2019 (12) TMI 1254 - AT - Income Tax

Tribunal grants Assessee exemption under Section 54F and rejects undisclosed income addition

Naresh Hathising Shah, C/o. Shah Enterprise, Rupande Naresh Shah, C/o. Shah Enterprise Versus I.T.O, Intl. Taxn. -1, Ahmedabad.

Naresh Hathising Shah, C/o. Shah Enterprise, Rupande Naresh Shah, C/o. Shah Enterprise Versus I.T.O, Intl. Taxn. -1, Ahmedabad. - TMI Issues Involved:1. Denial of exemption under Section 54F of the Income Tax Act.2. Addition of cash deposits in the bank account as undisclosed income.Issue-wise Analysis:1. Denial of Exemption under Section 54F:The primary issue in the appeals was whether the Assessee was entitled to exemption under Section 54F of the Income Tax Act for investments made in a residential bungalow. The Assessee, a non-resident Indian, sold land and claimed exemption for investing in a new property. The Assessing Officer (AO) denied the exemption, treating the transaction as a colorable device for tax evasion, citing the Supreme Court's judgment in Mcdowell & Co. Ltd. vs. Commercial Tax Officer. The AO's denial was based on the grounds that the construction was incomplete within the stipulated time and the transaction was a dubious method for tax evasion.The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the Assessee failed to provide necessary documents like booking forms or allotment letters to substantiate the claim. The CIT(A) also observed that the Assessee did not comply with the three-year construction timeline specified under Section 54F, even after six years.However, the Tribunal found that the Assessee made payments for the new property within the specified time and eventually acquired the property, as evidenced by the sale deed. The Tribunal relied on judgments from the Karnataka High Court (CIT vs. Sambandam Udaykumar and PCIT vs. C. Gopalaswamy), which held that delays in construction by the builder should not penalize the taxpayer if the investment was made within the stipulated time. Additionally, the Tribunal noted that a co-owner had been granted similar exemptions, and the principle of equality should apply. Consequently, the Tribunal allowed the Assessee's appeal, granting the exemption under Section 54F.2. Addition of Cash Deposits as Undisclosed Income:The second issue was the addition of cash deposits in the Assessee's bank account as undisclosed income. The Assessee contended that the cash deposits were sourced from prior cash withdrawals. The AO rejected this explanation, arguing there was no direct link between the withdrawals and deposits, and treated the deposits as income from undisclosed sources.The CIT(A) upheld the AO's decision, doubting the Assessee's rationale for withdrawing and then redepositing cash. However, the Tribunal found no evidence that the cash withdrawn was used for purposes other than the deposits. The Tribunal emphasized that the Revenue failed to provide substantial proof to counter the Assessee's claim. Therefore, the Tribunal ruled in favor of the Assessee, holding that the cash deposits could not be treated as undisclosed income.Separate Judgments:The Tribunal delivered separate judgments for each Assessee, but the issues and rulings were identical. In both cases, the Tribunal allowed the appeals, granting the exemptions under Section 54F and rejecting the additions for cash deposits as undisclosed income.Conclusion:The Tribunal's comprehensive analysis led to the conclusion that the Assessee was entitled to the exemption under Section 54F and that the cash deposits could not be treated as undisclosed income. The appeals were allowed in favor of the Assessee.