AMARNATH SARALA,BANGALORE vs. INCOME TAX OFFICER, WARD-7(2)(1), BANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER

Smt. Amarnath Sarala, Bangalore

Page 2 of 12 1.2 The learned CIT(A) has failed to consider the Assesses CBDT approved valuer's report., wherein he adopted the Land & Building method of valuation being the most appropriate method of valuation and determined the FMV of the property at Rs.1,25,30,606/- by considering the factors like type of property, transactions, & specific situation of the property etc,.

1.3 The Hon'ble Madras High Court, in the case of MA. Jagannathan Sailaja China v. The Income Tax officer, T.C.A. NoJ42 of 2019, Dated 15,02.2019 dealing with similar question held that ' A bare reading of Scheme of Sec. 50C of the Act would show that Assessee can object to presumptive value as per Sec.50C (1) and, therefore, it is only after hearing the objections of the Assessee, the Fair Market Value of the Capital Asset as per * Guidance Value" can be determined by the authorities. The Assessee cannot be denied an opportunity to raise his objections even against the presumptive Fair Market Value under Sec, 50C (1) of the Act or Report of DVO under Section 50C (2) of the Act and the Assessing Authority or the Appellate Authorites, whose powers are co-extensive with those of the Assessing Authority, cannot refuse to meet those objections point by point'.

1.4 The Hon'ble Delhi High Court, in the case of CIT v. Khoobsurat Resorts (P) Ltd., (2012) 28 taxman.com 93dealing with a similar question held that the provisions of Sec, 50C of the Act only enable the Revenue to adopt the Guidance Value declared by the State for payment of stamp duty, as the Fair Market Value under section 48 of the Act. But that Guidance Value cannot, ipso facto, be taken as the valuation for the purposes of computing Capital Gain Tax liability in the hands of the assessee/seller. Sub Sec. 2 of Section 50C of the Act itself provides for reference to DVO if the assessee objects to invoking of Sec. 50C (1) of the Act'.

Smt. Amarnath Sarala, Bangalore

Page 3 of 12 enhancement in the sale proceeds was Rs.27,87,500/-. The assessee argued before the AO that the sub-registrar has valued the property at a higher rate because the place has been named as 10th D Main in the Government notification whereas in reality the property is situated on the cross road and not in the Main. He also contended that the property has been sold in piecemeal and not as a whole stock which has considerable impact on the value of the property. However, the AO was not convinced and he applied the provision of Sec 50C and adopted the sale consideration at Rs.66,62,500/- as against the claim of the assessee at Rs.38,75,OOO/-. Accordingly, he computed short term capital gains at Rs.52,51,376/- and added to the total income of the assessee.

Page 4 of 12 assessee to the report of the valuation officer was rejected by the ld. CIT(A). However, the ld. CIT(A) observed that the value to be adopted at Rs.2,34,63,205/- in the place of Rs.26,65,000/- as adopted by AO on the basis of DVO report. Against this assessee is in appeal before us.

4.1 In view of the above order of the Tribunal, we remit this issue also to the file of AO for similar directions. These grounds of assessee’s appeal are partly allowed for statistical purposes.

Smt. Amarnath Sarala, Bangalore

Page 5 of 12 2. Disallowance of deduction u/s 54F amounting to Rs.32,76,006/-

2.1 That the learned CIT(A) has failed to consider the fact that claim of the assessee regarding investment made in purchase of the site of Rs.36,00,000/- even if the assessee finally could not construct the new house within the time period specified under section 54F once the assessee has invested the sale proceeds of existing asset for the purposes of construction of new house the deduction u/s,54F cannot be denied.

2.2 That the Hon'ble High Court of Karnataka in the case of CIT v. Mrs. Shakuntala Devi (2016) 389ITR 366/75 taxmann.com 222 (Kar.) has held that' the condition precedent for claiming benefit under said provision is that the capital gains realized from sale of a capital asset should be reinvested with in purchasing a residential house or utilised for constructing a residential house. If it is established that consideration so received on transfer of the asset has been invested in either purchasing a residential house or spent on construction of a residential house, an assessee would be entitled to the benefit U/S.54F of the Act irrespective of the fact that transaction not being complete in all respects. 2.3 In the case of CIT v, Smt B.S. Shantakumarl (2015) 233 Taxmann 347/60 taxmann.com 74 (Kar.) it was held that if the assessee has invested money in constructing the residential house, merely because the construction was not complete in all respect or such building is yet to be completed fully or the building not being in fit condition for being occupied, would by itself riot be ground for the assessee to be denied the benefit under Section 54F of the Act. 5.1 Facts of the case are that the assessee has sold one property for Rs.18,00,000/- vide deed of registration dated 22.11.2013 and another property for Rs.18,00,000/- vide deed of registration dated 28.11.2013. Thus total sale consideration from the sale of two plots received by the assessee was Rs.36,00,000/-. The assessee declared Long Term Capital Gains (LTCG) of Rs.29,76,006/- after claiming indexed cost of acquisition of Rs.3,23,994/- and brokerage of Rs.4,00,000/-. The assessee claimed exemption u/s 54F of the Smt. Amarnath Sarala, Bangalore

Page 6 of 12 amount of capital gains. She entered into an agreement with Mr. Raju for the purchase of a residential house at # 262, 8th Phase, J.P. Nagar, Bangalore vide. Subsequently, this agreement was cancelled and the assessee purchased 2 plots of land on 07.10.2016 for a total consideration of Rs. 26,00,000/- @ Rs.13,00,000/- for each plot. As the assessee did not construct house on the said plot, the AO disallowed exemption claimed u/s 54F. During the appeal proceedings the ld. AR furnished a certificate from a Chartered Engineer giving the completion status of the house as on 10.12.2017 showing the following expenses:

SI. Description Rate 1. Clearing & leveling ground for foundation, Rs.7,500/- clearing the debris etc Rs.27,800/- 2. Earth Work Excavation for footings 3. Plain Cement Concrete 1,4,8 Rs.15,625/- 4. RCC for footings Rs.47,800/- 5. Sump Tank Rs.35,600/- Rs.1,34,325 TOTAL 5.2 He has also mentioned that construction activity has been stopped since February, 2017. Against this assessee went in appeal before ld. CIT(A) and the ld. CIT(A) perused the certificate given by the Chartered Engineer. The A/R was asked to substantiate the claim of all expenses shown in the said certificate but he failed to produce any such evidence. Without documentary evidence the certificate of the Chartered Engineer cannot be relied upon. Even if the said certificate is believed upon, there is no construction of house at all. The Chartered Engineer has given the following certificate:

Smt. Amarnath Sarala, Bangalore Against this assessee is in appeal before us. Smt. Amarnath Sarala, Bangalore

Page 8 of 12 5.3 In this regard, it is to be borne in mind that the assessee had sold the above mentioned two properties on 22.11.2013 and 28.11.2013. Therefore, he was required to purchase a house within a period of two years or construct a house within a period of three years. Section 54F(1) gives a time limit for the said purpose. In this case the assessee was required to buy a house on or before 28.11.2015 or construct a house on or before 28.11.2016, but in the instant case the assessee has bought the land only on 07.10.2016 i.e. nearly towards the completion of three years from the date of sale of the property. The assessee does not have any evidence that the construction activity started within a period of three years, so there is no question of completion of construction of the residential house within that period. In the certificate of the Chartered Engineer also it is mentioned that construction activity has been stopped since February, 2017. During the appeal proceedings also the ld. AR stated that construction activity has stopped since February, 2017 and has not resumed since then. The ld. AR has filed copies of various judgments contending that benefit of section 54F of the Act has to be allowed even if the construction of residential house has not been completed. In the instant case, however, there is no question of completion of the residential house; it has not even started at the end of three years from the date of sale of the property. Therefore, the judgments relied upon by the ld. A.R. are not applicable to the case of the assessee. Hence the ld. CIT(A) agreed with the AO that the claim of deduction made u/s 54F of the Act is not allowable. The assessee has claimed expenditure of Rs.4,00,000/- as brokerage paid for the sale of the land. But no evidence for such payment was produced by the assessee before the AO or during the appeal proceedings. Hence ld. CIT(A) was of the considered opinion that the AO has rightly disallowed the assessee's claim with regard to payment of brokerage amounting to Rs.4,00,000/-. Thus, the ld.

Smt. Amarnath Sarala, Bangalore

Page 9 of 12 CIT(A) did not find infirmity in the action of the AO in making an addition of Rs.32,76,006/- as Long Term Capital Gains. Accordingly, the ld. CIT(A) sustained the addition on account of LTCG amounting to Rs.32,76,006/-. Against this the assessee is in appeal before us.

6.1 On the other hand, ld. D.R. strongly opposed the arguments of ld. A.R. and submitted of the assessee has not placed any iota of evidence to suggest that the construction has been completed within the period of 3 years from the date of sale of the capital asset as stipulated in section 54F of the Act. For better understanding we have to go through the provisions of section 54F of the Act which reads as follows: “54F(1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises

Smt. Amarnath Sarala, Bangalore

Page 10 of 12 from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, •within a period of one year before or [two years] after the date on -which the transfer took place purchased, or has within a period of three years after that date [constructed, one residential house in India] (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, this is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45.”

6.2 A bare reading of the above provisions shows that the above provisions are incentive provisions intended to augment investment in residential houses. As per these provisions if the assessee within a period of one year before or two years after the date on which the transfer taken place purchases or within a period of three years after that date constructed a residential house then capital gain has to be dealt with in accordance with the provisions of section 54(1)(a) & (b) of the Act. If the assessee constructed any residential house, the assessee is required to place necessary evidence to prove that the construction has been taken place. Before the lower authorities, no evidence has been furnished regarding the construction of new house so as to show that the sale proceeds of the land were utilised for the purpose of construction of the new house. In the absence of any material to suggest the construction of the house, out of the sale proceeds of the land, we are not in a position to hold that the assessee is entitled for deduction u/s. 54F of the Act. It is needless to say that when the assessee claims deduction u/s. 54F of the Act, it is incumbent upon the assessee to place necessary evidence in support of its claim. In the present case in spite of the Assessing Officer and the CIT(A) requiring the assessee to furnish necessary evidence for construction of the residential building within the Smt. Amarnath Sarala, Bangalore

Page 11 of 12 period as enumerated in section 54F of the Act, the assessee failed to produce the same. Being so, when we examine the facts on record to see whether the assessee herein has actually constructed any residential house within the meaning, object and time laid down u/s. 54F of the Act, the material on record does not suggest any construction of the house in terms of section 54F of the Act. The onus lies on the assessee to prove by way of evidence to justify their claim for deduction. In this case, the onus was not discharged by the assessee herein in view of the fact that the assessee could not furnish the requisite evidence to prove the fact that there was any actual construction within the time stipulated in section 54F of the Act. The assessee has not placed any cogent evidence, so that it can be inferred that actually there was construction of residential building out of the sale proceeds of the sale of land and also not placed evidence for the purchase of any materials relating to construction of residential building. Merely producing a copy of permission from Gram Panchayat with regard to construction permission that itself cannot discharge the assessee from proving actual construction.

6.3 In our opinion, this is made believe story before us and without producing requisite evidence to suggest that the assessee has completed the construction within the period of 3 years after the date of transfer. It has also been noted that assessee has not produced any license/permission for construction of building in the scheduled property from any authorities said to be constructed and there was no evidence in support of the fact that there was actually any construction within the stipulated time as per section 54F of the Act. Accordingly, we do not find any merit in the arguments of the ld. A.R. which is only artificial and superficial and deduction u/s 54F of the Act cannot be granted. This ground of appeal of the assessee is rejected.

Smt. Amarnath Sarala, Bangalore

Order pronounced in the open court on 15th Feb, 2023.