OM PRAKASH MALHOTRA,NEW DELHI vs. ITO WARD - 30(5), NEW DELHI

1 ITA no. 6902/Del/2019 Om Prakash Vs. ITO IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI

BEFORE SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER

ITA No. 6902/DEL/2019 [Assessment Year: 2013-14]

Om Prakash Malhotra, Vs Income-tax Officer, H. No. 8, Hemkunt Colony, Ward-30(5), New Delhi. FF, Nehru Place, New Delhi-110019 PAN- AHZPM8778R APPELLANT RESPONDENT

Assessee represented by Shri Ranjan Chopra, CA Department represented by Shri Jeetender Chand, Sr. DR Date of hearing 07.09.2022 Date of pronouncement 18.10.2022

O R D E R PER KUL BHARAT, JM:

This appeal, by the assessee, is directed against the order of the learned

Commissioner of Income-tax (Appeals)-33, dated 18.07.2019, pertaining to the

assessment year 2013-14. The assessee has raised following grounds of appeal:

“1. On the facts and in the circumstances of the case and in law the Commissioner of Income Tax (Appeals) has erred in disallowance of deduction under section 54 of the Act to the extent of Rs. 1,10,60,730 without appreciating the facts of the case.

2 ITA no. 6902/Del/2019 Om Prakash Vs. ITO 2. The Appellant prays that the disallowance of deduction u/s 54 amounting of Rs. 1,10,60,730 be deleted. 3. The Appellant craves leave to add, amend, alter, vary and/or withdraw any of or all the above grounds of appeal”

income on 30.07.2013 declaring total income at Rs. 8,42,402/-. The case was

selected for scrutiny assessment under CASS. Statutory notice u/s 143(2) of the

Income-tax Act, 1961 (in short “the Act”), was issued on 2.9.2014. In response to

the statutory notice the learned Authorized Representative of the assessee attended

the proceedings and filed requisite details which were placed on record by the

Assessing Officer. The Assessing Officer during the assessment proceedings

noticed that the assessee had sold a property at Kolkata on 9.7.2012 for a sum of

Rs. 1,44,00,000/- and computed long term capital gain at Rs. 1,19,02,758/- and

against this the assessee claimed deduction u/s 54 of the Act stating that he had

made investment in the Apartment at PPE 241 Block, DLF Park Place, DLF,

Gurgaon. The Assessing Officer partly allowed the claim of deduction u/s 54 and

computed the total capital gain at Rs. 1,11,54,834/- and income from other sources

at Rs. 4,26,712/-. Thus assessed income at Rs. 1,19,03,130/-. Aggrieved against

this the assessee preferred appeal before the learned CIT(Appeals), who after

3 ITA no. 6902/Del/2019 Om Prakash Vs. ITO considering the submissions dismissed the appeal. Now the assessee is in appeal

before this Tribunal.

submitted that the authorities below have failed to appreciate the facts in right

perspective and declined the whole claim of deduction u/s 54 of the Act on the

ground that the new asset was not acquired within the prescribed time. He

contended that the authorities below have erroneously observed that there was no

investment in the new asset one year before the original asset was transferred.

However, the case of the assessee is that the assessee entered into Buyer’s

agreement with the builder on 26.05.2010. He drew our attention to paper book

pages 27 to 62 and also took us through the Buyer’s agreement and particularly

drew our attention to clause 14 wherein the procedure for taking possession is

described. As per this clause, the Builder, upon obtaining certificate for occupation

and use from the competent authority, shall offer in writing possession of the said

apartment to the Allottee. In terms of this clause possession is required to be taken

within 30 days from the date of issue of such notice and the Company shall give

possession of the said apartment to the allottee, provided the allottee is not in

default of any of the terms and conditions. He further drew our attention to the

4 ITA no. 6902/Del/2019 Om Prakash Vs. ITO letter of offer for possession by builder letter dated 18.06.2012. As per this letter

the assessee was required to take possession not later than 27.09.2012. Therefore,

the learned counsel for the assessee vehemently argued that although substantial

payment was made on 15.03.2010 and 12.04.2010, the remaining payment was

made on 27.03.2012. Therefore, he argued that the purchase of new asset would be

construed from the date when the possession is taken by the assessee. For this the

learned counsel for the assessee placed reliance on the decision of the coordinate

Bench of the Tribunal in the case of Rajiv Madhok V. ACIT [2020] 117

taxmann.com 232 (Delhi-Trib.). Further reliance was placed upon the decision of

coordinate Bench of the Tribunal in the case of Ashok Kumar vs. ITO [2021] 125

taxmann.com 430 (Delhi-Trib.). He submitted that the issue is squarely covered in

favour of the assessee.

orders of the authorities below. He submitted that the law is very clear on this

point. The assessee ought to have purchased new asset one year before the transfer

of the original asset and there is no infirmity into the orders of the authorities

below.

record. The dispute in this case relates to entitlement of deduction u/s 54of the Act

5 ITA no. 6902/Del/2019 Om Prakash Vs. ITO by the assessee. For the sake of clarity and effective adjudication, section 54 of the

Act is reproduced herein below:

6 ITA no. 6902/Del/2019 Om Prakash Vs. ITO The provisions of this sub-section shall have effect as if for the words “one residential house in India”, the words “two residential houses in India” had been substituted; Any reference in this sub sub-section and sub-section (2) to “new asset” shall be construed as a reference to the two residential houses in India: Provided further that where during any assessment year, the assessee has exercised the option referred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year. [...] (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of assessee for furnishing the return of income under sub-section (7) of section 139]in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub- section (7), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset: Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.”

7 ITA no. 6902/Del/2019 Om Prakash Vs. ITO 7. The undisputed facts in this case are that the assessee sold the original asset

on 9.7.2017 for a sale consideration of Rs. 1,44,00,000/- and computed the long

term capital gains on this transaction at Rs. 1,19,02,758/-. The assessee claimed

deduction u/s 54 at Rs. 1,19,02,758/-. However, the AO restricted the deduction to

the extent of Rs. 8,42,028/-. The contention of the assessee is that the lower

authorities have erroneously taken the date of purchasing new asset as the date

when the assessee had paid the last instalment i.e. 27.03.2012. It is contended that

the possession of the new asset was taken on 18.06.2012 and original asset was

sold on 9.7.2012. Therefore, the requirement of law for purchasing new asset

within one year before the date on which the sale transaction of original asset took

place is met. Now the moot question is as to what is the date of purchasing of new

asset. In the present case following dates are relevant for consideration:

1) 26.05.2010 Apartment buyer agreement was executed.

2) 15.03.2011 to 27.03.2012 Payment of instalments are made

3) 18.06.2012 Letter of possession issued in respect of new Asset

4) 09.07.2012 Original asset is sold

5) 22.09.2015 Execution of conveyance deed in respect of New asset

8 ITA no. 6902/Del/2019 Om Prakash Vs. ITO 8. There is no dispute with regard to the fact that conveyance deed qua the new

asset was executed subsequent to sale of original asset. Section 54 speaks about

purchase of new asset within one year before the date on which transfer of the

original asset took place. In our considered view the AO has misdirected himself

by treating the date of initial payments made by the assessee as the date of

purchase of the new asset. It is to be borne in mind that as per Section 2(47) of the

Act, transfer in relation to a capital asset would also include any transaction

allowing of any immovable property to be taken or retained in part performance of

the contract of the nature referred to in Section 53A of the Transfer of property

Act, 1882 ( 4 of 1882). Therefore, date of purchase would be when possession is

offered by the builder in the present case. Since the payments made to builder

would construe part performance by the assessee. However, without possession he

would not be entitled for claiming transfer in terms of Section 2(47) of the Act.

There is no quarrel so far the mandate of law that in terms of Section 54, the

assessee is required to appropriate the capital gain towards the purchase of new

asset made within year. It is the purchase which should be made within one year

and in the absence of possession there would not be any transfer of capital asset,

hence no purchase of new asset in terms of Section 54 of the Act. Undisputedly,

the AO gave part relief by treating last instalment paid by the assessee as the

capital gain appropriated within one year. In our view this act is not as per the

9 ITA no. 6902/Del/2019 Om Prakash Vs. ITO intent of the provision. The possession of new asset was given by the builder

within one year of sale of original asset. The date of handing over of possession

would be date of purchase, since right over the property passed on the day of

handing over of possession. Our view is also supported by the ratio of decision of

the Hon’ble Bombay High Court in the case of CIT Vs. Smt. Beena K. Jain [

(1996) 217 ITR 363], approving the view taken by co-ordinate Bench of this

Tribunal, by observing as under:

“Under section 54F of the Income-tax Act, in the case of an assessee if any capital gain arises from the transfer of any long-term capital asset, not being a residential house, and the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased a residential house, the capital gain shall be dealt with as provided in that section. As per the section certain exemption has to be allowed in respect of the capital gains to be calculated as set out therein. The Department contends that the assessee did not purchase the residential house either one year prior to or two years after the sale of the capital asset which resulted in the long-term capital gains. According to the Department, the agreement for purchase of the new flat was entered into more than one year prior to the sale. Hence, the petitioner is not entitled to the benefit under section 54F. In our view, the Tribunal has rightly negatived this contention and has held that the new residential house had been purchased by the assessee within two years after the sale of the capital asset which resulted in long-term capital gains. The Tribunal has held that the relevant date in this connection is July 29, 1988, when the petitioner paid the full consideration amount on the flat becoming ready for occupation and obtained possession of the flat. This has been taken by the Tribunal as the date of purchase. The Tribunal has looked at the substance of the transaction and come to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by payment of full consideration on July 29, 1988, and handing over of possession of the flat on the next day.”

10 ITA no. 6902/Del/2019 Om Prakash Vs. ITO 9. Respectfully following the Hon’ble Bombay High Court in the case of CIT

Vs. Smt Bina K. Jain (supra), we hold that the assessee is entitled for deduction

u/s 54 of the Act. We, therefore, direct the AO to grant deduction u/s 54 of the Act

as claimed by the assessee and delete the impugned additions. The grounds raised

in this appeal are allowed in terms indicated hereinabove.

Sd/- Sd/- (NARENDRA KUMAR BILLAIYA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER

*MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI