Income Tax Appellate Tribunal - Ahmedabad
Sarjulaben Rameshchandra Shah, Baroda vs Department Of Income Tax on 8 October, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER AND
SHRI N.S. SAINI, ACCOUNTANT MEMBER
ITA No.752/Ahd/2013
A.Y. 2009-10
Income Tax Officer Vs Smt. Sarjulaben
Ward 4(4), Baroda. Rameshchandra Shah
24, Anupam Society,
Jetalpur Road
Alkapuri, Baroda.
PAN: AVUPS3643Q
(Appellant) (Respondent)
Revenue by : Shri J.P. Jhangid, Sr.D.R.,
Assessee(s) by : Shri Divyakant Parikh
सुनवाई कᳱ तारीख/ Date of Hearing : 08/10/2013
घोषणा कᳱ तारीख /Date of Pronouncement: 18/10/2013
आदेश/O R D E R
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
This is an appeal filed by the Revenue arising from the order of learned CIT(A)-III, Baroda, dated 19.12.2012. Ground No.1 reads as under:
"On the facts and on the circumstances and in law, the CIT(A)-III Baroda has erred in deleting the disallowance of cost of improvement of Rs.13,66,000 claimed by the assessee on the capital gains on house property without appreciating the fact that the cost was borne on house property without appreciating the fact that the cost was borne by the lessee company, Tulsi Logistics way back in F.Y. 2004-05, wherein the assessee has had been a continuing director and the payments purported to be made by the assessee after four years to Tulsi Logistics and after sale of house property on various dates such as 08.10.2008, 21.10.2009 & on 31.01.2009 in order to reduce LTCG was an adoption of a colourable device."ITA No.752/Ahd/2013
ITO Baroda Vs. Smt. Sarjulaben Rameshchandra Shah For A.Y. 2009-10 -2-
2. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) dated 11.11.2011 were that the assessee in individual capacity has purchased a house property for a sum of Rs.14,58,715/- on 10th February, 2004. The admitted factual position as noted by the AO was that the said house was rented out to M/s. Tulsi Logistics Pvt. Ltd. for a monthly rent of Rs.20,000/- w.e.f. F.Y. 2003-04. It was also noted by the AO that the assessee is one of the Director of the said company.
3. The property in question was sold during the year under consideration on 13th June, 2008 and the assessee offered Long Term Capital Gain as follows:
"Assessee has sold the said property on 13.06.2008 for a total sum of Rs.1,11,00,000.
1. Less:- a. Transfer Expenses (Brokerage) Rs.5,22,000 b. Land & Building (F.Y. 03-04) Rs.18,33,637 c. Improvement Cost (F.Y. 04-05) Rs. 59,411 d. Improvement Cost (F.Y. 08-09) Rs. 13,66,000 Total Rs. 32,59,048 .......................
Rs. 73,18,952 a. The assessee has invested into the Capital Gain A/c. No.66025872837 with State Bank of Saurashtra and claimed Deduction under 54 Rs. 40,00,000 b. Invested with NHAI and claimed Deduction u/s. 54EC Rs. 33,00,000 Rs. 73,00,000 ...................
Total long term gain shown by assessee Rs. 18,952
4. A sum of Rs.13,66,000/- was stated to be an expenditure incurred by the said company over the property in question towards renovation. The property was vacated by the company. It was noted by the AO that the assessee had paid a sum of Rs.13,66,000/- to M/s. Tulsi Logistics Pvt. Ltd on vacating the property. The explanation of the assessee was that the ITA No.752/Ahd/2013 ITO Baroda Vs. Smt. Sarjulaben Rameshchandra Shah For A.Y. 2009-10 -3- expenditure was incurred by the said company which was a capital expenditure; hence, claimed and allowed the depreciation in the hands of the said company. The objection of the AO was that the said amount was wrongly claimed as "cost of improvement" because it was spent by the said company. It has also been objected by the AO that the said company had claimed depreciation on the impugned amount, therefore, no further deduction should be allowed to the assessee. The assessee's explanation was that the impugned amount was returned back by the assessee to the said company when the tenancy was revoked. Therefore, it was an improvement towards the cost of the property; hence, deducted from the capital gain. The AO was not convinced and held that the cost of improvement was not paid by the assessee as an owner of the property but it was spent by the company who was simply a tenant of the property. The amount was paid by passing a general entry in the books of accounts. Finally, the disallowance was made. Being aggrieved, the matter was carried before the First Appellate Authority.
5. When the matter was carried before the First Appellate Authority, it was held that the depreciation was claimed by the said company as per the Explanation 1 to Section 32(1) of IT Act. When the company vacated the property, the said amount was recovered from the assessee being the owner of the property. The finding of learned CIT(A) was as under:
"I have considered the facts of the case and appellant's submissions. In this case, the tenant of the property had made some constructions in the building and had claimed depreciation as per Explanation 1 of Section32(1) of the Income Tax Act, 1961. At the time of vacating the building, the appellant paid the cost of such construction to the tenant. Thus, after making this payment, the appellant became exclusive owner of such construction. Hence, appellant's claim that the amount of Rs.13,66,000 is cost of improvement of the building is correct. Such cost of improvement was relevant for computation of capital gain when the appellant sold the building and not for ITA No.752/Ahd/2013 ITO Baroda Vs. Smt. Sarjulaben Rameshchandra Shah For A.Y. 2009-10 -4- the purposes of claiming exemption u/s. 54F. Hence, the appellant was not required to make this expenditure from her capital gain account. The payment has been made through bank account, which has been accepted by the AO in the assessment order itself. Thus, the payment is not under dispute. Under such circumstances, it is held that the appellant has rightly claimed this amount as cost of improvement for the purpose of computation of Long Term Capital Gain. It is also seen from the computation of income that appellant has not claimed any indexation of this amount as it had been paid it in the year of sale of the house property. Hence disallowance of Rs.13,66,000/- made by the AO is directed to be deleted."
6. From the side of the Revenue, learned Sr.DR Mr. J.P. Jhangid appeared and vehemently argued that this is the case where the assessee along with the said company had attempted to claim double deduction on the impugned expenditure incurred towards the renovation of the property in question. He has pleaded that the expenditure was not incurred by the assessee as an owner, but it was incurred by the said company as a tenant. He has also argued that the said company had claimed depreciation on the said expenditure; therefore, on that very amount again the assessee should not be allowed deduction against the declared capital gain. The main contention of learned DR, therefore, is that a double deduction was wrongly allowed by learned CIT(A).
7. From the side of the respondent-assessee, learned AR Mr. Divyakant Parikh appeared and placed reliance upon the verdict of learned CIT(A).
8. We have noted that in this case an interesting feature is that a Tenant can claim an expenditure if incurred as "capital expenditure" on that rented building; although not owned by him but occupied by him under lease or as a tenant. The IT Act prescribed a deeming provision that such a tenant is entitled for the expenditure as if the building is ITA No.752/Ahd/2013 ITO Baroda Vs. Smt. Sarjulaben Rameshchandra Shah For A.Y. 2009-10 -5- owned by him. The exact language of explanation 1 to Section 32(1) reads as follows:
"Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension or, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee."
8.1 Due to insertion of Explanation 1 to Section 32(1), the First objection of the Revenue Department does not survive because of the reason that the assessee company; who was undisputedly a tenant of the property in question, had rightly claimed depreciation on the amount of capital expenditure incurred towards construction of any structure in relation to the renovation or extension or improvement of the building in question. The first vehement objection of learned Sr.D.R. Mr. J.P. Jhangid, therefore, deserves to be rejected.
8.2 The next vehement objection of learned DR is that by such planning the assessee along with the company have claimed a double deduction on the impugned amount. In this connection, our attention was drawn on the computation of income of M/s. Tulsi Logistics Pvt. Ltd. Co. for A.Y. 2009-10, wherein a sum of Rs.1,82,041/- was offered under the head "Short Term Capital Gain" as prescribed u/s. 50 of IT Act. This section is incorporated as a "special provision for computation of capital gain in case of depreciable asset". Hence, it is explained that the said company had claimed depreciation on the aforesaid amount at the time when the amount was spent towards renovation. Thereafter when the expenditure was recovered then it was treated as capital gain. The ITA No.752/Ahd/2013 ITO Baroda Vs. Smt. Sarjulaben Rameshchandra Shah For A.Y. 2009-10 -6- amount of depreciation was naturally adjusted so as to offer Short Term Capital Gain on the balance amount as prescribed u/s.50 of the IT Act. In our opinion there was no fallacy in the method & manner in which the provisions of the IT Act were applied by the assessee.
9. Our attention has 0been drawn on the depreciation chart wherein an amount of Rs. 8 lac under the head "building account" and an amount of Rs.5,66,000/- under the head "furniture and fixture" totaling Rs.13,66,000/- was reduced from the WDV of the "block of assets"
Because of this reason and considering the computation of the said block of assets, we are not inclined to accept this argument of learned DR that there was an attempt to claim double deduction on the said capital expenditure.
10. The third plank of argument is that whether the assessee is entitled to claim "improvement cost" against the capital gain earned by the assessee. The admitted factual position was that the property in question was purchased for a sum of Rs.14,58,715/- which was sold within four years for a sum of Rs.1,11,00,000/-. Meaning thereby the "improvement cost" had a direct effect on the sale consideration as held in the case of Naozar Chenoy Vs. Commissioner of Income Tax, (1998) 234 ITR 95 (AP) wherein it was held as under:
"Whether as regards amount paid by assessee to tenant for vacating premises, since it had nexus with transaction as without tenant vacating premises building could not be sold, assessee was entitled to deduction in respect of said amount while computing capital gain of building sold. -Held, yes"
10.1. Moreover in the absence of any contrary material towards not reasonable to presume against the assessee's claim. In the light of the ITA No.752/Ahd/2013 ITO Baroda Vs. Smt. Sarjulaben Rameshchandra Shah For A.Y. 2009-10 -7- discussion made hereinabove, we find no force in this ground of the Revenue; hence, hereby dismissed.
11. Ground No.2 is reproduced below:
"On the facts and on the circumstances and in law, the CIT(A)-III Baroda has erred in deleting the disallowance of construction cost of Rs.8,03,841 without appreciating facts that the bills clearly denoted the name of Shri H.R. Shah and not the assessee and as such the Assessing Officer had rightly disallowed the claim of the assessee."
12. It was noted by the AO that the assessee has opened a "capital gain account" with State Bank of Saurashtra. The assessee has deposited a sum of Rs.40,000/- in the said account to claim a deduction u/s.54 of IT Act. It was found by the AO that a sum of Rs.8,33,841/- was spent out of the said "Capital Gain Account". However there were 25 bills of the said amount withdrawn which were in the name of the son of the assessee. The undisputed fact was that those bills were in respect of the building material purchased. The explanation of the assessee was that a house was under construction by the assessee and for the purpose of construction of the new house the building material was purchased however the bills were made in the name of the son of the assessee but the address on those bills were the address of the property under construction. The AO was not convinced and according to him the amount withdrawn from the said account was not spent as prescribed under the Act, hence, the claim to that extent was disallowed. When the matter was carried before the First Appellate Authority, learned CIT(A) has examined the facts of the case and thereupon arrived at the conclusion as follows:
"I have considered facts of the case and appellant's submissions. In this case, though certain bills are in the name of the son of the appellant but it is also a fact that the address given on the bills is of Anupam Society where the appellant is constructing her new building. The payments for the purchases against such bills have also been made from the capital gain account ITA No.752/Ahd/2013 ITO Baroda Vs. Smt. Sarjulaben Rameshchandra Shah For A.Y. 2009-10 -8- maintained by the appellant after due verification by the bank. Under such circumstances, appellant's explanation that since her son was looking after the construction of new house and hence certain bill were issued in his name by the suppliers is a reasonable and acceptable explanation. There is no doubt in the fact that the appellant had purchased these materials and paid for them from her capital gain account. Hence, disallowance of Rs.8,03,841/- made by the AO is directed to be deleted and he is directed to allow exemption u/s.54 on account of such payment."
13. We have heard both the sides at some length. The uncontroverted fact is that a new house was under construction at Anupam Society by the assessee. The claim of the assessee was that the amount was withdrawn from the Capital Gain Account towards the construction expenditure of the house. The AO has also noted that the bills in question were in respect of the building material to be used in the construction of the house. Merely, because the bills were in the name of son who had gone on behalf of the assessee to purchase the building material the disallowance was made. In our opinion, the disallowance was merely on suspicion. If the AO is not in possession of any evidence that the amount was spent by the son for any other purpose other than the purpose as explained, then it was not justifiable to presumably disallow the claim. We, therefore, hold that learned CIT(A) has rightly appreciated the facts of the case and reversed the findings of the AO. This ground of the Revenue is, therefore, dismissed.
14. In the result, the appeal of the Revenue is dismissed.
Sd/- Sd/-
(N.S. SAINI) (MUKUL Kr. SHRAWAT)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 18/10/2013
Prabhat Kr. Kesarwani, Sr. P.S.
TRUE COPY
ITA No.752/Ahd/2013
ITO Baroda Vs. Smt. Sarjulaben Rameshchandra Shah For A.Y. 2009-10 -9- आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to :
1. अपीलाथᱮ / The Appellant
2. ᮧ᭜यथᱮ / The Respondent.
3. संबंिधत आयकर आयुᲦ / Concerned CIT
4. आयकर आयुᲦ(अपील) / The CIT(A)-III, Ahmedabad
5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाडᭅ फाईल / Guard file.
आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad