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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER
ITA No. 173/H/2018 Assessment Year: 2013-14 Radhika Kurra, Vs. Asst. Commissioner of Hyderabad. Income-tax, Circle – 2(2), PAN – AEDPK 3506Q Hyderabad. (Appellant) (Respondent) Assessee by: Shri PVSS Prasad Revenue by: Shri Sunil Kumar Pandey Date of hearing: 29/04/2021 Date of pronouncement: 20/07/2021
O R D E R PER L.P. SAHU, A.M.: This appeal filed by the assessee is directed against CIT(A) - 2, Hyderabad’s order dated 8th November, 2017 for AY 2013-14 involving proceedings u/s 143(3) of the Income- Tax Act, 1961; in short “the Act” on the following grounds of appeal: “1. The Learned Commissioner of Income tax (Appeals) - 2, Hyderabad ("the CIT (A)") is erroneous in law and on the facts of the case in upholding the order of AO.
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The Ld. CIT(A) has erred in law and on facts by upholding the order of the Ld. AO, wherein the Ld. AO has disallowed the exemption claimed by the Appellant under section 54F of the Act on the alleged contention that the Appellant owns more than one residential house, on the date of transfer of the original asset. 3. The Ld. CIT(A) has erred in law and on facts by upholding the order of the Ld. AO, wherein the Ld. AO has allegedly considered unfinished villas which are uninhabitable and not fit for dwelling, as residential houses owned by the Appellant on the date of transfer of the original asset, and thereby denying the exemption under Section 54F claimed by the Appellant on transfer of the original asset. 4. The Ld. CIT(A) has erred in law and on facts by upholding the order of the Ld. AO, wherein the Ld. AO has failed to appreciate the documentary evidence submitted to substantiate the fact that the villas owned by the Appellant on the date of transfer of original asset were uninhabitable and not fit for dwelling. 5. Any other ground that may be urged at the time of hearing with the previous approval of the Hon'ble Tribunal.” 2. Briefly, the facts of the case are that the assessee, an individual, filed her return of income for the AY 2013-14 on 28/07/2013 declaring total income of Rs. 43,95,510/-. From the statement of computation of total income, the AO observed that the assessee had returned income from various heads viz., income from salary, capital gains and income from other sources. Subsequently, the case was selected for scrutiny and accordingly statutory notices
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were issued to the assessee, and in response to the same, the AR of the assessee filed the details.
2.1 The AO observed that the assessee along with two others Sri K. Srinivasa Rao and Smt. Venkayamma owned a piece of land measuring 11 Acres and 33 Guntas at pokkalawada Village, Ranga Reddy District, Hyderabad and during the AY 2006-07 entered into a Joint Development Agreement (JDA) with M/s. Ambience Properties Private Limited. As per this, the owner's share is 45% and developer's share is 55% of the Built up Area (BUA). He further observe that during the AY 2012-13, the developer handed over the possession of 5 villas to the assessee. It was stated by the assessee that the said villas are in semi- finished stage and the assessee having incurred expenses to semi-finished Villa No.22, offered Long Term Capital Gains (LTCG) of Rs.81,52,584/- and claimed the value of the same as deduction u/s.54F. and the computation of capital gains for the deduction was given in Para-3 of the assessment order. Further, he observed that during the current year, the assessee sold two villas Nos.25 & 26 and claimed deduction u/s.54F on the land portion of the transferred villas to the extent of RS.1,80,34,472/- and offered LTCG and STCG of Rs.11,35,604/- out of total sale consideration of Rs.2,84,8,740/-. The AO noted that the assessee invested the capital gains in the Capital Gains Account Scheme and
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claimed deduction ujs.54F. The computation of capital gains was produced at Page 45 of the assessment order.
2.2 The Assessing Officer (AO) held that as on the date of transfer of villas Nos.25 & 26 during the year under consideration, the appellant was owning 5 villas which were handed over by the developer during the AY 2012-13 and as per the provisions of Section 54F, deduction under the said section is allowable only if the appellant does not own more than one residential house other than the new asset on the date of transfer of the asset. The AO accordingly issued show cause notice to the appellant as to why the said deduction should not be disallowed.
2.3 The assessee submitted that the villas handed over by the developer are not in habitable condition and that they are semi-finished, as per the letter given by the developer, which states that additional work has to be carried out by the owners. The assessee referred to Page 13 of sale deed of villa No.26, which states that the villas are semi-finished villas only and to the supplementary agreement which was entered between the appellant and the purchasers entered on 13.2.2013. The supplementary agreement was entered because the description of the villa as "semi-finished" was Inadvertently missed out in the sale deed. In the following case laws, it was held that inhabitable houses cannot be equated with a residential house:
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(i) Smt. UsharaniKalidindi v. Income Tax Officer (2013) 37 taxmann.com 360 (Hyd.Trib.). (ii) JagdishChander Malhotra v. Income Tax Officer (1998) 64 ITD 251 (Delhi).
2.4 The AO considered the explanation and found it as not acceptable for the following reasons:-
(i) As per Annexure-IA of the JDA, it is beyond any doubt that 5 vi1las which were received during the AY 2012- 13 by the appellant are residential houses.
(ii) The sale deed entered into by the assessee for Villa No.25 states that it is "Bungalow with BUA of 5197.9 sq.ft, on Plot NO.25". Subsequently, the assessee entered into an unregistered supplementary agreement dated 27.02.2013, in which the nature of the property has been mentioned as "semi finished bungalow". Apparently, this act of the assessee is an afterthought to claim deduction u/s.54F and similarly the undated letter furnished by the assessee from the developer is also an afterthought.
(iii) Merely because some minor works are pending which could have been carried out, the assessee is claiming that the villas are inhabitable units. The stage
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of completion of the villa cannot alter the very nature of the property.
(iv) The case laws relied upon by the appellant are distinguishable on facts(they were discussed in the impugned order)
2.5 In view of the above, the AO held that the assessee is not eligible for deduction u/s.54F since she was owning 5 residential houses on the date of transfer of villa Nos.24 and 25 and therefore, computed the LTCC at Rs.l,86,17,496/-.
Aggrieved, the assessee preferred an appeal before the CIT(A). 4. Before the CIT(A), the assessee submitted that she could not invest in the acquisition of residential property within three years from the date of transfer, out of the amount parked in Capital Gains Account Scheme. Accordingly, the amount claimed was declared as income in the AY 2016-17 and paid appropriate tax on the same. The computation of total income and the challan of tax payments were enclosed at Page 56 & 60 of paper book.
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After considering the submissions of the assessee, the CIT(A) upheld the action of the AO by observing as under: “6. I have carefully considered the issue and submissions made by the AR. The factual findings from the case are as under: (i) The JDA entered by the appellant with developer states that the appellant shall be entitled for 5 villas as per the terms of the JDA. It is nowhere mentioned that they will be semi-finished or finished. By common parlance and as understood by a common man, the villas are expected to be handed over to the appellant in habitable form. BY no stretch of imagination can the villas be expected to be handed over in inhabitable condition. (ii) The undated letter issued by the developer to the appellant, in support of the claim of the appellant that he has handed over semi-finished villas, sates that due to some reasons beyond its control, the villas are handed over after a delay by about 4 years, which require "additional work to be carried" by the owners. The insertion of the words "to make that habitable" seems to be only an afterthought may be at the instance of the appellant. It is not for the developer to say whether the villas require additional work to be carried or not, which depends on the landowner who gave the land for development, either to sparsely finish/furnish or go for heavy investments. (iii) In the sale deed of Villa No.25 the property was mentioned as Bungalow with built-up area. It appears that as an afterthought, as noted by the AO, an un- registered supplementary document was entered mentioning the property as "semi finished bungalow". 6.1 From the above, it is evident that what the appellant got from the buyer are habitable villas. Mere spending of some more amount for finishing carried out
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by way of additional works by the appellant cannot make the villas handed over to the appellant as inhabitable. The appellant failed to demonstrate with any evidence that the said villas were not in inhabitable condition when they were handed over by the developer. Further, no evidence with documentary proof has been given regarding the amounts spent and nature of works carried out for making them habitable.AS per the terms of the JDA the developer had handed over 5 bungalows to the appellant. When the appellant is claiming that it had received inhabitable villas! the onus is solely on the appellant to prove the same with documentary evidence which she failed to do. In view of the above and the facts brought out by the AO it is held that the appellant is not eligible for deduction ujs.54F in the year under consideration, The AO had already distinguished the case laws relied upon by the AR and I don't have anything to add to the same. The grounds of appeal are therefore dismissed.”
Aggrieved by the order of CIT(A), the assessee is in appeal before the ITAT, and filed written submissions, which are as under: “1.1. During the year the appellant claimed exemption u/s 54F of Rs. 1,80,34,472/- and the Ld. AO. has not allowed the deduction u/s 54F and made an addition to the Computation of Income for AY 2013-14. Aggrieved by the decision of the Assessing Officer, the appellant had filed an appeal before the Ld. CIT(A). The Ld. CIT(A), in his order, opined with the Assessing officer and dismissed the appeal of the appellant. In this regard, we wish to submit that the Appellant does not own more than one residential house, on the date of transfer of the original asset and is therefore eligible to claim exemption u/s 54F of the Act.
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1.2 Section 54F provides an exemption on the capital gains on sale of any long term capital asset in proportionate to the amount of sale consideration invested in a residential house. Also, the proviso to section 54F in sub proviso (a}(i) mentions that the exemption under section 54F is not available if the assessee owns more than one residential house, other than the new asset, on the date of transfer of original asset. Also, in the interim period of investment into the new residential house within the time period specified, the assessee has an option of investing the amount of sale consideration into Capital gains account Scheme. 1.3 The assessee has claimed exemption under section 54F by investing the amount of sale consideration into the Capital Gains Accounts Scheme. The Ld. CIT(A) has erred in law and on facts by upholding the order of the Ld. AO, wherein the Ld. AO has allegedly contends that appellant owning more than one residential house on the date of transfer and has disallowed the exemption which was claimed under section 54F of the Act. 1.4 In this regard appellant would respectfully submit that, at the time of sale of the property, appellant was not in possession of more than one residential house as the villas handed over to appellant by Ambience Properties Limited are not in habitable condition and that they are semi-finished villas. This is evident from the letter given by the developer which clearly states that additional works are to be carried out by the owners to make them habitable. The Same is demonstrated by the letter given by Ambience Prooperties. 1.5 Hence, the 5 villas received by the appellant are semi-finished villas and the appellant is holding only one finished villa at the time of date of transfer of original asset. Refer para 3.3 of assessment order dated 17.03.2016 of appellant AY 2013-14.
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1.6. Further, we would like to draw your reference to Para No. 1 of Page No.13 in the sale deed of semi finished villa No.26 which states that the villas are semi- finished villas only and the same is also evident from the supplementary agreement which was entered into between the Appellant and the purchaser on 27-02- 2013 for sale of semi finished Villa. No. 25. This supplementary agreement was entered because the description of the villa as "semi-finished" was inadvertently missed out in the sale deed for sale of semi finished Villa No.25. 1.7. In view of above it is clearly evident that the Appellant owns only one residential house property i.e Villa No. 22 apart from proposed investment in the new house for the purpose of claiming deduction u/s 54F on the date of transfer of original asset. 1.8. Further, due to some problems faced by the builder, the project got delayed by more than 4 years resulting in serious dispute between appellant and developer. It went into legal litigation and finally the matter was amicably settled as per arbitration done by the Hon'ble Justice T.N.C RangaRajan (Retired AP High Court Judge). The settlement agreement at Para 6 clearly indicates as under :- "An amount of Rs.50,00,000/- (Rupees fifty lakhs only) paid by the land owners towards extra works carried out by the developer for the bunglows of land owner share will be adjusted against the cost of the same and there will not be further claim of the developer for the same." Refer para 1 of our submission before AO dated 18.01.2016. 1.8. It was also held in few decided cases that, "an inhabitable house cannot be equated with a residential house" as given under;
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(a) Smt. Usharanikalidindi v. Income tax officer [2013] 37 taxman.com 360 (Hyd - Trib) (b) Jagdishchander Malhotra v. Income tax officer [1998] 64 ITO 251 (Delhi) 1.9. In addition to above and without prejudice to the above submissions, we wish to respectfully submit that the amount of Capital Gains parked in Capital Gains Account Scheme should have been invested by appellant in a residential house property within three years period from the date of transfer. However, the amount invested in the Capital Gains Account Scheme has not been invested by appellant in a new residential house. Hence, the amount of exemption in AY 2013-14 shall be treated as income in the Financial Year ("FY') in which the time period of three years expires l.e. in the AY 2016-17. Accordingly, appellant have duly considered the amount of exemption claimed in AY 2013-14 as income for AY 2016-17 and have paid appropriate tax on the same. 1.10. The similar view was taken in the case of Joint Commissioner of Income-tax (OSD), Company Circle-I(l}, Chennai v. B. Shivkumar* [2012J 27 taxmann.com 305 (Chennai) wherein the Hon'ble Chennai Tribunal held that "Last proviso clearly mentions that when amounts deposited under Capital Gains Account Scheme were not utilised wholly or partly for the purchase or construction within the period specified, then such amount would be charged as income of the previous year in which the period of three years, starting (rom the date of the transfer of the asset expired. The term used is 'shall'. Section 54F does not say that the amount shall be taxed in the year of withdrawal, if such withdrawal are not utilized for the purpose of construction. Even if the amount deposited in a Capital Gain Account, is utilized for any other purpose, in our opinion the
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result would be very same. He will have to pay tax for such amount in the previous year after expiry of the three years time period. Here, assessee had suo-motu offered the sum in Assessment Year 2009-10 as capital gains. As already mentioned, the circumstances do not warrant a conclusion can be drawn that assessee had no intention to construct a residential house (rom the very beginning. In the case of Smt VA Tharabai (supra), Coordinate Bench held that without purchasing land, house cannot be constructed . First step was purchase of land. If the next step could not be put forward, thereafter, on account of a reason, which was beyond control of assessee, then the amount spent by the assessee in purchasing the land had to be considered as amount invested for purchase /construction of residential house. Assessee here, having offered capital gains for tax in Assessment Year 2009-10 as stipulated in proviso-1 of section 54F of the Act, could not be saddled with the same liability for the impugned Assessment Year as well. Ld. ClT(A) was justified in directing the Assessing Officer to grant the assessee deduction under section 54F of the Act for impugned Assessment Year. No interference is required in the order of CIT(A). " 1.11. In view of what has been stated above we pray the Hon'ble Bench to grant relief as per the grounds of appeal and submissions made as above.”
The ld. DR, on the other hand, relied on the orders of revenue authorities.
Considered the rival submissions and perused the material on record as well as gone through the orders of
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revenue authorities. The contention of the assessee is that at the time of sale of the property, assessee was not in possession of more than one residential house as the villas handed over to assessee by Ambience Properties Limited are not in habitable condition and that they are semi- finished villas. The revenue authorities held that the assessee, failed to demonstrate with any evidence that the said villas were not in inhabitable condition when they were handed over by the developer. Further, no evidence with documentary proof has been given regarding the amounts spent and nature of works carried out for making them habitable. As per the terms of the JDA the developer had handed over 5 bungalows to the assessee. When the assessee is claiming that it had received inhabitable villas, the onus is solely on the assessee to prove the same with documentary evidence which, she failed to do. Therefore, the assessee’s of claim of deduction u/s 54F was denied by the revenue authorities.
8.1 Before us, the ld. AR of the assessee has filed a small paper book on 04/05/2021 containing written submissions, AO’s order and settlement agreement dated 20/10/2012 between the parties & developer in the presence of Justice Shri TNC Ranga Rajan, Retired High Court Judge. We have also gone through the same and the relevant paras in the agreement are as under:
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“2. The developer has constructed 9.2 Sft. of built-up area against 7.5 sft. to be built up as per 12.6 of the Development agreement cum GPA for every SQ. yd. of saleable plotted area for the owners allocation of 15807 sq. yd. Accordingly, the total built-up area comes to 1,45,424.40 sft. which Includes additional built up area of 26,872 Sft. 3. ….. 4. .. 5.. 6. An amount of Rs. 50,00,000 (Rupees Fifty lakhs only) paid by the land owner towards extra works carried out by the developer for the bungalows of land owner share will be adjusted against the cost of the same and there will not be further claim of the developer for the same. 7.. 8. The land owner will not be eligible to any other claim including compensation for delay from the developer and the developer will not be eligible to any additional cost for the additional extra built up area.”
8.2 According to the above clauses, the settlement has been done for extra works to be carried out by the developer. Earlier, as per the Joint Development Agreement-cum-General Power of Attorney, the assessee was supposed to receive 5 Villas, which must have been complete villas, which had been allotted and ; the settlement agreement is only for extra works to be carried out by the developer. It is also not clear that what extra works to be done. It is also not clear from the submissions
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of the assessee that what was incomplete in the building and what works have to be carried out in the same to be fully habitable. As per the JDA, it must have been allotted complete villas. In view of the above observations, we observe that the arguments advanced by the ld. AR are wrong and not proper that on the date of allotment the villas allotted were inhabitable conditions. The case laws relied on by the ld. AR are not applicable to the case of the assessee. Also, even before us, the assessee failed to substantiate its claim that the developer has handed over semi-finished villas with documentary evidence & in this connection, we are of the view that merely writing/ mentioning that the developer has allotted semi-finished villas is not sufficient to claim as the assessee has to substantiate the same by way of documentary evidence that upto what extent the works were completed in the villas and what works are pending to get fully furnished villas. Therefore, we uphold the order of the C IT(A) and dismiss the grounds raised by the assessee on this issue. 9. In the result, appeal of the assessee is dismissed in above terms. Pronounced in the open court on 20th July, 2021. Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 20th July, 2021. kv
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Copy to : 1 Smt. Radhika Kurra, Prasad & Prasad, CAs, Flat No. 301, MJ Towes, 8-2- 698, Road No. 12, Banjara Hills, Hyderabad – 500 034 2 ACIT, Circle –2(2), Room No. 824, B-Block, 8th Floor, IT Toweers, AC Guards, Hyderabad. 3 CIT(A) – 2, Hyderabad. Pr. CIT - 2, Hyderabad. 4 ITAT, DR, Hyderabad. 5 6 Guard File.