ITAT Orders Re-Adjudication of Section 54F Exemption with Fresh Evidence

Satish Agrawal Vs ITO (ITAT Raipur)

The case of Satish Agrawal vs. ITO (ITAT Raipur) revolves around the denial of a tax exemption under Section 54F of the Income Tax Act, 1961, claimed by the assessee for the Assessment Year 2014-15. Satish Agrawal, a partner in multiple firms, failed to declare a capital gain from the sale of land in his income tax return, asserting that the proceeds were reinvested in a residential property, thus qualifying for exemption. However, during the scrutiny process, the Income Tax Officer (ITO) rejected the exemption claim due to a lack of documentary evidence supporting the investment in the residential property. Subsequent appeals by the assessee were dismissed by the Commissioner of Income Tax (Appeals) due to non-compliance and inadequate submission of evidence. The case was then brought before the ITAT Raipur, where additional evidence was presented, including a valuation report and other documents. The tribunal acknowledged the submission of new evidence and decided to remand the case back to the lower authorities for re-adjudication, stressing the importance of considering the fresh evidence in the assessment of the exemption claim under Section 54F.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The captioned appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeal), NFAC, Delhi, (in short “CIT(A)”), vide order dated 07.12.2023 u/s 250 of the Income Tax Act, 1961 (In short ‘The Act’) for the Assessment Year 2014-15 which in turn arises from the order of Income Tax Officer-1(1), Bilaspur (in short “AO”), u/s 143(3) of the Income Tax Act, dated 30.06.2016.

2. The grounds of appeal raised by the assessee are as under:

1. That under the facts and law, the learned CIT (A), NFAC, Delhi, erred in passing order ex-parte, without allowing opportunity to the appellant, though application for adjournment was filed on 25.10.2023 vide Acknowledgement No. 446725031261023 for adjournment upto 08.12.2023, but Order was passed on 07.12.2023.

2. That under the facts and law, the learned CIT (A), NFAC, Delhi, erred in denying exemption u/s 54F of the Income Tax Act, 1961 for Rs. 53,86,108/- claimed by the Appellant in respect of Investment made in House Property.

Prayed that the Capital gain exemption u/s 54F of Rs. 53,86,108/- be allowed.

3. Concisely stated, the facts of the case are that the assessee is an individual, had filed his return of income for the assessment year 201 3-14 on 23.02.2015 showing a total income of Rs. 8,93,920/-. The case of the assessee was selected for scrutiny under “CASS” and accordingly notice u/s 143(2) and 142(1) was issued. In response to the said notices counsel of the assessee attended assessment proceedings from time to time wherein the case was discussed, and written submissions filed by the counsel are placed on record. The Assessee is a partner in the firms, namely Minakshi Sales, Krishna Road lines & Nandan Enterprises from where he is in receipt of interest, remuneration & share in profit. Apart from the earnings from partnership firms, the assessee also has commission income and income from other sources.

4. As observed by the Ld. AO that during year under assessment, there was a transaction of sale of land on 07.03.2014 for which assessee received a consideration of Rs. 1,08,00,000/-, however, such transaction was not reflected in the return of income of the assessee. The assessee was confronted by the Ld. AO to explain as to why capital gain has not been offered with regard to said transaction. In response, it is stated that the capital gain was reinvested in house property, so the same is eligible and accordingly, has been claimed as exemption u/s 54F of the Act. Therefore, there was no capital gain to be declared in the return of income. To investigate further, Ld. AO requested the assessee to furnish details of sales transaction and exemption claimed u/s 54F, in compliance following calculation was submitted by the assessee:

Sale amount – Rs. 1,08,00,000.00

Less: Purchase cost 2865500

Indexed cost 28 65 5 00* (939/497) – Rs. 54,13,892.35

Index F. Yr. 05-06 497 F.Yr. 13-14 939

Profit on Land sale – Rs. 53,86,107.65

Investment in House Property upto 31/03/2014 68,58,900.00

Exemption – Rs. 53,86,107.66

Capital gain Nil

5. On perusal of the aforesaid calculations of the capital gain, Ld. A O asked to the counsel of the assessee to explain the purchase cost shown at Rs. 28,65,500/- and also proof regarding investment in house property of Rs. 68,58,900/-. Details pertaining to such queries by the Ld. AO were furnished by the assessee, which were considered and accordingly the explanations offered by the assessee regarding cost of purchase were accepted by the Ld. A.O., but he was not happy with the explanation regarding investment in the house property of Rs. 68,58,900/- because no documentary proof regarding such investment could be produced by the assessee, and in absence of any corroborative evidence establishing the investment of Rs. 68,58,900/- in the new house property by the assessee, an addition of Rs. 54,13,892/- was made under the head capital gain on sale of land by rejecting the claim of the assessee u/s 54F of the Act, considering that the assessee is not entitled to such claim.

6. Aggrieved by the aforesaid of order Ld. AO, assessee preferred an appeal before the Ld. CIT(A), however assessee remain non-compliant before the Ld. CIT(A), even after sufficient opportunities were afforded to him. While dismissing the appeal of the assessee, Ld. CIT(A) has categorically mentioned about the noncompliance by the assessee / appellant and, therefore, on the basis of material available on record, after deliberations on merits of the case, the decision was granted with the following observations:

4. Non-compliance by the appellant:-

During the appellate proceedings, the appellant was provided more than enough opportunities, however, neither the appellant nor his AR filed any written submission on the pre-fixed hearing dates. The details of opportunity provided to the appellant are given here below:-

5. Discussion and appellate decision:-

It is evident from the above chronology of events that even though various opportunities were provided to the appellant who deliberately and willfully avoided the compliance of statutory notices which simply prove that it is not interested in prosecution of the matter. It is held in the case of CIT Vs. B.N. Bhattachargee & Ors. (118 ITR 461) by the Hon ’ble Supreme Court that the appeal does not mean merely filing of appeal but effectively pursing it. The sum and substance of ratio of this case is that the assessee cannot ask for relief merely by filing an appeal. In the case of Estate of Late Tukojirao Holkar Vs. CWT (223 ITR 480) (MP) while dismissing the reference at the instance of the assessee in default made following observation in their order:-

“If the party at whose instance the reference is made, fails to appear at the hearing or fails in taking steps for preparation of the paper books so as to enable hearing of the reference, the court is not bound to answer the reference. “

The Hon ‘ble Bombay High Court in the case of M/S. Chemipol V/s. Union of India in Excise Appeal No. 62 of 2009 has held that in the cases where the assessee does not want to pursue the appeal, appellate authorities have inherent power to dismiss the appeal for non-prosecution. Likewise, in the case of CIT Vs. Multiplan India (P) Ltd. (38 1TD 320) (Del) the appeal filed by the appellant was dismissed for non-attendance.

5.1 Respectfully, following these judicial pronouncements (supra), the appeal filed by the appellant is treated as dismissed for non-prosecution. On merit also, the contention of the appellant regarding claim of deduction u/s.54F of the Act towards investment made in residential building of Rs. 53,86,107.65 as an after-thought as no such details or evidence regarding investment were filed either before the AO or before this office. Apart from the above, the appellant failed to furnish any other vital evidences, i.e. copy of Bank statements reflecting the transactions made, copy of purchase deed, copy of Architect Certificate, Site Plan/Construction Plan and municipal/pan chayat payment receipts and evidences relating to cost incurred on construction of residential house, viz. bills of expenses on material, labour, wood, electric fitting, proof of land cost, demolition cost, etc., as supporting evidences to justify the claim of deduction of Rs. 53,86,107.65. Since the appellant failed to furnish any such vital details/evidences either before’ the AO during the course of assessment proceedings or before this office during the appellate proceedings, therefore, the appellant failed to satisfactorily prove that he was eligible for deduction u/s 54F of the Act. Considering the entire factual matrix of the case, addition of Rs. 53,86,107.65 made for disallowance of deduction u/s. 54F of the Act is hereby confirmed. In view of the above, on merits also appeal deserves to be dismissed. Hence, appeal is dismissed for non-prosecution as well as on merits too. All the grounds of appeal are treated as dismissed.

7. Disappointed with the aforesaid order of Ld. CIT(A), the assessee preferred the present appeal before us.

8. At the outset, Ld. Authorized Representative, Shri G.S. Agrawal, on behalf of the assessee (in short “AR”), drew our attention to page no. 7 of the PB No. 2, showing copy of sale deed registered on 11.03.2014 for sale of land at Rs. 1,08,00,000/-, stating that the entire consideration was received by the assessee before execution of the said sale deed. Ld. AR further drew our attention to page no. 8 of the PB No. 1 of the assessee to show the cost of purchase of the said land showing an amount of Rs. 28,65,500/- in the balance sheet of the assessee as at 31.03.2006. Similar figure was shown at page no. 9 in the statement of affairs as on 31.03.2013. Regarding investment in house at Bilaspur for which exemption has been claimed u/s 54F for Rs. 68,58,9000/-, Ld. AR took us to page no. 10 of the PB no. 1, wherein statement of affairs of the assessee as on 31.03.2014 is placed, having entry of investment in house at Bilaspur with the said figure on the asset side of the statement of affairs. When the Ld. AR, in the earlier hearing was requested to show regarding the land held at Bilaspur on which the disputed investment was made, Ld. AR placed before us an application for admission of additional evidence u/r 29 of the ITAT Rule containing therein a valuation report by the approved valuer dated 01.03.2023 showing valuation of immovable property i.e., residential building of Smt. Jyoti Agrawal W/o Shri Satish Agrawal (The assessee) at sheet no. 7/5, Plot No. 357, Khasara No. 748/2(Part), P.H. No. 22/34, Ward No. 17, Vinoba Nagar, Ward (Kranti Nagar, Mouza-Juna Bilaspur, R.N.M. Bilaspur, Block- Belha, Tahsil & District- Bilaspur (C.G.), stating that this is the same property where the assessee had made the investment of Rs. 68,58,9000/- and has claimed the deduction u/s 54F for which the assessee is an entitled under the provisions of the Act. Ld. AR further drew our attention to page no. 14 of the additional evidence showing a copy of permission by Nagar Palik Nigam, Bilaspur dated 27.01.2023 for construction on the property situated at 748/2 at Juna, Bilaspur i.e., the property for which the valuation was obtained and furnished before us. With such assertions, it was the submission that the additional evidence submitted are of material importance and deciding the issue, however, since the same were not readily available during the assessment proceedings, therefore, the assessee was unable to submit the same before the Ld. AO. Ld. AR further argued that under such facts and circumstances, it is the prayer that deduction u/s 54F so claimed, by the assessee shall be allowed and the addition made by the Ld. AO on this count, which was further confirmed by the Ld. CIT(A), NFAC by passing an order without affording adequate opportunity to the appellant.

9. Alternatively, referring to the ground no. 1 it is submitted by the Ld. AR that the order of Ld. CIT(A) was passed in haste, even after the adjournment request of the assessee to adjourn the case upto 08.12.2023 whereas the order was passed on 07.12.2023. It is the submission that the assessee was not provided with reasonable opportunities of being heard. The assessee was deprived of placing its explanations, contentions and the evidence to support the claim under the provisions of Section 54F of the Act. Backed by such arguments it was the prayer of the Ld. AR that order of Ld. CIT(A) passed without appreciating the complete facts only on the basis of findings of the Ld. AO, the matter in all fairness, in the interest of justice shall be restore back to the files of Ld. CIT(A) to re-adjudicate the same in light of the additional evidence furnished.

10. Per contra, Ld. Sr. DR on behalf of the revenue strongly supported the order of Ld. CIT(A) and have submitted that since the assessee had squarely failed in furnishing requisite details regarding the evidence of investment in house property out of the sale proceeds of the land against which deduction was claimed u/s 54F, thus, Ld. AO had rightly rejected the claim of the assessee which can not be allowed in absence of corroborative evidence to support and substantiate that the actual investment was made by the assessee, which is a pre-requisite to be eligible for deduction as per the provisions of section 54F. Ld. Sr DR further reiterated the decision and discussion from the order of Ld. CIT(A), stating that there was complete non-compliance by the appellant before the Ld. CIT(A), however, the issue in the case of assessee was duly discussed on the merits by the first appellate authority, therefore, the same cannot be qualified as an exparte order. Further, the failure on the part of assessee before both the revenue authorities disqualifies the assessee to request for set aside of the matter to the file of Ld. AO for fresh adjudication, moreover the additional evidence submitted before the tribunal u/r 29 are also not adding any value so as to substantiate the assessee’s claim for deduction u/s 54F dehors any supporting showing evidence of investment in the impugned house property. It is the submission of Ld. AR that the assessee should not be provided with further opportunity by way of set aside proceedings as nothing could be brought on record to substantiate the genuine investment by using the consideration received on the subject sale of land on which the capital gain is charged to tax by the Ld. AO.

11. We have considered the rival submissions, perused the material available on record and the orders of the revenue authorities. In the present case, on perusal of the facts emerging from various documents furnished before us, it is an admitted and undisputed fact that the assessee had earned long term capital gain of Rs. 54,13,892/- from sale of land in the relevant year on 07.03.2024. The assessee had claimed a deduction u/s 54F against the said long term capital gain declaring that he had invested an amount of Rs. 68,58,900/- in a property situated at Bilaspur in his wife’s name. Ld. AO requested the assessee to furnish documentary proof to support his claim of deduction u/s 54F. Several opportunities were granted to the assessee by the Ld. AO, but the assessee failed to produce the evidence with regard to the investment in the house property out of the sale proceeds of the land which has caused the long-term capital gain. Again before, Ld. CIT(A) the assessee was unable to furnish any further explanation, opportunities were granted and the assessee had sought adjournments on various dates, however the order was passed considering the facts on record. While submitting additional evidence before us, Ld. AR have furnished the documents like valuation report by the approved valuer, personal capital account and statement of affair of Smt. Jyoti Agrawal as on 31.03.2018, Bhavan Anugya from Municipal Corporation. Ld. AR, to establish with the support of such document that the assessee had made the investment in the house for which valuation report is prepared by the approved valuer and permission was granted by Municipal Corporation. It is also explained that apart from assessee, his wife also had invested certain amount in the said property. Ld. AR also shown us the statement of affairs of the assessee as on 31.03.2006, 2013, 2014 & 2015, with an argument that the assessee has duly shown the amount of investment and further investment in the relevant year and ensuing year.

12. After carefully going through the aforesaid submissions by both the parties and on a thoughtful consideration of the contentions raised by the Ld. AR, it is ostensible that though the assessee had shown the amount of investment in his balance sheet / statement of affairs for the relevant year and following year but was unable to substantiate the same with corroborative evidence. The claim of the assessee that the consideration of Rs. 1,08,00,000/- was received in cash on 07.03.2014 out of which an amount of Rs. 68,58,900/- was utilized in the construction of residential house till 31.03.2014, though was not disputed by the revenue but remain uncorroborated in absence of documentary evidence.

13. The additional evidence u/r 29 furnish before us like valuation report by the approved valuer, personal capital account and statement of affairs of Smt. Jyoti Agrawal as on 31.03.2018 and Bhawan Anugya from Municipal Corporation in the name of Shri Satish Agrawal (assessee) and Smt. Jyoti Agrawal dated 29.01 .2013 are admittedly could not be furnish before the Ld. CIT(A) so before the Ld. AO. Therefore, there was no occasion of revenue authorities to appreciate the facts in light of such additional evidence.

14. Under similar facts and circumstances, while deciding the identical issue, the observations of the coordinate benches of this tribunal are worth noting. For the sake of better interpretation, the relevant findings in the following cases are culled out as under:

(i) Govind Gangadhar Sabane vs. ITO, ITAT, Pune, Bench ‘B’, reported in (2019) 101 taxmann.com 230 (Pune-Trib), wherein it has been held that “Where assessee had sold an agricultural land and utilised sale consideration for construction of new residential house an claimed deduction under section 54F, since both Assessing officer and Commissioner (Appeals) had agreed to fact that inspector had visited site and had reported that new house was constructed, exemption under section 54F could not be denied simply because bills and vouchers were not produced.”

(ii) Pawan Aggarawal vs. DCIT, ITAT, Chandigarh, Bench ‘B’, reported in (2023) 154 taxmann.com 366 (Chandigarh-Trib), wherein it has been held that “Where Assessing Officer disallowed cost of construction while computing LTCG on sale of property for reason that assessee failed to produce bills / voucher of construction activities, since admittedly there were withdrawals from assessee’s account for construction of property and assessee had also submitted valuation report in support of his claim of cost of construction which would be germane and relevant to determine appropriate cost of construction, however, same was not considered Matter was to be reminded to examine such valuation report and decide matter afresh.”

15. In view of aforesaid observations by the coordinate benches of the tribunal, respectfully drawing the corollary adopted therein, that though the assessee fails to produce bills / vouchers of construction activity, the claim of deduction u/s 54F cannot be denied without considering the relevant documents which are furnish before us as additional evidence u/r 29 of the ITAT Rules. Since, such additional evidence is not before the Ld. CIT(A), there is no occasion for him to decide the issue, considering the information emanating from such documents. We, therefore, are of the considered opinion that in all fairness and in the interest of principle of natural justice, the matter should be restored back to the file of Ld. CIT(A) for fresh adjudication. Needless to say, the assessee shall be afforded with reasonable opportunities of being heard in the set aside appellate proceedings and liberty to produce necessary evidence / information /evidence to substantiate the contentions raised.

16. In result, the appeal of the assessee in ITA No. 37/RPR/2024 is partly allowed for statistical purpose.

Order pronounced in the open court on 21/05/2024.