2020 (5) TMI 13 - AT - Income Tax

Addition u/s 68 - bogus proceeds on sale of tenancy rights - HELD THAT - AO made investigation from the buyer of the property i.e. Pine Tree Estate Pvt. Ltd. The AO recorded that only income tax return for A.Y. 2016-17 was filed by the buyer in response to notice u/s 133(6). No further action or investigation about the creditworthy of buyer was conducted by AO. The income tax return always contained the PAN of the assessee, which is sufficient to carry out further enquiry against the said buyer. No such show-cause notice to prove the creditworthy of Pine Tree Estate Pvt. Ltd. was issued by the AO. Registered transfer deed of tenancy clearly shows that the payment of consideration for transfer of asset/tenancy right was paid to assessee through Demand Draft No. 407314 dated 28.05.2015 drawn on HDFC Bank. Thus, in the aforesaid transaction, no addition under section 68 can be made against the assessee. The assessee right from the beginning has categorically stated that consideration of ₹ 22.50 crore was received against the transfer of tenancy right. As we have noted earlier that it is settled position under the law, that tenancy right is a transferable asset. The assessee received consideration on transfer of said right - assessee has unambiguously proved that asset was in the possession of assessee for more than three year, thus, on the sale of tenancy right the assessee is entitled for LTCG. Therefore, the addition under section 68 against the proceeds of sale consideration is not unjustified. In the result, Ground No.1 of the appeal is allowed. Exemption u/s 54F - HELD THAT - In the computation of income and working of Capital Gain the assessee has claimed exemption on the ground that assessee has invested the sale proceeds for acquisition of residential property/ flat No. 39 in Raheja Towers, Rajabhau Desai Marg, Prabhadevi, Mumbai. As the AO treated the sale proceeds of tenancy right as unexplained cash credit and resultantly not allowed the deduction/exemption under section 54F. Considering the fact that we have allowed LTCG by allowing Ground No.1 in favour of assessee. Thus, we direct the AO to verify the fact about the investment of sale consideration / gain in purchase of new residential house and allow exemption/deduction under section 54/54F in accordance with law. In the result, this ground of appeal is allowed for statistical purpose.

Summary

Issues Involved:

1. Taxation of sale proceeds of tenancy rights under Section 68 of the Income Tax Act, 1961.
2. Denial of exemption under Section 54F of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Taxation of Sale Proceeds of Tenancy Rights under Section 68:

The primary issue revolves around whether the sale proceeds of ?22.50 Crore from the transfer of tenancy rights should be taxed as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The assessee, a Hindu Undivided Family (HUF), claimed long-term capital gain (LTCG) on the transfer of tenancy rights in a flat and provided documentary evidence to substantiate the acquisition and transfer of these rights. The Assessing Officer (AO) issued multiple notices requesting documentary evidence of the acquisition of the tenancy rights. Despite the assessee's submission of documents through the ITBA-Portal, the AO concluded that no satisfactory evidence was provided and treated the transaction as unexplained cash credit under Section 68.

On appeal, the CIT(A) upheld the AO's decision, stating that the assessee failed to substantiate the acquisition of the tenancy rights with documentary evidence. The assessee contended that all necessary documents were provided electronically and physically, and the identity and genuineness of the buyer were not in doubt. The Tribunal noted that the assessee had indeed furnished extensive documentary evidence, including a memorandum of partition dated 31.03.1984, rent receipts, and a deed of transfer of tenancy dated 29.05.2015. The Tribunal emphasized that the AO did not conduct further investigation to verify the buyer's creditworthiness and that the documentary evidence provided by the assessee was sufficient to establish the genuineness of the transaction. Consequently, the Tribunal ruled in favor of the assessee, allowing the appeal and concluding that the addition under Section 68 was unjustified.

2. Denial of Exemption under Section 54F:

The second issue pertains to the denial of exemption under Section 54F of the Income Tax Act, 1961. The assessee claimed a deduction for the capital gains invested in the purchase of a new residential house. The AO denied the exemption, citing the treatment of the sale proceeds as unexplained cash credit. The CIT(A) upheld this decision.

Given the Tribunal's decision to allow the appeal on the first issue and recognize the proceeds from the sale of tenancy rights as LTCG, the Tribunal directed the AO to verify the investment of the sale consideration in the new residential house. The Tribunal instructed the AO to allow the exemption under Section 54/54F in accordance with the law, provided the investment was verified.

Conclusion:

The Tribunal allowed the appeal, ruling that the addition under Section 68 was unjustified and directing the AO to verify the investment in the new residential house for the exemption under Section 54F. The decision emphasized the sufficiency of the documentary evidence provided by the assessee and the need for further investigation by the AO to verify the buyer's creditworthiness.