Case Law Details

Case Name : Manish Kumar Lath Vs CIT(A)-II (ITAT Indore)
Appeal Number : ITA No.616/Ind/2017
Date of Judgement/Order : 26/10/2018
Related Assessment Year : 2012-13
Courts : All ITAT (7317) ITAT Indore (67)

Manish Kumar Lath Vs CIT(A)-II (ITAT Indore)

Conclusion: Where assessee-director was able to establish the relation between expenditure incurred by credit card with the business of the company in which assessee was a director, the expenses incurred was allowable to that extent.

Held: Assessee was a director of M/s. I Private Limited and the credit card had been provided to meet the expenses. AO disallowed the expenditure on the ground that expenses were for the personal use. It was incumbent upon assessee to prove the nature of expenditure and purpose of the expenditure and correlate with the business of the company. In the present case, assessee had merely made a bald statement. The ledger account belonging to company so submitted spoke of cash credit which required verification by AO, whether such expenditure had any link with the business of company in which assessee was a Director. Therefore, the issue was set aside to the file of AO for a limited purpose to verify the link between the expenses and the business of the company where assessee was the Director. In the event if A.O. found that there was some relation with the business of company and expenditure incurred by assessee, he would allow such expenses and delete the addition to that extent.

FULL TEXT OF THE ITAT JUDGMENT

Appeal by the assessee is directed against order of the CIT(A)-II, Indore dated 12.7.2017 pertaining to the assessment year 2012-13. The assessee has raised following grounds of appeal:

1. That on the facts and in the circumstances of the case, the learned CIT(A)-II, Indore has erred in confirming the order pertaining to rejection of claim of Rs.23,79,120/- u/s 54F and also confirming the addition of Rs.23,79,120/- being capital gain arising from sale of plot.

2. That on the facts and in the circumstances of the case and law, the order dated 12.76.2017 as passed by the learned CIT(A)-II, Indore rejecting the claim of Rs.23,79,120/- u/s 54F of the I.T. Act and also confirming the addition of Rs.23,79,120/- is invalid and unlawful because while passing such order, the learned A.O. failed to consider the submission made by the appellant in course of appeal hearing.

3. That on the facts and in the circumstances of the case and law, the finding of the learned CIT(A) in his order are wholly wrong and injudicious and are opposed to the facts, and therefore, there is no justification in sustaining such assessment order.

4. On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the action of the assessing officer and not allowing the expenses through credit card of Rs.5,22,614/- and out of which Rs.4,16,039/- has fully proved.

5. That on the facts and in the circumstances of the case the learned CIT(A) failed to consider that these transactions were pertaining to the company and not to the appellant. Hence, the addition of Rs.5,22,614/- is unwarranted and deserves to be deleted.

6. The appellant craves leave to amend, alter or delete any of the above grounds of appeal.

2. The facts giving rise to the present appeal are that case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) was framed vide order dated 31.3.2015. The A.O. during the course of assessment noticed that assessee had sold two plots on 27.2.2012 for a sale consideration of Rs.30,00,000/-. It was noticed that these plots were purchased on 9.5.1995 for a sale consideration of Rs.2,22,250/-. The A.O. sought explanation of the assessee as to why the capital gain arising from these sale of plots was not offered for tax. The explanation given by the assessee was not acceptable by the A.O. Therefore, he made addition of Rs.23,79,120/- on account of long term capital gain not offered for taxation. Before A.O., the explanation of the assessee was that the assessee is entitled for deductions u/s 54F of the Act. Therefore, no long term capital gain tax is payable by the assessee. The A.O. further made addition on account of credit card bills payment amounting to Rs.5,22,614/-. Against these two additions, the assessee preferred an appeal before the Ld. CIT(A), who did not interfere with the finding of the assessing officer and sustained both the additions. Now the assessee is in appeal before this Tribunal.

3. Ground Nos.1 & 2 are against denying the claim of deduction u/s 54F of the Act. Ld. Counsel for the assessee reiterated the submissions as made in the written synopsis. For the sake of clarity, the submissions of the assessee are reproduced as under:

May it please your honours,

The brief facts of the case are stated hereunder:-

The assessee is an Individual deriving income from manufacture and sale of cloth and income from salary as a director. The return of income is filed declaring the total income of Rs.12,29,580/-. There are two points involved in this appeal viz the deduction u/s.54-F and addition in respect of credit card payments.

GROUND No.! & 2:- Denial of exemption u/s.54F :

The assessee has sold the plots for Rs.30,00,000/- and purchased the residential house at Mumbai and claimed the deduction u/s.54F. The important dates are as under:-

27.02.2012 Plots sold for Rs.30,00,000/-. (P.31 of PB)
29.09.2012 Filing of Return of income.
03.10.2012 Rs.10,00,000/- payment made to builder (P.57 & 62 of PB)
02.11.2012 Rs.15,00,000/- payment made to builder (P.11 & 62 of PB)
03.12.2012 Registered agreement for purchase of Flat at Mumbai at Rs.2,57,00,000/-

The assessee claimed the deduction u/s.54F for the investments in the purchase of flat at Mumbai. The Id. AO disallowed the claim of the assessee on the ground that assessee was required to deposit the entire sale consideration in the scheme of deposits in capital gains account on or before the due date of filing of return of income. The assessee did not deposit the said amount and as such the provisions of sec. 54F are not applicable.

It was further stated that the assessee has relied on the case laws applicable to return filed u/s.139(4), but in the present case, the assessee has submitted the return u/s.139(1) and as such the deduction is not allowable u/s.54F. The ld. CIT(A) has upheld the contention of the ld.AO.

Section 54F of the Act reads as under:-

[Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.

(1) [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 (hereinafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date [constructed, one residential house in India] (hereinafter 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:

Sub-section 4 of sec. 54F reads as under:-

“The amount of 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 transfer of the original asset took place or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income u/s.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 sub-section 1 of sec.139) in an account in the bank and such return shall be accompanied by proof of such deposit and for the purpose of sub-section 1, the amount, if any already utilized 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”.

Thus, section 54F provides that the assessee has to purchase within a period of two years after the date on which transfer takes place. Sub-section 4 clearly provides about purchase of the asset before the date of furnishing of the return of income u/s.139. If the assessee feels that he will not be able to purchase the house in a short period, then he can deposit the money in the capital gains bank account. This section further stipulates that the assessee shall deposit the amount in the capital gains account not later than the due date applicable for furnishing the return of income under sub-section 1 of sec.139.

It is thus submitted that the deposit is required to be made before the due date of filing of the return only if the assessee wants to utilize the money for purchase of the property within two years: If the assessee purchases the property u/s.139 including sub-section 4, then he has a time to purchase the property within the time limit prescribed u/s.139(4) and accordingly he is entitled to get the deduction.

In the instant case, the assessee has already advanced the money to the purchaser before the time limit prescribed u/s.139(4) and got the property registered. In such an event, he would be entitled to get the deduction for the amount utilized for the purchase of house within the stipulated period. Attention is drawn to the judgment of the Hon. Gauhati High Court in the case of CIT V/s. Rajesh Kumar Jalan reported in 286 ITR p.274 and in the case of CIT V/s. Jagtar Singh Chawla 259 CTR p,388 (P & H). The Pune Bench and the Hyderabad Bench have followed the said judgments. The copies of the judgments are enclosed from Page 71 to P.89 of the PB. The Indore Bench has taken a similar view in the case of Aftab Mohammad V/s. ITO (P.87 of PB). The Hon. Ahmedabad Bench in the case of Ashok Kapasiyavala V/s. ITO reported in 155 ITD p.948 have followed the judgment of the Hon. Punjab & Haryana High Court in the case of CIT V/s. Jagtar Singh Chawla and the judgment of the Hon. Karnataka High Court in the case of CIT V/s. K. Ramchandra Rao and observed in Para 6.3 that the assessee purchased the new asset on 05.10.2009 after transferring the original asset on 08.01.2008. The assessee has purchased the residential house within a period of two years after the date when transfer took place. Following the judgment of the Hon. Karnataka High Court, the Hon. Tribunal granted the benefit of sec.54F to the assessee.

In the instant case, the assessee has already purchased a new house within the stipulated period and as such is entitled to the deduction u/s.54F.

GROUND No.3:- (Additions in respect of Credit Card payments)-

The Id. AO has made the addition of Rs.5.22.614/- being the credit card payments. It was submitted before the AO that the assessee is a director of M/s. (spat International Pvt. Ltd. and the credit card has been provided to meet out the expenses of the company. The Id. AO disallowed the expenses on the ground that the expenses are for his personal use and not for the business use. The Id. CIT(A) has upheld the addition.

It is humbly submitted that the credit card is allowed to be utilized by the director of the company for the expenses to be incurred for the company. The complete details were filed. The expenses were debited in the books of the company. Since the amount has been paid by the company and debited in their books as a business expenditure. no addition can be made in the hands of the assessee. We are herewith filing a certificate from the company about the expenditure incurred on their behalf.

4. In support of the contention that the assessee is entitled for deduction, the assessee has relied upon decision of the coordinate bench in ITA No.2692/Ahd/2014 dated 10.9.2015 in the case of Ashok Kapasiawala Vs. ITO in which one of us was the party. Ld. Counsel has also placed reliance on the judgement of Hon’ble Guwahati High Court in the case of CIT Vs. Rajesh Kumar Jalan 286 ITR 274. Ld. Counsel has also placed reliance on the decision of the coordinate bench rendered in the case of ACIT Vs. Smt. Asha Ashok Boob 69 SOT 321. Decision of the coordinate bench in the case of Nipun Mahrotra Vs. ACIT 297 ITR 0110 (Bang. Trib). Ld. Counsel therefore vehemently argued that the assessee is entitled for deduction in the light of the case laws relied by him.

5. Per contra, Ld. D.R. opposed the submissions and submitted that there is no ambiguity under the law. He has taken us through the relevant provisions of law and submitted that where there is no ambiguity under the law, the law is to be applied in the strict sense. He submitted that the case laws as relied by the Ld. Counsel are distinguishable on the facts.

6. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The claim of deduction was denied by the assessing officer on the basis that the assessee had filed its return of income on 29.9.2012 and plots were sold on 27.3.2012 for Rs.30 lakhs and the assessee had purchased residential flat in Mumbai on 3.12.2012 for a sum of Rs.2.57 crores. As per the provisions of the Act, the assessee was required to deposit the entire sale consideration in the claim of deposit of capital gain accounts on or before due date of filing of his return. This finding of the assessing officer is sustained by the Ld. CIT(A). Now moot question to be decided is whether the assessee would be entitled for benefit of section 54F of the Act even he does not deposit the sale consideration as contemplated u/s 54F(4) of the Act. The coordinate bench in the case of Ashok Kapasiawala Vs. ITO (supra) while relying upon the judgement of the Hon’ble Karnataka High Court in the case of CIT Vs. K. Ramachandra Rao (2015) 56 taxamann.com 163 held as under:

6.2. The Hon’ble Karnataka High Court in the case of CIT vs. K.Ramachandra Rao (supra) answered the question in favour of assessee i.e. when the assessee had invested the entire sale consideration in construction of a residential house within the three years from the date of transfer. Could he be denied exemption under section 54 F on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed u/s.139(1) of the Act. The Hon’ble High Court of Karnataka High Court held as under:-

“As it clear from Sub-section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in Section 54F(1), if the assessee wants the benefit of Section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words if he want of claim exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct.”

3. In the present case, the assessee purchased new asset on and had transferred the original asset on 8/01/2008. As per Section 54F (1) of the Act, the exemption would be available if the assessee purchased the residential house within two years after the date when transfer took place. As per the judgment of Hon’ble Karnataka High Court, the provisions of section 54F(4) would not be attracted in the event if the assessee has purchased or constructed the residential house within the period prescribed under section 54(1) of the Act. In the case in hand, there is no dispute with regard to the fact that the assessee had purchased within two years [the period prescribed u/s.54(F(1)] a new asset on 05/10/2009 from the date of transfer of the original asset. The Revenue has not cited or placed on record any contrary judgment by the Hon’ble Jurisdictional High Court or Hon’ble Supreme Court. Therefore, respectfully following the ratio laid down by the Hon’ble Karnataka High Court in the case of CIT vs K.Ramachandra Rao (supra), we hereby set aside the impugned order and direct the AO to re-compute the assessed income after granting the benefit of section 54F of the Act to the assessee.

7. In the present case, the plot was sold on 27.2.2012. Due date of filing of return was 29.9.2012. Payment made to builder of Rs.10 lakhs on 3.10.2012. Further payment made to the builder of Rs.15 lakhs on 2.11.2012 and agreement for purchase was registered on 3.12.2012. It is the case of the assessee that the sale consideration was utilised within one year from the date of sale of the original asset. Under these facts, it is argued that in the light of the judgement of the Hon’ble Karnataka High Court and followed by the coordinate bench, the A.O. ought to have given benefit of the deduction u/s 54 of the Act. The revenue has not brought any contrary binding precedent in our notice, therefore, respectfully following the ratio laid down by the Hon’ble Karnataka High Court in the case of CIT Vs. K. Ramachandra Rao (supra), we direct the A.O. to allow deduction u/s 54F of the Act and delete the addition.

8. Ground Nos.3 & 4 are against sustaining the addition of Rs.5,22,614/- in respect of the payments made by cash credit card. Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. It is submitted that the assessing officer made addition of Rs.5,22,614/- being the credit card payments. It was submitted before the A.O. that the assessee is a Director of M/s. Ispat International Private Limited and the credit card has been provided to meet the expenses. The A.O. disallowed the expenditure on the ground that the expenses are for the personal use. It is submitted that the credit card was allowed to be utilised by the Director of the company for the expenses to be incurred for and on behalf of the company. The complete details were filed. The expenses were debited in the books of the company. Since the amount has been paid by the company and debited in their books as the business expenditure, no addition can be made in the hands of the assessee. In support of this contention, a certificate from the company is also enclosed.

9. On the contrary, Ld. D.R. opposed the submissions and supported the order of the authorities below. He submitted that pre-condition for allowance of any expenditure is that the assessee is required to demonstrate that so incurred expenditure is related to business of the company. Merely, a statement by the company that it has made the payments would not be sufficient. The assessee is required to prove such payments as business expenditure of the company with plausible evidences.

10. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. We find that the A.O. disallowed expenditure on the ground that expenses incurred do not relate to business of company. It may be true that on some occasions, the Director of the company incurs expenditure for and on behalf of the company but for allowance of such expenditure, it is incumbent upon the assessee to prove the nature of expenditure and purpose of the expenditure and correlate with the business of the company. In the present case, the assessee has merely made a bald statement. The ledger account belonging to the company so submitted speaks of cash credit which requires verification by the assessing officer, whether such expenditure had any link with the business of the company in which the assessee is a Director. We therefore, set aside this issue to the file of the A.O. for a limited purpose to verify the link between the expenses and the business of the company where the assessee is the Director. In the event if the A.O. finds that there is some relation with the business of the company and expenditure incurred by the assessee, he will allow such expenses and delete the addition to that extent. The ground Nos.3 and 4 of assessee’s appeal are allowed for statistical purpose.

11. In the result, the appeal of the assessee is partly allowed.

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