AVTAR KISHAN SOOD v. INCOME TAX OFFICER
[Citation -1985-LL-0427-2]

Citation 1985-LL-0427-2
Appellant Name AVTAR KISHAN SOOD
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 27/04/1985
Assessment Year 1974-75
Judgment View Judgment
Keyword Tags unexplained investment • source of investment • judicial opinion • capital asset • capital gain • new asset • new house
Bot Summary: The facts are that the assessee constructed a hose in which the total investment was Rs. 70,475 including Rs. 5,475 being the cost of the land purchased on 19th June, 1971. The ITO held that the assessee was unable to explain the source of investment of the extent of Rs. 24,475 and added this amount to the assessee s income. Counsel for the assessee that it was necessary for the ITO to find out the extent of investment made in April, 1973 and if any portion of that investment was unexplained, that portion alone should be taxed in the asst. The first ground will succeed and we will direct the ITO to determine the extent of investment in April, 1973 and find out if the sources thereof were properly explained and to tax under s. 69 only the unexplained portion if any of that investment. Counsel for the assessee contended that this interpretation is incorrect and what was required was that in the two years the house should not have been used for any other purpose and the assessee must have used the house for his residence for any period during the two preceding years. The house having been completed in April, 1973, and having been sold in 1974, was used by the assessee for his residence in the two years i.e., the year 1973 and the year 1974 and we are of the view that the assessee having constructed a new house the capital gain arising from the sale of old house was not taxable. The addition of Rs. 24,475 as the amount of unexplained investment is also deleted and the matter is restored back to the ITO for determining the extent of unexplained investment, if any, in the light of our observations made above and in accordance with the law.


This is assessee s second appeal for asst. yr. 1974-75. We have heard ld. counsel for assessee and ld. Departmental Representative. first ground relates to addition of Rs. 24,475 as income from undisclosed sources being unexplained investment in construction of house. facts are that assessee constructed hose in which total investment was Rs. 70,475 including Rs. 5,475 being cost of land purchased on 19th June, 1971. construction commenced in July, 1971 and ended in April, 1973. proceedings relate to asst. yr. 1974-75, accounting year for which ended on 31st March, 1974. ITO held that assessee was unable to explain source of investment of extent of Rs. 24,475 and, therefore, added this amount to assessee s income. This was confirmed by ld. AAC. In appeal before us, ld. counsel for assessee contended that construction of house lasted during period relevant to 3 asst. yrs. i.e., 1972-73, 1973-74 and 1975\4-75. construction having been completed in April, 1973, investment, if any, made during accounting period relevant to asst. yr. 1974-75 was only in respect of work done during moth of April, 1973 and that entire investment cannot be said to have been made during asst. yr. 1974-75 and ITO was in error in taking whole unexplained investment in asst. yr. 1974-75. ld. counsel contended that ITO should have found out extent of investment during month of April, 1973 and if that investment was not explained, he could tax it in terms of s. 69. ld. Departmental Representative could not support action of ITO in treating whole investment as made in financial year 1973-74. Sec. 69 of Act is quite clear and permits unexplained investment of any particular year to be taxed. It is not permissible to take investment as one indivisible whole and tax entire unexplained amount as income of last financial year. We agree with ld. counsel for assessee that it was necessary for ITO to find out extent of investment made in April, 1973 and if any portion of that investment was unexplained, that portion alone should be taxed in asst. yr. 1974-75. If any investment in earlier years was not explained, ITO could take up assessment or reassessment proceeding for those years. first ground, therefore, will succeed and we will direct ITO to determine extent of investment in April, 1973 and find out if sources thereof were properly explained and to tax under s. 69 only unexplained portion if any of that investment. next ground raised by assessee is about sum of Rs. 24,575 brought to tax as capital gains arising from sale of house. assessee sold aforesaid house in two portions on 15th and 16th March, 1974 for total consideration of Rs. 95,000. profit on sale amounted to Rs. 25,525. assessee claimed that since he had constructed another house, amount o f capital gain was exempt under s. 54 of Act. It is admitted that assessee constructed another house at 42-Id-gah hills, Bhopal and occupied it on 24th Oct., 1974. claim for exemption was rejected on ground that assessee did not live in house that was sold for two years. Sec. 54 provides that where capital gain arises from transfer of capital asset, which in two years immediately preceding date on which transfer took place was being used by assessee or parent of his mainly for purpose of his own or parent s own residence and assessee has within period of two years after that date constructed if amount of capital gain is less than cost of new asset, capital gain shall not be charged under s. 45. It is not disputed that amount of capital gain is less than cost of new house. It is also admitted that original asset as well as new asset i.e. 2 houses were used by assessee for his own residence. contention of authorities below was that s. 54 required that assessee should have used regional house for his own residence for minimum period of two years to become entitled to claim exemption. ld. counsel for assessee contended that this interpretation is incorrect and what was required was that in two years house should not have been used for any other purpose and assessee must have used house for his residence for any period during two preceding years. For this proposition he relied upon judgment of Hon ble Delhi High Court in Harnam Singh Suri, S. vs. CBDT (1984) 145 ITR 159 (Del) in which their Lordships held that under s. 54 continuous stay for two years is not essential. No judicial opinion to contrary was cited by ld. Departmental Representative. house having been completed in April, 1973, and having been sold in 1974, was used by assessee for his residence in two years i.e., year 1973 and year 1974 and, therefore, we are of view that assessee having constructed new house capital gain arising from sale of old house was not taxable. We would, therefore, delete addition of Rs. 24,525. last ground raised in this appeal was about addition of Rs. 500 made to business income of appellant. ld. counsel for assessee did not press point. This ground is, therefore, rejected. In result, appeal is partly allowed. addition of Rs. 24,525 as capital gain is deleted. addition of Rs. 24,475 as amount of unexplained investment is also deleted and matter is restored back to ITO for determining extent of unexplained investment, if any, in light of our observations made above and in accordance with law. *** AVTAR KISHAN SOOD v. INCOME TAX OFFICER
Report Error