Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘’ B’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income Tax, Ahmedabad, dated 12/03/2021 arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-2016.
ITA no.31/AHD/2021 Asstt. Year 2015-16 2
The only issue raised by the assessee is that the learned PCIT erred in holding the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of revenue.
The facts in brief are that the assessee the present case is an individual and filed his return of income declaring income of ₹ 16,70,540/- only from the source of salary, long-term capital gain and mutual fund. Subsequently the assessment was completed under section 143(3) of the Act at the income declared in the return of income vide order dated 18 December 2017. However the learned PCIT on perusal of the assessment records found that assessee has sold a property for a consideration of Rs. 4,11,00,000.00 only and computed the long-term capital gain of ₹ 3,43,65,898/- only after deducting the indexation cost and indexation cost of improvement. The impugned amount of long-term capital gain was claimed as exempted under section 54 of the Act on account of purchase of a new property vide notarized agreement dated 31 March 2015 at ₹ 3,61,00,000/- only. However, the learned PCIT was of the view that the transaction for the purchase of the property was not completed for the reasons as detailed below: i. As per the agreement the assessee made the payment of ₹ 3,49,00,000/- before 31st of March 2015 and it was agreed that the balance amount of ₹12 lakhs shall be paid within 6 months from the date of agreement. ii. As per the agreement the sale deed will be registered in the name of the assessee only after the receipt of balance payment of the sale consideration and consequently the possession of the property shall be handed over. 3.1 However, as per the learned PCIT, it was not discernible from the case records that the remaining amount of sale consideration was paid and the property was transferred in the name of the assessee subsequent to the execution of the agreement of sale dated 31 March 2015. Accordingly the learned PCIT was of the view that the transaction for the purchase of the property was not completed within the period prescribed under section 54 of the Act. However the AO without verifying
ITA no.31/AHD/2021 Asstt. Year 2015-16 3
all these details allowed the exemption to the assessee under section 54 of the Act. Thus the AO proposed to hold that the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of revenue by issuing or show cause notice dated 3 February 2020.
3.2 The assessee in response to such show cause notice made a reply on 3 March 2020 and 13 March 2020 by contending that the provisions of section 54 of the Act requires purchase of the property/ construction of a new property within the specified time which was done vide agreement dated 31 March 2015. As such the provisions of section 54 of the Act does not require that the ownership of the new property should be registered in the name of the assessee or the possession should be held by the assessee.
3.3 The assessee also contended that the assessment was framed by the AO after conducting necessary enquiries and after due application of mind. Thus, the AO has allowed the exemption under section 54 of the Act under the provisions of law.
3.4 Furthermore, the AO has taken one of the possible view which is permissible under the provisions of law by granting the exemption under section 54 of the Act. In case the learned PCIT does not agree with the view adopted/taken by the AO, but the same view cannot be held as erroneous insofar prejudicial to the interest of revenue.
3.5 The assessee further submitted that he has sent various reminders to the seller of the property for execution of the sale deed in his favour. But there was no response from his side. Therefore, the assessee has filed a suit in the court of law for specific performance by executing the sale deed in his favour.
3.6 However the PCIT disagreed with the contention of the assessee by observing that the possession of the property was not handed over to the assessee
ITA no.31/AHD/2021 Asstt. Year 2015-16 4
and therefore the transaction for the purchase of the property was not completed within the meaning of the provisions of section 54 of the Act. Likewise, there was a clause in the agreement that the property shall be transferred in the name of the assessee only after realizing the balance payment of ₹12 lakhs but the same was not paid to the vendor.
3.7 The learned PCIT also found that there was no evidence available on record suggesting that the civil suit has been filed by the assessee as there was no acknowledgement or case number or order no. of the suit.
3.8 In view of the above, the learned PCIT held that the order framed by the AO under section 143(3) of the Act as erroneous insofar prejudicial to the interest of revenue by observing as under: 4. In the light of the aforementioned discussions and bearing in mind the entirety of the case, I am of the opinion that the assessment order passed by the A.O. 143(3) of the I.T. Act, 1961 on 18.12.2017 is erroneous insofar as prejudicial to the interest of the revenue, as discussed in preceding paras, since the order has been passed Without making necessary examination and enquiry regarding the claim of exemption by bringing the above facts on record. By virtue of the powers vested in me u/s. 263 of the I T Act, I hereby set-aside the order passed u/s. 143(3) of the I.T. Act, 1961 on 18.12.2017 and direct the Assessing Officer to pass a fresh assessment order after allowing adequate opportunities of being heard to the assessee, in accordance with the law following the prescribed procedure and duly examining the aforementioned issue in the light of the above discussion and decide afresh whether the assessee is eligible for deduction u/s 54 of the Act.
Being aggrieved by the order of the learned principle CIT, the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 165 and contended that the purchase of the property is sufficient enough for claiming the exemption under section 54 of the Act. As per the learned AR the property was purchased in pursuance to the agreement to sale dated 31 March 2015 which satisfied the conditions provided under section 54 of the Act.
5.1 The learned AR further contended that the AO has allowed the exemption under section 54 of the Act after carrying out necessary verification and applying
ITA no.31/AHD/2021 Asstt. Year 2015-16 5
his mind. For this purpose, the learned AR drew our attention on the notices issued under section 142(1) of the Act and the replies made by the assessee in response to such notices which are placed in the paper book.
On the other hand the learned DR contended that the possession of the property was not handed over to the assessee. Likewise, the conditions imposed in the agreement to sale dated 31st March 2015 i.e. conveyance deed shall be upon realizing the balance amount of ₹12 lakhs, were not satisfied in the given facts and circumstances. Accordingly, the assessee cannot be granted the benefit of exemption under section 54 of the Act. The learned DR vehemently supported the order of the learned PCIT.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the assessee has claimed deduction under section 54 of the Act amounting to Rs. 3,43,65,898.00 which was allowed by the AO in the assessment framed under section 143(3) of the Act. However, the learned PCIT under section 263 of the Act, on perusal of the assessment records, found that the conditions as specified under section 54 of the Act for claiming the exemption of the long-term capital gain have not been satisfied. But the AO without examining/verification of the conditions as specified under section 54 of the Act has allowed the same to the assessee. Accordingly the learned PCIT was of the view that the assessment framed under section 143(3) of the Act is erroneous insofar prejudicial to the interest of revenue. The reasons for holding the order as erroneous insofar prejudicial to the interest of revenue by the learned PCIT have already been elaborated in the preceding paragraph. Therefore, for the sake of brevity and convenience, we are not inclined to repeat the same.
7.1 Now the 1st controversy on merit before us arises whether the conditions as specified under the provisions of section 54 of the Act for claiming the deduction have been satisfied in the given facts and circumstances. The assessee can claim an exemption under section 54 of Act, 1961 while computing long term capital gain
ITA no.31/AHD/2021 Asstt. Year 2015-16 6
arising on transfer of house property and investing in purchase/construction of the house property subject to the conditions specified under section 54 of Act. The relevant provisions of section 54 of the Act reads as under: 3854. 39[(1)] 40[41[Subject to the provisions of sub-section (2), where, in the case of an assessee42 being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset 43[***], being buildings or 44lands appurtenant thereto, and being a residential house44, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of 45[one year before or two years after the date on which the transfer took place purchased46], or has within a period of three years after that date 47[constructed, one residential house in India], 46then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—
7.2 The above provision requires that the amount of capital gain should be invested in a house either by way of purchase or construction of the house. The word purchase has been interpreted in the case of CIT v. Mrs. Shakuntala Devi [2016] 389 ITR 366/ 75 taxmann.com 222 by the Hon’ble Karnataka High Court by observing that the date of agreement to purchase should be taken as the date of purchase of the new property. As such if assessee has entered into the agreement to purchase and invested the capital gain, it is immaterial that part of the consideration is yet to be paid or registration has not been completed. Deduction u/s 54 should be allowed.
7.3 Likewise, the Karnataka High Court in the case of Pr. CIT v. C. Gopalaswamy [2016] 384 ITR 307/[2017] 81 taxmann.com 78 has observed that where the assessee has entered into an agreement with a builder and invested the capital gain for purchase of a residential unit, he is entitled to deduction u/s 54 irrespective of the fact that builder has not completed the construction or has not yet handed over the flat.
7.4 Similarly, in the case of CIT v. R.L. Sood [2000] 245 ITR 727/108 Taxman 227 the Hon’ble Delhi High Court has observed that since substantial amount of the consideration was paid within the time, the deduction u/s 54 of the Act will be available, though the possession and registration was made later.
ITA no.31/AHD/2021 Asstt. Year 2015-16 7
7.5 In the case of Smt. Shashi Varma v. CIT [1997] 224 ITR 106, the Hon’ble MP high court held that section 54 of the Act only says that within two years, the assessee should have constructed the house but that does not mean that the construction of house should necessarily be completed within two years. What it means is that the construction of house should be completed as far as possible within two years. In the modern days, it is not easy to construct a house within the time-limit of two years and under the Government schemes, it takes years and years. Therefore, confining to two years' period for construction and handing over possession thereof is impossible and unworkable under section 54 of the Act. If substantial investment is made in the construction of house, then it should be deemed that sufficient steps have been taken and this satisfies the requirements of section 54 of the Act. 7.6 In view of the above, we are of the opinion that the assessee cannot be denied the benefit of deduction provided under section 54 of the Act in the given facts and circumstances merely on the reasoning that the property was not registered as well as the possession was not handed over to the assessee. 7.7 We also find that the assessee has filed a special civil suit in the civil court of Ahmedabad. The details of the suit is placed on pages 29 to 40 of the paper book. We also find that the assessee has sent many reminders to the vendor of the property which are placed on pages 51 to 56 of the paper book for the registration of the property. Thus it is transpired that the assessee failed to register the property in his name due to the reasons beyond the control despite having made the substantial payment for the purchase of the property. Thus in such cases we are of the view that the benefit available under section 54 of the Act cannot be denied to the assessee. 7.8 Moving further, we also find that the AO during the course of assessment proceedings has conducted inquiries with respect to the claim of the assessee under section 54 of the Act. This fact can be verified from the notice issued by the AO
ITA no.31/AHD/2021 Asstt. Year 2015-16 8
under section 142(1) of the Act on various dates. The relevant extract of the notices is reproduced below:
a. Notice Dated 8-3-2017
File No.81 Date: 08/03/2017 PAN: ADAPA3016D To, Shri karan Rajebndrakumar Arya, 802, Saffron Building, Panchavati, Ambawadi, Ahmedabad-380015.
Sir, Sub: Scrutiny asst. in your case for A.Y.2015016, notice u/s.142(1) of the Act, Reg Please refer to the notice u/s.143(2) dated 19/09/2016. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Please furnish copy of registered deed of immovable property purchased 10. Along with source of investment with corroborating documentary evidences. 11. Please furnish copy of purchase and sale deeds of immovable property sold during the year and computation of capital gains. 12. Please furnish details along with documentary evidence in respect of deduction Claimed u/s. 54B, 54C, 54D, 54G and 54GA. b. Notice Dated 24-7-2017
File No.81 Date: 24/07/2017 Email mpjindal@rediffmail.com PAN: ADAPA3016D
To,
Shri karan Rajebndrakumar Arya, 802, Saffron Building, Panchavati, Ambawadi, Ahmedabad-380015.
Sir, Sub: Limited Scrutiny asst. in your case for A.Y.2015-16, notice u/s.142(1) of the Act, Reg
ITA no.31/AHD/2021 Asstt. Year 2015-16 9
Without prejudice to the above, you are also requested to furnish proof of cost of acquisition/ copy of purchase deed of property as well as cost of improvement in respect of property sold during the year. 2. Please furnish proof of claim under section 54 of the Act. c. Notice Dated 8-8-2017
On going through the bank account in respect of Naroda Co-Op bank Ltd. it is seen that the said bank account reflects large amounts of credits out of which you have made investment in new property on which exemption u/s.54 was claimed. In this regard, you are requested to explain the credits of Rs.1 lacs and above in the said bank account alongwith supporting documentary evidences. d. Notice Dated 8-12-2017
File No.81 Date: 08/12/2017 Email mpjindal@rediffmail.com PAN: ADAPA3016D To,
Shri karan Rajebndrakumar Arya, 802, Saffron Building, Panchavati, Ambawadi, Ahmedabad-380015.
During the year, you have claimed deduction u/s. 54 in respect of LTCG derived on sale of immovable property, in this connection, you are requested to please give details as to whether property income in respect of the immovable property sold during the year was shown in earlier years, which is a condition precedent for allowing deduction u/s. 54.
The date of immovable property sold is 04/06/2014, Accordingly, you were required to purchase new property on or before 04/06/2016. You ore therefore, requested to furnish a copy of registered deed of document/possession certificates/completion certificate in respect of the new property. Please also state and produce necessary documentary evidence to prove that the unappropriated capital gain is deposited in capital gains account scheme before filing the return of income u/s. 139(1) of the I T Act.
7.9 The assessee in response to the above notices has made the replies as detailed under:
a. Reply dated 31-07-2017
Ref:- Your notice u/s 142(1) dated 24/07/2017 Sub;- Income tax Assessment proceeding for the A.Y. 2015-16
ITA no.31/AHD/2021 Asstt. Year 2015-16 10
With reference to above mentioned notice, we submit the following detail as called for by your good self:- 1. Since the assessee Karan Arya received the property under Will/Gift from his Grandmother, therefore the cost of Property to the Grandmother was considered as purchase price of the property by the Assessee. Document in respect of purchase of the property fay the Grandmother of the assessee as well as title to the assessee are attached herewith for your kind consideration. 2. The assessee purchased a flat for which he claimed deduction under section 54. Document in respect of the purchase of the flat along with the source of payment copy of bank statement is attached herewith.
b. Reply dated 18-09-2017
However-assessee has claimed exemption under section 54 of Income Tax Act, 1961 in respect of tax on capital gain on sale of immovable property. As per section 54 there is no restriction on owning more than one property for claiming the said exemption. The text of section 54 of Income Tax Act, 1961 is produced as under: c. Reply dated 15-12-2017
Benefit of section 54 of Income Tax Act is allowed on the basis of investment in new house property. Assesse has made investment of whole capital gain during year 2014-15 by way of payment of Rs.3,49,00,000/- for new house property, document for which has been provided to you by our letter dated 31/07/2017. We have attached herewith the statement of payment made for the new house property and bank statement showing the said payments. Therefore the assessee is eligible for claiming deduction under section 54 and the same should be allowed.
7.10 In view of the above, it is transpired that the AO during the assessment proceedings has framed the assessment under section 143(3) of the Act after necessary verification and application of mind. Therefore, it cannot be said that the order passed by the AO is erroneous insofar prejudicial to the interest of revenue on account of non-verification of the claim of the assessee under section 54 of the Act during the assessment proceedings. Hence, we hold that the order passed by
ITA no.31/AHD/2021 Asstt. Year 2015-16 11
the ld. PCIT under section 263 of the Act is not sustainable and liable to be quashed. Consequently, we do so. Hence, the ground of appeal of the assessee is allowed.
In the result the appeal of the assessee is allowed.
Order pronounced in the Court on 17/09/2021 at Ahmedabad.
Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 17/09/2021 Manish