ITA No. 808 of 2010 (O&M) -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 808 of 2010 (O&M) Date of Decision: 13.1.2011 Smt. Rekha Rani ....Appellant. Versus C.I.T., Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. S.K. Mukhi, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1. Delay in refiling the appeal is condoned. 2. This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 21.10.2009 passed by the Income Tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as “the Tribunal”) in IT(SS) A. No. 3/CHD/2007 for the block period from 1.4.1990 to 12.10.2000, claiming the following substantial questions of law:- “I. Whether, on the facts and in the circumstances of the case, the ITAT was justified in confirming the action of A.O. and of the CIT(A) in not allowing deduction as claimed by the appellant u/s 54(1) of ITA No. 808 of 2010 (O&M) -2- the Income Tax Act, 1961 wherein she has duly invested her share of sale consideration for the purchase/construction of the new asset within the stipulated period by completely ignoring the facts and circumstances, explanations, evidences filed and on record and also the case law as relied upon by the appellant? II. Whether, on the facts and in the circumstances of the case, the findings of ITAT are perverse and against the evidences on record thus unsustainable in law? III. Whether the ITAT has misdirected itself in being influenced by irrelevant factors and applying erroneous criteria while deciding the issue in dispute?” 3. The facts necessary for adjudication as narrated in the instant appear are that the assessee was co-owner of residential house situated at the Mall Road, Ludhiana. The said house was sold for a sale consideration of Rs.99,00,000/- and the assessee received a sum of Rs.9,90,000/- on account of her 10% share. The assessee deposited the said amount with M/s Tulison Balls, a proprietary concern of her husband, who along with his mother started construction of a new house at Sarabha Nagar, Ludhiana, out of their respective shares in the said property. The husband of the assessee spent his share amount as well as that of the assessee in the construction of said house whereas the registry of the plot was in the names of the husband and the mother- in-law of the assessee. The assessee claimed set off of long term ITA No. 808 of 2010 (O&M) -3- capital gains arising on the sale of her share against investment in construction of the House No. 45-D, Sarabha Nagar, Ludhiana. The Assessing Officer held that the declaration dated 25.10.2002 of the assessee was not correct. Further, the Assessing Officer while disallowing deduction on account of Long Term Capital Gain amounting to Rs.8,26,650/- retained the total undisclosed income of Rs.8,32,800/-. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT (A)”] who vide order dated 21.9.2004 directed the Assessing Officer to ascertain the veracity of the assessee's claim regarding declaration dated 25.10.2002 filed during the assessment proceedings. The Assessing Officer while giving effect to the order of the CIT(A), vide order dated 30.3.2006 concluded that declaration dated 25.10.2002 filed by the assessee was not correct. The CIT(A) dismissed the assessee's appeal against the order on 29.11.2006. The assessee filed further appeal before the Tribunal who vide order dated 21.10.2009 upheld the order of the CIT (A) and dismissed the appeal holding that the assessee was not entitled to benefit of deduction under Section 54 (1) of the Act in respect of alleged investment made by her in the construction of the said house on the plot purchased by her husband. Hence, the present appeal by the assessee. 4. We have heard learned counsel for the appellant. 5. The only point for consideration is whether the assessee was entitled to benefit of deduction under Section 54 (1) of the Act in respect of alleged investment made by her from the sale proceeds of capital assets in the construction of the house on the plot which was in ITA No. 808 of 2010 (O&M) -4- the name of her husband and mother-in-law. 6. Learned counsel for the assessee has submitted that the assessee was entitled to the said benefit which had been wrongly denied by the Assessing Officer and upheld by the CIT (A) as well as the Tribunal. He has placed reliance on the following judgments in support of his submission:- (i) Commissioner of Income Tax v. Podar Cement Pvt. Ltd. and others, (1997) 226 ITR 625 (SC). (ii) Commissioner of Income Tax v. T.N. Aravinda Reddy, (1979) 120 ITR 46 (SC). (iii) Mysore Minerals Ltd. v. Commissioner of Income Tax, (1999) 239 ITR 775 (SC). (iv) Balraj Vs. Commissioner of Income Tax, (2002) 254 ITR 22 (DEL). (v) Commissioner of Income Tax v. Ahmedabad Keiser-E- Hind Mills Co. Ltd., (1981) 128 ITR 486 (Guj). (vi) Commissioner of Income Tax v. V. Natarajan, (2006) 287 ITR 271 (MAD). 7. We do not find any merit in the contention of learned counsel for the assessee. 8. The Tribunal had noted that the plot was in the name of the husband and mother-in-law of the assessee and the sale proceeds which were received by the assessee in May, 1999 were deposited with M/s Tulison Steel Balls, Ludhiana, which was a proprietary concern of the husband of the assessee. The Tribunal specifically held that the alleged agreement dated 3.1.2001 was attested by the Notary Public on ITA No. 808 of 2010 (O&M) -5- 30.8.2001 and was an after thought. The declaration dated 25.10.2002 submitted by the assessee was incorrect. Further, it had been recorded that no registered document had been executed for transferring any part of the share in the building to the assessee. The assessee had not utilized the amount for construction of house in Sector 45-D, Sarabha Nagar, Ludhiana which was owned by her husband and mother-in-law and as such she was not entitled to deduction under Section 54(1) of the Act. The findings recorded by the Tribunal are as under:- “14. The assessee claims to have invested the sale proceed receipts on the sale of original asset as investment in the construction of new asset. The assessee had received Rs.9,90,000/- as her share as sale proceeds on sale of her share in property No. 116, The Mall, Ludhiana. The assessee had deposited the said amount in the proprietary concern of her husband, on 4.5.1999 as temporary loan. The assessee claims that as per the agreement executed with her husband Shri Inder Mohan Tuli, the said amount was invested by him in the construction of residential house No. D-45, Sarabha Nagar, Ludhiana upto 31.3.2000. The Assessing Officer in para-5 of the assessment order, as reproduced before us, in para here-in-above, has further noted that the execution of the alleged agreement was on 3.1.2001, which was attested by the Notary Public on 30.8.2001. The Assessing Officer has also noted that a sum of Rs.9,90,000/- was credited in the books of M/s Tulison Steel Balls even on 30.4.2001. The ITA No. 808 of 2010 (O&M) -6- Assessing Officer in para-6 has also noted that the agreement dated 3.1.2001 was not filed before the Assessing Officer during the course of assessment proceedings and the execution of the said agreement was held to be an after thought which is further apparent from the fact that the said sum was not utilized for the construction of the house. In the circumstances, the declaration dated 25.10.2002 was held to be not correct and the benefit of set off for investment in the new asset was not allowed from the income determined under the head income from long term capital gains. 15. The assessee before us has filed the copy of the agreement executed on 3.1.2001 at pages 48 and 49 of the paper Book. The said agreement is attested by the Notary Public on 30.8.2001. As per the agreement the husband of assessee and the assessee before us have entered into an agreement to the effect that a sum of Rs.9 lacs which was lying with the concern of the husband of the assessee as on 4.5.1999 was invested by him upto 31.3.2000 in the construction of residential house at D-45, Sarabha Nagar, Ludhiana. As per the said agreement the husband of the assessee had agreed to part with 5% of his share in the total land and building of the assessee. It may be pointed out that search and seizure operation was carried out at the premises of the assessee on 12.10.2000. The assessee claims to have executed this agreement on ITA No. 808 of 2010 (O&M) -7- 3.1.2001 in which the investment in the new asset was shown to have been made upto 31.3.2000. The new asset is in the joint names of the husband and mother-in-law of the assessee and the assessee alleged to have entered into an agreement with her husband, but on later date, to which the mother-in-law of the assessee is not a party. No registered document had been executed for transferring any part of the share in the building to the assessee before us. In the totality of facts and circumstances of the case, we are of the view that the said agreement executed between the parties is an after thought. In these circumstances, we are in conformity with the finding of the Assessing Officer that the declaration dated 25.10.2002 cannot be said to be correct. Accordingly, the assessee is not entitled to the benefit of set off of the alleged investment in the new asset against the income arising from long term capital gains on sale of her share in the property. We uphold the order of the CIT(A) in holding that the declaration dated 25.10.2002 was just a cover up and subterfuge to avoid capital gains tax. This is the 2nd round of appeal before us, where limited issue was to be addressed. There is no merit in the plea of the assessee that no such addition is warranted in search proceeding in the absence of evidence found during search. We find that the assessee had failed to file any ground of appeal on this issue before CIT(A) and issue having become final cannot ITA No. 808 of 2010 (O&M) -8- be adjudicated in the 2nd round of proceedings. In the totality of facts, where the agreement between party has been held to be after thought and the declaration dated 25.10.2002 held to be incorrect, in the absence of assessee establishing the transfer of right in the new property in her favour and in the absence of any legal formalities for the said transfer, the claim of the assessee being eligible for exemption u/s 54(1) of the Act is rejected. We uphold the order of CIT(A). The grounds of appeal raised by the assessee are thus dismissed.” 9. In the light of the aforesaid findings, the judgments relied upon by the learned counsel for the assessee do not advance the case of the assessee. No perversity had been pointed out by the learned counsel for the assessee in the findings recorded by the Tribunal which may warrant interference by this Court. Therefore, no substantial question of law arises in this appeal. 10. The appeal stands dismissed. (AJA Y KUMAR MITTAL) JUDGE January 13, 2011 (ADARSH KUMAR GOEL) gbs JUDGE