Laxmi Narayan, Jaipur vs Assessee

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 53/JP/2013 fu/kZkj.k o"kZ@Assessment Year : 2009-10

Laxmi Narayan cuke The CIT-II Near Khor Darwaja Vs. Jaipur Mori Walon Ki Dhani, Amer Road, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABTPN 0293 Q vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal, CA jktLo dh vksj ls@ Revenue by : Smt. Rolee Agarwal, CIT -DR

lquokbZ dh rkjh[k@ Date of Hearing : 06/05/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17 /07/2015

vkns'k@ ORDER

PER T.R. MEENA, AM

This is an appeal filed by the assessee against the order of the ld.

CIT-II, Jaipur dated 04-12-2012 for the assessment year 2009-10 u/s 263

of the Act wherein the assessee has raised following grounds:-

''1. That the ld. CIT has grossly erred in law and facts in assuming jurisdiction u/s 263 of the I.T. Act and therefore, the order u/s 263 is liable to be cancelled.

2. That ld. CIT has erred in law as well as in facts in withdrawing the deduction u/s 54B on account of construction of boundary wall, tubewell & etc. by invoking revisionary jurisdiction u/s 263, even when the necessary facts put on record.

2 ITA No. 53/JP/2013

Shri Laxmi Narayan vs. CIT -II, Jaipur . .

3. That the ld. CIT has erred in law as well as in fcts of the case in withdrawing the deduction u/s 54B on account of agriculture land purchased in the name of the spouse by invoking revisionary jurisdiction u/s 263 of the I.T. Act, 1961

2.1 Brief facts of the case are that assessee filed its return of income

on 24.08.2009 declaring total income of Rs.2,18,610/-which includes

income from long term capital gain on sale of agricultural land at

Rs.31,500/-. The assessment was completed u/s 143(3) dated 05.10.2011

at total income of Rs.3,87,830/- by assessing the income from long term

capital gain at Rs.2,00,219/- . For enhancing the income under the head

long term capital gain, the AO observed that (i) sales consideration of the

land as per the provision of section 50C is Rs.55,13,599/- as against

Rs.55.00 lacs claimed by the assessee (ii) the assessee has claimed

brokerage expenses of Rs.1 lacs but has failed to prove the source of it

(iii) the assessee has claimed deduction u/s 54B at Rs.43,50,000/- which

includes Rs.11 lacs incurred on construction of boring & pipe, rooms,

boundary walls and stamp duty but has proved the source of

Rs.10,44,880/- only. The AO finally assessed total income at Rs.

3,87,330/- which includes salary income of Rs. 2,12,340, capital gain of

Rs. 2,00,219/- and income from other sources at Rs. 47,817/-. The ld.

CIT-II, Jaipur had examined the assessment and found that the order of 3 ITA No. 53/JP/2013 Shri Laxmi Narayan vs. CIT -II, Jaipur . .

the AO dated 5-10-2011 is erroneous and prejudicial to the interest of

Revenue.

2.2 Thereafter, the ld. CIT issued notice u/s 263 dated 08.08.2012

raising the following issues:-

(i) Assessee has claimed deduction of Rs.43,50,000/- u/s 54B which includes Rs.8,28,650/- incurred on construction of tube well, boundary wall and rooms on the agricultural land. Cost of tube wells, rooms and boundary walls constructed on agricultural land subsequently cannot be treated as cost of the agricultural land so purchased for claiming deduction u/s 54B.

(ii) Investment has been made by the assessee in the agricultural land in the name of his wife which is not allowable as per section 54B and therefore the whole deduction u/s 54B is not allowed.

(iii) AO failed to examine that whether the land sold by the assessee was used by the assessee or his parents for agricultural purpose or not in the two years immediately preceding the date on which transfer took place.

Accordingly, he issued the show cause notice for explaining as to why the

order passed by the AO u/s 143(3) be not held to be erroneous and

prejudicial to the interest of the revenue.

2.3 The assessee filed detailed reply dated. 22.11.2012 explaining that

the expenditure on construction of boundary walls, room and tube wells

are integral part of the cost of the agricultural land. For this reliance is

placed in case of CIT Vs. Late Janardhan Dass 299 ITR 210. As an

alternate it was stated that deduction is otherwise available u/s 54/54F as

investment in construction of rooms and boundary walls is also for use by 4 ITA No. 53/JP/2013 Shri Laxmi Narayan vs. CIT -II, Jaipur . .

the assessee for his residence. In respect of agricultural land purchased in

the name of wife certain decision of High Court was relied. In respect of

usage of land for agricultural purpose, copy of Girdawari report from

Tehsildar was filed.

2.4 The ld. CIT however held that cost of tube wells, room and

boundary walls constructed on agricultural land subsequently cannot be

treated as cost of agricultural land u/s 54B. The spirit of law and intention

is to be considered only when the law in ambiguous. As the meaning of

the words "cost of agricultural land" appears to be unambiguous there is

no reason for taking a liberal interpretation. He therefore directed the AO

to withdraw the exemption u/s 54B on the amount of Rs.8,28,650/-. In

respect of agricultural land purchased in the name of spouse, he relied on

the decision of P&H Court in the case of Jai Narayan vs. ITO, 306 ITR

335 , Delhi High Court decision 330 ITR 309 and decision of ITAT

Jaipur Bench in the case of Shri Nanda Ram Jat vs. ITO (ITA No.

1271/JP/2010 for the assessment year 2006-07) dated. 08.07.2011 and

directed the AO withdraw the deduction u/s 54B on the land purchased in

the name of the spouse of the assessee.

2.5 In respect of user of the land sold for agricultural purpose in the

immediately two preceding years, the ld. CIT directed the AO to verify

the issue in detail. The ld. CIT observed that it may be examined by the 5 ITA No. 53/JP/2013 Shri Laxmi Narayan vs. CIT -II, Jaipur . .

AO whether the assessee was showing agriculture income from

agricultural land during the preceding two years.

2.6 During the course of hearing the ld. AR of the assessee submitted

his written submission praying therein as under:-

''1. In course of the original assessment proceedings, assessee has furnished the details of the construction expenses incurred by him on the agricultural land purchased by it. Copy of the purchase deed of the agricultural land was also submitted (PB 28-53) from which it is evident that the agricultural land was purchased by the assessee in the name of his wife Smt. Prem Lata. The source of investment in purchase and in construction was verified by the AO from the bank account of the assessee (PB 53-55). After making the complete and detailed enquiry, the AO by disallowing part of the claim made by the assessee worked out the income from long term capital gain at Rs.2,00,219/- as against Rs.31,500/- declared by the assessee. Thus when the AO has made complete and detailed enquiry before allowing deduction u/s 54B by adopting one of the possible view, his order cannot be held to be erroneous and prejudicial to the interest of the revenue only because the CIT holds a different view on the matter.

2. Assessee has claimed deduction u/s 54B at Rs.43,50,000/-. It includes construction of tube well, boundary wall and rooms on the agricultural land for Rs.8,28,650/-. CIT himself while giving reply to the audit objection was of the view that expenditure incurred on construction of tube well, boundary wall and rooms is closely related to use of the agricultural land, safety of land and crops grown and therefore entitled for deduction u/s 54B. Assessee has also relied on the decision of Allahabad High Court in case of CIT Vs. Late Janardhan Dass 299 ITR 210 where it was held that the tube wells and trees are part of the agricultural land purchased by the assessee and their value could not be deducted from the total investment made by the assessee in purchase of the agricultural land. On this basis itself where immediately after the purchase of agricultural land, expenditure is incurred on cost of boundary walls, rooms and tube wells on the agricultural land itself, the same is a part of cost of land purchased by the assessee entitled for deduction u/s 54B. The objective of section 54B is to promote the investment in agricultural lands to encourage growth of the agricultural sector. Any provision in the taxing statute granting incentives for promoting growth and development should be construed liberally. The word 'land' used should be read liberally so as to include the structure constructed on it which is necessary for the identification and use of such land. It is a matter of fact that area of an agricultural land could be defined by boundary wall and for better use the construction of rooms is an inseparable activity. Therefore, when the CIT himself holds a different view on this issue while replying to the audit objection, the order of the AO on this issue cannot he held to be erroneous and prejudicial to the 6 ITA No. 53/JP/2013 Shri Laxmi Narayan vs. CIT -II, Jaipur . .

interest of the revenue. Therefore, the direction given by the CIT to AO to withdraw the claim of deduction on this account at Rs.8,28,650/- is bad in law.

3. The CIT further held that investment in purchase of agricultural land is made in the name of his wife which is not allowable as per section 54B. It may be pointed out that the agricultural land, though, purchased in the name of the wife, but assessee is the absolute owner of the same and entire purchase consideration is paid by the assessee out of the amount received from the sale of the land. This is verifiable from his bank account of the assessee (PB 53-

54). Section 54B provides that when an agricultural land is sold, deduction shall be granted for amount reinvested in any other land to be used for agricultural purposes by the assessee who sold the land. The section does not required that the land should be purchased by the assessee in his own name. In the various cases it is held that if the investment is made in the name of wife or son or close relatives but the funds for such investment has gone from the assessee, benefit of section 54/54B/54EC/54F should be allowed to the assessee. For this proposition, reliance is placed on the following cases:-

1. CIT Vs. Kamal Wahal 351 ITR 4 (Del.) order dt. 11.01.2013

2. CIT vs. Ravinder Kumar Arora 342 ITR 38 (Del.) order dt.

27.09.2011

3. CIT Vs. Gurnam Singh 327 ITR 278 (P&H) order dt.

01.04.2008

4. CIT vs. V. Natarajan 287 ITR 271 (Mad.)

5. Jagpal Singh Vs. ITO 186 Taxman 26 (Magz.) (Delhi) (Trib.) order dt. 23.02.2007

In the present case also there is a direct nexus of investment in the agricultural land purchased by the assessee from the sale proceeds of the agricultural land used by him for agricultural purpose as is evident from the bank account of the assessee and therefore simply because the investment has been made in the name of the assessee's wife it could not mean that the investment in the land is not made by the assessee. The decision of Jai Narayan Vs. ITO 306 ITR 335 (P&H) dt. 13.08.2007 and of Vipin Malik HUF Vs CIT 330 ITR 309 dt. 07.08.2009 relied by CIT are distinguishable on facts as in these cases there was no direct nexus of utilization of the sale proceeds of the capital asset with the investment in another capital asset. Further after these decisions, the Delhi and P&H High Court have allowed the claim of deduction u/s 54B/54F even when the investment is made in the name of wife/son. Otherwise also if a view is taken that as per these decisions investment made in the name of wife for purchase of agricultural land is not allowable u/s 54B, there are different views of difference High Courts on this issue. Therefore, AO having adopted one of the permissible view his order cannot be held to be erroneous and prejudicial to the interest of the revenue. Therefore, the direction of CIT u/s 263 to the AO to withdraw the deduction u/s 54B on the land purchased in the name of the wife is bad in law.

4. In respect of user of the land by the assessee or his parents in the immediately two preceding years before the sale is concerned, the same is evident from the copy of Khasra Girdawari placed at PB 56-57 which was submitted 7 ITA No. 53/JP/2013 Shri Laxmi Narayan vs. CIT -II, Jaipur . .

before the CIT vide letter dt. 22.11.2011 (PB 64). ITAT Bangalore Bench in case of Nagappa Nagraj Vs. ACIT 36 SOT 253 has held that where it is apparent from the sale deed, RTC and pahani certificates that assessee has purchased land as agricultural land and also carried out agricultural operations on it he is entitled to claim exemption u/s 54B to the extent agricultural land so purchased has been utilized for agricultural purpose. It may also be noted that as per explanation (b) to section 263(1), records shall include and shall be deemed to always to have included all records relating to any proceedings under this Act available at the time of examination by the Commissioner. Thus, when this evidence was before the CIT that the agricultural land sold by the assessee is used for agricultural purpose in the preceding two years before the date of sale, there is no reason for the CIT to direct the AO to verify this issue. Hence, on this issue also the direction of CIT u/s 263 is bad in law. The assessee placed following reliance on the jurisdiction of CIT to pass order u/s 263 of the Act.

1. Malabar Industrial Company Ltd. Vs. CIT 243 ITR 83 (SC)

2. CIT Vs. Shree Manjunatheshwari Packing Products and Camphore Works 231 ITR 53, 63 (SC)''

2.7 The ld. CIT - DR placed reliance on the order of the ld. CIT.

2.8 We have heard the rival contentions and perused the materials

available on record. We find from the records that the AO had not any

enquiry before allowing deduction u/s 54B of the Act. Further the

assessee claimed deduction u/s 54B of the Act in the name of his spouse,

had not been verified by the AO. The assessee had claimed this land as an

agricultural land but as per Act the assessee should have cultivated crops

on agricultural land in two preceding years immediately which had also

not been brought on record by the AO. Therefore, the order of the AO is

erroneous and prejudicial to the interest of the Revenue. Accordingly, we

uphold the order of the ld. CIT which is justified. Thus the appeal of the

assessee is dismissed.

8 ITA No. 53/JP/2013

Shri Laxmi Narayan vs. CIT -II, Jaipur . .

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

Order pronounced in the open court on 17/07/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@ Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 17/07/2015

*Mishra

vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- Shri Laxmi Narayan, Jaipur

2. izR;FkhZ@ The Respondent-The CIT -II, Jaipur

3. vk;dj vk;qDr@ CIT

4. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

5. xkMZ QkbZy@ Guard File (ITA No.53/JP/2013)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@ Assistant. Registrar