Case Law Details

Case Name : Shankar Lal Kumawat Vs ITO (ITAT Jaipur)
Appeal Number : ITA. No. 1390, 1391 & 1392/JP/2018
Date of Judgement/Order : 21/07/2020
Related Assessment Year : 2008-09

Shankar Lal Kumawat Vs ITO (ITAT Jaipur)

Section 139(1)(b) provides that every person, being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Further, by way of sixth proviso, it has been specifically provided that the total income has to be computed without given effect to the provisions of section 54 and the same read as under:

“Provided also that every person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificia l juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to the provisions of clause (38) of section 10 or section 10A or section 10B or section 10BA or section 54 or section 54B or section 54D or section 54EC or section 54F or section 54G or section 54GA or section 54GB or Chapter VI-A exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. ”

 In the instant case, the assessee’s total income without giving effect to the provision of section 54 come to Rs 9,37,280/- which exceeds the maximum amount not chargeable to tax. The assessee was therefore required to furnish his return of income and in absence of any reasonable cause shown by the assessee for such failure to file his return of income, the penalty u/s 271F is hereby confirmed.

It was also held that merely for the reason that the new residential house property has been purchased by the assessee in the name of his wife, the same cannot be basis for the denial of deduction claimed under Section 54 or Section 54F of the Income Tax Act, 1961.

FULL TEXT OF THE ITAT JUDGEMENT

PER BENCH:

These are three appeals filed by the assessee against the order of ld. CIT(A)-03, Jaipur dated 04.10.2018 for A.Y 2008-09.

2. In ITA No. 1390/JP/2018, the limited issue involved is denial of deduction claimed by the assessee u/s 54 of the I.T. Act.

3. Briefly stated, the facts of the case are that the assessee has sold a residential house situated at Plot No. 184, Maruti Nagar, Airport Road, Sanganer, Jaipur vide sale deed dated 29.11.2017 for a consideration of Rs. 10,00,000/- which was valued by the Sub-Registrar (Stamps) at Rs. 10,84,691/-. The assessee did not file his return of income. Subsequently, notice u/s 148 was issued on 30.03.2015 and in response to the said notice, the assessee filed his return of income on 14.01.2016 wherein he has claimed indexed cost of acquisition, indexed cost of construction and transfer expenses amounting to Rs. 2,47,411/- and deduction u/s 54 amounting to Rs. 8,37,280/- against the deemed sale consideration u/s 50C amounting to Rs. 10,84,691/-. The Assessing Officer allowed the deduction amounting to Rs. 2,47,411/-. However, deduction u/s 54 was denied by the Assessing Officer. As per Assessing Officer, the fresh investment in the plot situated at Plot No. 184, Maruti Nagar, Airport Road, Sanganer, Jaipur for Rs. 7,16,638/- was made by the assessee in the name of his wife and secondly, no documentation has been submitted in support of cost of construction thereon. Accordingly, the deduction claimed u/s 54 amounting to Rs. 8,37,280/- was denied by the Assessing Officer. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the action of the Assessing Officer. Against the said findings, the assessee is in appeal before us.

4. During the course of hearing, the ld. AR submitted that the assessee has purchased the plot of land for Rs. 7,16,638/- in the name of his wife and such investment was made out of the sale proceeds from sale of the original house property. In support, the reliance was placed on the Coordinate Bench decision in case of Shri Vivek Jain, Jaipur vs. DCIT, Circle-07, Jaipur (in ITA No. 139/JP/2016 dated 08.12.2017) and following other decisions:-

5. It was further submitted by the ld AR that the assessee constructed a small residential house on the aforesaid land and incurred an amount of Rs. 2,50,000/- on its construction out of the money received from sale of land. In support, a copy of the valuation report was also placed on record. It was further submitted that the assessee has also taken an electric connection which shows construction of a residential house and copy of the first electricity bill dated 01.03.2008 was also placed on record which was not considered by the Assessing Officer. It was accordingly submitted that the deduction claimed by the assessee towards the fresh investment in terms of plot of land and construction thereon should be allowed to the assessee.

6. Per contra, the ld. DR submitted that firstly, the plot of land has been purchased in the name of assessee’s wife and secondly, no proof in support of the cost of construction was submitted before the lower authorities. It was further submitted that even on perusal of the said valuation report so submitted by the assessee before the Tribunal, it is not clear in terms of the time frame within which the assessee has carried out the construction and whether the construction has been carried out within the stipulated period. The ld DR accordingly submitted that there is no infirmity in the order of lower authorities and the same should be confirmed.

7. We have heard the rival contentions and perused the material available on record. The relevant provisions of section 54 which are under consideration reads as under:

“54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property ” (hereafter 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, then, instead of the capital gain being charged to income-tax as income o f the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—

(i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose o f computing in respect of the new asset any capital gain arising from its transfer within a period of three years o f its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain: ”

8. On reading of the aforesaid provisions, in order to claim the deduction what is required to be satisfied by the assessee is that firstly, there should be a transfer of a long term capital asset, being a residential house. In the instant case, the assessee has sold a residential house on 29.11.2007 and the same is thus not under dispute. Secondly, 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. In the instant case, the assessee has purchased a plot of land situated at Plot No. 184, Maruti Nagar, Airport Road, Sanganer, Jaipur on 5.11.2007 and thereafter, has carried out construction of a residential house thereon, which as per valuation report has been carried out during the year 2007-08. The Assessing officer has disallowed the claim of the assessee on account of the fact that the fresh investment has been made in the name of the assessee’s wife and secondly, the assessee has failed to substantiate the cost of construction.

9. As far as investment made in the name of the assessee’s wife is concerned, we find that the issue is covered in favour of the assessee by decision of the Hon’ble Rajasthan High Court in case of Shri Mahadev Balai vs ITO and the same has been considered at length by the Coordinate Bench in case of  Shri Vivek Jain, Jaipur vs. DCIT, Circle-07, Jaipur (in ITA No. 139/JP/2016 dated 08.12.2017) wherein the relevant findings read as under:-

“9. During the course of hearing, the ld. AR reiterated the submissions made before the ld. CIT(A). Further, ld. AR also drawn our reference to the recent decision of Hon’ble Rajasthan High Court in case of Sh. Mahadev Balai vs. ITO (D.B. ITA No. 136/2017 & others dated 07.11.2017) wherein in the context of section 54B, it was held that where the investment is made in the name of the wife, the assessee shall be eligible for claim of deduction u/s 54B of the Act.

10. In the said case, the assessee has sold agricultural land and purchased another agricultural land in the name of his wife and claimed deduction u/s 54B of the Act. The Coordinate Bench vide its order in ITA No. 333/JP/2016 dated 26.12.2016 following the decision of Hon’ble Rajasthan High Court in case of Kalya vs. CIT(supra) had decided the issue against the assessee and has confirmed the denial o f deduction u/s 54B of the Act. In the context of said facts, on appeal by the assessee, the Hon’ble Rajasthan High Court has framed the following substantial question of law:

“Where ld. ITAT was justified in disallowing the exemption u/s 54B of the Act without appreciating that the funds utilized for the investment for purchase of the property eligible u/s 54B belonged to the appellant only and merely the registered document was executed in the name of the wife and further the wife had not separate source of income.”

11. The Hon’ble Rajasthan High Court, after considering its earlier decision in case of Kalya vs. CIT(supra) and the various other decisions of Hon’ble Delhi High Court, Hon’ble Madras High Court, Hon’ble Karnataka High Court, Hon’ble Punjab and Haryana High Court, and Hon’ble Andhra Pradesh High Court, as also relied upon by the assessee, has held that it is the assessee who has to invest and it is not specified in the legislation that the investment is to be in the name of the assessee and where the investment is made in the name o f wife, the assessee shall be eligible for deduction and has thus decided the matter in favour of the assessee. The relevant findings of the Hon’ble Rajasthan High Court are contained at para 7.2 and 7.3 of its order which are reproduced as under:-

“7.2 On the ground of investment made by the assessee in the name of his wife, in view of the decision of Delhi High Court in Sunbeam Auto Ltd. and other judgments of different High Courts, the word used is assessee has to invest, it is not specified that it is to be in the name of assessee.

7.3 It is true that the contentions which have been raised by the department is that the investment is made by the assessee in his own name but the legislature while using language has not used specific language with precision and the second reason is that view has also been taken by the Delhi High Court that it can be in the name of wife. In that view of the matter, the contention raised by the assessee is required to be accepted with regard to Section 54B regarding investment in tubewell and others. In our considered opinion, for the purpose of carrying on the agricultural activity, tubewell and other expenses are for betterment of land and therefore, it will be considered a part of investment and same is required to be accepted. ”

12. In light of legal proposition so laid down by the Hon’ble Rajasthan High Court in case of Mahadev Balai (supra), where the investment in the new house property has flown from the assessee, which is not in dispute in the instant case, merely for the reason that the new residential house property has been purchased by the assessee in the name of his wife, the same cannot be basis for the denial of deduction claimed u/s 54F of the Act. ”

10. The ratio of the aforesaid decision though rendered in the context of section 54F of the Act, given the similarity of language employed, will equally apply in the instant case in context of section 54. Further, the decision of Hon’ble Madras High Court in case of CIT vs. Natarajan (supra) rendered in context of section 54 supports the case of the assessee. Therefore, mere fact that the investment has been made in the name of the wife cannot be a reason for disallowance of deduction under section 54 of the Act.

11. Regarding the cost of the construction, the same is supported by the valuation report where the valuer has determined the cost of construction at Rs 250481/-.

12. In light of above discussions, we are of the considered view that the assessee is eligible for claim of deduction under section 54 of the Act and the same is directed to be allowed.

13. In the result, the appeal of the assessee is allowed.

ITA No. 1391/JP/2018

14. Now coming to the assessee’s appeal in ITA No. 1391/JP/2018 wherein the assessee has challenged the levy of penalty u/s 271(1)(c) of the Act.

15. We find that the Assessing Officer has levied the penalty on account of denial of deduction claimed by the assessee u/s 54 of the Act. In view of our decision in ITA No. 1390/JP/2018 wherein we have directed to allow the claim of deduction u/s 54, the penalty u/s 271(1)(c) of the Act, being consequential in nature, is hereby directed to be deleted.

16. In the result, the appeal of the assessee is allowed.

ITA No. 1392/JP/2018

17. In this appeal, the the assessee has challenged the levy of penalty u/s 271F of the Act.

18. In this regard, the ld. AR submitted that the assessee was under the belief that since his income during the previous year did not exceed the maximum amount which is chargeable to income tax, he was not required to file the return of income for the impugned assessment year and he accordingly didn’t file his return of income and the penalty so levied may be directed to be deleted. In support, the reliance was placed on the following decisions:

  • Government of India vs. Citadel Fine Pharmaceutical and Ors., 184 ITR 447
  • Noble Pictures vs. JCIT, 90 ITD 248 (Cochin)

19. The ld DR drawn our reference to the provisions of section 139 and submitted that the assessee was required to submit his return of income which he failed to file in the specified time frame as prescribed and thus, the Assessing officer has rightly levied the penalty u/s 271F for failure to file the return of income.

20. We have heard the rival contentions and perused the material available on record. Section 271F provides that where a person who is required to furnish a return of his income, as required under sub-section (1) of section 139 or by the provisos to that sub-section, fails to furnish such return before the end of the relevant assessment year, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of five thousand rupees.

21. Section 139(1)(b) provides that every person, being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Further, by way of sixth proviso, it has been specifically provided that the total income has to be computed without given effect to the provisions of section 54 and the same read as under:

“Provided also that every person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, whether incorporated or not, or an artificia l juridical person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year, without giving effect to the provisions of clause (38) of section 10 or section 10A or section 10B or section 10BA or section 54 or section 54B or section 54D or section 54EC or section 54F or section 54G or section 54GA or section 54GB or Chapter VI-A exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. ”

22. In the instant case, the assessee’s total income without giving effect to the provision of section 54 come to Rs 9,37,280/- which exceeds the maximum amount not chargeable to tax. The assessee was therefore required to furnish his return of income and in absence of any reasonable cause shown by the assessee for such failure to file his return of income, the penalty u/s 271F is hereby confirmed.

23. In the result, the appeal of the assessee is dismissed.

In the result, all the three appeals filed by the assessee are disposed off in light of aforesaid directions.

Order pronounced in the open Court on 21/07/2020.

Download Judgment/Order

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