SHRIKANT VISHWANATH GOGATE,,PUNE vs. THE COMMISSIONER OF INCOME-TAX, (IT/TP),, PUNE

The basic contentions of the Ld. CIT are twofold: (i) that the assessee has transferred only the development rights and not the entire house property and therefore, exemption u/s 54 of the Act cannot be claimed by the assessee, whereas only exemption u/s 54F of the Act can be claimed by the assessee on proportionate basis by taking the denominator as sale consideration and not capital gain. The other contention of the Ld. CIT was that NHAI bonds of Rs.17 lakhs were purchased by the assessee after a period of six months from the date of sale of land i.e. 07.11.2012 and the claim of exemption is not admissible u/s 54EC of the Act.

In respect of first issue of exemption u/s 54 of the Act, the assessee has claimed the exemption which is available on sale of residential house. In the order passed u/s 263 of the Act, the Ld. CIT observes that on perusal of Development Agreement dated 07.11.2012 shows that the property sold is development rights in 533.17 sq.mtrs. of land / building being ancestral property situated at Prabhat Road, Shivaji Nagar, Pune. The Ld. CIT held that sale of development rights is not capital asset mentioned in section 54 of the Act. However, exemption u/s 54F of the Act can be claimed on the same. But the exemption u/s 54F of the Act is available on proportionate basis by taking the denominator as sale consideration and not the capital gain. Hence, the exemption u/s 54F of the Act will be lesser than that claimed u/s 54 of the Act. It was further observed that in the assessment order dated 29.03.2016, the Assessing Officer has mentioned in para 5 of the order that long term capital gain has been earned on transfer of development rights of ancestral house property. The exemption u/s 54 of the Act has been allowed for construction of new residential flat as agreed in Development Agreement dated 07.11.2012 for Rs.40 lakhs which is to be adjusted against the sale consideration of Rs.5,40,00,000/-. That since the Ld. CIT was of the opinion that ultimately what the assessee has transferred only the right of development and has not the house property, therefore, the Assessing Officer has erred in treating the sale of development right as sale of house property and also erred in allowing the claim of exemption u/s 54 of the Act, whereas only the claim as admissible u/s 54F of the Act could be given to the assessee. Section 54F of the Act could be given to the assessee when the transfer is of any capital asset other than the house property. The assessee has submitted that along with land, residential house has also been transferred i.e. „JAGDISH Bunglow‟ situated at CTS No.781, Final Plot No.128/1, TPS1, Shivajinagar. In the Development Agreement, there is reference of land and bunglow both being situated at Shivajinagar. On Index No.2 of Development Agreement at serial No.2, there is mention that the land has been transferred along with „JAGDISH Bunglow‟. On page 7 of the Development Agreement, it is mentioned that it the responsibility of the developer to demolish the present bunglow by name „Jagdish‟ standing on the said property. On page 24 of the Development Agreement in schedule description of the property, it has been specifically mentioned that all that piece and parcel of land bearing, together with bunglow by name Jagdish standing thereon. Therefore, the assessee submitted it is not only the development rights that has been transferred but it is the house property also along with land and appurtenances thereto.

The Ld. AR of the assessee took us through the pages 54 to 69 of the paper book, wherein the entire documents have been annexed regarding the proceedings u/s 143(3) of the Act before the Assessing Officer. There is also a detailed notice u/s 142(1) of the Act along with questionnaire specifically asking from the assessee to furnish details of the sale of immovable property during the year. The assessee vide reply dated 29.02.2016 stated that during assessment year 2013-14, the assessee claimed deduction amounting to Rs.40 lakhs u/s 54 of the Act for construction of house property. As per the terms of Development Agreement, the developer i.e. M/s. Pandit Javdekar Constructions is to construct a residential house for the assessee for consideration of Rs.40 lakhs. The said consideration is to be discharged by the assessee against consideration of Rs.5,40,00,000/- receivable from M/s. Pandit Javdekar Constructions.

We have perused the Development Agreement and all the relevant details and documents placed on record before us. We find that the spirit of Development Agreement is very clear that it is the house property along with land that has been transferred to the developer. It is not the case of transferring the development rights only. What the assessee loses is not only the land but also loses the house property on the land that has been transferred to the developer / builder. We further find that in the scrutiny proceedings before the Assessing Officer, detailed verification on this aspect has been done and as evident at para 5 of AO's order that the details regarding sale of property have been filed by the assessee and kept on record. We find from the Development Agreement that the assessee having transferred his rights of the house property to the developers, the possession given by the assessee was of the entire real estate by the name of „Jagdish‟ standing on Plot No.128/1, TPS1, Shivajinagar, Pune. That further the Development Agreement is crystal clear that the land has been transferred along with the house property and that it is also the responsibility of the developer to demolish the house property standing on the said property. These facts have been analyzed by the Assessing Officer through notice u/s 142(1) of the Act and questionnaire and even the replies submitted by the assessee were placed on record. The only reasons for which the Ld. CIT decided that the assessee is entitled to exemption u/s 54F of the Act and not u/s 54 of the Act because as per the Development Agreement, the term „owner‟ appears therein referring to the assessee. However, the other clauses of the Development Agreement where the entire transfer of house property along with the land given to the developer, these facts were not refuted by the Ld. DR. The Ld. DR also could not place on record any evidence categorically showing that there was transfer of development rights only by the assessee. Considering the totality of the facts, exemption u/s 54 of the Act is correctly claimed by the assessee.

With regard to the second issue regarding the claim of exemption u/s 54EC of the Act, the Assessing Officer has discussed it at para 5 of his order and has allowed the entire claim of Rs.67,00,000/- but has not taken into account the necessary condition of investment in the specified bonds within six months from the date of sale. It is seen that for NHAI bonds of Rs.17 lakhs, due date of allotment was 30.06.2013, though the date of bonds was 23.07.2013. Hence, the investment of Rs.17 lakhs in NHAI bonds was beyond the prescribed period of time from the date of sale. To this aspect also, the Ld. CIT opined that the order of Assessing Officer was erroneous and since the error was reducing the taxable income of the assessee, the same was also prejudicial to the interest of Revenue. The assessee on this issue has replied attributing various reasons for not making investment within prescribed time such as the assessee being in USA switching jobs, delay due to circumstances and the assessee always acted bonafidely with the proceedings of law. The assessee relied on the decisions in the cases of Dr. (Smt.) Sujatha Ramesh Vs. CBDT 299 CTR 261 (Kar), K. Parthasarathy Vs. ITO 49 taxmann.com 50 (Chennai-Trib.) and Mahesh Nemichandra Ganeshwade Vs. ITO (2012) 147 TTJ 488 (Pune-Trib). Placing reliance on these decisions, the assessee claimed that it is true that there was a delay but that delay was unintentional and caused by circumstances but it is also true that investments were made by the assessee in NHAI bonds, therefore, based on these judicial pronouncements, the delay should be condoned and the exemption u/s 54EC of the Act should be allowed.

We find that the Ld. CIT in his order has categorically observed at para 12 that the assessee though has made investment of Rs.50 lakhs in NHAI bonds within the prescribed time, then how it is possible that in respect of Rs.17 lakhs he was not able to make investment in time. Therefore, all the reasons given by the assessee for delay in making investments are equally for making investment in NHAI bond of Rs.50 lakhs as well. Therefore, these reasons were nothing but a shield for the delayed investment. The Ld. CIT also distinguished the decisions relied on by the assessee as appearing in his order which is on record. That on going through these judicial pronouncements placed before us, we are of the opinion that factually they are substantially different from the facts in assessee‟s case on this issue. In each of these decisions there is an emergence of “extreme circumstances” causing the delay and therefore it was condoned, whereas in case of assessee being NRI, shifting jobs, being placed in USA, all these do not qualify extreme circumstances, more so when part of the investments in same NHAI Bonds were made in time by the assessee. The assessee therefore cannot escape the strictures of section 54EC of the Act. There is categorical finding of the Ld. CIT that for Rs.50 lakhs, NHAI bonds invested were made in time, then why the assessee could not comply the law for other Rs.17 lakhs which were invested also in NHAI bonds. To this, the Ld. AR for the assessee could not explain anything in front of us at the time of hearing. We further find that the Assessing Officer in his entire order has not discussed anything on this issue of investment of Rs.17 lakhs in NHAI bonds by the assessee and whether they were according to the prescribed time limits as per section 54EC of the Act. The Assessing Officer has not given any reasoning or view in this matter. He has simply accepted the claim of the assessee granting exemption under the said provision. Factually also before us, the Ld. AR for the assessee fairly conceded that there was a delay with regard to time limits prescribed in the statute for the said investment. When this issue has not been verified by the Assessing Officer nor any independent enquiry conducted, nor any questions raised and when these facts are clear that in this issue the provisions of section 54EC of the Act has not been complied with by the assessee, the action of Assessing Officer therefore, is erroneous and prejudicial to the interest of Revenue. The Ld. CIT in his order passed u/s 263 of the Act is correct in holding that the assessee is not entitled for the claim of exemption u/s 54EC of the Act.

As per the summary thereof, the assessee is entitled for deduction u/s 54 of the Act since there is transfer of residential house property as observed hereinabove and for this part of the appeal, the assessee succeeds. Regarding the deduction claimed u/s 54EC of the Act, the assessee has not made the investment within stipulated time and this fact was also not examined by the Assessing Officer and the provisions of section 54EC were not satisfied by the assessee on this ground. The findings of Ld. CIT as per 263 order is sustained on this issue.

In the result, the appeal of the assessee is partly allowed.