Unreported Decisions – June 2019
By Ajay R. Singh
1. S. 54 : Capital Gains – Utilisation of gift received from husband for purchase of new house – Amount invested in new asset need not be entirely sourced from capital gains. [S.45]
The assessee claimed deduction u/s. 54 of the Act on account of investment in residential house this long term capital gains was declared at nil. The AO also noted that the investment is not made within the stipulated period and did not allow the exemption u/s. 54 of the Act. It was noted by the AO that the investment is not made before the due date of filing of return of income u/s. 139(1) by the assessee. The AO also noted that the investment in new house is made by assessee’s husband and not assessee to the extent of ₹ 70 lakh. Hence, he stated that the assessee is not entitled for claim of deduction u/s. 54 of the Act.
Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) agreed with the contention of the assessee that where the investment is made within the due date of filing of return u/s. 139 of the Act the assessee is entitled for exemption u/s. 54 of the Act. In present case total investment was made before due date of the Act. Accordingly, the CIT(A) allowed the claim of deduction to the extent of ₹ 12,62,000/-. But he confirmed the action of the AO and denied the deduction u/s. 54 of the Act on the amount of ₹ 70 lakh which was paid by husband of the assessee as gift.
On further appeal the ITAT held that as regards the dispute of entitlement of claim of deduction u/s. 54 of the Act whether the investment made within the stipulated period or not, the CIT(A) has allowed the claim in favour of assessee and Revenue has not challenged the same. It means, Revenue has not filed any appeal and the same is confirmed by the ld Sr. DR. The only dispute remains is whether the amount gifted by assessee’s husband of ₹ 70 lakh on 13-10-2014 by making direct payments to the builder out of NRO saving Bank Account can be considered as payment made by assessee. For this, the ld Counsel for the assessee relied on the decision of this ITAT in the case of Deepak A. Shah vs. ITO in ITA No. 526/Mum/2016 for AY 2010-11, wherein the Tribunal following the decision of ACIT vs. Dr. P. S. Pasricha (2008) 20 SOT 468 (Mum) in ITA No. 6808/Mum/2003 for AY 2001-02 vide order dated 11-01-2008 has held that the same fund may or may not be utilized for the purchase of another residential house but the requirement of law is that the assessee should purchase a residential house within the period and the source of fund is quite irrelevant. In the instant case, the facts are that the assessee has received gift from her husband and invested a sum of ₹ 70 lakh in purchase of new residential house. The assessee has fulfilled all the conditions prescribed u/s. 54 of the Act and hence, she is entitled for claim of deduction. The appeal of assessee was allowed.
Sanmeetkaur M. Kohli vs. ITO -3(1)(1), ITA No. 6500/Mum/2017, DOH: 18/04/2019 (Mum.)(Trib.)
2. S. 80HHB : Deduction – Projects outside India – the assessee company derives profit from foreign Projects and complied with the entire requirement – deduction u/s. 80HHB ought to be allowed.
The assessee company during the year under consideration was engaged in the business of undertaking jobs for construction of tanks/vessels for storage of chemicals on labour basis and/or on turnkey basis had filed its return of income for A.Y. 1999-2000, after claiming deduction u/s. 80HHC. Subsequently, the AO observed on a perusal of the records that the assessee company was not engaged in the business of manufacturing or trading of any commodity/product and was only undertaking jobs for construction of tanks/vessels for storage of chemicals on labour basis and/or on turnkey basis. The AO held that the assessee was not eligible for claim of deduction u/s. 80HHC. The CIT(A) upheld the order of the AO and dismissed the appeal.
The ITAT disposed off the appeal vide a consolidated order for AY 1999-2000, AY 2003-04 & AY 2004-05. The Tribunal in its aforesaid order observed that the assessee was not eligible for claim of deduction u/s. 80HHC. Insofar the fresh and the alternate claim raised by the assessee for deduction u/s. 80HHB of the IT Act was concerned, the Tribunal restored the matter to the file of the AO for considering the same after affording an opportunity of being heard to the assessee. The Tribunal while restoring the matter to the file of the AO relied on its earlier order for AY 2000-01 wherein the AO was specifically directed to give opportunity to the assessee to create the necessary reserve account as per the provisions of Sec. 80HHB. The AO in the course of the set aside proceedings declined to allow the claim of deduction under Sec. 80HHB on the grounds that conditions specified in Sec. 80HHB has not been fulfilled on time. The CIT(A) upheld the view taken by the AO and dismissed the appeal.
Further, in the second round appeal filed by the assessee before the ITAT it was held that the adverse inferences drawn by the lower authorities on the ground that the assessee had neither claimed any deduction u/s. 80HHB nor fulfilled the conditions laid down in 80HHB, is without any merits. In fact, it was only pursuant to the direction by the Tribunal which had restored the matter to the file of the AO for considering the assessees alternate claim of deduction u/s. 80HHB, that the latter had became conversant of its entitlement under the said statutory provision. The assessee in compliance of the requirement contemplated in Sec. 80HHB had obtained the certificate in Form 10CCAH, dated 08-11-2011 duly signed and verified by a CA and the assessee had maintained separate ledger accounts in respect of the profits and gains derived from execution of the foreign project. Further the assessee was obligated to have debited an amount equal to 50% of its profit and gains for the year under consideration i.e., AY 1999-2000 to the profit and loss account and credited the same to a reserve account viz., “Foreign Projects Reserve Account”, which was to be utilised by it during the period of five years next following for the purpose of its business other than for distribution by way of a dividend or profits had submitted it along with a revised computation of income with the AO in the course of the set aside proceedings, vide its letter dated 08-11-2011. The assessee had submitted before the lower authorities the copies of the agreements with the foreign company viz. National Oil (Tanzania) Ltd. along with the other requisite details as regards the same, and had also explained the facts of its case before them.
The assessee had duly satisfied the requisite conditions which rendered it eligible for claim of deduction u/s. 80HHB, therefore, the lower authorities had erred in declining to allow the said claim of deduction on the basis of incorrect observations. The claim of deduction raised by the assessee u/s. 80HHB of the Act be allowed.
M/s. Prashanth Projects Limited. vs. DCIT-10(3), ITA No. 4308/Mum/2015, DOH: 12/04/2019 (Mum.)(Trib.)
M/s Prashanth Projects Limited.
3. S. 2(22)(e) : Deemed dividend – Not a shareholder–Addition cannot be made as deemed
The assessee company had received loan from Muchhala Magic Land Pvt. Ltd. During the year the ld. AO observed that Mr. Arunkumar J. Muchhala is holding 32.18% of shares of Rithika Hotels Pvt. Ltd., i.e., the assessee company and was also holding 32% shares in Muchhala Magic Land Pvt. Ltd. The ld. AO also observed that as on 31-03-2012, Muchhala Magic Land Pvt. Ltd. had accumulated profits of ₹ 5,25,64,264/- and as on 31-03-2013 of ₹ 3,02,70,140/-. Accordingly, the ld. AO held that all the conditions prescribed in para 10.3 of Circular No. 495 were duly complied with by the assessee and hence, the loan of ₹ 34,00,000/- received by the assessee from Muchhala Magic Land Pvt. Ltd., is to be treated as deemed dividend u/s. 2(22)(e) of the Act and accordingly, the ld. AO added the same to the total income of the assessee.
ITAT held that the provisions of Sec. 2(22)(e) of the Act could not be applied on the ground that it was not holding any shares in the lending company. Reliance was placed on the decision of Hon’ble Delhi High Court in the case of CIT vs. Ankitech (P) Ltd. & Ors reported in 340 ITR 14 (Del) which in turn followed the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Universal Medicare (P) Ltd. reported in 324 ITR 263(Bom). The decision of Hon’ble Delhi High Court in the case of Ankitech P. Ltd. had been approved by the Hon’ble Supreme Court in the case of CIT Delhi vs. Madhur Housing and Development Company in Civil Appeal No. 3961 of 2013 along with other civil appeals vide order dated 5-10-2017 by fully endorsing the views of the Hon’ble Delhi High Court supra. Accordingly, it was held that assessee company was not a shareholder in the lending company and hence, the provisions of Section 2(22)(e) of the Act cannot be made applicable to the facts of the instant case.
DCIT-11(1)(1). vs. Ritika Hotels Pvt. Ltd., ITA Nos. 6131 & 6132/Mum/2017; DOH: 24/04/2019 (Mum)(Trib).