2018 (1) TMI 1735 - AT - Income Tax

Addition u/s 69 - seized material found during the course of survey operations indicating some undisclosed investment - Burden of prove - CIT(A) deleted addition holding that the Assessing Officer, without bringing any corroborative evidence, cannot make any addition based on merely impounded papers - HELD THAT - It is trite law that the initial burden of proving is always on the assessee to show that the transactions in loose sheets are not in the nature of income and reliance in this regard can be placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Mussadilal Ram Bharose ( 1987 (1) TMI 1 - SUPREME COURT . In the present case, the assessee merely denied it without tendering any credible explanation. In our considered opinion, this does not amount to due discharge of initial burden on the part of assessee and therefore the Assessing Officer was justified in drawing adverse inference and making addition of Rs. 183 lakhs. The ground appeal filed by the revenue is allowed. LTCG - Deduction u/s 54G - Assessee shifted the industrial unit situated in urban area i.e. Whitefield to non-urban area and investment of a sum towards purchase of land was made - Whether unit sold was situated within notified urban areas? - HELD THAT - Parliament has enacted the provisions of section 54G with the intention of promoting de-congestion of urban area and also to balance regional growth by exempting capital gains arising on the transfer of plant and machinery and building used for the purpose of industrial undertaking and the capital gains are exempt from tax to the extent capital gains are utilised in acquiring new plant and machinery and building for the purpose of business of undertaking in the area to which it is shifted plus incurring expenses in the purchase of the new plant and machinery etc It is undisputed fact that factory building sold by the assessee company is not situated in the notified urban area. From the above notifications No. 9489 on 23/02/1994, second notification was issued on 02/04/1996 and third notification was issued on 20/12/1999 it is clear that Whitefield is not one of the notified urban areas which is eligible for deduction under section 54G. Thus, assessee-company had failed to satisfy the condition that unit sold was situated within notified urban areas. Therefore the assessee-company is not eligible for deduction under section 54G. CIT(A) had failed to consider the relevant provisions of the statute in proper perspective and granted relief. Therefore, we reverse the finding of the ld. CIT(A) on this issue and the grounds of appeal filed by the revenue are allowed.

Summary

Issues Involved:
1. Addition of Rs. 1,83,00,000 under Section 69 of the Income-tax Act.
2. Deduction under Section 54G of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,83,00,000 under Section 69 of the Income-tax Act:

The Assessing Officer (AO) confronted the assessee with seized material found during the course of survey operations, indicating some undisclosed investment. The Managing Director (MD) of the assessee company denied having made any undisclosed investment. The AO drew an adverse inference from the conduct of the assessee and held that it was an unexplained investment, adding Rs. 1,83,00,000 to the income under Section 69 of the Act.

On appeal, the Commissioner of Income-tax (Appeals) [CIT(A)] deleted the addition, holding that the AO, without bringing any corroborative evidence, cannot make any addition based merely on impounded papers. The CIT(A) relied on certain judicial pronouncements of the Tribunal to arrive at this conclusion.

Upon further appeal by the revenue, the Tribunal held that the initial burden of proving is always on the assessee to show that the transactions in loose sheets are not in the nature of income. The Tribunal referenced the decision of the Hon'ble Supreme Court in the case of CIT vs. Mussadilal Ram Bharose (165 ITR 14). The Tribunal concluded that the assessee merely denied the transactions without providing any credible explanation, thus failing to discharge the initial burden. Therefore, the AO was justified in drawing an adverse inference and making the addition of Rs. 1,83,00,000. The Tribunal allowed the revenue's appeal on this ground.

2. Deduction under Section 54G of the Income-tax Act:

The assessee claimed a deduction under Section 54G of the Act, stating that it shifted the industrial unit from an urban area (Whitefield) to a non-urban area and invested Rs. 19,84,150 towards the purchase of land. The CIT(A) allowed the deduction, holding that the investment in new plant and machinery and land satisfies the conditions stipulated under Section 54G of the Act.

The revenue appealed, arguing that all four conditions laid down in Section 54G should be satisfied, including the condition that the industrial undertaking must be shifted to a non-urban area. The Tribunal examined the provisions of Section 54G, which exempts capital gains arising from the transfer of plant and machinery and building used for the purpose of an industrial undertaking situated in an urban area, provided the capital gains are utilized in acquiring new plant and machinery and building in the area to which the undertaking is shifted.

The Tribunal noted that the Parliament enacted Section 54G to promote de-congestion of urban areas and balance regional growth. The Tribunal referred to notifications issued by the Central Government declaring certain areas as urban areas for the purposes of Section 54G. It was found that Whitefield is not one of the notified urban areas eligible for deduction under Section 54G. Therefore, the assessee-company failed to satisfy the condition that the unit sold was situated within notified urban areas. Consequently, the assessee-company was not eligible for deduction under Section 54G. The Tribunal reversed the CIT(A)'s finding on this issue and allowed the revenue's appeal.

Conclusion:
- The appeal filed by the revenue was allowed, confirming the addition of Rs. 1,83,00,000 under Section 69 and denying the deduction under Section 54G.
- The appeal filed by the assessee was dismissed, as further relief on the deduction under Section 54G was not allowable.

Order Pronounced:
The order was pronounced in the open court on 19th January, 2018.