The Income Tax Appellate Tribunal (ITAT), Rajkot Bench, held that to claim exemption under Section 54 of the Income Tax Act, 1961, the assessee should have made investment in an undertaking that has been shifted to a rural area, and it need not be acquired in the name of the assessee.
The assessee, Hasmukhbhai Makanbhai Padariya, Kalpesh S. Doshi and Co., had filed his Income Tax Returns (ITR) on 16.10.2016, declaring total income at Rs. 4,78,670/-, and it was processed under Section 143(1) of the Act. The assessee reported a total income of Rs. 4,78,670/- and claimed a deduction of Rs. 1,15,94,133/- under Section 54G of the Act due to an investment of Rs. 1,15,94,133/- at M/s Om Metal Cast, and M/s Om MetaCast has invested the indicated sum in factory buildings,and plants, and machinery, and the investment was made in rural areas.
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The assessee’s case was selected for scrutiny, and Assessing Officer (AO) disallowed the deduction as the assessee is an individual and the shifting process has been done to a partnership firm. So according to the AO, both are 2 different entities. AO was of the opinion that the investment made in the new undertaking is not made by the asseesee as it was due to a partnership deed.
Aggrieved by the above order, the assessee filed an appeal, and the Commissioner of Income Tax (Appeals)[ CIT(A) ] confirmed the decision. The assessee had then approached the ITAT.
The assessee in the appeal has challenged the disallowance of deduction under Section 54 G to Rs. 88,24,035 on account of shifting of undertaking in rural area. The assessee had stated that for shifting the existing undertaking to the rural area, the assessee has entered into a Memorandum of Understanding (MOU) with 3 other persons and also to carry out expansion and make further investment to the extent of sale proceeds received from the sale of the old land and building.
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The bench, comprising of Arjun Lal Saini( Accountant Member) and Dinesh Mohan Sinha (Judicial Member), held that in the above case, the assessee had invested an amount of Rs.1.22 crore in the firm as a partner, and the assessee has shifted the existing plant and machinery, along with all important business plans, to a rural area, and therefore the whole manufacturing undertaking has been shifted to a rural area. Thus, the assessee is eligible for exemption under Section 54G of the Act. The firm name is only a compendious name given to the partnership for the sake of convenience.
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The bench allowed the exemption claimed by the assessee and held that in the assessee’s case, each partner is owner of the assets to the extent of his share in the partnership.
The ITAT bench held that the primary condition is that the assessee should have made investment in the undertaking shifted to a rural area, and under Section 54G of the Income Tax Act, it is no where stated that asset should be acquired in the name of the assessee.
The bench deleted the addition made by the AO.
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