Jigneshbhai Kishorbhai Bhajiyawala (HUF) Vs ITO (ITAT Surat)
Held that no part consideration of acquisition of asset/property was paid on alleged execution of possession-cum-Satakat and there is no other corroborative evidence to substantiate the claim of assessee. Capital gain treated as STCG instead of LTCG.
Facts-
The assessee has claimed deduction u/s. 54. The assessee furnished necessary working and the evidences to support her claim. On further verification of facts the AO his view that the gain earned on sale of property under reference is short term capital gain (STCG) and not long term capital gain (LTCG). Resultantly, the capital gain of assessee having 1/8th share of Rs. 24,75,000/- out of total sale consideration of Rs. 1.98 crore. Thus, the deduction claimed under Section 54 of the Act is erroneous as it is clear that it is not a case of LTCG but it is a case of STCG.
CIT(A) also confirmed the addition holding that unregistered Satakat is nothing but a fabricated document to avail the benefit of LTCG. Being aggrieved, the assessee preferred the present appeal.
Conclusion-
We find that the no part consideration of acquisition of asset/property was paid on alleged execution of possession-cum-Satakat dated 14/02/2007, therefore, document of Satakat does not inspire our confidence that property was handed over to the assessee. There is no dispute on the date of transfer of asset on 18.08.2010. We find that there is no other corroborative evidence to substantiate the claim of assessee that she acquired or holding possession of the property since 14/02/2007, therefore, we uphold the orders of lower authorities in treating the capital gain as short term capital gain in place of long term capital gain as claimed by the assessee.
Considering the fact that the gain earned on surplus on sale of Salabatpura property is held as short term capital gain, therefore, the assessee is not eligible for any deduction either under Section 54 or 54F of the Act.
FULL TEXT OF THE ORDER OF ITAT SURAT
1. This group of four appeals by different assessee’s of same group being family members are directed against the separate orders of the ld. Commissioner of Income tax (Appeals)-II, Surat [‘ld. CIT(A)’ for short] all for the Assessment Year (AY) 2011-12. In All the appeals the assessee(s) have raised certain common grounds of appeals, certain facts are common in all the appeals, thus, with the consent of parties all the appeals are clubbed and heard together and are decided by this consolidated order to avoid the conflicting decision. With the consent of parties the appeal of Varshaben Jigneshbhai Bhajiyawala in ITA No. 2545/Ahd/2015 for AY 2011-12 is treated as ‘lead’ case. Varshaben Jigneshbhai Bhajiyawala in her appeal in ITA No. 2545/Ahd/2015 for AY 2011-12 has raised the following grounds of appeal:-
“(I) Treating share of Long Term Capital gains of the appellant of Rs. 20,43,716/-as short term capital gains on sale of property at Salabatpura at Rs. 21,40,770 by not giving benefit of indexation.
(1) The CIT(A) was not justified in treating share of the long term capital gains on sale of property of the appellant as short term capital gains particularly when the property was acquired on 14/02/2007 by executing a Jigneshbhai Kishorbhai Bhajiyawala (HUF) Vs ITO & 3 Ors appeals notarized possession-cum-satakhat and sold on 18/08/2010 through a registered sale deed.
(2) The CIT(A) was driven by extraneous considerations in treating such clear long term capital gains on transfer of long term capital asset as short term capital gains by disregarding the evidence of notarized possession-cum-satakhat dated 14/02/2007.
(3) On the facts and circumstances of the case, the appellant submits that her appeal may be allowed.
(4) The CIT(A) further erred in treating sale of property at Salabatpura to be of “not residential” in nature while the appellant gave clear evidence that the property sold was mainly residential in nature qualifying for relief u/s 54.
(5) Without prejudice to clause (4) above, the appellant was entitled to relief u/s 54F of the Act.
(6) The CIT(A) erred in disallowing relief u/s 54 of the Act, particularly when the appellant had completed construction of the house on or before 16/05/2013.
(7) Without prejudice to (6) above, assuming even if the new residential premises was incomplete, the appellant having fully utilized the consideration arising out of capital gains before 31/03/2011, relief u/s 54/54F ought to have been granted.
(II) Denying relief u/s 54F on Long term capital gains of on sale Rs. 3,92,116/-(Rs. 1,96,058 + Rs 1,96,058) of godowns at 45A/45B, Green Park, Unn, Surat.
(1) The CIT(A) ought to have granted alternate relief u/s 54F against relief claimed u/s 54 by the appellant against the sale of godowns sold at 45A/45B, Green Park, Unn, Surat particularly when such claim was made during assessment proceedings.
(2) The CIT(A) overlooked the submission that particularly when the appellant proved beyond doubt that she had only one residential property at the relevant time qualifying for relief u/s 54F.
(III) Treating “Agriculture income” of Rs. 55,000 at Rs. 75,000 as “Income from other sources” and adding cash deposits of Rs. 75,000 (including Rs. 55,000) as income.
(1) The CIT(A) was not justified in confirming rent received of Rs. 55,000 for agriculture as “Income from other sources”.
(2) The CIT(A) further erred in confirming Rs. 75,000 being cash deposit into bank as income from other sources.
(3) On the circumstances, the appeal may be allowed.
(4) Without prejudice to the above, if the CIT(A) having allowed appeal on accepting rent received by the appellant in case, he ought to have granted relief to the extent of cash being so made available while considering addition of cash deposit into the bank under this ground of appeal.
(IV) Miscellaneous
The appellant craves to add, alter, vary, modify or withdraw any of the Grounds of appeal.”
2. Brief facts of the case are that the assessee is an individual and filed her return of income for assessment year 2011-12, which was selected for scrutiny assessment. In the return of income filed on 29/07/2011, the assessee offered taxable income of Rs. 4,95,299/- and agricultural income of Rs. 55,000/-. During the assessment proceedings, the Assessing Officer noted that in the computation of income, the assessee has claimed deduction under Section 54 of the Income Tax Act, 1961 (in short, the Act) of Rs. 26,94,500/-. For verification of facts and to examine the claim of assessee, the assessing officer required the assessee to substantiate her claim. The assessee furnished necessary working and the evidences to support her claim. On further verification of facts the Assessing Officer noted the assessee acquired the asset i.e. share in immovable property at Salabatpura Surat; vide sale deed executed on 15/09/2008, in her favour, which was registered on 16/09/2008 with sub-registrar concern. The same asset was sold on 18/08/2010 to M/s Sal Developers, a partnership firm for a consideration of Rs. 1.98 crores. The assessee was having 12.5% of share in the asset. Further on the basis of purchase deed executed on 15/09/2008 and the transfer of asset/sale deed on 18/08/2010, the Assessing Officer took his view that the gain earned on sale of property under reference is short term capital gain (STCG) and not long term capital gain (LTCG). Resultantly, the capital gain of assessee (Varshaben Jigneshbhai Bhajiyawala) having 1/8th share of Rs. 24,75,000/- out of total sale consideration of Rs. 1.98 crore. Thus, the deduction claimed under Section 54 of the Act is erroneous as it is clear that it is not a case of long term capital gain but it is a case of short term capital gain. Accordingly, the assessee is not entitled for any type of deduction indexed cost of acquisition which has been wrongly claimed in the computation of income. On finding such incriminating fact, the Assessing Officer issued show cause notices.
3. The Assessing Officer recorded that on issuing various notices, the assessee furnished the bank account and explanation with regard to her claim of deduction under Section 54. In the explanation, the assessee stated that the assessee purchased asset on 14/02/2007. Assessee further claimed deduction under Section 54F of the Act on the LTCG. The assessee was asked to furnish complete details in support of her claim. However, the assessee stated that the copy of purchase deed of 2007 was not traceable. In absence of authenticated document of purchase prior to 16/09/2008, the Assessing officer treated the surplus earned on sale of property as short term capital gain in place of long term capital gain and denied deduction under Section 54 as well as alternative claim of Section 54F of the Act. The assessing officer prepared the following details of shares of other family members in the asset at Salabatpura Surat;
4. The Assessing officer further noted that the assessee has also shown sale of house No. 45A and 45B, Green Park Unn, Surat and claimed capital gain on such sale. The said assets were acquired on 06/09/2004. The said assets were sold on 08/02/2011. The assessee computed long term capital gain of Rs. 3,03,942/- in each of the asset and also claimed deduction under Section 54 of the Act. The Assessing officer also disallowed exemption of capital gain on the ground that the said property is not a residential house and cannot qualify of long term capital gain, thus the deduction of capital gain for the share of assessee was also disallowed and made addition of Rs, 3,92,116/-.
5. The Assessing Officer further recorded that the assessee in his alternative claim, claimed deduction under Section 54F of the Act for construction of residential house. The assessee furnished certificate of architect Sh. Sanjay Joshi about the completion of structure as per approved plan of newly constructed residential house, on investment against which such exemptions were claimed. The Assessing officer recorded the statement of architect under Section 131 and noted that only RCC structure was completed on the issuance of certificate. To ascertain the construction at site, the Assessing Officer deputed the Inspector for spot verification, who obtained certain photographs, copies of which were scanned on page No. 22 and 23 of the assessment order. Inspector reported that construction of the newly constructed house not completed. Inspector also reported that no water or drainage is available in the newly constructed house. The Assessing Officer further recorded that approved completion certificate by Surat Municipal Corporation is not produced. Accordingly, the Assessing Officer also disallowed the other/alternative claim under Section 54F of the Act.
Accordingly, the Assessing officer disallowed deduction under Section 54 or 54F of the Act with regard to long term capital gain. The Assessing Officer also disallowed the deduction under Section 54/54F on one more ground that the assessee was having more than one residential house at the time of claiming of deduction of long term capital gain.
6. The Assessing Officer further recorded that the assessee has shown cash deposit in his bank account of Rs. 75,000/- i.e. Rs. 30,000/- on 06/09/2010 and Rs. 45,000/- on 12/06/2010. The cash deposit is shown from agricultural income whereas the assessee has shown agricultural income of Rs. 55,000/-. The Assessing officer recorded that in absence of any documentary evidence, the agricultural income claimed by assessee to be treated as income from undisclosed sources.
7. Aggrieved by the various additions and disallowance of exemption under section 54/ 54F, in the assessment order, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee filed detailed statements of fact as well as written submission on various additions. On treatment of long term capital gain as short term capital gain on sale of property at Salabatpura where the assessee was having 12.5%, the assessee stated that the property was acquired on 14/02/2007 by executing a notarized possession cum Satakat and was sold on 18/08/2010 by way of registered sale deed. The Assessing officer was not justified in treating the gain which was clearly a ‘long term capital gain’ and not ‘short term capital gain’ by disregarding the evidence of notarized possession of Satakat dated 14/02/2007. The assessee explained ground of acquiring the Salabatpura property and stated that the said property was acquired by two families viz 50% by Jariwala family (consisting of Pinkyben Jariwala and Jasmine Jariwala) and 50% by Bhajiyawala family (consisting of Vijaybhai and Jignesh (HUF)) on 21/01/2002 vide registered sale deed. Later on, the share of Jariwala family was acquired by assessee along with her other family members. Jariwala family handed over the possession on executing satakat-cum-possession on 14/02/2007 wherein 25% share of Pinky Jariwala was given to assessee and Vilasbhai Bhajiyawala (HUF) i.e. 12.5% each while Vijay Jariwala agreed to give his share of 12.5% to Jigneshbhai Bhajiyawala and Vilasbhai Bhajiyawala 12.5% each. The Satakat-cum-possession was also notarized with Notary Shri Bharat D Bharti on 29/02/2007. The assessee urged that the assessee clearly earned long term capital gain as the property was transferred on execution of Satakat and execution and handing over the possession on 14/02/2007. On the claim of deduction under Section 54 or 54F of the Act, the assessee claimed that the assessee was denied deduction under Section 54 by treating the Salabatpura property as non-residential. The assessee stated that there is no dispute that Salabatpura property was sold on 18/08/2010 and resulted in long term capital gain, thus the assessee is eligible for full benefit under Section 54 or 54F of the Act for investment of capital gain in construction of residential house within three years from the date of transfer. The assessee along with her other family members viz; Vilasbhai Bhajiyawala HUF, Jigneshbhai Bhajiyawala, Jigneshbhai Bhajiyawala HUF and Vilasbhai Bhajiyawala had acquired jointly a piece of land at TPS No. 02 (Vesu Bharthana, Vesu) F.P. No. 87, R.S. No. 92/1/P, Vesu, Udhna Magdalla Road, Surat to construct a residential bungalow to be jointly held by the family members. The assessee completed the construction of residential premises before 16/05/2013 and thus justified the claim under Section 54 or in alternative under Section 54F of the Act. The assessee also furnished the completion certificate issued by the architect.
8. The ld. CIT(A) after considering the assessment order and the submission of assessee held that the assessee along iwth other family members, sold the property at Salabatpura on 18/08/2010 on which long term capital gain was claimed after indexation at Rs. 20,43,716/-. The Assessing officer held that the said property was purchased by assessee along with other co-owners vide registered sale deed on 16/09/2008. The Assessing officer not accepted the deed of execution on the basis of notarized possession-Satakat-cum-possession dated 14/02/2007. The Assessing Officer treated the gain so earned as short term capital gain in place of long term capital gain. On perusal of registered sale deed of acquisition, the ld. CIT(A) held that notarized Satakat is not a registered document and is not having evidentiary value as per decision of Hon’ble Supreme Court in the case of Suraj Lamp & Industries Pvt. Ltd. Vs State of Haryana &Anr. 2009 (7) SCC 363. The ld. CIT(A) also held that unregistered Satakat is nothing but a fabricated document to avail the benefit of long term capital gain. The ld. CIT(A) upheld the action of Assessing officer for acquisition of property on 16/09/2008 and long term capital gain was upheld as short term capital gain. Accordingly, consequential disallowance under Section 54 or 54F of the Act was upheld.
9. On the issue with regard to property at Salabatpura being residential in nature or not, the ld. CIT(A) recoded that as the property sold was not residential, therefore, benefit of Section 54 of the Act cannot be granted as deduction is available for property of residential in nature. The majority of property was residential in nature as 56.52 was having residential character as per stamp valuation authority as mentioned in the registered sale deed wherein in the breakup of residential and shops is mentioned. Thus, the action of Assessing Officer in treating the Salabatpura property as non-residential and deduction under Section 54 was also affirmed on this count as well.
10. On the other alternative claim of assessee under Section 54F of the Act, the ld. CIT(A)held that the assessee claimed that she was not having any residential property when Salabatpura property was sold and claimed relief under Section 54F of the Act. The ld. CIT(A) held that in the return of income filed on 29/07/2011 shows that the assessee claimed deduction under Section 54 in her return of income. The assessee made claim of deduction under Section 54F of the Act by filing revised computation of income vide letter dated 26/03/2014. The ld. CIT(A) held that the claim of assessee in revised return is also not eligible for the reasons that for claiming exemption under Section 54F there should be a sale of property other than residential in nature, the capital gain should be long term in nature not owing more than one residential house other than new asset and the proceeds of long term capital gain should have been applied towards either to purchase or construction of new residential unit. The assessee claimed to have acquired a piece of land at Vesu for constructing a bungalow jointly with family members and claimed to have completed before 16/05/2013 and furnished completion certificate. To substantiate her claim, the assessee filed certificate of completion by the architect. The architect examined by the Assessing Officer who stated that he had issued a certificate of RCC structure of structure plan. The Inspector was deputed by the Assessing Officer for spot verification who reported that the construction is going on and there is no water or drainage system. The ld. CIT(A) ultimately held that the assessee failed to construct a residential house within three years for qualifying the benefit of provisions of Section 54/54F of the Act and affirmed the order of Assessing Officer. The ld. CIT(A) further held that the assessee claimed benefit of Section 54F only on filing revised computation. In absence of revised return, the Assessing Officer was bound to make assessment on original return. There is no provision in the Act to enable the assessee to revise her return by way of filing of revised statement of income as made by assessee. The Assessing Officer has no power to entertain such fresh claim made after filing return of income other than by filing revised return. Therefore, the assessee is not entitled for deduction under Section 54 and the action of Assessing Officer was further affirmed with these findings.
11. On the disallowance of Rs. 3.92 lacs being indexed cost of acquisition of godown sold at Green Park, Unn, Surat, the ld. CIT(A) noted that the Assessing Officer held that the assessee claimed deduction under Section 54 of the Act. The Assessing Officer disallowed claim under Section 54 as the property has to be residential in nature to qualify for deduction under Section 54. The assessee claimed that the property was acquired by way of registered sale deed dated 06/09/2014 and was sold on 08/10/2011 which clearly qualified for long term capital gain. The assessee claimed deduction under Section 54 of the Act in place of deduction under Section 54F claimed initially. The ld. CIT(A) find that the claim of assessee under Section 54 is incorrect as the property in question was commercial and not residential. Section 54 of the Act allowed deduction only in case of residential property. The ld. CIT(A) held that the assessee is eligible for benefit of indexation while calculating long term capital gain and rejected the deduction under Section 54/54F of the Act.
12. On the addition of income from other sources by disallowing the agricultural income, the ld. CIT(A) held that before the Assessing Officer, the assessee has not produced any evidence regarding source of cash deposit of Rs. 75,000/-which includes Rs. 55,000/- claimed on account of agricultural income. The assessee claimed to have received Rs. 55,000/- as rent for using of agricultural land at Dhoran Pardi. The ld. CIT(A) recorded that during appellate proceedings, the assessee has not furnished any evidence regarding genuineness of rental income on agricultural holding and the source of net cash deposit. In absence of any detail, the addition made by the Assessing officer was upheld. Further aggrieved, the assessee has filed the present appeal before this Tribunal.
13. We have heard the submissions of the ld. Authorised Representative (AR) of the assessee and the ld. Senior Departmental Representative (Sr. DR) for the Revenue and have gone through the orders of lower authorities. Ground No.(I) 1 (1) to (3) of the appeal relates to treatment of capital gain as ‘short term capital gain’ in place of ‘long term capital gain’ claimed by assessee. The ld. AR of the assessee submits that Salabatpura property was initially acquired by Bhajiyawala family and Jariwala family. Both the families were having good and cordial relation. Initially that property was acquired jointly by both the parties in the year 2002. Since 50% of share was already owned by Bhajiyawala family and their HUF and rest 50% of property was owned by Jariwala family. 50% share of Jariwala family was purchased by assessee and her family members by way of possession-cum-Satakat dated 14/02/2007. On the execution of possession-cum-Satakat on 14/02/2007, possession was handed over, thus transfer book place on handing over the possession. The Assessing Officer not considered the evidentiary value of document and has not brought on adverse material against the assessee. The sale transaction from Jariwala family to Bhajiyawala family was registered on 16/09/2008 and the Assessing Officer instead of considering the date of acquisition from the date of Satakat on 14/02/2007, considered the transfer/acquisition only from the date of registered deed on 16/09/2008. The ld. AR of the assessee submits that the Satakat-cum-possession, the document is a genuine document and the assessee acquired the asset/share in the said property on 14/02/2007 and it was sold on 18/08/2010. Thus, the assessee clearly was eligible for ‘long term capital gain’ and consequential deductions under section 54 or 54F. The assessee made investment in acquisition of plot and constriction of bungalow in Vesu with in time limit prescribed in the Act and is eligible for deduction under section 54F or 54. The assessee has already filed sufficient evidence to substantiate her claim. There is no condition under law that the construction should have been completed in all the ways. To support his submissions the ld AR for the assessee relied on the following case laws;
♦ Dr R Balaji (222 Taxman 405 Karnataka High Court),
♦ Sambandam Udaikumar ( 345 ITR 389) (Kar- HC)’
♦ Smt Usha Vaid ( 53 SOT 385( Amritsar Bench),
♦ Narasimha Raju Rudra Raju ( 143 ITD 586 Hyderabad- Trib),
♦ Ranjeet Sandhu ( 133 TTJ 64) ( Chandigarh-Trib) and
♦ Kishore Galaiya ( 150 TTJ 444) ( Mumbai-Trib)
14. To support various contentions the assessee has also filed following documents on record with the certificate / verification by ld AR of the assessee that copies of all these documents were filed either before assessing officer or ld CIT(A).
