2020 (4) TMI 395 - AT - Income Tax

Exemption claimed u/s 54G - Proof of investment - purchase of new plant and machinery for setting up the business of the industrial undertaking in the new location - whether Appellant company had opened an account at Canara Bank, Langford Town branch, and the said capital gains were deposited in the said capital gains bank account and the said amount was subsequently utilized in the development of industry as per the provisions of section 54G? - HELD THAT - As per section 54G, the assessee should invest the amount of capital gain arising from the transfer of the capital asset situated in urban area mentioned in section 54G within a period of one year before the sale of original asset and balance part may be invested within a period of three years after the sale / transfer of asset. Hence, the A.O. to give benefit of section 54G by verifying the investment so made by the assessee within a period of one year prior to sale of asset or within the period of three years after the sale or transfer of such capital asset. DR pleaded that the issue may be sent back to the files of the CIT(A) and he has to obtain a remand report from the Assessing Officer, because this issue has not decided by the CIT(A). In our opinion, if we remand back the issue to the files of the CIT(A), he has to call for remand report from the A.O. before deciding the same and no useful purpose would be served. Hence we prefer to remit the issue to the files of the Assessing Officer for fresh consideration. In our opinion, the Assessing Officer has to see whether the capital gain arising out of the transfer of assets mentioned in section 54G of the Act is utilized for the acquisition of assets for the purpose of its business, should be qualified for the purpose of exemption u/s 54G, as there is no requirement that the land and building should be used for the purpose of business of the industrial undertaking - we remit the entire issue in dispute to the files of the Assessing Officer to examine the issue afresh after giving an opportunity of being heard to the assessee. The assessee shall place necessary evidences to substantiate its claim and cooperative with the AO - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Erroneous order of CIT(A) on facts and law.
2. Disallowance of exemption claim under section 54G of the Income Tax Act.
3. Utilization of capital gains for industrial development.
4. Lack of sufficient opportunity for the appellant to present their case.

Issue-wise Detailed Analysis:

1. Erroneous Order of CIT(A) on Facts and Law:
The appellant contested that the CIT(A)'s order was erroneous both on facts and in law, and thus, should be set aside. The appellant argued that the CIT(A) failed to appreciate the facts correctly, particularly regarding the investment made in the development of an industrial undertaking.

2. Disallowance of Exemption Claim under Section 54G:
The primary contention was the CIT(A)'s disallowance of the exemption claim of ?1,20,00,000 under section 54G of the Income Tax Act. The appellant claimed that the capital gains were utilized for the development of an industrial and research center, and the unused capital gains were deposited in a capital gains account at Canara Bank. However, the Assessing Officer (A.O.) disallowed the claim, stating that the appellant failed to furnish necessary details and evidence to prove the purchase of new plant and machinery for setting up the industrial undertaking at a new location, as required under section 54G.

3. Utilization of Capital Gains for Industrial Development:
The appellant argued that the proceeds from the sale were invested in developing an industrial and research center, supported by a valuation report. The CIT(A) examined the submission and the valuation report but found no evidence indicating that the property was meant for industrial use or that the appellant company made any investment in the said property. The CIT(A) noted that the property was owned by third parties, and there was no evidence of any plant and machinery installation or business relocation to the new location by the appellant.

4. Lack of Sufficient Opportunity for the Appellant:
The appellant claimed that both the CIT(A) and the A.O. did not provide sufficient opportunity to present their case. The appellant argued that with adequate opportunity, they could have explained the investments and satisfied the conditions stipulated in section 54G. The appellant also cited a case (DCIT v. Enpro Finance Ltd.) to argue that acquisition of assets for business purposes should qualify for exemption under section 54G, even if the land and building are not immediately used for the industrial undertaking.

Tribunal's Observations and Directions:
The Tribunal noted that the lower authorities did not verify whether the property was reflected in the appellant's balance sheet or investigate the end utilization of funds transferred from the Canara Bank account. The Tribunal acknowledged the appellant's contention that adequate opportunity was not provided and that the law allows for a broader interpretation of section 54G, permitting investments for business purposes in non-urban areas.

The Tribunal emphasized the need for the A.O. to verify if the capital gains were utilized for acquiring assets for the purpose of the appellant's business within the stipulated period. The Tribunal decided to remit the issue back to the A.O. for fresh consideration, directing the A.O. to examine the evidence and provide the appellant an opportunity to substantiate their claim.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal remanding the issue to the A.O. for a thorough examination and fresh consideration, ensuring the appellant is given an opportunity to present necessary evidence. The Tribunal's order emphasized the broader interpretation of section 54G, aligning with the legislative intent to promote industrialization in non-urban areas.

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