2024 (11) TMI 914 - AT - Income Tax

Reopening of assessment u/s 147 - assessee claimed to be not engaged in any business activities and had purchased two residential properties - Disallowance of deduction u/s 54F - assessee had claimed deduction in respect of capital gains against the entire sale consideration for purchase of properties during the year and the AO was not satisfied with the purchases of two properties and held that benefit of section 54Fcan be given in respect of a residential house , which means one residential house therefore, capital gain was recalculated and addition - HELD THAT - On the basis of admitted facts it comes up that investment was made in two floors of the same building which assessee was using for residence. This aspect that the two floors of the same building were purchased from the same seller is not disputed. Interpretation of a residential house u/s 54F - AO has allowed relief only in respect of one floor and before us several decisions have been referred to by learned AR wherein it is settled that the expression a residential house in section 54F(1) has to be understood in the sense that the building should be of residential nature and a should not be understood to indicate a singular number. Thus, even in case of purchases of two residential flats assessee is entitled to exemption u/s 54F. Thus, we are inclined to sustain ground no. 1 in favour of the assessee. Addition of cash deposit - We find that during assessment proceedings the assessee had filed an affidavit, wherein it was deposed that during financial year relevant to the present assessment year assessee was not involved in any business activity. We find that without any piece of evidence to the contrary the AO has inferred on the basis of cash/credit entries in the bank account that assessee must have been engaged in business activities and such approach itself is not justified for making the addition. AO discarding the claim of assessee that he was not engaged in any business activity - We find that AO has taken into consideration the credit of the cheque disowned of Rs. 5,72,500/- as business receipts; cash receipt of Rs. 19,37,500/- on sale of property as established by the copy of sale-deed, available at pages 66 of the paper book. There were receipt of Rs. 35,50,000/- by the assessee from his real brother through banking channel as a share of the compensation received on acquisition of ancestral rural agricultural land; and assessee himself had received Rs. 14,02,500/- from the Government of U.P. on the acquisition of ancestral rural agricultural land. Learned AR has also established that certain credit entries of Rs. 44,00,000/- which AO has treated as business receipts were counter entries of repayment of loan given/ debit in bank account during the same financial year from various persons. AO has extended too far his jurisdiction of reassessment to examine the cash deposits and treating it as business receipts, without any effective enquiry from the assessee. Assessee appeal allowed.

Summary

Issues:
1. Reopening of assessment under section 147 to investigate source of investment for property purchase.
2. Disallowance of deduction under section 54F for excess claim.
3. Addition of income based on cash/credit entries in the bank account.
4. Dispute regarding interpretation of "a residential house" under section 54F.
5. Allegation of concealment of income and imposition of penalty.

Analysis:

1. The appeal was against the order of the National Faceless Appeal Centre regarding the assessment year 2012-13, initiated under section 147 to examine the source of investment for property purchase. The Assessee claimed deduction under section 54F, but the AO disallowed it, resulting in an addition of Rs. 21,36,483. This disallowance was upheld by the CIT(A), leading to the first ground of appeal.

2. The AO also analyzed cash/credit entries in the bank account, inferring business activities based on the transactions. An addition of Rs. 14,19,960 was made, which was sustained by the CIT(A) and formed the second ground of appeal. The AO's decision was based on an estimation of income at 12% of the cash/credit entries, leading to the dispute.

3. The Tribunal examined the investments made by the Assessee in two floors of the same building, arguing that the expression "a residential house" in section 54F should not be interpreted restrictively. Citing various judicial precedents, the Tribunal favored the Assessee's interpretation, allowing the appeal on this ground.

4. Regarding the allegation of concealment of income and penalty imposition, the Tribunal found that the AO had not provided substantial evidence to support the inference of the Assessee's engagement in business activities. The Assessee's affidavit denying business activities was not adequately considered, leading to the conclusion that the AO overstepped in treating cash deposits as business receipts.

5. The Tribunal allowed the Assessee's appeal, concluding that the AO's assessment was unjustified and lacked proper inquiry. The grounds raised by the Assessee were upheld, leading to the allowance of the appeal and setting aside the additions made by the AO.