v) The CIT(A) ought to have held that the appellant has discharged the onus cast on him in adducing evidence as regards the identity of the creditors by producing  pattedar pass books and land holding certificates, the genuineness of the loan transactions by filing confirmations from the creditors and the genuineness of their sources by filing extent of land holdings and income certificates and consequently, the Assessing Officer erred in making addition of Rs. 47 lakhs without rebutting the evidence produced by the appellant.

(vi) For the above grounds and such other grounds that may be urged at the time of hearing, the appellant prays that the appeal be allowed. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.

18. Brief facts of the issue are that in this case assessment was completed u/s. 143(3) of the Act vide order dated 24.12.2009 by determining the income of the assessee at Rs. 13,28,45,498 including capital gain of Rs. 5,10,66,500 as against the returned income of Rs. 5,41,49,287. As discussed in the assessment order, the assessee had filed his original return of income on 28.7.2007, disclosing total income of Rs. 5,30,14,348, which included house property income of Rs. 8,02,137, long term capital gains of Rs. 5,29,09,619 and income from other sources of Rs. 4,37,531. Later, on the basis of SRO data, the Assessing Officer had issued a letter to the assessee on 7.8.2008, calling for information about the sale transactions of the properties at Banjara Hills. A questionnaire u/s. 142(1) was also issued on 28.8.2008. After the issuance of these letters, the assessee filed a revised return on 18.11.2008, admitting sale consideration as per the market value u/s.

50C. The assessee had not claimed any exemption u/s. 54 in the original return. However, in the revised return, such exemption was also claimed.

18.1 In the original return, the assessee had shown the long term capital gains of Rs. 5,29,09,619 from the sale of the following two properties:

(i) Property at D. No. 8-2-293/82/ A/700 & 700/1, Jubilee Hills Road No.36 Hyderabad;

(ii) Property at D. No. 8-2-893/82/ A/854-S & S/l, Jubilee Hills Road No. 44, Hyderabad.

18.2 The Assessing officer noted that the property at Sr. No. (i) above actually consisted of two plots and the assessee had received sale consideration of Rs. 3,95,20,000/- and Rs. 3,86,80,000/-, totalling to Rs. 7,82,00,000/- for both of them. The date of sale was declared as December, 2006. The assessee had shown the cost of acquisition thereof at Rs. 21,37,684/- and had also claimed cost of improvement for the same at Rs. 1,25,00,000/- in the F.Y. 2004-05 and that of Rs. 1,68,75,000/- in the F.Y. 2005-06. Considering the above, the Long term capital gain from the first property was finally shown by him at Rs. 4,35,47,738/-.

18.3 With regard to the property at Sr. No. (ii) above, the Assessing Officer noted that the same also consisted of two plots and the assessee has received sale consideration of Rs. 2,21,00,000/- and Rs. 1,89,00,000/ totalling to Rs. 4,10,00,000/ – for both of them. The date of sale was declared as December, 2006. The assessee had shown the cost of acquisition thereof at Rs. 81,48,010/- and had also claimed cost of improvement for the same at Rs. 91,06,500/- in the F.Y. 2005-06 and that of Rs. 1,25,85,000/- in the F.Y. 2006-07. Considering the above, the Long term capital gain from the second property was finally shown by him at Rs. 93,61,881/-.

18.4 It is further seen that the Assessing officer informed the assessee that as per the information collected from the Sub Registrar of property, the sale consideration for the two plots in the first property was Rs. 4,94,46,000/- and Rs. 4,83,96,000/- for 2nd plot. While that for the two plots in the second property of Rs. 1,89,76,000/- and Rs. 2,31,46,0001 respectively, showing an overall gap of Rs. 2,07,64,000/- between the sale consideration shown in the return and data collected from the SRO. On receipt of this letter, the assessee filed a revised return on 18.11.2008 wherein the total capital gains on the two properties were enhanced to Rs. 6,09,54,330/-. In the said revised return, the sale consideration of the first property was admitted at Rs. 9,78,42,000/-, while the cost of improvement was kept the same as in the original return. However, the assessee claimed exemption u/s. 54 of Rs. 1,48,85,000/- for investment up to 28.07.2007 in the new asset, being house property at No. 2-91/14/7 and 2-91/14/8 Kondapur Village.

18.5 For the property at Sr. No. (ii) above, the sale consideration was taken at Rs. 4,21,22,000/- as per SRO values and cost of improvement was shown as originally declared. In the note appended to the computation, it was mentioned that the return had been revised to rectify the mistakes in non adoption of market value for working out the long term capital gain under sec. 50C and also for not claiming exemption u/s. 54. The assessee also furnished the details of the cheques of Rs. 1,48,85,000/ – for his investment up to 28.7.2007.

18.6 The Assessing officer noted that the assessee had shown a cost of improvement of Rs. 2,93,75,000/- in respect of the property at 700- 700/1, Road No. 36, Jubilee Hills, Hyderabad, that of Rs. 2,16,91,500/- was shown in respect of the property at 854-8 & 854-8/1 at Road No. 44, Jubilee Hills, Hyderabad. The assessee furnished details in the form of signed documents/agreements with various contractors/persons etc., for substantiating the cost of improvement besides, signed receipts from the contractors. As per the letter dated 12.2.2009 and 7.2.2009, the following improvements, were done in the two properties and the payments were made through cash and cheques:

At plot No. 700 & 700/1, Road No. 36, Jubilee Hills, Hyderabad:

S. No.	Description	Cost (Rs.)	Contractor	Payment made
	Construction of house of about 4500 sq. ft., complete with slab, plastering, marbleflooring, doors, windows, plumbing works, plantation, electrical, gardening, etc.	1.62 crores	K. Satya- narayana & Others	Cash and cheque for Rs. 1,58,75,000 during 29.5.2005 to 30.3.2006.
	Rock cutting, digging                                                 and levelling work.	72.54 lakhs	B. Narsing Rao	Cash and cheque of Rs. 70 lakhs during 26.6.04 to 3.12.04.
3.	Demolition of old building situated at pot No. 700 & 700/1.	69.50 lakhs	P. Subba Rao	Rs. 65 lakhs by way of cash and cheques between 15.4.04 to 3 1. 10.04.

 At plot No. 854-S/S-i, Jubilee Hills, Road No. 44, Hyderabad:

S. No.	Description	Cost (Rs.)	Contractor	Payment made
	Construction     of         double storied building of 2400 sq.ft.          each   floor    including cellar floor, parking, waterproofing       for      all      slabs,plastering,      premium     classvitrified tiles, granite flooring, plumbing, electrical works, sump, overhead tank, bore-well, misc.	1.25 crores	P.           Bujanga Bhushanam ofBB         Projects Constructions.	Cash and cheque.
	Soil excavation for cellar and floor and rock cutting, etc.	91 lakhs	Venkataiah	Cash and cheque

18.7 Whereas the description of improvements given above showed that the assessee had constructed huge houses of the area of 4,500 sq. ft. and 4,800 sq. ft. on the above plots, the assessing officer found that there was no mention of the building/house constructed by the assessee, in the sale deed. In respect of plot No. 700 and 700/i, Road No. 36 Jubilee Hills, Hyderabad the Assessing Officer noted that the assessee had purchased the said property, admeasuring i955 sq. yards vide 4 sale deeds in July, 2000. A total of 650 sq. ft. of built up area was mentioned in the annexure to the purchase deeds thereon. Since, the plots purchased by way of 4 purchase deeds were four parts of contiguous area of land; it was clear that very small units of i5 0 sq. ft. were mentioned in three of them and one unit of 200 sq. ft in the 4th one. The Assessing Officer has appended photocopies of the annexures to the purchase deeds showing the location and the size of dwellings under reference to the assessment order.

i8.8 The Assessing officer noted that the above properties were sold by the assessee to M/s. Mold Tech Technologies Ltd., vide two sale deeds dated 6.i2.2006 and ii.i2.2006. On page 2 of the said deeds, it was clearly mentioned that the agreement holder, Sri C. Vasudeva Reddy for the previous owner Sri P. Subba Raju, had constructed small dwelling units on the above plots, which were assessed to municipal tax  and had been assigned H. No. 8-2-293/82/A/700 & 701 by the Municipal authorities. There was also mention regarding building permission taken by Sri P. Subba Raju on 26-03-2004 from the Commissioner, Municipal Corporation. The Assessing officer noted that this fact was present, word to word, in the purchase deed of the assessee of July, 2000. The Assessing officer, therefore, concluded that the previous owner had constructed small dwelling which was passed as such by the assessee to M/s. Mold Tech Technologies Ltd. Otherwise in the sale deed dated December, 2006 there is no mention of construction or improvement undertaken by the assessee before selling the same to the above company. The annexures to the sale deeds showed built up area of 200 sq. ft. each totalling to 400 sq. ft of constructed area, on the entire extent of 1955 sq. yards sold by the assessee. The Assessing officer also appended the photos of the sold land annexed with the sale deeds dated December, 2006. She noted that against the total 650 sq. ft., mentioned in the 4 purchase deeds for the entire land of 1955 sq. yards, in the sale deeds only 400 sq. ft in all were mentioned. The pictures of the land at the time of purchase and sale showed that the same dwelling units existed at the same place on the plot and since those were of little or no significance for the entire deal, no care was taken to map exact area of their construction. However, the sale deed clearly did not exhibit the house of an area of 4,500 sq. ft on it.

18.9 With regard to the plot No. D No. 8-2-293/82/A/854-S and S/1, Jubilee Hills, Road No. 44, Hyderabad, the Assessing Officer noted that a total cost of improvement of Rs. 2,16,91,500/- had been claimed in the original, as also in the revised return. However an examination of the purchase and sale documents revealed that there was no mention of any building/house constructed by the assessee thereon. The assessee had purchased the said property vide two sale deeds and in the purchase deeds for the total area of 1041 sq. yards, a total built up area of 400 sq. ft. had been mentioned in the annexures. She noted that the said two purchase deeds were separate documents relating to two parts  of contiguous area of land. Therefore, the properties were very small units of 200 sq. ft. Pictures of annexures of the purchase deeds showing the location and size of these dwellings, annexed to the purchase documents, have also been enclosed to the Assessment order.

18.10 The Assessing Officer noted that the above said property was sold by the assessee to Sri T. Narendra Choudary, vide two sale deeds dated 06.12.2006, for a consideration of Rs. 1,89,00,000/- and Rs. 2,21,00,000/- respectively. In the sale deeds the small dwellings were shown, as against the claim of Rs. 2.16 crores towards improvement and the claim of a double storied house of 4800 sq. ft. thereon. The Assessing officer has enclosed the photocopies of the annexures to the sale deeds, showing the built up area of 200 sq. ft. each, totalling to 400 sq. ft. of constructed area on land of 1401 sq. yards.

18.11 During the course of assessment proceedings, the Assessing officer issued summons to 5 persons to whom Rs. 5,10,66,500/- were claimed as paid towards the cost of improvement, including construction of house/building. Summons were issued at the addresses given by the assessee. However, the same were returned unserved on account of incomplete address/non availability of the persons concerned. The Assessing Officer, therefore, required the assessee to produce the said party for verification of his claim. However, the assessee produced only two of them viz., Sri K. Satayanarayana (R. Satyanarayana) and Sri B. Narsinga Rao with regard to plot No. 700 & 701 at Road No. 36, Jubilee Hills, Hyderabad. The other parties could not be produced at all.

18.12 The Assessing Officer found that as per the statement of Sri R. Satyanarayana, he was a small time labour contractor and had never filed his return of income. The various contracts/works taken by him in his career were to the extent of a few thousand rupees and at best in the range of Rs. 3 to 5 lakhs. Though he claimed to have undertaken the construction of the two storied building of 4000 to 5000 sq. ft. and the assessee’s plot at Road No. 36, Jubilee hills, his claim was not  collaborated by other details asked for in the statement. It was also seen that in the contract details in the name of Sri K. Satyanarayana and others, as given by the assessee in his letter dated 12.2.2009, there was no mention of any double storied house. The Assessing Officer felt that though he had no experience regarding project of this magnitude, he claimed to have undertaken the entire work of masonry, electrical, painting, carpentry and plumbing. He also claimed that the approval for construction of the house had been taken by Smt. K. Usha Rani herself and a copy thereof had been handed over to him for execution of the work. He submitted that he did not meet any architect for this purpose, besides, he also claimed that he had purchased the entire construction material like bricks, wood, cement, sand himself from the broker visiting the site. He, however, did not have any details of any of the brokers and admitted that he did not have details or bills for such expenses.

18.13 The Assessing Officer observed that construction of a house of 4000 – 5000 sq. ft., costing about Rs. 1.5 crores, could not have been possible through an un-experienced contractor. Besides, the complete absence of any bills/materials and details of expenses, and the claim of the purchases from the brokers visiting the work site, showed the falseness of the claim and established that no such work was undertaken. Further, on being shown the receipt for Rs. 1,58,75,000/ – submitted by the assessee, he disowned the signatures appearing therein on a revenue stamp. Though he owned the second signature, made a bit away from the stamp, he stated that he did not remember when and where he had signed the document and who got it signed by him.

18.14 The Assessing Officer also recorded a statement from the second person, Sri B. Narsinga Rao. Sri Narsing Rao also turned out to be a very small time rock cutter, who had never done any work of the value of more than Rs. 1 lakh in his life. He was never involved in a contract work, wherein various machines, lorries and workers are engaged. Though he also claimed to have undertaken the work of rock cutting for  the assessee at Road No. 36 Jubilee Hills site, he did not have any details, bills etc., for such a huge magnitude of work. He also out rightly disowned the signature for the receipt of Rs. 72,52,534/- submitted by the assessee. The Assessing Officer found that the signature of Sri B. Narsing Rao on the said receipt was totally different from the signature of the person produced before her.

18.15 The Assessing Officer also made enquiries with M/s. Mold Tech Technologies P. Ltd., to whom the above property had been sold. Vide their letters dated 2.9.2009, 7.9.2009 and 14.9.2009, they submitted that the land had been purchased by them for the purpose of their corporate office and had four small structures of about 200 sq. ft. each at the time of purchase. It was stated that they proceeded to construct their corporate head office by excavating the property and also furnished copies of bills relating to stone cutting and earth work. The Assessing Officer found that the total expenditure of Rs. 479 lakhs had been booked by them in their books towards expenditure for excavation and stone cutting, including blasting the rock area. The facts so gathered confirmed that there was nothing on the land, more than what was seen from the assessee’s sale deeds.

18.16 The assessee had also claimed payment of Rs. 65 lakhs to one Sri Subba Rao for demolishing the old house. All of such payments had been made in cash. However, the assessee could not produce the said person so as to examine the genuineness of the expenditure. The Assessing officer found it further unusual that such huge expenditure could have been required for demolition of small dwellings, as noted from the purchase deed.

18.17 With regard to the cost of improvement, claimed in respect of No. 854-S/ 854-S/1, the Assessing Officer conducted a physical verification on 1.9.2009. It was found that there was no house property, as claimed by the assessee. Excavation work had been started there. However, since the property had been sold by the assessee in the year 2006 itself and the present work was being done by the current owner,  for verifying the claim of the assessee regarding construction of a building of about Rs. 2 crores on the said land, the Assessing Officer called Smt. K Usha Rani, attorney holder/mother of the assessee at the site and recorded her statement there itself. In her statement Smt. Usha Ran claimed that a small house had been built thereon. However, the details given by her were very different from the claimed construction of a two storied house of 4800 sq. ft. She, in fact, stated that for regularization from the municipal authorities, they had constructed a temporary slab house of around 2500 sq. ft., which was in the form of a hall, two rooms and a pooja room, to complete the formality for permission. She also said that no painting was done.

18.18 The other three persons, to whom the expenses towards improvement were contendedly made and who could not be produced by the assessee, were S/Shri P. Bhujang Bhushanam, Venkataiah and P. Subbs Rao. The Assessing Officer carried out a verification of the cheque payments made to them and others. It was found that they were employees of a company, M/s. ASIP (P) Ltd., and had opened accounts apparently only for the receipt and withdrawals of the payments made by the assessee. She found that the accounts were closed within a few months. The assessee did not provide their addresses, nor produced them for verification of the genuineness of the claim of works done by them. Besides, the assessee also failed to produce any bills or other documents in support of the cost of improvement and construction of two storied house of 4,800 sq. ft.

19. The Assessing Officer not accepted claim of the assessee on the following reasons:

Plot Nos. 700 & 700/1

(i) Though there was an approval of MCH in the name of P. Subba Raja, the previous owner/attorney holder, the mere presence of such permission was not significant. She noted that property tax had been paid earlier also for the small  dwelling by the previous owner.

(ii) The assessee could not rebut the claim of M/s. Mould Tech Technologies Ltd. regarding absence of any house or building (apart from the small dwellings) and that they had borne the excavation expenses.

(iii) There was no merit in the assessee’s contention that the residential property was not mentioned in the sale deed, as it was no use for the purchaser.

(iv) There is no merit in the contention of there being no opportunity for cross examining Sri R. Satyanarayana. The Assessing officer opined that the assessee himself had located and produced the said persons and later, when the department could not locate him, he could have been produced again by the assessee himself. Besides, the falsity of claim of construction by him was proved from the details gathered in the statement itself and the records of such expenditure, including the receipt, which he denied having signed.

(v) Sri B. Narsinga Rao, a stone cutter, earning Rs. 500/- to Rs. 600/- in a week, could not have undertaken work of the value of Rs. 72 lakhs. Besides, he also had refused having signed the receipt produced by the assessee.

(vi) With regard to the affidavit filed by Sri B Narsinga Rao, to the effect that some one else working for him had signed the receipt, the assessing officer find that it was only an after thought.

Plot No. 854 S/854 S-i

(i) the letter of the Jubilee hills Co-op society, stating that the MCH had stopped issuing building permissions on the plots  from 1991 to 2007, shows that there was no construction of any double storied building thereon.

(ii) The information received from Sri P. Narendra Chowdary did not convey anything more than what was mentioned in the GPA concerned, so as to strengthen the assessee’s claim.

(iii) There was no merit in the assessee’s contention that the residential property was not mentioned in the sale deed as it was of no use for the purchaser, or there was no MCH permission for the same.

(iv) There is no explanation regarding the discrepancy m the statements of Smt. Usha Rani.

(v) The assessee had failed to discharge onus of production of various persons for evidencing his claim.

(vi) The Assessing officer disallowed the cost of improvement of Rs.2.93 crores and Rs. 2.16 crores, claimed in respect of the above two plots, after summarizing her conclusions in the assessment order as under:

(vii) There is no proof of improvement and construction of huge houses in sale deeds.

(viii) Not a single bill/evidence of purchase of goods/material for entire Rs. 5.10 crores could be submitted by assessee.

(ix) For B. Narasiga Rao, he is not the person (as per assessee’s version), whose signatures are on the receipt of work contract of Rs. 70 lakhs.

(x) For K.Satyanarayna, he refused to have signed on revenue stamp submitted by assessee.

(xi) Statements of Shri B. Narasing Rao and K. Satyanarayna  exposed the falseness of the claim of assessee.

(xii) Other persons, to whom the remaining payments were made, could not be traced. Neither were they produced by assessee. Hence there is no verification at all regarding the genuineness of such work.

(xiii) Mold Tech Technologies confirmed having received the land with small dwellings, as per sale deed and stated having spent about Rs. 4 crores on excavation, rock cutting and levelling work.

(xiv) For the other property at 854 S & 854 S-i, Jubilee Hills Corporation had stopped giving building construction permission during the period i99i to 2007 due to hatched zone/Green zone.

(xv) Even though the query was first raised in September,2009, till the date of passing of the assessment order, despite scores of hearings in the case, nothing more could be submitted by the assessee in support of the genuineness of claims.

19.1. In the revised return, the assessee had claimed exemption u/s. 54, contending that he had made an investment of Rs. i,48,85,000 in a new asset, being house property at 2-9i/i4i7 & 8, Kondapur, by way of 5 cheques. A perusal of the documents of Agreement of Sale cum GPA, however, showed that those were only plots of land, in the names of Smt. K. Usha Rani and Smt. Padmavathi. The said two persons had not even been addressed as Attorney Holders for the assessee, but as the original buyers.

99.2 Spot enquiries on i7.11.2009 also revealed that the plots were open plots, with bushes and weeds, except that on plot No. 5 there was an asbestos shed of the size of i6 x i0 feet, which could not have been treated as a residential house.

19.3 The Assessing officer noted that the claim of the exemption u/s. 54 F had been consciously and knowingly made by the assessee in the revised return, appending a note in this regard. She noted that after filing the revised return, the assessee vide his letter dated 7.9.2009, had also submitted back to back sale agreement executed for the property purchased. Further, on 16.9.2009, the assessee also explained as to why the said agreement of sale was executed in the name of his mother and mother-in-law. It was claimed therein that the Agreement of Sale had been entered into by the assessee from two vendors. However, the same could not be registered in his favour, as he went to USA. For taking possession of the property in his absence, the agreement of sale cum GPA was registered in favour of Smt. K. Usha Rani and S. Padmavathi. The name of Smt. S. Padmavati was included, as the property other than that of Shri K.Bala Vishnu Raju was also involved (there being 3 vendors other than the two mentioned in the sale agreement). It was stated that the regular registration of the property in the name of the assessee would be done soon after his return from USA.

19.4 The Assessing Officer noted that despite such submissions and claims, it was only during the field verification by the department that the properties were found to be open plots, with bushes and weeds, and not a residential property eligible for claim of exemption u/s. 54F. While the assessee had made specific submissions in this regard on 3 to 4 occasions, he withdrew his claim vide his letter dated 16.12.2009, only after the incorrectness of the claim was detected by the dept.

19.5 With regard to the claim made in the return of income, it was submitted before him that while filing the revised return, the assessee had been advised that he was entitled to claim a deduction in respect of purchase/construction of immovable property after the sale of his Jubilee Hills property. The assessee averred that the total income and tax was computed by the tax consultant accordingly. However, when the assessee sought an advice from another tax consultant, he opined that the claim u/s. 54F might not stand the test of law. It was submitted that the assessee, thereafter, even changed his tax consultant. It was pleaded that the claim that the claim of deduction had been made under the bona-fide impression regarding entitlement, which was prompted by the wrong advice of the earlier consultant. The assessee therefore, requested the Assessing officer to ignore the claim. However, the Assessing officer concluded that it was only after the department detected and confronted the facts to the assessee that the claim was withdrawn. Considering the withdrawal of claim was not voluntary, she rejected the claim of deduction u/s. 54 F. On appeal the CIT(A) confirmed the order of the Assessing Officer. Against this, the CIT(A) is in appeal before us.

20. The learned AR submitted that the CIT(A) has recorded that the Assessing Officer herself stated in para 3 of the Assessment order that the assessee furnished the details regarding cost of improvement, investment etc. along with documentary evidence in the form of purchase deeds, sale deeds, copy of bank accounts showing receipt of sale consideration and payment towards cost of improvements. Besides, signed receipts and agreements/documents with contractors were also submitted. The assessee also provided the addresses of 5 person to whom the total amount of Rs.5, 1 0,66,500 had been paid. The assessee produced 2 of these viz., Sri K.Satyanarayana and Sri B. Narsinga Rao. It is also a fact on record that these persons confirmed having undertaken works relating to improving/construction.

20.1 The AR submitted that the CIT(A) gave undue credence to the findings of the Assessing Officer that the witnesses were found not to possess sufficient stature and experience to carry out work of such magnitude and also that their claim of having purchased construction material from visiting brokers was neither convincing nor supported by bills and vouchers. As regards the other persons, viz., Sri P. Bhujanga Bhushanam, Sri Venkatayya and Sri P. Subba Rao , the fact that they had shifted their residence from the last known address and thus could not be produced, has been held against the assessee. Though the assessee explained the circumstances under which the description of the existing structures was not included in the deeds of purchase/sale, the CIT(A) failed to appreciate and take cognisance of the evidence produced before him and held that the claim regarding the cost of improvement cannot be accepted.

20.2 The AR submitted that the CIT(A) ought to have considered the permission for additional construction issued by the MCH and the payment of municipal taxes in substantial amounts i.e., Rs.27,087 in one case and Rs.6,643/.- in the other as conclusive evidence of existence of residential properties on the site (Property No. l). He ought to have considered the fact that payments were made into the bank accounts of the contractors viz., Sri Bhujanga Bhushanam and others and accepted the claim of the assessee regarding cost of improvement instead of discounting the same on the ground that the said person withdrew the amounts from their bank accounts which fact should in fact have been held in favour of the assessee. In the light of the field facts supported by the letters from the Greater Hyderabad Municipal Corporation and the Jubilee Hills Co-op Housing Society and also the written evidence tendered from Sri Naren Chowdary the CIT(A) should have accepted the claim of the assessee regarding the cost of improvement (Property No. 2). The CIT(A) ought to have appreciated that the enquiries were conducted by the Assessing Officer more than two years after the close of the relevant accounting year and that too when the purchasers had already embarked upon fresh constriction after razing down the existing structures.

20.3 The learned AR submitted that in the light of the documentary evidence and the explanations furnished by the assessee coupled with the voluntary withdrawal of the claim for deduction u/s. 54, the CIT(A) ought to have accepted the claims made by the assessee. The AR prayed that the income returned by the assessee in the revised return subject to withdrawal of the deduction u/s.54 may be directed to be accepted.

21. The learned DR submitted that in the revised return of income, the assessee had shown sale consideration in respect of the property at D. No.8-2-293/82/A/700 & 700/1 at Rs. 9,78,42,000 and Rs.  4,21,22,000 for the property at D. No. 8-2-893/82/A/854-S and S/1, Jubilee Hills, adopting the value taken by the Stamp Duty authorities for the purpose of registration, as prescribed under sec. 50C of the Act. Against such consideration, the assessee claimed cost of improvement of Rs. 2,93,75,000 and that of Rs. 2,16,91,500 contending that house of the area of 4,500 sq. Ft. and 4,800 sq. Ft. were constructed thereon respectively, after demolishing the old buildings, admeasuring 650 sq. Ft. and 400 sq. Ft. existing thereon since the time of purchases therefore, and also after carrying out rock cutting, digging and levelling work.

21.1 The DR submitted that the Assessing Officer has not disputed that as structure/ building was indeed existing on the first plot at the time of its purchase by the assessee. The existence of such structure was corroborated by the fact that the same was assessed by the Municipal Authorities as such. However, she found that the narration given in the deed of sale made to M/s. Mold Tech Technologies Ltd., thereof was identical to that appearing in the purchase deed of July, 2000. Besides, there was no mention of any construction or improvement in the sale deed made in the year 2006. She felt that the claim of the purchaser regarding absence of any house or building (apart from the small dwelling) at the time of sale in the year 2006 could not be rebutted by the assessee. Further, she felt that the claim of demolition, incurring an expenditure of Rs. 65 lakhs in cash, could also not been established by producing Sri Subba Rao.

21.2 The learned DR submitted that so far as the property at plot No. 854 S/854 S-1 is concerned, the purchaser/agreement cum GPA holder, Sri T. Naren Chowdary, by way of his letter dated 14.09.2009, had confirmed before the Assessing Officer that there was a building existing in the land at the time of its purchase by them. However, she did not find it acceptable that the building contendedly constructed thereon, and existing on the date of sale, was omitted to be mentioned in the sale deed for the mere reason that there was no Municipal permission for construction thereof. She opined that the letter of the  Jubilee Hills Cooperative Society, to the effect that the MCH had stopped issuing permission for construction on the plots during 1991- 2007, rather showed that there could not have been any such construction. She also did not find any strength in the argument of the assessee that the property was not mentioned in the sale deed, as it was of no use to the purchaser. These findings led the Assessing Officer to make further enquiries regarding the improvement/ construction contendedly made.

21.3 The learned DR submitted that during the assessment proceedings, the assessee was required to prove his contention regarding improvement/construction. As discussed in para 3 of the assessment order the assessee furnished the details regarding cost of improvement, investment etc., along with documentary evidence in the form of purchase deeds, sale deeds, copy of bank accounts showing receipt of sale considerations and payment towards cost of improvements. Besides, signed receipts and agreements/documents with contractors etc., were also submitted. The assessee also provided the addresses of the 5 persons to whom the total amount of Rs. 5,10,66,500 had been contendedly paid. However, the summons issued by the Assessing Officer to those parties got returned unserved, due to incomplete address /non availability of the persons concerned. Even subsequently, when the Assessing Officer required the assessee to produce produce the said 5 persons, only 2 of them, viz., Sri K. Satyanarayana and Sri B. Narsing Rao, could be produced. While both of the persons produce produced confirmed having undertaken works relating to improvement/construction, the Assessing Officer found such claims unacceptable, as, in view of the statement recorded from the, the said persons were not found having sufficient experience and stature to carry out works of such magnitude. Besides, the Assessing Officer also noted that the claim regarding purchase of construction materials from visiting brokers was neither convincing nor supported by any bills and vouchers. It was further noted that while Sri K. Satyanarayana disowned one of the signatures appearing on the  revenue stamp, Sri B. Narsinga Rao after initially disowning the signature, later, by way of an affidavit, stated that the same had been signed on his behalf by some other person. The Assessing Officer also took the note of the fact that Smt. K. Usha Rani, mother of the assessee, in her statement recorded at the site, gave a different description of the house contendedly constructed thereon. Besides, it was also seen by her that Sri P. Bhujang Bhushanam, Sri Venkayya and Sri P. Subba Rao had withdrawn the amounts paid by the assessee into their accounts and the accounts were closed within a few months. The said persons could not be produced by the assessee.

21.4 The DR submitted that from the facts discussed above, it is clear that while the sale deeds executed by the assessee indeed do not show the constructions, the assessee has not been able to establish his claim of such construction/improvement by furnishing any acceptable or impeccable evidence. The documents also clearly show that the full value of consideration received by the assessee does not include any amount towards the value of any structure/building contendedly made by the assessee after purchase of the lands. In the absence of any evidence, therefore, the claim regarding cost of improvement/ construction fails at the threshold itself, and cannot be accepted only in view of the fact that the assessee had made any payments to the persons, stated to be contractors, engaged for carrying out such improvement/construction.

21.5 The DR submitted that so far as the exemption u/s. 54F is concerned, it is clear that even if Smt. K. Usha Rani and Smt. Padmavati had purchased the so called “new asset”, the house property at 2-91/14/7 & 8, Kondapur, on behalf of the assessee only and that they were to transfer it in the name of the assessee after his return from USA, the spot enquiries revealed that the plots were open plots, having only a 16 x 10 asbestos shed. In fact, while withdrawing the claim of exemption u/s. 54 in respect of the said property, the assessee admitted that he had been incorrectly advised in this regard by the earlier Tax consultant, and, therefore, the claim was withdrawn on the advice of  another tax consultant later. Even if the advice of the former consultant was based on any judicial precedent or interpretation, obviously, the asbestos shed cannot be considered as a ‘residential house’ in the light of the decisions, such as, the one decided by the Tribunal in the case of ITO v. Rohini Reddy (122 ITD 1).

21.6 The DR submitted that the claim of the assessee regarding improvement/construction is not allowable only on the basis of an approved municipal plan or municipal tax receipts. In fact, the receipts from three persons who contendedly undertook works of civil construction, demolition etc., or even their oral evidence, cannot be considered as any conclusive evidence regarding alleged improvement/ construction. Mere confirmation of receipt of payment does not prove anything other than what is clearly discernible from the documents. Similarly, the explanation regarding restrictions on construction by the MCH cannot be considered as any positive evidence regarding the existence of any construction, in contravention of the Municipal rules.

22. We have heard both the parties and perused the material on record. In this case the assessee claimed construction expenditure of 4500 sq. ft. at D. No. 8-2-293/82/A/700 and 4800 sq. ft at D. No. 8-2- 893/82/A/ 854-S and S1, Jubilee Hills, Hyderabad at Rs. 2,93,75,000 and Rs. 2,16,9 1,500, respectively, by demolishing the existing construction. However, it was observed by the lower authorities that the narration mentioned in the sale deed with M/s. Mold Tech Technologies Ltd., is as the same as mentioned in the purchase deed of July, 2009. Further the assessee shown a sum of Rs. 65 lakhs for demolishing the existing structure which is beyond the scope of human probability. Had there been an existing house there should be mention of that fact in the sale deed. Without mentioning of existing house in the sale deed the assessee cannot claim that there was a house measuring 4500 sq. ft. in one plot and 4800 sq. ft. in another plot. Further there was a restriction in construction of these plots by MCH during the period 1991-2007. For the purpose of registration the assessee adopted that there is no building in the said plot. Later the  assessee claimed that there was an existing building and the same was sold by vide sale deed with M/s. Mod Tech Technologies Ltd. Even, the Assessing Officer made enquiries regarding genuineness of the claim of the assessee during the assessment stage and issued notice to the parties who carried on improvement on these projects. Summons issued to these parties got returned due to non-availability of the persons at the given addresses. The Assessing Officer further insisted the assessee to produce these persons before him. The assessee produced two of them viz., Sri K. Satyanarayana and B. Narsing Rao. These persons are not having sufficient experience or capacity to carry on such kind of work. The assessee not placed before the Assessing Officer the required information like the details from whom the assessee purchased construction material. Further it is also brought on record by the Assessing Officer that the contractors to whom payments were made withdrew the amount from their accounts in a short time and closed the accounts within a few months. The evidence brought on record by the Assessing Officer shows that the alleged improvements or construction made by the assessee is false. Being so, we are inclined to uphold the argument of the DR and dismiss the ground taken by the assessee.

23. Regarding the addition u/s. 68 of the Act at Rs. 47 lakhs, the facts are that the assessee had obtained loans aggregating to Rs. 77.5 lakhs from various persons during the year under consideration and had submitted confirmation letters from each of the 28 creditors before the Assessing officer, besides furnishing certificates of land holding issued by the revenue authorities in respect of all of them. Certificates of income derived by the creditors had also been furnished in most of the cases to show their credit worthiness. On being required by the Assessing Officer to produce a few of them for personal examination, the assessee produced two of them and they were examined by the Assessing Officer too. However, the Assessing Officer, without affording an opportunity to the assessee held that the assessee had not satisfactorily explained the credits in respect of 20 out of the 28  persons and added a sum of Rs. 47 lakhs, representing the aggregate of loans obtained by the assessee from those persons u/s. 69 of the Act.

24. The learned AR relied on the judgement of Rajasthan High Court in the case of Aravali Trading Co. V. CIT (187 Taxman 338) wherein it has been held that once existence of persons in whose names credits are found in the books of the assessee is proved and such persons own such credits with assessee, assessee is not required to prove sources from which creditors could have acquired money to be deposited with it and that merely because depositors’ explanation about sources wherefrom they acquired money is not acceptable to the Assessing Officer, it cannot be presumed that deposits made by such creditors are moneys of assessee itself. In order to fasten liability on assessee by including such credits as its income from unexplained sources, a nexus has to be established by revenue that sources of creditors’ deposits flow from assessee.

24.1 The AR also relied on the decision of Madras High Court in the case of CIT vs Gobi Textiles Ltd. (170 Taxman 142) (Mad) wherein the Assessing Officer found that the assessee-company had received certain amount as share application money and required the assessee to prove the genuineness of the transactions by producing persons who had deposited more than Rs. 1 lakh. The assessee produced salary certificates of some of the creditors and land holding papers of certain properties, but did not produce any person. On consideration of the said particulars the Assessing Officer was of the view that except one person, others were not capable of depositing money in cash out of their savings and hence he treated the share application money as unexplained cash credit under section 68 and added it to the income of the assessee. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On second appeal, the Tribunal held that the assessee had discharged the onus cast upon it by producing the basic information in respect of the creditors and the Assessing Officer had failed to disprove the claim of the assessee as not genuine. Thus, the Tribunal deleted the addition made by the Assessing Officer. On the  revenue’s appeal, the High Court upheld the order of the Tribunal. The High Court supported the finding of the Tribunal that the assessee had discharged the onus cast upon it by providing the basic materials and it was the Assessing Officer who had failed to prove to the contrary. The AR submitted that the additions made under sec.69 of the IT Act may be ordered to be deleted.

24.2 The AR submitted that the CIT(A) recorded that the assessee indeed furnished confirmations from the respective creditors for substantiating their identities and besides these the assessee also furnished the pattedar passbooks, and income certificates from the VROS to establish the creditworthiness of the creditors. In spite of the fact that the creditors come from village background and, therefore, maintenance of bank accounts by the respective creditors could not be expected and in any case it was in the control of the assessee, the CIT(A) pointed out that the loans were given in cash and accordingly, despite having established their identities and creditworthiness to some extent, the assessee did not establish the genuineness of the transactions. He upheld the addition of the amount of cash credits to the extent of Rs.47 lakhs.

24.3 The AR submitted that the CIT(A) ought to have held that the assessee discharged the onus cast on him in respect of the loans taken by him and the CIT(A) ought to have directed deletion of the addition made u/s.69. The AR submitted that the addition of Rs.47 lakhs may be directed to be deleted.

25. The DR submitted that the assessee indeed furnished confirmations for substantiating the identities of the persons concerned. Besides, he also furnished the pattadar passbooks and income certificates from VROs to establish the creditworthiness of the persons so identified. However, it is seen that all the loans concerned were taken by the assessee in cash. Accordingly, despite having established the identities of the creditors concerned and even their creditworthiness to some extent, the assessee could not furnish any  evidence to establish the genuineness of the stated transactions with them. No evidence could be produced to the effect that the cash under consideration had actually come from the persons so identified. Therefore, it cannot be said that the assessee discharged its entire onus with respect to the said credits, so as to shift the onus of disproving the contentions so raised on the Assessing Officer. The DR submitted that in the absence of any means to substantiate the source of flow of cash to the assessee, the genuineness of the transactions with the alleged creditors cannot be treated as established beyond doubt. Accordingly, he supported the orders of the lower authorities.

26. The next ground is with regard to addition made u/s. 68 of the Act at Rs. 47 lakhs. The assessee only provided address of parties. Genuineness of the transaction and capacity of the parties are not proved. It is the burden cast on the assessee u/s. 68 of the Act to prove the genuineness of the transaction and capacity of the parties is not discharged by the assessee. The transaction is in the form of cash. Being so, there is heavy burden on the assessee to prove that the transaction is genuine. Our view is fortified by the judgement of jurisdictional High Court in the case of R.B. Mittal vs. CIT (246 ITR 283) wherein similar view has been taken. Accordingly, we are inclined to confirm the addition made u/s. 68 of the Act.

27. In the result, all the three appeals of the assessee are dismissed. Order pronounced in the open court on 15th March, 2013.