R.MOHAN,CHENNAI vs. ITO NONCORORATE WARD 7(4), CHENNAI

आदेश / O R D E R

PER G. MANJUNATHA, ACCOUNTANT MEMBER:

This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Appeals)-7, Chennai, dated 27.08.2018 and

pertains to assessment year 2012-13.

ITA No.3128/Chny/2018

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5.The CIT(Appeals) erred in sustaining the restriction of the claim u/s 54 of the Act in the re-computation of long term capital gains without assigning proper reasons and justification.

M/s.Innovative Auto Tec, filed his return of income for the AY 2012-13 on

26.09.2013 declaring total income of Rs.2,38,960/-. During the Financial

Year 2011-12 relevant to the AY 2012-13, the assessee has sold land and

building at Kanchipuram, for a consideration of Rs.1.20 Crs. vide Document

No.4713/2011 dated 22.09.2011. The property has been originally

acquired by his father by Partition Deed dated 21.06.1977 and assessee

got right over the property after demise of his father on 24.04.1993. The

ITA No.3128/Chny/2018 :: 3 ::

other legal heirs i.e. three sisters of the assessee executed Release Deed

on 16.02.2006 in favour of the assessee vide Document No.493/2006 for a

consideration of Rs.3 lakhs. The assessee has computed long term capital

gains derived from sale of property by taking into account cost of

acquisition as on 01.04.1981 in terms of provisions of Sec.49 of the Act.

The assessee had claimed exemption u/s.54 of the Act, for purchase of

residential house plot and construction of residential house thereon for a

consideration of Rs.89,51,190/-.

the assessee had computed indexed cost of acquisition by adopting Fair

Market Value of the property as on 01.04.1981 contrary to the provisions

of Sec.49 of the Act. Therefore, re-computed cost of acquisition and

allowed benefit of indexation from 01.04.1981 in respect of 1/4th share of

property received by the assessee by inheritance. However, for remaining

3/4th share of property, which assessee got right by way of Release Deed

dated 16.02.2006, he has allowed indexation benefit from the FY 2006-07

and re-computed indexed cost of acquisition. The AO had also allowed

deductions towards re-investment in purchase of another residential house

property site to the extent of Rs.18,06,000/- which includes total

consideration paid for purchase of property plus Stamp Duty and other

incidental expenses. However, disallowed amount claimed to have been

incurred for construction of house property on the ground that the assessee

could not file any evidences to prove completion of house construction on

ITA No.3128/Chny/2018 :: 4 ::

or before due date prescribed under the Act. The assessee carried the

matter in appeal before the First Appellate Authority, but could not succeed.

The Ld.CIT(A) for the reasons stated in their appellate order dated

27.08.2018, rejected the arguments of the assessee and sustained the

additions made by the AO towards re-computation of capital gains and

disallowance of exemption claimed u/s.54 of the Act. Aggrieved by the

order of the Ld.CIT(A), the assessee is in appeal before us.

Bombay High Court in the case of CIT v. Manjula J. Shah reported in [2013]

355 ITR 474 (Bom), submitted that while computing capital gains arising

on transfer of capital asset acquired by assessee by way of gift or will,

indexed cost of acquisition has to be computed with reference to the year

in which previous owner first held asset, but not on the date assessee

became owner of asset. He further referring to dates and events submitted

that there is no dispute with regard to fact that the assessee had acquired

the property from his late father by inheritance and further, although,

nomenclature of deed executed by other legal heirs in favour of the

assessee is Release Deed, but in fact, it is a Partition Deed which

tantamount to acquiring property in any one of the modes specified u/s.49

of the Act. Therefore, the assessee has rightly computed cost of acquisition

from the date previous owner held the asset, but the Ld.CIT(A) has ignored

the relevant facts and sustained the additions made by the AO. As regards,

deduction claimed u/s.54 of the Act, the Ld.Counsel for the assessee

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referring to various documents including building permission issued by

Corporation of Chennai and EB Card for the new property submitted that

the assessee has filed all evidences to prove construction of new residential

house property within stipulated date. The AO ignoring all facts simply

disallowed amounts spent for construction of house property only on the

basis of suspicion and surmise.

submitted that as per the provisions of Sec.49 of the Act, cost to the

previous owner needs to be considered only, in case, where the assessee

acquired right over the property by way of gift or will or inheritance. In

this case, no doubt, the assessee has acquired his 1/4th share of property

by inheritance, but remaining 3/4th share of property, has been acquired

form other legal heirs by way of Release Deed by payment of consideration.

Therefore, the assessee cannot claim benefit of indexation from the date

previous owner held asset. As regards, deduction claimed u/s.54 of the

Act, the Ld.DR submitted that except a simple estimation from Valuer and

EB Bill, the assessee could not furnish any evidence to prove completion of

house property within stipulated date. Further, if you go by EB Bills before

demolition and after new construction, there is no substantial change in

electricity consumption. Therefore, on the basis of EB Bill, it cannot be held

that the assessee has constructed new house to allow the benefit.

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record and gone through orders of the authorities below. The facts with

regard to impugned dispute are that the assessee has sold a land and

building at Kanchipuram on 22.09.2011 for a consideration of Rs.1.20 Crs.

The impugned property had been originally acquired by his father by

Partition Deed in the year 1977 and he has died intense-state on

24.04.1993. The assessee is having three sisters and they had executed

Release Deed on 16.02.2006 in favour of the assessee for remaining 3/4th

share of property for a consideration of Rs.3 lakhs. The assessee has

computed cost of acquisition of the property by taking into account the

period of asset held by previous owner in respect of whole property

including 3/4th share of property acquired by the assessee from other three

legal heirs in the year 2006. The AO has allowed indexed cost of acquisition

from the year in which the assessee became absolute owner of the property

i.e. from 2006 onwards.

Having heard both sides, we find that in so far as 1/4th share of 8.

property is concerned, the assessee is acquired right over the property by

inheritance as per provisions of Sec.49 of the Act and thus, he is entitled

to claim the benefit of indexation from the period the previous owner held

the property or from 01.04.1991, whichever is later. Therefore, we direct

the AO to allow benefit of indexed cost of acquisition towards 1/4th share

of property from the date of previous owner held the asset or from

01.04.1991 as claimed by the assessee. As regards remaining 3/4th share

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of property, admittedly other three legal heirs had released their right in

property in favour of the assessee on 16.02.2006 for a consideration of

Rs.3 lakhs. Since, the assessee has acquired right over the property in

respect of 3/4th share of property from 2006, he cannot claim indexed cost

of acquisition from the date previous owner held asset, because, 3/4th share

of property, has not been acquired in any one of the modes specified u/s.49

of the Act. Therefore, we direct the AO to allow the benefit of indexation

for 3/4th share of property from the year 2006. Thus, we direct the AO to

re-compute capital gains arising out of transfer of property by adopting cost

of acquisition as directed by us hereinabove.

dispute with regard to the fact that the assessee had purchased another

residential house property site. In fact, the AO has allowed deduction

u/s.54 of the Act, towards amount spent for purchase of house property

site and registration fees plus incidental charges amounting to

Rs.18,06,000/-. The only dispute is with regard to amounts spent for

construction of new building for Rs.71 lakhs. The assessee claims that he

had spent remaining amount of Rs.71 lakhs for construction of house

property, for which, the assessee has produced necessary evidences,

including the ‘Building Permission’ issued by Corporation of Chennai,

‘Planning Permission’ issued by Corporation of Chennai, ‘Estimate’ for

construction of residential building and relevant EB card for new building.

The assessee had also obtained Valuation Report from approved Valuer

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along with photos of the new building and claimed that he has spent

remaining amount for construction of house property within three years

from the date of sale of original asset. We find that the assessee has

obtained Demolition & Re-construction Permission’ from Corporation of

Chennai on 15.05.2012 and also obtained ‘Building Plan Permission’ on

19.05.2012. If you go by the date of permission given by the Corporation

of Chennai, then, it is within three years from the date of sale of original

asset, which expires on 30.07.2012. But, fact remains that on the basis of

‘Building Permission Plan’ obtained on 19.05.2012, it cannot be assumed

that the assessee has completed construction of house property on or

before 30.07.2012. The assessee had also filed EB Card to prove that there

is a new house construction. The assessee had also filed ‘Estimate’ for

construction of residential building and Valuation Report obtained from

approved Valuer along with photos taken, but fact remains that Valuation

Report obtained from approved Valuer specified probable date of

completion of construction of house property and further, the photographs

alone cannot give any indication of completion of house property.

Therefore, on the basis of said evidences, it cannot be concluded that the

assessee has satisfied conditions prescribed u/s.54 of the Act, to allow the

benefit. But fact remains that if you go by cumulative of all evidences filed

by the assessee, there seems to be merit in the arguments of the

Ld.Counsel for the assessee that the assessee has constructed a new house

by demolishing old structure on property purchased in the year 2012 and

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hence, facts need to be further verification from the AO. Therefore, we set

aside the issue of deduction claimed u/s.54 of the Act, to the file of the AO

and direct the AO to re-examine the claim of the assessee in light of various

evidences filed before us, including Building Plan Permission, EB Card and

Valuation Report obtained from approved Valuer along with photographs of

the building. The assessee is directed to furnish all evidences before the

AO to justify his case.

statistical purposes.

Order pronounced on the 18th day of January, 2023, in Chennai.

Sd/- Sd/- (महावीर िसंह) (जी. मंजूनाथा) (G. MANJUNATHA) (MAHAVIR SINGH) उपा�� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER

चे�ई/Chennai, �दनांक/Dated: 18th January, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF