Income Tax Appellate Tribunal - Hyderabad
N. Lakshmi Devi, Nalgonda, Hyderabad vs Ito,Ward-1, Nalgonda, Nalgonda on 6 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. Nos. 344 & 345/HYD/2016
Assessment Year: 2008-09 & 2009-10
Smt. N. Lakshmi Devi, The Income Tax Officer,
(W/o. Late Damodhar Rao) Vs Ward-1,
Miryalaguda, NALGONDA
Nalgonda Dist
[PAN: APWPN3758D]
(Appellant) (Respondent)
For Assessee : Shri S. Rama Rao, AR
For Revenue : Smt. Suman Malik, DR
Date of Hearing : 16-11-2016
Date of Pronouncement : 06-01-2017
ORDER
PER B. RAMAKOTAIAH, A.M. :
These two appeals are by assessee against the order(s) of the Commissioner of Income Tax (Appeals)-3, Hyderabad for AYs. 2008-09 & 2009-10 respectively both dated 18-01-2016. The issue in these appeals is with reference to claim of development expenditure and claim of deduction u/s. 54B of the Income Tax Act [Act].
I.T.A. Nos. 344 & 345/Hyd/2016 :- 2 -: Smt. N. Lakshmi Devi
2. Assessee is an individual aged 70 years, owned certain lands in Miryalaguda, to an extent of Ac. 5.16 Guntas of agricultural land. Out of the said land, 25 Guntas was acquired by RDO, Miryalaguda on 19-09-2002 for the purpose of development. The balance of the land available with assessee was about 4.31 Guntas. Assessee was undertaking agricultural operations and due to the proximity to the road, converted into plots and sold them after making certain development work. In the bargain, assessee claimed she has spent an amount of Rs. 14,25,508/- in AY. 2008- 09 and balance in AY. 2009-10. Assessee sold the said land and stated to have re-invested the amount to an extent of Rs. 14,06,465/- by purchasing agricultural lands, but in the name of her son Mr. N. Narasimha Rao and claimed deduction u/s. 54B in AY. 2008-09. AO was of the opinion that the development expenditure claim was excessive and disallowed 25% of the claim. In addition, the claim u/s. 54B was also disallowed. Ld. CIT(A) confirmed those actions of the AO and accordingly, assessee is in appeal before us.
3. In AY. 2008-09, the total sale proceeds were to the extent of Rs. 35,14,000/- and by excluding the brokerage and other expenses, cost of acquisition and development expenses incurred by assessee, the capital gains was worked out at Rs. 17,49,541/-. Assessee claimed deduction u/s. 54B to an extent of Rs. 14,06,465/- and net capital gains admitted was at Rs. 3,43,076/-. AO as stated above, disallowed 25% of the above expenditure and restricted the claim to 75% of the total amount on the reason that the claim is excessive. It was submitted before the Ld. CIT(A) that assessee has contacted in the market and found that the I.T.A. Nos. 344 & 345/Hyd/2016 :- 3 -: Smt. N. Lakshmi Devi expenditure was around Rs. 150 per sq. yd., and with the help of the family members, undertook the development work of her own which has come to around Rs. 100/- per sq. yd. Accordingly, the amount was reasonable. Ld. CIT(A) however, was of the opinion that no proof was submitted for incurring the said expenditure and as the AO allowed Rs. 10,69,131/- which works out to approximately 30% of sale proceeds, the same is more than reasonable.
4. After considering the rival contentions and perusing the orders of the AO and CIT(A), we are of the opinion that action of the AO in disallowing to the extent of 25% is not justifed. While allowing 75% of the expenditure, no reason was given by the AO except that assessee did not furnish necessary details to expenditure and the same is also excessive. Considering that assessee could not furnish complete details of expenditure, keeping in mind of the reasonableness of the claim and also the fact that AO has accepted 75% of expenditure, we are of the opinion that the disallowance can be restricted to 10% of the expenditure claimed. AO is directed to allow the expenditure accordingly and re-workout the capital gains.
5. The next issue in AY. 2008-09 is with reference to the claim of exemption for purchase of agricultural land u/s. 54B. Even though the property was purchased in the name of only son, who is also legal heir, there is no restriction for the deduction u/s. 54B. Hon'ble Madras High Court in the case of CIT Vs. V. Natarajan [287 ITR 271] has held that exemption u/s. 54 is allowable even if the property in the name of wife. Hon'ble Punjab I.T.A. Nos. 344 & 345/Hyd/2016 :- 4 -: Smt. N. Lakshmi Devi & Haryana High Court in the case of CIT Vs. Gurnam Singh [327 ITR 278] held that exemption u/s. 54B is allowable in the case when the land was purchased in the name of assessee and his son. What is important to be examined is whether the proceeds of the capital gain have been 'invested' in agricultural land or not? Therefore, investing in the name of the son by assessee may not be a disqualification. The section specifies that if assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then deduction has to be worked out as provided. The aspect whether assessee has spent her money for purchase of agricultural land was not examined at all by AO.
5.1. There is one more aspect to the disallowance as made by AO. AO as well as CIT(A) has rejected the claim on the reason that what was sold was not agricultural land but plots. This opinion of the AO and CIT(A) is not supported by the provisions of the Act. Section 54B(1) is as under:
"Sec.54B. [(1)] [Subject to the provisions of sub-section (2), where the capital gain arises] from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by [the assessee being an individual or his parent, or a Hindu undivided family] for agricultural purposes [(hereinafter referred to as the original asset)], and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of 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 land so purchased (hereinafter 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, the cost shall be nil; or I.T.A. Nos. 344 & 345/Hyd/2016 :- 5 -: Smt. N. Lakshmi Devi
(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 of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain.]"
6. As can be seen from the above provision, what is required to be considered is the 'capital asset being land' in the immediately two preceding years has been used for agricultural purposes. If assessee has transferred an agricultural land as such, there is no need of computation of capital gain as the same was exempt from taxation. Therefore, the provisions of Section 54B are applicable on a land which was used for agricultural purposes earlier but sold subsequently and became a capital asset, as per the provisions. In this case what assessee transferred is a land, even though converted to plots but was used for agricultural purposes on which there was no dispute. Therefore, the deduction u/s. 54B is allowable to assessee. However, the conditions for deduction U/s. 54B has to be examined, so we direct the AO to examine whether sale proceeds are invested in the agricultural land so purchased from the funds of assessee. In view of that, while accepting the legal claim, allowance of the same is directed to be verified. In the result, ground is considered allowed for statistical purposes.
7. In the result, appeal of assessee in AY. 2008-09 is allowed.
8. Coming to AY. 2009-10, the only issue is with reference to claim of development expenditure in this year. As in earlier year, the AO has restricted the amount to 75% of the claim. For the reasons stated in para 4, we are of the opinion that the action of the AO in restricting the amount to 25% of the claim is excessive, I.T.A. Nos. 344 & 345/Hyd/2016 :- 6 -: Smt. N. Lakshmi Devi therefore, we restrict the amount to 10% of the claim. However, there seems to be lot of confusion with reference to the amount claimed. Assessee in the grounds claimed developmental expenditure to the tune of Rs. 23,04,435/-. AO, however, in the assessment order has stated that the expenditure was Rs. 14,39,135/- and restricted to Rs. 11,28,839/-. Ld.CIT(A) confirmed the above amount but has noted in para 6 that assessee claimed Rs. 22,90,808/- against the sale proceeds of Rs. 37,10,250/-. Since there is no uniformity in the amount of expenditure, we direct the AO to verify the assessment records and restrict the amount on correct amount of claim made and work out the capital gains. With these directions, the ground is considered partly allowed, accordingly this appeal is partly allowed.
9. To sum-up, ITA No. 344/Hyd/2016 is allowed for statistical purposes and ITA No. 345/Hyd/2016 is partly allowed.
Order pronounced in the Open Court on 6th January, 2017 Sd/- Sd/-
(D. MANMOHAN) (B. RAMAKOTAIAH)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated 6th January, 2017
TNMM
I.T.A. Nos. 344 & 345/Hyd/2016
:- 7 -: Smt. N. Lakshmi Devi
Copy to :
1. Smt. N. Lakshmi Devi, W/o. Late Damodhar Rao, Miryalaguda. C/o. Sri S. Rama Rao, Advocate, Flat No. 102, Shriya's Elegance, 3-6-643, Street No. 9, Himayat Nagar, Hyderabad.
2. The Income Tax Officer, Ward-1, Nalgonda.
3. CIT (Appeals)-3, Hyderabad.
4. Pr.CIT-3, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.