Chandra Poojari, Accountant Member. - The appeals in ITA Nos. 1061/Hyd./2008 and ITA No. 1073/Hyd./2008 are Cross-appeals directed against the order passed by the CIT(A) dated 14-3-2008 and pertains to the assessment year 2001-02 and ITA No. 1074/Hyd./2008 is appeal by the revenue directed against the order passed by the CIT(A)-Hyderabad dated 14-3-2008 relating to assessment year 2003-04. Since certain common issues are involved in these appeals, these are clubbed, heard and disposed off vide this common order for the sake of convenience.
2. First we will take the appeals relating to the assessment year 2001-02 in ITA Nos. 1061/Hyd./2008 and 1073/Hyd./2008. The assessee raised grounds in its appeal with regard to sustaining additions of Rs. 2,57,792 on account of unexplained credit and also regarding sustaining additions of Rs. 34,000 towards low drawings. The revenue is in appeal before us with regard to granting the benefit of exemption under section 54F to the assessee.
3. Brief facts of the case are that the assessee purchased a property for consideration of Rs. 2.25 lakhs and incurred expenditure of Rs. 37,792 towards Registration totalling of Rs. 2,57,792 in the assessment year 2001-02. The Assessing Officer found that there was no debit entries in the bank account and, hence, called for an explanation regarding sources for this investment. The assessee explained that he sold a shop for a consideration of Rs. 4 lakhs and the same was used for this purpose. The Assessing Officer noticed that the shop was sold in January, 2009, i.e., after the purchase of the property and as such sale proceeds of such shop could not have been used for purchase of the property. Accordingly, the said investment of Rs. 2,57,792 was brought to tax under section 69 of the Act. The same was confirmed by the CIT(A).
4. The learned authorised representative for the assessee submitted that the assessee has been income-tax assessee for the last 10 years. There was availability of opening cash balance as on 1-4-1999 to the tune of Rs. 2,14,012 and the assessee purchased the property on 25-9-2000. He drew our attention to the copies of cash-flow statement as on 31-3-1999 which is annexed to the return of income for the assessment year 1999-2000.
5. The learned departmental representative submitted that there is no evidence for keeping the cash on hand and there is no basis for availability of such cash, since he has been declaring very small income in the range of Rs. 60,000 per annum which was Rs. 5,000 per month and he is having his personal expenses also. There is no evidence that he has able to save such an amount. There is no bank account reflecting these transactions. He submitted that the order of the CIT(A) to be confirmed on this issue.
6. We have heard both the parties and perused the materials available on record. It is admitted fact that the assessee has been filing return of income for the last 10 years. The assessee has also filed return of income on 31-1-2000 declaring income of Rs. 70,000 and the assessee paid tax of Rs. 3,000 for the assessment year 1999-2000. This return was accompanied with the statement of computation of income. The assessee also filed cash-flow statement along with the return of income which shows as follows :—
ACCOUNT
| To drawing | 20,000.00 | By balance b/f | 1,63,042.00 |
| To balance c/d | 2,14,012.00 | by net income | 70,000.00 |
| | | By share income | 970.00 |
| | 2,34,012.00 | | 2,34,012.00 |
7. The above table reflects the availability of cash balance at Rs. 2,14,012 as on 31-3-1999. The department accepted the return of income for the assessment year 1999-2000. There is no dispute regarding this. Once the department accepted the return of income for the assessment year 1999-2000, it is to be construed that they accepted the computation of income and also cash-flow statement and the balance sheet enclosed with the return of income. They have not questioned the cash-flow statement regarding the availability of funds thereon. Later on, the department cannot say this fund is not available to the assessee. Due credit to this should be given. It is not open to the department to pick and chose the contents of the return as suits to them. Accordingly, in our opinion, the credit is to be given to the availability of cash to the tune of Rs. 2,14,012. Hence, this ground taken by the assessee is allowed to that extent of Rs. 2,14,012.
8. The next ground in the assessee’s appeal is with regard to low drawing. The assessee shown drawing of Rs. 20,000. According to the Assessing Officer, it is very low and added Rs. 34,000 to the income of the assessee.
9. We have heard both the parties and perused the material available on record. According to the learned departmental representative, the assessee paid a Municipal Property Tax at Rs. 12,752 and the assessee’s family consists of 5 members and the drawings of Rs. 20,000 is not enough to meet the monthly expenditure of the family. Hence, he argued that the addition of Rs. 34,000 is to be confirmed. However, the Assessing Officer has not brought on record anything other than payment of municipal tax of Rs. 12,752. Unless the Assessing Officer brought on record any evidence regarding the exact amount of expenditure incurred by the assessee in the form of bills, vouchers or bank withdrawals, we are not in a position to confirm this issue in its entirety. Accordingly, we confirm the addition to the tune of Rs. 12,752 paid towards municipal tax for which there is an evidence of expenditure. Thus, ITA No. 1061/Hyd./2008 is partly allowed.
10. Now coming to the revenue appeal in ITA No. 1073/Hyd./2008, the main grievance of the department is with regard to granting of exemption under section 54F. The assessee made a claim under section 54F which was denied by the Assessing Officer. The assessee disposed of a shop in January 2001 for a net consideration of Rs. 4 lakhs. Out of this, he invested an amount of Rs. 2,57,792 within the prescribed period of purchase of plot. According to the learned departmental representative, the assessee not utilized the capital gains in purchase of plot and construction of house thereon. The plot was purchased much before the capital gain accrued/received by the assessee and the assessee has not produced any evidence to prove that he has constructed the house within a period of 3 years from the date of sale of the property, i.e., January, 2001. Moreso, the assessee has not invested the unutilized long-term capital gain in a specific bank account.
11. We have heard both the parties and perused the material available on record. The controversy raised before us is with regard to the construction of section 54F of the Act. In order to understand the same, we feel it proper to reproduce section 54F as under :—
"54F. Profit on sale of property used for residence.—(1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or an HUF, the capital gain arises from the transfer of long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereinafter in this section referred to as the new asset) the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say :—
(a )if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45;
(b )if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the new whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45 :
Provided that nothing contained in this sub-section shall apply where—
(a )the assessee—
(i )owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii)purchases any residential house, other than the new asset within a period of one year after the date of transfer of the original asset; or
(iii)constructs any residential house, other than the new asset, within a period of 3 years after the date of transfer of the original asset and
(b )the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head ‘Income from house property’.
Explanation.—for the purposes of this section—
‘Net consideration,’ in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
4. The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and for the purposes of sub-section (1), the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilized wholly, or partly for the purchase or construction of the new asset within the period specified in sub-section (1) then,—
(i )the amount by which—
(a )the amount that would not have been so charged had the amount actually utilized by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,
shall be charged under section 45 as income of the previous year in which the period of three years from the date of transfer of the original asset expires; and
(ii )the assessee shall be entitled to withdraw the unutilized amount in accordance with the scheme aforesaid."
12. From a bare reading of section 54F, we find that sub-section (1) should be read along with sub-section (4). It cannot be read in isolation because the benefits of section 54F are to be allowed only subject to the provisions of sub-section (4) of the said section. This section allows the benefit of exemption to the individual or an HUF in which case the capital gain arises from transfer of any long-term capital asset not being a residential house and assessee has within a period of one year before or two years after the date on which the transfer took place purchased or has within a period of 3 years after that date, construct a residential house, the capital gain shall be dealt with in accordance with provisions laid down in this section. Sub-section (4) further states that the amount of net consideration which is not appropriated by the assessee towards the purchase of the new asset made within 1 year before the date of which transfer of the original asset took place or which is not utilized by him for purchase or construction of the new asset before the date of the filing of the return of income under section 139, shall be deposited by him before furnish such return in an account in any bank or institution as may be specified by the Central Government. If both these sub-sections are read in a conjunction only one inference is drawn that to avail the benefit of section 54F, the assessee is required either to purchase a residential house out of the sale proceeds or long-term capital asset within a period of one year before or 2 years after the date on which transfer took place or within a period of 3 years after that date, construct a residential house. In that case, gain shall be computed as per clauses (a) and (b) of sub-section (1).
13. In case, the assessee is not able to appropriate the sale proceeds of long-term capital asset as stated above before the date of furnishing of return of income under section 139 he is required to deposit the same before furnishing of such return in an account in any such bank or institution as may be specified in and utilized in accordance with any scheme, which the Central Government may by notification in the Official Gazette frame in this behalf and such return shall be accompanied by proof of such deposit. Similar is the position for claiming the exemption under section 54.
14. The object of introduction of these sections are that assessee should make more investments in residential house, on sale of its old residential house or long-term capital asset. It is not necessary that the same funds must be used in purchasing of the new residential house, but the fund should be available with the assessee for its investment in residential house. Since the law permits utilization of capital gain within the specified time, the assessee may use such funds for other purpose and may find resource from other source for investment in time. The law does not expect that the sale amount should be kept in the locker and the same should be utilized in purchase of residential house. Neither the law nor does any Circular require the identity of the amount received on sale and utilization for purpose of section 54F and other relevant provisions. It is quite likely that the assessee may use the money for his business and draw amount for investment from his past savings. Conversely, he may place sale proceeds in long-term investment other than what is permitted under section 54F but, all the same find money from the business or other source for approved investment within the time. Since law itself permits investment in a new property even before sale of property covered by sections 54 and 54F, the law does not contemplate the identity of the funds on sale for its investment. Since money has no colour, all that is required is compliance with the condition of investment within the specified time.
15. This view is fortified by judgment of the Kerala High Court in the case of Income Tax Officer v. K.C Saigal** [1999] 107 Taxman 591 in which Their Lordships have held that in order to get benefit of section 54, there is no condition that assessee should utilize the sale consideration itself for the purpose of acquisition of new property. In that case, the claim of the assessee was disallowed by the Assessing Officer on the ground that the same fund was not utilized for construction of the building and it was deposited in an approved bank. The assessee took a plea before the appellate authorities that he had completed the construction of a house in Calicut on 31-12-1983 at a cost of Rs. 2,98,300 the cost of building which he had sold was valued at Rs. 40,000. Therefore, the cost of construction of a new house property is more than the capital gain, even if any liability of capital gain would arise from the sale of his house. Their Lodships of the Kerala High Court have examined the issue and have held that the wording of section itself would make it clear that law does not insist for sale consideration obtained by the assessee itself should be utilized for the purchase of house property. The main part of section 54 provides that assessee has to purchase a house property for the purpose of his own residence within a period of one year before or after the date on which transfer of his property took place or he could have constructed house property within a period of two years after the date of transfer.
16. In the present case, it is admitted fact that the assessee has brought an asset in the month of September, 2000, though the assessee sold the property in the month of January, 2001. Thus, the assessee has fulfilled the conditions laid down in this. The assessee invested the capital gain araised from the transfer of long-term capital asset not being a residential allowance invested in residential house. The assessee is entitled for deduction to that extent and the findings of the CIT(A) in accordance with the provisions of section 54F and the same is confirmed. Thus, appeal in ITA No. 1073/Hyd./2008 is dismissed.
17. Now coming to the revenue appeal in ITA No. 1074/Hyd./2008 is with regard to deletion of addition of Rs. 8,85,200. Brief facts of the issue are that in the assessment years under consideration, the capital account showed in addition of Rs. 8,85,200 as receipts. When the Assessing Officer examined the bank account for this assessment year 2003-04, the assessee did not receive any remittance during the previous year 2002-03 relevant assessment year 2003-04. The assessee received remittance of Rs. 10,85,200 in the year 2001-02. The same was treated as unexplained credit. On appeal assessee pleaded before the CIT(A) that the assessee received remittance during the year 2001-02 and the same liability continued during the subsequent years also. Just because it was shown in the balance sheet for the assessment year 2003-04, the Assessing Officer wrongly concluded the remittance should have come only during that year to explain such liability. Since the remittance has come in the earlier year, the CIT(A) deleted the addition. Against this, the revenue is in appeal before us.
18. The learned departmental representative submitted that there is no evidence to show that the remittance of Rs. 8,85,200 had received in the earlier financial year, i.e., 2001-02.
The authorised representative for the assessee relied on the order of the CIT(A). On the other hand, the learned departmental representative relied on the assessment order.
19. We have heard both the parties and perused the material available on record. This amount has been received by the assessee as follows :—
| Date | Cheque No. | Amount |
| 17-8-2001 | 9531 | Rs. 6,00,000 |
| 18-2-2002 | 9533 | Rs. 2,85,200 |
| | Total | | Rs. 6,85,200 | |
20. These facts were not controverted by the departmental representative and, hence, in our opinion, the addition cannot be made in the assessment year 2003-04. The deletion of addition by CIT(A) is justified and same is confirmed. Accordingly, the revenue appeal in ITA No. 1074/Hyd./2008 is dismissed.
21. In the result, the assessee appeal in ITA No. 1061/Hyd./2008 is partly allowed and the revenue appeals in ITA Nos. 1073 and 1074/Hyd./2008 are dismissed.