ANU KOHLI ,HYDERABAD vs. INCOME TAX OFFICER, WARD-12(2), HYDERABAD

This is assessee’s appeal for the A.Y 2016-17 against the order of the CIT (A)-1, Hyderabad, dated 28.08.2019.

Sri Bodh Raj Abrol on 4.6.1959 from one Shri Diwan Kishan Chand and subsequently his legal heirs got it on succession. It was observed that the assessee, Smt. Anu Kohli, succeeded to this property along with her brother Sri Sushil Kumar Abrol and sister Smt. Geeta Luthra on the death of her mother Smt. Prabha Abrol on 29.07.2011 as one of the legal heirs and that she got the ownership of 1/3rd in the property. The AO observed that the assessee has got the property under succession only from 27.09.2011 i.e after the death of her mother. The AO observed that the assessee has given her share of the property to the Developer and got her share in the new building which has been sold for an amount of Rs.2.25 crores and has claimed deduction thereof u/s 54F of the Act on investment in the new residential building named “ANTHEM VISTAS” at Devaryamjal Village, Shamirpet Mandal, R.R. District for a consideration of Rs.1,20,00,000/- on 25.02.2016 and that she claimed to have spent further sum of Rs.73,05,619/- towards its improvement. The AO observed that since the assessee has incurred certain expenditure after 31.07.2016 i.e. after the due date of filing the return of income u/s 139(1) of the I.T. Act, he restricted the claim of deduction u/s 54F and brought the income from long term capital gain at Rs.86,05,120/- to tax. Aggrieved, the assessee preferred an appeal before the CIT (A) who observed that the assessee has become the owner of the property as per partition deed dated 13.0-4.2014 and therefore, the capital gain that has arisen to the assessee is short term capital gain and there is no allowability of exemption u/s 54. Accordingly, an enhancement notice was given to the assessee. The assessee explained that the assessee has become the absolute owner of her share of the property through succession on the death of their mother and therefore, she should be held to be owning the property through Page 2 of 6 of 2019 Anu Kohli Hyderabad. its previous owners and therefore, the gain derived by the assessee on parting with her share of the property is long term capital gain and not short term capital gain as observed by the CIT (A). She also explained that in view of the property to be received under the development agreement, the assessee has received the sale consideration from the developer and the same has been invested in a residential property at Hyderabad and therefore, the assessee is eligible for deduction u/s 54F of the Act. The CIT (A) however, held that the gain received by the assessee is short term capital gain and therefore, the assessee is not eligible for exemption u/s 54F. Aggrieved, the assessee is in second appeal before us by raising the following grounds of appeal: “Annexure to Form No. 36 in the matter of Smt Anu Kohli against the order U/s 250 of the I T Act passed by CIT(A) - 1 in Appeal No. 10235/2018-19/ITO 12(2)/CIT(A)1/Hyd/2019-20 dated 28/08/2019 received on 16/09/2019 - AY 2016-17 - Reg.

1. The order of Ld. CIT(A) by issuing enhancement notice u/s 251 (2) treating long term capital gain as short term capital gain and disallowing claim u/s 54 & confirming AO's order without adjudicating the legal issues raised is erroneous in law, contrary to facts, probabilities of the case and against the principles of equity and natural justice.

2. The Ld. CIT(A) erred in law by not appreciating in proper perspective the fact that appellant became the absolute owner of the property sold on 05/11/2015 vide the registered will of her late grandmother dated 12/01/2012 and not vide partition deed dated 13/04/2014 which has only reiterated the contents of the will and hence the gain arisen is to be taxed as long term capital gain against as short term capital gain as proposed by Ld. CIT(A) vide her enhancement notice u/s 251 (2) dated 17/07/2019, thus the enhancement is null and void.

3. Ld. CIT(A) further erred in facts in directing the AO to disallow the exemption u/s 54 by holding the gain to be short term in nature where in fact the gain is long term in nature and all the expenditure u/s 54 claimed by appellant of Rs. 1,88,72,754/- is towards purchase cost along with registration expenses and other expenses incurred for making the dwelling unit habitable which of 2019 Anu Kohli Hyderabad. are duly supported by necessary documents and hence the claim u/s 54 is to be allowed. 4. For these and other reasons that may be urged at the time of hearing, the appellant prays the Honorable Tribunal to kindly delete the addition made by AO and cancel the enhancement made by CIT(A)”.

3. After hearing both the parties at length and after considering the material on record, we find that the property was originally purchased by the grandfather of the assessee Sri Bodh Raj Abrol and on his death, the assessee’s grandmother became the owner of the property and the assessee’s grandmother, had entered into a development agreement with M/s. Naada Buildtech Pvt Ltd on 2/1/2012 for reconstruction and redevelopment of the said property to be comprising of Stilt, Basement, Ground, First, Second and Third Floors with Terrace. Thereafter, on 12/01/2012, Smt. Nirmala Abrol executed a Registered Will Deed registered on 27/01.2012, bequeathing the 2nd floor portion of the proposed developed property to the assessee before us. After the death of Smt. Nirmala Abrol on 7/6/2012, the assessee and other legal heirs executed the partnership deed, dated 30/10/2014, reconfirming the shares of the property devolving amongst them. Thus, the assessee’s ownership over her share of the property should not only be held from the date of death of her grandmother on 7.6.2012, but also through her grandparents since the date of purchase of the property. We find that the assessee’s grandmother has entered into the development agreement and the assessee was given a share of the constructed property, and the partition deed only reaffirms the assessee’s share of the property by metes and bounds. Therefore, we are satisfied that the gain received by the assessee is long term capital gain and not short- term capital gain as held by the CIT (A). of 2019 Anu Kohli Hyderabad.

4. With regard to the claim of exemption u/s 54 of the Act, we find that though the assessee has claimed the entire amount to have been invested in the property, the AO has held that the assessee has incurred some of the expenditure after 31.07.2017 i.e. the due date for filing of the return of income u/s 139(1) of the Act. However, we find that the entire expenditure has been incurred before the due date of filing of the return u/s 139(4) of the Act. The Coordinate Bench of the Tribunal at Mumbai in the case of Kishore H. Galaiya vs. ITO reported in (2012) 137 ITD 229 has held that the investment of capital gain within three years of sale of the property on construction of new residential house was eligible for exemption u/s 54 even though the possession of the flat was taken up afterwords and that the non-deposit of balance amount in capital gain account was only a technical default and also that the due date of filing u/s 139(1) has to be construed as date of filing returns u/s 139(4) of the Act. Further, the Coordinate Bench of the Tribunal at Pune reported in (2019) 179 ITD 265 Pune in the case of Kamal Murlidhar Mokashi vs. ITO has also confirmed this view. Respectfully following the same, we hold that the assessee is eligible for deduction u/s 54F of the Act in respect of all the expenses incurred by her before the date of filing her return of income u/s 139(4) of the Act. Since the assessee has claimed to have invested the entire sum before the due date of filing of the return u/s 139(4) of the Act, for the limited purpose of verifying the above claim, the issue is set aside to the file of the AO. Further, the learned Counsel for the assessee has also pointed out the inconsistencies in adopting the cost of acquisition by the AO and the period of indexation adopted by the AO only from financial year 2011-12 whereas the property was held by the grandparents of the assessee since 1959. We direct of 2019 Anu Kohli Hyderabad.

the AO to consider all these aspects and recompute the LTCG in accordance with law.