SRI SATYABRATA PUJAPANDA,PURI vs. ITO, PURI WARD, PURI, PURI

Shri Basudev Panda, Senior Advocate assisted with Shri B.R.Panda, Advocate represented on behalf of the assessee and Shri Shri S.C.Mohanty, Sr. DR represented on behalf of the revenue.

It was submitted by the ld. Sr. Advocate that the assessee owned 5.586 decimal of land in Puri. Out of the same, he had sold 0.586 decimal of land during the assessment year 2015-2016 and he had also sold 0.160 decimal during the assessment year 2016-2017, respectively. It was the submission that in the assessment year 2015-2016, the assessee 2 had claimed a deduction of Rs.30,10,320/- and for the assessment year 2016-2017 an expenditure of Rs.18,67,682/- as expenditure in relation to the cost of the improvement of the land. It was the submission that the said expenditure was in the nature of purchase of sand for filling up the low-lying land and the labour charges and the dozer charges in respect of leveling of the land. It was the submission that the assessee had produced the account details before the AO but the AO had denied the expenditure on the ground that the assessee could not produce any concrete evidence in this regard. It was the submission that the assessee having produced the details of expenditure, no other evidence could be produced. It was the prayer that the said expenditure was liable to be allowed.

In reply, ld. SR. DR submitted that to claim the expenditure in respect of the improvements, the assessee had to substantiate its claim as has been held by the ITAT Delhi Bench of the Tribunal in the case of Gurdeep Singh, reported in 19 SOT 525 (Delhi-Trib). It was the submission that the assessee has not been able to substantiate his claim of expenditure and consequently disallowance has rightly been made by the AO and upheld by the ld. CIT(A).

We have considered the rival submissions. A perusal of the paper book filed by the assessee clearly shows that the assessee has provided ledger extract of the expenses incurred towards the development of the land at pages 24 to 28 of the paper book. The expenses are mainly the cost of the sand transported through Hywa and labour charges and dozer 3 charges and roller charges. The assessee having produced the details of the expenditure, the same could not be blindly rejected without examining the said claim. It is noticed that the ld. AO has rejected the assessee’s claim demanding more concrete evidence. What is the nature of the evidence that the AO desires is not coming out of the assessment order but in any case as it is noticed that the assessee has provided the details of the expenditure, we are of the view that the expenditure is allowable expenditure. Consequently, the AO is directed to allow the expenditure claimed of Rs.30,10,320/- for the assessment year 2015-2016 and Rs.18,67,682/- for the assessment year 2016-2017 towards cost of improvement of the land sold by the assessee.

It was submitted by the ld. Sr. Advocate that the second issue relates to the assessment year 2015-2016 wherein the assessee had claimed deduction u/s.54F in respect of the four-storied house building including basement purchased by the assessee. It was the submission that the said building was used for the residence of the assessee. It was submitted that the AO has denied the assessee the benefit of the deduction u/s.54F of the Act on the ground that the assessee has purchased a commercial property. It was the submission that for the assessment year 2016-2017, the assessee had spent an amount of Rs.36,61,432/- towards the cost of improvement of the residential property purchase by the assessee for the assessment year 2015-2016. It was the submission that for the assessment year 2016-2017 the said expenditure of Rs.36,61,432/- was the construction on the said 4 dilapidated residential building purchased by the assessee during the assessment year 2015-2016. It was the submission that as the assessee has purchased the residential building during the assessment year 2015- 2016, the assessee was entitled to the benefit the deduction u/s.54F of the Act to the extent of Rs.1,52,50,600/- representing the cost of the land and building purchased and the for the assessment year 2016-2017. Further the construction cost of Rs.36,61,432/- is also allowable u/s.54F of the Act. It was the submission by the ld. Sr. Advocate that the assessee had purchased a land and building consisting of 2178 sq.ft. (approximately 0.005 decimal) along with building of four floors being basement, ground floor, first floor, second floor and third floor, totaling to 6704 sq.ft. It was the submission that the said building was used as a residence of the assessee though the seller had been using the property as a guest house. It was the submission that as the assessee has been using the property as his residence after the purchase, the assessee was entitled to the benefit of deduction u/s.54F of the Act. It was the submission that the ld. AO had obtained a letter from the Executive Officer, Puri Municipality which mentions that from the financial year 2012- 2013 to 2017-2018, the property was used as commercial and taxes were paid at commercial rates. Ld. AR drew our attention to tax paid receipts at page 22 of the paper book for the period 2016-2017, which showed that the property tax is recorded as commercial-cum-residential. It was the submission that the assessee after purchase of the property had written to the Puri Municipal Corporation on 02.03.2015 to convert the building into 5 the residential property insofar as Puri Konark Development Authority had granted sanction to the original owner for construction of the four-storied building to be used exclusively for residential purpose. It was the submission that from 01.04.2016 the Municipal Corporation Puri has been assessing the land and building at commercial-cum-residential rate. It was the submission that the intention of the assessee being to use the property as residential property, the assessee was entitled to the benefit of deduction u/s.54F of the Act for the assessment year 2015-2016 and as the assessee has done improvement of the said residential building by further constructing the assessee was entitled to the addition claim u/s.54F of the Act for the assessment year 2016-2017.

In reply, ld. Sr. DR submitted that the statute being the provision of Section 54F of the Act specifies that the assessee has within a period of one year before or two years after the date on which the transfer took place purchased or within a period of three years after that date has constructed “one residential house”. It was the submission that what was required under the statute was the purchase of “one residential house”. The guest house which has been purchased by the assessee was not a residential house but was a commercial building and consequently the assessee was not entitled to claim of deduction u/s.54F of the Act. It was the submission that the order of the AO and that of the ld. CIT(A) is liable to be upheld.

We have considered the rival submissions. As the facts were not coming clear insofar as the corporation tax receipt produced by the 6 assessee showed taxes being collected in respect of the said building as being commercial-cum-residential, a remand report was called from the AO, Puri Ward, Puri. The AO has got done physical verification of the property at Puri. As per the physical verification it is submitted that the assessee is using one floor of the said building for his residential purpose and the balance of the building has been leased out for running of the hotel. This is as per the remand report dated 15th July, 2022. Obviously it relates to the assessment year 2023-2024 during which period also the corporation tax is being collected under the same provisions of commercial-cum-residential. On perusal of the assessment order at para 3 shows that the Executive Officer, Puri Municipal Corporation has categorically submitted that from 2013-2014 till 2017-2018 the taxes having paid on commercial rate and the property is being used for commercial purposes only. The commercial tax collected in respect of the property immediately after purchase was changed to commercial-cum- residential. Clearly the property is being used for residential purpose and the remand report is providing the present scenario in respect of the property also shows that one floor is being used by the assessee as his residential house. This being so, we are of the view that the assessee is entitled to claim under Section 54F of the Act in respect of the portion being used by the assessee as his residential house i.e. the area in relation to the first floor of the said building with the portion of the land apportioned thereto. The total area of the building as per the sale deed is 6704 sq.ft. The area of the first floor is 1626 sq.ft., therefore, the assessee 7 would be entitled the benefit of deduction u/s.54F of the Act in respect of (Rs.1,05,00,000 + 7,60,000 + 3,04,542) = Rs.1,15,64,542/- / 6074 x 1626 = Rs.30,95,809/-. This represents about 26.75% of the total investment. Consequently, the AO is directed to grant the assessee the benefit of deduction u/s.54F of the Act in respect of the first floor of the said commercial-cum-residential building purchased by the assessee during the assessment year 2015-2016.

Applying the same criteria, the AO is directed to grant the assessee the benefit of deduction u/s.54F of the Act to the extent of 26.75% of the expenditure towards development of house property claimed u/s.54F of the Act for the assessment year 2015-2016 & 2016-2017. However, this expenditure has not been verified by the AO. For the purpose of verification of the nature of the expenditure for the assessment year 2015- 2016 & 2016-2017, the issue is hereby restored to the file of AO.

In the result, appeal for the assessment year 2015-2016 in ITA No.433/CTK/2018 for the assessment year 2016-2017 are partly allowed for statistical purposes. Order dictated and pronounced in the open court on 30/01/2023. Sd/- Sd/- (अरुण खोड़पऩया) (जाजज माथन) (ARUN KHODPIA) (GEORGE MATHAN) ऱेखा सदस्य/ ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनाांक Dated 30/01/2023 Prakash Kumar Mishra, Sr.P.S.