2014 (3) TMI 1001 - AT - Income Tax

Initiation of proceeding u/s 153C - Held that - It is not disputed that the assessee in the return of income filed has disclosed the capital gain arising out of the sale of the property. While the Ld. D.R. has contended that only because of seizure of incriminating material due to search and seizure operation, the assessee came forward to disclose the capital gain in the return filed at a belated stage, it is the contention of the assessee that the assessee has filed the return of income within the time permitted under the statute. In fact a draft computation of income on this capital gains was found during the search which demonstrated that the assessee was readying himself to file his return of income. Hence, it cannot be said that the assessee has disclosed the capital gain only as a result of search. In this regard, we may observe that the contention of the Ld. D.R. is not tenable. It is not disputed that the assessee has time to file his return of income as on the date of search i.e. 9.1.2009, within the period allowed under the statute u/s 139(4) of the Act. Therefore, it cannot be presumed that the assessee would not have disclosed the capital gain which was disclosed only as a result of search. It is a fact on record that the AO has accepted the sale consideration disclosed by the assessee. The enhancement in income determined by the AO is not because of suppression of income or non disclosure of income by the assessee but due to disallowance of exemption claimed u/s 54 of the Act. Therefore, considering the totality of facts and circumstances of the case, we are of the view that in the facts of the present case, initiation of proceedings u/s 153C of the Act is not maintainable. Accordingly, the assessee s ground on this issue deserves to be allowed. - Decided in favour of assessee. Entitlement to exemption u/s 54 - Held that - The facts and materials in the present case clearly indicate that the property concerned is a residential house with all the amenities. Only because it has ACC roof, it cannot be considered to be a temporary structure. The decisions relied upon by the assessee also support such view. So far as AO s finding that assessee has purchased two separate properties (new asset) is concerned, the same is also found to be contrary to the materials on record. The materials on record, such as sale deed, site plan etc. clearly demonstrate the assessee purchased a single property, being a land with building. In any case of the matter, we are of the view that, claim of exemption u/s 54 in the impugned assessment year cannot be denied considering the fact that the assessee has invested the capital gain in purchasing a property with an intention to construct a residential house. Therefore, before expiry of the period of three years as allowed u/s 54 for construction, the AO cannot deny such exemption to assessee. Therefore, considering the totality of facts and circumstances in the light of ratio decided in the decisions relied upon by the Ld. A.R., we are of the view that assessee will be entitled to exemption u/s 54 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Initiation of proceedings under Section 153C of the Income-Tax Act.
2. Denial of exemption under Section 54 of the Income-Tax Act.
3. Validity of documents considered as incriminating material.
4. Determination of whether the property sold and purchased qualifies for exemption under Section 54.

Detailed Analysis:

1. Initiation of Proceedings under Section 153C of the Income-Tax Act:
The assessee challenged the initiation of proceedings under Section 153C, arguing that the registered sale deed and computation of income in the handwriting of the assessee's father were not incriminating materials. The Tribunal noted that the registered sale deed is a public document and cannot be considered as incriminating material. The computation of income in the handwriting of the assessee's father also did not qualify as incriminating material. The Tribunal referenced the ITAT Visakhapatnam bench decision in ACIT Vs. Sri Rama Educational Trust, which emphasized that for Section 153C proceedings to be valid, the seized materials must belong to the assessee and be incriminating. The Tribunal concluded that the conditions for initiating proceedings under Section 153C were not satisfied, rendering the proceedings invalid.

2. Denial of Exemption under Section 54 of the Income-Tax Act:
The assessing officer denied the exemption under Section 54, arguing that the assessee sold two properties and purchased two separate properties, one of which was a temporary structure. The Tribunal found that the original property was a single property sold under two sale deeds and that the new property purchased was a single property with a residential house, not a temporary structure. The Tribunal held that the assessing officer's conclusions were based on incorrect facts and presumptions. The Tribunal also noted that the assessee's intention to construct a residential house was evident, and the development agreement did not negate this intention. Consequently, the assessee was entitled to the exemption under Section 54.

3. Validity of Documents Considered as Incriminating Material:
The Tribunal determined that the registered sale deed and the computation of income in the handwriting of the assessee's father did not qualify as incriminating material. The Tribunal referenced the decision in CIT Vs. Sri Rama Educational Trust, which held that documents must belong to the assessee and be incriminating to justify proceedings under Section 153C. The Tribunal concluded that the documents in question did not meet these criteria.

4. Determination of Whether the Property Sold and Purchased Qualifies for Exemption under Section 54:
The Tribunal analyzed the facts and found that the original property was a single property and the new property purchased was a residential house, not a temporary structure. The Tribunal referenced various decisions, including those in V.A. Tharabai Vs. DCIT and CIT Vs. Syed Ali Adil, which supported the assessee's claim for exemption under Section 54. The Tribunal concluded that the assessee's investment in the new property qualified for the exemption under Section 54.

Conclusion:
The Tribunal allowed the assessee's appeals, holding that the initiation of proceedings under Section 153C was invalid, the exemption under Section 54 was wrongly denied, and the documents considered as incriminating material did not meet the necessary criteria. The Tribunal emphasized that the assessee's investment in the new property qualified for the exemption under Section 54, and the proceedings initiated under Section 153C were not maintainable.

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