Prakashkumar Bhagchandbhai Khatri, ... vs Assessee

1. आयकर अपील सं./I.T.A. No.108/Ahd/2014 - AY 2010-11 2. आयकर अपील सं./I.T.A. No.1827/Ahd/2014 -AY 2010-11

1. Shri Prakashkumar बनाम/ 1.The CIT-IV B.Khatri Vs. Pratayksha Kar Bhawan Vaibhav Tenement Polytechnic,Ambawadi Gulbani Nagar Part-I Ahmedabad-380 015/ Deesa - 385 535 2.-do- 2.ACIT BK Circle, Palanpur थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAGFG 0311A (अपीलाथ# /Appellant) .. ($%यथ# / Respondent)

अपीलाथ# ओर से / Appellant by : Shri S.N. Soparkar $%यथ# क' ओर से/Respondent by : Shri T.P.Krishna Kumar, CIT-DR

ु वाई क' तार*ख / सन Date of Hearing 24/03/2015 घोषणा क' तार*ख /Date of Pronounce ment 30/04/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

Both these appeals by the Assessee are directed against the separate orders of the CIT-IV Ahmedabad and ld.CIT(A)-XX ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11 -2-

Ahmedabad ('CIT'/CIT(A)' in short) dated 02/12/2013 & 29/04/2014 respectively pertaining to Assessment Year (AY) 2010-11. Both the appeals were taken up together for hearing and are being disposed of by way of this consolidated order for the sake of convenience.

2. First we take up the Assessee's appeal in ITA No.108/Ahd/2014 for AY 2010-11. The Assessee has raised the following grounds of appeal:-

1 Ld. CIT erred in law and on facts in invoking provisions of section 263 of the Act holding the assessment as erroneous & prejudicial to the interest of revenue to the extent of failure of AO to examine chargeability of profit on sale of land as business income as against Long Term capital gains. The order of Id. CIT revising order neither erroneous nor prejudicial to the interest of revenue deserves to be quashed. It be so held now.

2 Ld. CIT erred in law and on facts in not taking into consideration replies submitted in response to the show cause notice issued u/s 263 of the Act. Ld. CIT erred in not following or distinguishing case laws relied upon by the authorized representative of the appellant. Ld. CIT ought to have taken cognizance of the submissions and commented upon the same.

3 Ld. CIT erred in law and on facts in directing AO to treat land sold as stock in trade and to tax sale transaction under the head profits and gains from business ignoring the fact that land sold held as investment since several years was valued at cost in the Balance Sheet.

The order passed after due verification of the claim made by the appellant ought to have been upheld. It be so held now.

4 Ld. CIT erred in law and on facts in holding that order passed without ascertaining correctness of facts applying incorrect provisions of law made order erroneous and prejudicial to the interest of revenue.

ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11 -3-

Ld. CIT without appreciating facts in detail erred in concluding that the cost of acquisition/improvement partly financed through borrowed funds indicated nature of holding of a business asset though shown as fixed asset in Balance sheet. This conclusion without any basis ought to be quashed. It be so held now.

5 Ld. CIT erred in law and on facts in directing AO to disallow claim made by the appellant u/s 54F of the Act since the profit from sale of land was to be treated as business income & not capital gain. Ld. CIT notwithstanding the observations that profit from sale of land be treated as business income continued to hold order as prejudicial & erroneous to interest of revenue on account of excess claim of deduction allowed by AO u/s 54F of the Act. This dichotomy on part of Id. CIT itself is indicative that correct & proper order passed in scrutiny assessment ought not to have been subjected to revision u/s 263 of the Act. It be so held now.

6 Ld. CIT erred in facts and on law in not appreciating the fact that detailed order by AO considering relevant facts and provisions of law not being erroneous and prejudicial to the interest of revenue deserved to be upheld and ought not be subjected to revisional proceedings. It be so held now.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

2.1. Briefly stated facts are that the case of the assessee was picked up for scrutiny assessment and the assessment u/s.143(3) of the Income Tax Act,1961 (hereinafter referred to as "the Act") was framed vide order dated 11/03/2013, thereby the Assessing Officer (AO in short) made addition of Rs.1,42,881/- on account of difference in rate of land, disallowance of expenditure amounting to Rs.86,244/- in respect of the ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11 -4-

maintenance of vehicle. The AO has also made disallowance of other expenditure of Rs.7,27,477/-. Thus, the AO computed the income of Rs.3,42,53,140/- against the declared income of Rs.3,32,96,540/-. Subsequently, the CIT-IV invoking the provisions of section 263 of the Act, revised the assessment and modified assessment order by directing the AO that the assessee's income/profit generated from sale of non- agricultural land comprising of Survey No.11 & 1036 of Sevasi, Baroda and treated as Long Term Capital Gain (LTCG) by assessee in the return of income is to be brought to tax in the hands of the assessee as 'Business Income'. He further directed the AO that the assessee's claim u/s.54 of the Act is to be disallowed and denied since the profit from sale of land is to be treated as 'business income' and not as 'capital gain'. Aggrieved by the order of the ld.CIT, the assessee is now in appeal before us.

3. Assessee is aggrieved by the order of the ld.CIT passed u/s.263 of the Act on the ground that the CIT erred in law and on facts in not taking into consideration replies submitted in response to the show-cause notice issued u/s.263 of the Act. The ld.CIT erred in not following the case- laws relied upon by the assessee. The ld.CIT erred in treating the long- term capital gain as 'business income'. The ld.CIT failed to appreciate the fact that the land so sold was held as investment since several years was valued at the cost in the balance-sheet. The ld.CIT failed to take ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11 -5-

note of the fact that the AO made queries and after verifying the claim made assessment. The ld.CIT erred in law and on facts in holding that in the order passed by the AO without ascertaining correctness of the facts applying incorrect provisions of law made such order is erroneous and prejudicial to the interest of the revenue. The ld.CIT erred in law in disallowing the claim made u/s.54F of the Act. The ld.Sr.counsel for the assessee, Shri S.N.Soparkar reiterated the submissions made before the ld.CIT. He submitted that the ld.CIT failed to appreciate the fact that the AO had made elaborate enquiry and applied his mind on the facts and circumstances of the case after applying the mind the AO allowed the claim of the assessee. He submitted that the ld.CIT failed to apply the ratio laid down by the jurisdictional High Court in the case of CIT vs. Arvind Jewellers (2003) 259 ITR 502(Guj.), wherein it has been held that where it is found that the assessee has produced relevant material and offered explanation in pursuance of the notices issued under s. 142(1) as well as s. 143(2) of the Act and after considering those materials and explanation, the ITO has come to a definite conclusion.

And merely, because that a different view can be taken should not be the basis for revising the order passed u/s. 143(3) of the Act. Reliance is also placed on the judgement of Hon'ble High Court of Gujarat rendered in the case of CIT vs. R.K.Construction Co. reported at 313 ITR 65 (Guj.). The ld.counsel for the assessee has also placed reliance on the decision of the Coordinate Bench (ITAT "A" Bench Ahmedabad) rendered in the case of ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11 -6- Madhusudan Industries Ltd. vs. CIT in ITA No.853/Ahd/2013 for AY 2008-09, dated 31/10/2013. The ld.counsel for the assessee submitted that there is no dispute with regard to the fact that the assessee has been treating the land in question as fixed assets in its accounts. The factum of such treatment was also in the knowledge of the Revenue. He further submitted that there is no prohibition with regard to a person carrying out business and at the same time, he can also make investment. Therefore, the ld.CIT was not justified in treating the transaction as a business transaction and not a transfer of capital asset.

He submitted that for invoking the provisions of section 263 of the Act, the law is well settled now that twin conditions are to be satisfied, viz. (i) the order of the AO should be erroneous and (ii) prejudicial to the interests of the Revenue. He submitted that there are number of instances; where an order could be erroneous but that may not be prejudicial to the interests of the Revenue. Similarly, an order may be prejudicial to the interests of the Revenue but it may not be erroneous. In case, any one of the conditions is not satisfied, then ld.CIT cannot invoke the provisions of section 263 of the Act. He submitted that in the case in hand, the basis for invoking the provisions of section 263 of the Act which can be inferred from the notice issued u/s.263 of the Act is that on verification of the case record, it was found that the assessee was engaged in the business of development of land and is a builder. And in AY 2009-10, the assessee had offered income from sale of non-agricultural land as business ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11 -7-

income. The said land sold in Financial Year relevant to AY 2009-10 was originally agriculture land after conversion into non-agricultural land it was sold and the income was offered as business income. In fact, assessee obtained relief from the Appellate Authority on the ground that the provisions of wealth tax were not attracted on the said land which had become business asset after conversion into non-agricultural land. He submitted that this reasoning of the ld.CIT is erroneous. It is not the case where the land in question was treated as stock-in-trade in the past years. He further submitted that the order of ld.CIT is contrary to the judgement of the Hon'ble Jurisdictional High Court rendered in the case of CIT vs. Arvind Jewellers (2003) 259 ITR 502(Guj.)

3.1. On the contrary, ld.CIT-DR supported the order of ld.CIT and submitted that the AO has not made enquiry with regard to claim of the assessee. He further submitted the claim of the assessee u/s.54F of the Act is not allowable. Therefore, the order of ld.CIT is justified as the assessment order is not only erroneous but prejudicial to the interests of the Revenue. He further submitted that the deduction would be available only when the construction is made subsequent to transfer of the original asset.

3.2. In rejoinder, the ld.counsel for the assessee submitted that the Revenue is not clear whether to treat it as a business income or the gain ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11 -8-

arising out of the transfer of capital asset. He submitted that both cannot go hand in hand.

4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT issued a notice u/s.263 of the Act dated 08/08/2013, wherein the ld.CIT called upon the assessee as to why the assessment order passed by the AO for AY 2010-11 should not be held to be erroneous and prejudicial to the interests of the Revenue and be set aside to that extent. The reason for issuing the notice as recorded by the ld.CIT is reproduced hereinbelow:-

"on perusal of the case records, following facts are noticed:

(1)(i) Assessee is an individual engaged in the business of developer & builder and is also engaged in the wholesale trading of Potatos. For the year under consideration, the assessee has offered total income of Rs.3,32,96,540/-. In the total income disclosed, assessee has offered Long Term Capital Gain of Rs.1,68,89,233/- from sale of land at Survey No. 11 & 1036 at Sevasi Baroda, which is worked out as under:

INCOME FROM LONG TERM CAPITAL GAIN:

Sate of items as per list enclosed Rs.4,52,75, 125/-

Less: (Cost of acquisition etc.) ;

Indexed cost of acquisition Rs. 25,80,362/- Indexed Cost of improvement Rs. 33,90,056/- (-)Rs.59,70,418/- Less:Exemptions u/s.54B/54D/54G etc.) Construction House NIL Sale Rs.4,52,75,125/- NIL Construction dt.1.4.09 to 15.10.10 NIL Rs.2,58,18,842/- @ 57.03% NIL ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11 -9-

LTCG Rs.3,93,04,707/- @ 57.03 Rs.2,24,15,474/-(-) 2,24,15,474/-

Rs.1,68,89,233/-

(ii) From the above working, it is apparent that sale price of land is taken at Rs.

4,52,75,125/- and cost of acquisition of land with improvement cost is taken at Rs. 59,70,418/-. Further assessee has claimed deduction u/s. 54F of the I. T. Act for Rs.2,24,15,474/-, On verification of case record, it is found that assessee is engaged in the business of development of land and is builder and in A. Y. 2009-10, the assessee has offered income from sale of non-agricultural land as business income. The said land sold in Financial Year relevant to Assessment Year 2009-10 was originally agriculture land and after conversion into non-agricultural land it is sold and the income is offered as business income. In fact, assessee obtained relief from the Appellate Authority on the ground that the provisions of wealth tax were not attracted on the said land which had become business asset after conversion into non-agricultural land.

(iii) In the year under consideration, the assessee, once again, converted one of his agricultural land holding at Revenue Survey No. 11 & 1036 of Sevasi, Baroda during the year under consideration (02/04/2009) .since, the said land was reflected under the head 'Agricultural Land' in the Balance Sheet as on 31/03/2009. The assessee also got approval for construction on 20/01/2010. The said land was sold at Rs. 6.01 crore as per sale deed dated 27/01/2010. The payment of Rs. 6.01 crore was received by assessee through cheques dated 25/01/2010. Against the sale proceeds of Rs. 6.01 crore, the assessee has claimed payment of Rs.1,24,96,320/- as expenditure for cancellation of development agreement with Vaibhav Corporation Pvt. Ltd. As per cancellation of development agreement with Vaibhav Construction Pvt. Ltd. dated 14/02/2008, assessee agreed to pay Rs. 1.30 crore for cost of construction and loss of profit as mutually arrived at and agreed upon. The development agreement dated 14/02/2008 with Vaibhav Corporation Pvt. Ltd. which is substantially owned by the assessee himself clearly proves that the land bearing Survey No. 11 & 1036 was intended for development and construction and the profit earned on this land either through development or on sale should have been taxed as business income and not as Long Term Capital Gain. This issue has not been examined by the AO during the assessment proceedings and he has assumed wrong facts and incorrect application of law for taxing income as Long Term Capital Gain.

(2) Notwithstanding the above observation that profit from sale of NA land was required to be taxed under the head 'income from business', the AO has passed us assessment order, the same is prejudicial to the interest of revenue by allowing excess' deduction u/s. 54F of the Act without verifying the genuineness of sale / investment in residential house which is clear from the following observation.

ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11

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(i) It is also noticed that the total sale consideration of non-agricultural land is Rs. 6.01 crore and the assessee has taken sale consideration tat Rs.5,77,71,445/- for working out the Long Term Capital Gain which itself is factually incorrect and the AO has not obtained any clarification from the assessee regarding taking the sale consideration of Rs. 5,77,71,445/- as against Rs. 6.01 crore.

(ii) Further, the assessee has claimed deduction u/s. 54F of Rs.2,24,15,474/- on account of investment in new residential house out of capital gain, which arose from transfer of Long term capital asset not being residential house. As per provisions of section 54F(1), the assessee has to within a period of 3 years after the date of transfer of Long Term Capital Gain construct residential house, then only deduction from capital gain can be allowed as per Clause (a) & (b) of Sub-Section 1 of Section 54F. On verification of case record and the retails filed during the assessment proceedings, it is found that assessee has claimed deduction u/s. 54F on account of investment in construction of farm house at Kanchi, Sevasi. Total investment in Farm House Kanchi up to 15/10/2010 is claimed at Rs. 4,14,53,677.91. The assessee has claimed deduction to the extent of investment during the period from 01.04.2009 to 15/10/2010 at Rs. 2,58,18,842/- in construction of house because of extended due date for filing of return of income u/s. 139(1) for A.Y. 2010-11. On perusal of copy of ledger account of construction of farm house, Kanchi, it is found that assessee had invested sum of Rs. 27.46.703/- as on 31/03/2007 in the said farm house and such amount invested of Rs. 1,78.43,051.42/;- up to 01/04/2009 and investment in the said farm house up to 31/03/2010 came to Rs. 3,01,53,651.91/-.

It is established from the copy of account filed during the assessment proceedings and from the balance sheet as on 31/03/2009 that the farm house was already under construction much before sale of long term capital asset. Rs.1.78 crore was already invested up to 31/03/2009. This shows that the said asset / residential house was pre-existing and not "a new asset" constructed / purchased within the period as laid down in Clause (a) & (b) of Sub-Section 1 to Section 54 of the Act. As per provisions of section 54F, if the residential house is constructed after the date on which transfer took place then only the deduction u/s. 54F is allowable for construction of new asset i.e. residential house. Further, even if the provisions of section 54F are considered to be applicable to extension of existing house under construction, the allowable claim of exemption has to be restricted to the extent of investment / expenditure incurred in the said residential house subsequent to the transfer of original capital asset under consideration. As per assessee's own submission during the course of assessment proceedings, such amount invested /incurred in construction of presidential house subsequent to transfer of original asset i.e. from 27/01/2010 to 15/10/2010 amounted to Rs.1,67,42,135/- only.

Hence the assessee is not entitled to any deduction u/s. 54F ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11

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of the I. T. Act or such claim of deduction was required to be restricted to Rs.1,67,42,135/- as against Rs. 2,24,15,474/- claimed by the assessee in the return of income and allowed by the AO without applying proper provisions of section 54F of the Act. The AO has not examined the genuineness of investment in residential house by examining the bills of expenditure / investment claimed. In the light of issue discussed above, the AO has incorrectly allowed deduction u/s. 54F of the I. T. Act amounting to Rs.2,24,15,474/- and has also ignored the correct sale consideration of NA land of Rs. 6.01 crore but taken wrong sale consideration of Rs. 5,77,71,445/- for calculating LTCG.

3)| (i) It is also seen that The case was selected through CASS to examine the source of cash deposit in some bank account as per AIR information. As per AIR information, total cash of Rs.1,01,26,300/- was deposited in savings bank accounts with Indian Bank Account No.6008 of Rs.21,08,000/-, Rs. 14,45,000/- in Savings Bank Account No. 16458 in MIEC Bank, GIDC, Rs.47,38,000/- in Savings Bank Account No. 4723, Bank of Baroda, Akota and Rs.18,35,000/- in Indian Bank during Financial Year 2009-10. The assessee has filed relevant cash book for cash deposits except Rs. 18,35,000/-. The AO has not obtained copy of bank statement and not verified the sources of deposit in the bank accounts through cash book. No verification at all of source of cash deposit of Rs.18,35,000/- has been made by the AO.

(4) The Assessing Officer has also failed to seek any clarification from the assessee with respect to the wealth tax liability for the year under consideration."

4.1 In response thereto, the assessee made submissions vide letter dated 12/09/2013 and also made further submissions vide written submissions letter dated 03/10/2013. At the outset, the contention of the assessee is that these written submissions were not considered by the ld.CIT before passing the impugned order. We find that the ground for revising the assessment order as stated in the impugned order is in two folds; firstly, the ld.CIT was of the view that the gain arising out of transfer of land in question ought to have been treated by the assessee as ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11

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business income as the assessee is engaged in the business of development of land and is a builder and it is further observed by the ld.CIT that in the AY 2009-10, the assessee had himself offered income from sale of non-agricultural land as business income. The said land sold in Financial Year relevant to Assessment Year 2009-10 was originally agriculture land and after conversion into non-agricultural land it was sold and the income was offered as business income. It was observed by the ld.CIT that, in fact, assessee obtained relief from the Appellate Authority on the ground that the provisions of wealth tax were not attracted on the said land which had become business asset after conversion into non-agricultural land. Therefore, the ld.CIT was of the view that in the year under appeal also, the assessee should have given the same treatment for the transaction. However, undisputedly, the assessee has demonstrated that the land in question was in fact, shown as fixed asset. Therefore, the intention of the assessee can be inferred as of making investment. Secondly, the contention of the assessee is that there is no prohibition under the law that any person cannot make investment and carry out business at the same time. We find force into the contention of the ld.Sr.counsel for the assessee that there is no prohibition under the law that an individual can have two portfolios, i.e. investment and business. The Revenue has not demonstrated under what provision of law, the assessee can be forced to treat its investment/fixed assets as stock-in-trade. The decision with regard to ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11

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treating a particular asset as "fixed asset" or "stock-in-trade" is solely lies with the assessee and the Revenue has no role in this regard. Primarily, the inference with regard to whether it is an investment or business would be based on the intention of the individual concerned. In the case in hand, there is no dispute with regard to the fact that the assessee has been treating the land in question as fixed asset, although it is a fact that the assessee is engaged into the business of sale and purchase of land and also construction of building. It appears that the ld.CIT is influenced by the fact that in the earlier year, under the identical facts, the assessee has offered the gain arising out of such transfer of the land as "business income". Therefore, in view of the ld.CIT, the assessee was carrying out business. It is a settled position of law that a business man can be engaged into a business of sale and purchase of articles, goods and at the same time he can also make investment in such goods or articles as an investor. In a case of Jeweller, he can be engaged in the business of sale and purchase of jewellery, at the same time, he can also make investment in gold, jwellery and bullion. Therefore, we are of the considered view that the reasoning of the ld.CIT for revising the order on this basis cannot be confirmed as two view are possible. Another reason given by the ld.CIT is that the AO allowed deduction to the assessee which was otherwise not available under the facts of the present case. We find that the ld.CIT observed that on verification of case record and the details filed during the course of assessment proceedings, it was found that the ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11

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assessee has claimed deduction u/s.54F on account of investment in construction of farm house at Kanchi, Sevasi. Total investment in Farm House Kanchi upto 15/10/2010 is claimed at Rs.4,14,53,677.91. The assessee has claimed decuction to the extent of investment during the period from 01/04/2009 to 15/10/2010 at Rs.2,58,18,842/- in construction of house because of extended due date for filing of return of income u/s.139(1) for A.Y. 2010-11. It is further observed that in construction of farm house, it was found that the assessee had invested a sum of Rs.27,46,703/- as on 31/03/2007 in the said farm house and such amount invested amounted to Rs.1,78,43,051.42 upto 01/04/2009. Investment in the said farm house upto 31/03/2010 came to Rs.3,01,53,651.91. Investment in farm house from 27/01/2010, i.e. from date of transfer of capital asset to 15/10/2010 comes to Rs.1,67,42,135/- including cost of land Rs.34,10,106?- on which house is claimed to have been constructed. The said land was purchased on 10/11/2004 and 26/08/2005 which is much before transfer of 'original' capital asset on 27/01/2010, but the assessee has included even this cost in the cost of construction of house. So, the cost of construction of house from 27/01/2010 to 15/10/2010 comes to Rs.1,33,32,029/- only as against Rs.2,58,18,842/- claimed to have been incurred by assessee in the computation of income filed with the Return of Income. It is further established from the copy of account filed during the assessment proceedings and from the balance-sheet as on 31/03/2009 that the farm house was already under construction much ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11

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before sale of long term capital asset. The assessee had obtained the permission for construction of farm house on 21/12/006 for construction of 582 sq.meters. and subsequent to the approval, assessee incurred expenditure of Rs.1.78 crore upto 31/03/2009. This shows that the said asset/residential house was pre-existing and not "a new asset"

constructed/purchased within the period as laid down in Clause (a) & (b) of Sub-section 1 to Section 54 of the Act. It was further observed that the land on which the farm house was constructed for claim of deduction u/s.54F of the Act was purchased in 10/11/2004 and 26/08/2005 and also obtained construction approval in Decembner-2006, i.e. even before the purchase of land (original asset - purchased in October-2006 & February2007) which was sold during the previous year to generate long term capital gain. It was observed by the ld.CIT that as per provisions of section 54F of the Act if the residential house is constructed after the date on which transfer took place only then the deduction u/s.54 is allowable for construction of new asset, i.e. residential house. Further, even if the provisions of section 54F are considered to be applicable to extension of existing house under construction, the allowable claim of exemption has to be restricted to the extent of investment/expenditure incurred in the said residential house subsequent to the transfer of original capital asset under consideration. So far this reasoning is concerned, we find that the AO has allowed deduction without examining this aspect. Contention of the assessee is that the AO had raised a specific query in this regard ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11

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and after considering the facts, submissions and case-laws allowed the deduction. But no such material is placed on record of this Tribunal that the AO during the course of hearing raised query with regard to claim of deduction of u/s.54 of the Act. Therefore, in the absence of such material, we do not see any infirmity into the finding of ld.CIT that AO failed to examine the aspect of allowability of deduction u/s.54F of the Act. After considering the totality of facts, we deem it appropriate to modify the order of ld.CIT on this issue and restore the issue of allowability of deduction u/s.54F of the Act to the file of AO for decision afresh. Thus, grounds raised in the assessee's appeal are allowed for statistical purposes.

5. Now, we take up the assessee's appeal in ITA No.1827/Ahd/2014 for AY 2010-11. The assessee has raised the following grounds of appeal:-

1. Ld.CIT(A) erred in law and on facts in dismissing appeal filed by the appellant holding the same to be beyond jurisdiction of appellate proceedings before him. Ld.CIT(A) ought to have considered written submissions; documentary evidence and case-

laws relied upon by the appellant and ought to have decided issue under appeal which fell very much under his jurisdiction. It be so held now.

2. Ld.CIT(A) further erred in law and on facts in holding that revisionary order being an appealable order before the Hon'ble ITAT neither the AO nor the appellate office could decide issues on merits and that it could only be challenged and decided by ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11

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Hon'ble ITAT. This erroneous observation of ld.CIT(A) deserves to be quashed. It be so held now.

3. Ld.CIT(A) erred in law and on facts in holding that AO is not expected to give any decision on the merits of the issue already decided by CIT passed proper and correct order while giving effect to the order u/s.263 of the Act. Ld.CIT(A) ought to have appreciated that the direction to pass appropriate orders after providing opportunity to appellant meant to decide issues on merits without blindly following directions as binding. It be so held now.

4. Ld.CIT(A) erred in law and on facts in dismissing grounds challenging nature of income as to whether business income or long term capital gain and claim made u/s.54F of the Act holding them to be not sustainable. Ltd.CIT(A) ought to have adjudicated issues on merits. It be so held now.

5. Ld. CIT(A) erred in law on facts in not adjudicating ground challenging charging of interest u/s.234 of the Act by AO when demand notice dated 27.01.2014 is stated to be part of assessment order passed on 23.01.2014.

6. Levy of interest u/s.234 A/B/C & D of the Act is not justified.

7. Initiation of penalty proceedings is not justified.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

5.1. At the outset, ld.counsel for the assessee submitted that in case the assessee succeeds in ITA No.108/Ahd/2014 for AY 2010-11(supra), then the order of the ld.CIT would not survive as the order in appeal before ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11

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ld.CIT was in consequence of the order passed by the ld.CIT. In case, the order of the ld.CIT is set aside or modified in that eventuality the impugned order in the present appeal would also not survive. Since we have modified the order of ld.CIT in assessee's own case, i.e. ITA No.108/Ahd/2014 for AY 2010-11(supra), the order assailed in this appeal is hereby set aside. The issue of allowability of deduction under section 54F of the Act is restored to file of AO for decision afresh.

6. In the combined result, both the appeal of the assessee are allowed for statistical purposes.

Order pronounced in the Court on Thursday, the 30th day of April, 2015 at Ahmedabad.

Sd/- Sd/- (एन.एस.सैनी) (कुल भारत) लेखा सद य या यक सद य ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 30/ 04 /2015 ट*.सी.नायर, व. न.स./T.C. NAIR, Sr. PS ITA Nos.108 & 1827 /Ahd/2014 Prakash Kumar B. Khatri vs. CIT/ACIT Asst.Year -2010-11 - 19 -

आदे श क !त#ल$प अ%े$षत/Copy of the Order forwarded to : 1. अपीलाथ# / The Appellant 2. $%यथ# / The Respondent. 3. संब4ं धत आयकर आय6 ु त / Concerned CIT 4. आयकर आय6 ु त(अपील) / The CIT(A)-XX, Ahmedabad

5. 7वभागीय $ त न4ध, आयकर अपील*य अ4धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड; फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स%या7पत $ त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation .. 12&28.4.15 (dictation-pad 28+ pages attached at the end of this File)

2. Date on which the typed draft is placed before the Dictating Member ..17/29.4.15

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......30.4.15

7. Date on which the file goes to the Bench Clerk.....................30.4.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................