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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 517/JP/2013
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 517/JP/2013 fu/kZkj.k o"kZ@Assessment Years : 2009-10 cuke Shri Goverdhan Singh Shekhawat, The ITO, Vs. Plot No. 19, Opp. Sector-8, Ward-6(1), Jai Shree Nagar, Malviya Nagar, Jaipur Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ASBPS2383M vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Mahendra Gargieya (Adv.) jktLo dh vksj ls@ Revenue by : Shri Varindar Mehta (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 15/10/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement :11/01/2019 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the assessee against the order of ld. CIT(A)-II, Jaipur dated 04.03.2013 for Assessment Year 2009-10 wherein the assessee has taken the following grounds of appeal:-
“1. The impugned additions and disallowances made in the order u/s 143(3) of the Act dated 05.12.2011 are bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted. 2. Rs. 3,42,31,397/-: The ld. CIT(A) erred in law as well as on the facts of the case in partly confirming the addition of Rs.
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3,55,40,752 as made by the AO to Rs. 3,42,31,397/- on account of Long Term Capital Gain (“LTCG for short) by rejecting exemption u/s 54F of the Act. The addition so made and confirmed by the CIT(A), being totally contrary to the provisions of law and facts of the case, kindly be deleted in full. 3. The ld. AO further erred in law as well as on the facts of the case in charging interest u/s 234B & 234D of the Act and as also in withdrawing interest u/s 244A of the Act. The appellant totally denies its liability for charging and withdrawal of any such interest. The interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full.”
Briefly stated, the facts of the case are that during the year under consideration, the assessee had received certain compensation on compulsory acquisition of his land by RIICO. In the return of income, the assessee has offered the said receipts to tax as long term capital gains and has claimed exemption u/s 54F on account of sale consideration deposited in Capital Gain Account Scheme 1988. During the course of assessment proceedings, the Assessing Officer on verification of the assessee’s aforesaid bank account found that the said account was not a Capital Gain Scheme Account and therefore, denied the exemption u/s 54F of the Act and assessment order was passed u/s 143(3) bringing the long term capital gains to tax. On appeal, the ld CIT(A) has confirmed the order of the Assessing officer and has upheld the denial of exemption. Against the said findings and denial of exemption, the assessee is now in appeal before us.
During the course of hearing, the ld AR submitted that it was represented by the bank to the assessee that they would open the capital gain account and therefore, the assessee proceeded to make
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deposit in that account. The bank itself has confirmed the fact of opening up of capital gain account which is appearing in the certificate issued by the bank and has been placed on record. It was further submitted that the assessee was not assisted by any tax consultant at the time of opening up of the account and when the bank itself has represented that it is going to open the capital gain account, no fault could be found with the assessee in its belief of compliance with the relevant provisions of the Act. Though the assessee may be aware of the broad provision and compliance of the law, one cannot expect the assessee to be aware of very minute provisions which needed deep understanding of the provisions of the Act. This contention further finds support from the fact that this was the first return of income of the assessee. It was further submitted that the assessee even deposited the refund of TDS by RIICO which was of substantial amount in the same bank account and has there been any doubt regarding this being a capital gain account, the assessee would never have deposited the same in that account. It was further submitted that the assessee has duly disclosed the bank account number in its return of income as well as in the computation of total income enclosed with the return of income. Thus there was no concealment of any fact and whatever information was in the possession of the assessee, the same was duly offered without any reservation. It was accordingly submitted that there was absolutely no malafide intention on the part of the assessee to have deposited the amount as has been represented by the bank.
It was further submitted by the ld AR that there has absolutely been no use of the amount deposited in the said bank account except for the purposes of utilization as per provisions of section 54F. Out of
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the amount so deposited, the amount has been withdrawn for purchasing of plot and later on for construction thereupon. In support, our reference was drawn to the assessee’s bank statement available at APB Pages 51-52. It was accordingly submitted that there has been complete compliance and the assessee has followed the provision in its true spirit with its letter and intent. Once there has been substantial compliance of the provisions of the Act, the act of depositing the amount in any account is not significant, in so far as allowing of the exemption U/s 54F is concerned. It was further submitted that the assessee during the assessment proceedings has submitted before the Assessing officer that where so directed, the assessee is ready to open a capital gain account and transfer the amount to any such capital gain as the assessee otherwise has not utilized the amount elsewhere except as per requirement of the provisions of section 54F of the Act. It was submitted that in spite of above submissions, the AO has not acceded to assessee’s contentions and has denied the exemption u/s 54F of the Act.
It was further submitted that some of the notable facts were not judiciously considered by the AO and/or were not denied by the AO though having a vital effect on the controversy in hand. Firstly, it is not denied that this was the very first return filed by the appellant (in the sense that prior to this, ROI, though filed but normally declaring exempted agriculture income only which never required the appellant to consult a tax consultant). There was no occasion and he was not aware of the complexities of the tax laws which are all the more tedious and difficult to understand because of the frequent amendments, even by a professional what to talk of a poor appellant/layman. Also he was not
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aware of Bank regulations and procedures as case may be with AO Too. The ld. CIT(A) quoted the figures of LTCG of Rs. 3.47 crores shown in the original ROI and Rs. 3.59 crores in the revised ROI and held that contention of unawareness cannot be trusted. Whereas the very fact that the appellant in the original ROI wrongly considered a different figure but corrected in the revised ROI proves that he was not aware of the taxation laws and its complexities.
It was further submitted that the appellant undisputedly made deposits of the entire amount received Rs.3,20,04,256/- (after TDS) and even the TDS refund of Rs.39,34,824/- was also deposited in the bank a/c as per his limited knowledge. Unfortunately even the ld. CIT(A) herself wrongly stated that the assessee deposited only Rs.3.20 crores completely ignoring that TDS of Rs.39,34,824/- which was already deducted and not given to the assessee. The assessee therefore, declared the entire compensation of Rs.3.59 crores in revised ROI. Thus, when the CIT(A) herself committed a mistake how a layman can be expected. A note on the revised ROI, clarification vide letter dated 17.06.2011 and 28.01.2011, were completely ignored hence, no wrong information as such was provided. No bad motive was shown by the AO. Also there was no special gain for the assessee to deposit in SB a/c and not in CGAS a/c. The assessee always intended to construct the new house after the said deposit.
It was further submitted that before the very opening of the account and depositing therein, the assessee fully discussed the issue with the banker (to ensure the deduction and compliance of Tax laws) and only after feeling convinced on the assurance given by the Bank
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Manager that it was deposited under CGAS a/c which was eligible for deduction u/s 54F hence, he could think of depositing such a huge amount therein. This was all the more convincing when a senior officer of the rank of a Branch manager of a reputed bank like HDFC certified in black and white vide certificate dated 11.11.2009, categorically certifying that such deposit made were under CGAS. Therefore, there was no reason to have any doubt by a layman.
It was submitted that unfortunately, even the ld. CIT(A) completely ignored vital piece of evidence even though annexed to her order. The enquiries made later on after 2 years with the bank by the AO and its replies dated 14.06.2011 and 15.11.2011 stating that it was a normal SB a/c, are not decisive to negative the circumstances, to disprove the above certificate and to judge the correctness of the decision taken by the appellant at the relevant point of time. These replies neither states that earlier certificate dated 11.11.2009 as false or incorrect nor explains why there is a shift in the stand by the bank. Referring to the a/c opening form was also not relevant once the manger assured. The AO completely failed to prove that it was not a CGAS but a normal SB A/C. What is apparent is real unless proved wrong. Moreover the onus to prove it wrong is on the person who is saying that apparent is wrong as held in CIT Vs. Daulat Ram Rawatmull (1973) 87 ITR 0349 (SC).
It was further submitted that the intention or bonafides is neither under doubt nor it is doubted. The appellant duly disclosed the information in the return. It is pertinent to note that during the entire period prescribed for utilization, the appellant did not use the amount
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so deposited for any purpose other than for purchasing a plot and for construction thereon, which totaled to Rs.79,08,495/-. It is further pertinent to note that the appellant even requested the ld. AO to guide him if he still required the assessee to transfer the funds to some other capital gain a/c vide letter 17.06.2011 but the ld. AO kept a silence. The appellant, thereafter, when attachment was lifted from the said account, transferred the funds to a Nationalized Bank, Union Bank of India meaning thereby the appellant did make all the possible efforts to comply the law with the best of his understanding and capabilities. No bad motive was shown by the AO. The assessee always intended to construct a new house.
The ld AR drawn our reference to CBDT circular No.14 dated 11.04.1955 wherein the CBDT has emphasized that the AO should guide the assessee so that the correct income is assessed as per the provisions of the Act. In this circular, the CBDT has emphasized that the Department should not take advantage of the assessee’s ignorance. Even the ld. CIT(A) was silent on this aspect. In support, reliance was placed on the cases of Smt. Rajrani Gulati v/s. CIT (2012) 249 CTR 51 (All.), ACIT v. Technofab Engg. Ltd. (2009) TIOL 664 ITAT (Del.).
It was submitted that above facts thus, clearly show that a substantive compliance of the law was made by the appellant. The legislature, with a view to encourage the housing sector intended that sale consideration should not remain with the appellant but should be used within a stipulated period of 2/3 yrs. The amended law further ensured that such amount should be kept deposited in the bank and the appellant be not allowed to use the funds freely for other purposes.
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This legislative intent was duly met with when the entire sale consideration was out of the pocket of the appellant. Moreover, technically speaking there is no much difference between an ordinary SB account and CGAS account.
In support, reliance was placed on following cases where the Courts have permitted deduction on substantive compliance ignoring technical breaches.
Kishore H. Galaiya v/s ITO (2012) 150 TTJ 444 (Mumbai) wherein it was held as under:
“Capital Gains – Exemption under S.54-Constuction of new house- Assessee sold his old residential flat On 7th March, 2006, booked a new residential flat with a builder and paid a total sum of Rs.14,62,500 towards installments till 16th Feb.,2009- This was a case of construction of new residential house – Assessee having spent more than the capital gains i.e.., Rs. 9,98,411 within three years on construction of new residential house, was eligible for exemption under s. 54 even though possession of flat was taken afterwards- Non-deposit of balance amount in capital gains account scheme was only a technical default.
Shri Jagtar Singh Chawla vs. ACIT in ITA No. 4923/Del./2010 for A.Y. 2007-08 is also a case, the facts of which are similar to appellant’s case. In this case also as per Para 5, the branch manager misled the assessee and deposited the cheque given to him in flexi deposit scheme assuring that it was in the notified capital gain account. The Tribunal, in Para 7 of its order referred to these facts and held that the assessee was
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under a bonafide belief and always intended to reinvest in the scheme, therefore qualified for deduction u/s 54F and the findings are as under:
“7. After hearing both the sides on the issue, we hold as under:-
The assessee has sold agricultural land and a residential house for Rs.2.16 crores and Rs.8,25,000/- respectively located at Karnal. There is no dispute regarding this fact that the assessee has earned long term capital gains. First dispute is regarding the investment of the long term capital gain in the flexi deposit scheme in the bank. The assessee claims that he has handed over the cheques to the branch manager to deposit the same in capital gain scheme account but he invested in the flexi deposit scheme of the bank although the assessee’s intention was always to invest in the capital gain scheme account. The assessee was always under the bonafide belief that the amount has been invested in the capital gain scheme account only. The copy of letter written by the assessee to the branch manager for forwarding the cheques shows that the intention of the assessee was to invest in capital gain scheme account (copy placed at page 20 of the paper book). The request made to the bank manager was to open a capital gain scheme account. This intention of assessee was always to reinvest in the scheme which qualify for the exception of capital gain tax. Further, the assessee has invested Rs.2 crores in the purchase of the new house by 23.04.2008……”
Though the Revenue challenged that same before the Hon’ble Punjab and Haryana High Court in ACIT vs Shri Jagtar Singh Chawla (2013) 259 CTR 388/ 87 DTR 217 (P&H), but this particular aspect was not at all challenged and therefore, has become final.
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Jagan Nath Singh Lodha v/s ITO (2004) 85 TTJ 173 (Jd) wherein it was held as under:
“Capital gains—Exemption under s. 54F—Non deposit of gains in the Capital Gains Account Scheme—Assessee selling his plot on 4th Jan., 1995, and advanced a sum of Rs. 2 lakhs on 16th April, 1995 for purchase of a house—Transaction did not materialize and amount advanced received back by assessee on 17th Dec., 1995—Assessee again entered into agreement on 6th Jan., 1996, for purchase of a flat and took possession thereof on 30th March, 1996, after paying the consideration of Rs. 4,01,000—AO denying exemption under s. 54F on the ground that assessee failed to purchase another house before filing return under s. 139(1) and also failed to deposit the amount in capital gains account—Not justified—Intention of assessee from the very beginning was to purchase residential house and he having done so within two years of sale of plot, he was entitled to exemption under u/s 54F in respect of the amount invested.”
DI vs Agrim Charan Foundation (2002) 253 ITR 593/ 172 CTR 95 (Del.) which was a case relating to the investment made in the specified asset under a bonafide belief and on a wrong representation made resulting into contravention of S. 11(5), but the Tribunal allowed the benefit of S.11. It was held as under:
“Charitable trust—Exemption under s. 11—Contravention of s. 11(5)— Tribunal found that although the assessee-trust had made deposits with two concerns relying on their misrepresentation that the concerns were authorised to accept deposits from charitable trusts, there were no mala fides and the assessee-trust immediately withdrew the deposits on
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becoming aware of the fact that the said concerns were not permitted to receive deposits—Therefore, there is no infirmity in the order of the Tribunal allowing assessee’s claim for exemption under s. 11 requiring any interference”
Without prejudice to the above, it was submitted that the appellant has made investment in new house property amounting to Rs.79,08,495/- before due date of filing of return of income u/s 139(1) and has claimed exemption u/s 54F of the Act and even the same has been denied to the appellant. It was submitted that during the course of assessment proceedings, the appellant claimed deduction u/s 54F on account of the cost of part construction of a new residential house at 10, Jaishree Nagar, Opp. Malviya Nagar sector-8, Jaipur for Rs.79,08,495/- (including cost of land of Rs. 41 lakhs).
In this regard, our reference was drawn to the written submissions dated 21.11.2011 filed during the course of assessment proceedings and the relevant extracts thereof which reads as under:
"--------- Report & Certificate of Registered Valuer as Well as Inspection of Deptt. Shows Incomplete Structure: A perusal of the report of the registered valuer will show that even the assessee could not complete the flooring, painting, door window work etc. (refer para 12 of the report). Besides in para 9 also, the property has been shown as incomplete. Thus it was beyond imagination to use the same for residential purposes where even the basic work could not be completed.
Even in your inspection, the deptt. must have found incomplete construction here and there and absence of wall within the hall as seen
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from the photographs. Your goodself has considered the property as commercial only from the angle of the current use but the fact is otherwise.
Property Given on Lease only w.e.f. 15-10-2011: It is submitted that the property under question was given on lease only w.e.f. 15-10-2011 to one M/s Silver Smile Marketing Pvt. Ltd. and in support of the same, we are enclosing herewith the copy of agreement (PB 20-25) for your kind perusal. It was never rented out or leased out before that date.
This also proves the bona fide intention of the assessee that the property was not used for other use within the period of 3 years and it is only after the assessee became frustrated for not being able to use it for residential purpose, the property was let out in October as such.”
It was submitted that some of the vital facts were not noted/ purportedly ignored. Firstly, the subjected construction was going on a small plot measuring 381.11 sq. yards from Mitra Grih Nirman Sahkari Samiti Ltd. in a residential colony namely Jaishree Nagar at Malviya Nagar, Jaipur as evident from the sale deed dated 29.08.2008 purchase for Rs. 41 lakhs. The other surrounding plots no.4, 9 & 11 are all residential plots. These facts are also evident from the report of the Approved Valuer. The water and electricity connection were also taken for domestic purpose only. The appellant, not having any other residential house purchased the same with a view to construct a residence only. The land use of the plot was never got converted in commercial nor it is alleged so. Therefore any commercial construction was prohibited under law. In support, reliance was placed on the Tribunal’s decision in the case of Shri Hardayal Singh in ITA No.
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340/JP/13 dated 29.01.2016) declined a claim made u/s 54F based on the construction claimed in the Mansarover area, saying that such activities were prohibited by the HC hence the claim was not allowable. Had the assessee intended to use the property commercially it must have take steps in that direction. Thus, legally only a residence could be constructed and any commercial construction was not at all possible.
It was further submitted that as per the plan and blueprint, the appellant was to construct a basement, ground floor first, second and third floor. It is admitted fact that at the point of time when the valuer visited on 19.10.11 and IT inspector visited, the subjected property was incomplete and was under construction. Firstly, the valuer himself stated the subject construction to be incomplete. The finding of the A.O with reference to statement is notable and as under:
“He was asked whether the building visited and valued by him i.e. 10, Jaishree Nagar, Jawahar Circle, Jaipur was residential or commercial. He stated that it was incomplete commercial structure (Q.No.-5).”
Secondly, a perusal of the report of the registered valuer will show that a substantial part of construction was pending and even the appellant could not complete flooring, painting, door window work etc. (refer para 9 & 12 of the report). Hence it was an incomplete structure only. It was beyond imagination to use the same for residential purposes where even the basic work could not be completed. Thus, it was premature to say whether the subjected construction was residential/ commercial/ something else. There was a toilet already existing at the ground floor and a hall was constructed based on load bearing structure and hence
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by creating partition walls, rooms could be created to serve the purpose of a house. This was relied upon even by the Approved Valuer himself.
It was further submitted that the law contemplates the nature of property to be of residential primarily in the period of 2/3 yrs which can also continue in the same nature but this also depends on the circumstances after the prescribed period of 3 yrs (for construction of a new house). Admittedly the subjected property was given on lease only w.e.f. 15.10.2011 to one M/s Silver Smile Marketing Pvt. Ltd. and in support of the same, a copy of agreement was also filled. It was never rented out or leased out before that date. This lease also continued for 4-5 months only. Therefore, the reliance placed on this fact and the photographs is completely misplaced. The front part shown is the photographs now is not relevant because the appellant feeling frustrated, leased out the property and has made some small temporary changes.
In support, reliance was placed on following case laws:
B.B. Sarkar v/s CIT, West Bengal-IV (1981) 132 ITR 150 (Cal) wherein it was held as under:
“The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is partly constructed or partly purchased”
Prem Prakash Bhutani v/s ACIT (2007) 110 TTJ 440 (Del) wherein it was held as under:
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“Capital gains—Exemption under s. 54—Investment in two or more flats for family—Sec. 54 does not require the building to be constructed in a particular manner and the only requirement is that it should be used for residential purposes—The fact that the residential house consists of several independent units cannot be an impediment to relief under s. 54—Ration card showing that all the residents of new house built by assessee were his family members—Having accepted the case of assessee in principle, CIT(A) was not justified in excluding widowed daughter and her family staying with the assessee from the array of family members and restricting the exemption to two out of three flats—Assessee having acquired three flats out of capital gains and using them for residence of his family, was entitled to exemption under s. 54 in respect of all the three of them”
Also reliance was placed on the decisions in case of Satish Chandra Gupta (1995) 53 TTJ 578 (Del), Smt. Shashi Varma (1999) 152 CTR 227(MP) and Sardarmal Kothari (2008) 217 CTR 414 (Mad).
It was further submitted that the learned CIT(A) ought to have appreciated the 'purposive approach' to the issue in hand and ought to have appreciated that the appellant had invested Rs.41 lakhs till Aug 2008. And in any event the purchase of land qualifies for relief as per the CBDT circular 667 dt 18-10-1993, 204 ITR St 103.
It was further submitted that the appellant who is basically a farmer belonging to a Thakur family of village Ranoli district Sikar. The original land on which the assessee was to construct a house, when acquired, the appellant purchased the present land for constructing his
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own house. The appellant having being resident of a village was used to big and open space. Therefore, while shifting to the city, he dreamed and planned the construction of a big size house providing the same feel and comfort to the extent possible. The family of the appellant consisted of himself, two brothers, with parents at that time. There is no separation in the family till date and they always resided and continues to reside as a one single unit. Because of this strong bonding, the appellant wanted to ensure proper space for his parents, other two brothers and the other cousins. The hall at the ground floor was constructed with a view to have a large size drawing room (बैठक) were
planned. The construction of the bed rooms, kitchen, toilet etc. was planned at first floor and other floors thereafter as stated above. A blue print supports the contention. Plans were given to the Registrar Valuer available at APB Page 31 but he was not asked w.r.t I & II floor.
It was submitted that the A.O heavily relied upon the statement of the approved valuer recorded on 24.11.2011. However, such material does not improve the case of the Revenue and otherwise has to be ignored/ rejected altogether for the reasons that firstly, the subjected construction was incomplete. Secondly, the A.O proceeded in a great haste in as much as copy of these statements could be received only after 05.12.2011 when assessment proceedings stood completed and the appellant never knew the date of 02.12.2011. Thus, the appellant could not have had the opportunity of cross examination of the approved valuer. This way, though the ld. AO confronted the appellant with the material but only for name sake and unless the appellant was given an opportunity to cross examine, the law clearly prohibits the use
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of such a testimony given by the witness. Kindly refer Vimal Chandra Golecha v/s ITO & Anr. (1982) 134 ITR 119 (Raj.), ITO & Anr. v/s Gargidin Jwala Prasad Maholi & Ors. (1980) 124 ITR 203 (All). Hence any addition based on the basis of the material collected and not confronted to the appellant, has to be deleted altogether on this short ground alone.
It was further submitted that the property purchased by the assessee is residential only and not commercial. With incomplete construction, there was no possibility of any use of the property except for letting out the same, which too was done after lapse of 3 years. The property was purchased by the assessee with a view to construct a residential house. Some structural work was also carried on by the assessee but meanwhile the bank account of the assessee in which the entire proceeds of the sale of property was kept was seized by the tax Department vide order no. 1497 dt.1-12-2010. Afterwards repeated requests were made by the assessee to release the bank account with a plea that it will never be able to complete the construction within the given deadline unless the bank account is released. One such written request was made on 18-1-2011 itself before the ld. DCIT, Circle-II, Jaipur. Despite such repeated attempts, the bank account was not released in time.
It was submitted that it is an established principle of law that a person cannot be expected to perform something which is impossible. The well settled principle is that law does not compel doing impossibilities-impossibilium nulla obligatio est. There is no obligation to do impossible things. The ld. Assessing officer wanted the appellant to
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perform/fulfill a condition which was impossible to perform in as much as Sec.54F permitted to invest sale consideration in the purchase/construction of new house within a period of 2/3 years from the date of sale (when assessee got compensation) i.e. 16/07/2008 and accordingly, the last date for construction of new house was 16.07.2011 whereas the bank a/c with HDFC wherein the entire sale consideration was deposited, was already stood attached u/s 281B vide order no. 1497 dated 01.12.2010 hence no withdrawal or transfer was permissible. Various requests of the appellant dated 09.12.2010, 18.01.2011,28.01.2011 and 12.05.2011 and thereafter even on 12.12.2011, were not considered/rejected and such attachment was further extended for next 6 months vide letter no. 790 dated 01.06.2011 and even further extended for next 6 months i.e. upto 30.06.2012 vide letter no. 3662 dated 29.11.2011. Even thereafter, the stay continued as evident from their further letter dated 09.12.2011 and notice u/s 226(3) no.3818 dated 09.12.2011 to the HDFC Bank.
It was submitted that since 01.12.2010, the appellant had no access to its funds. Unfortunately, a substantial period of 71/2 months was curtailed depriving the appellant to avail the exemption. On the other hand, the ld. AO rejected the claim made u/s 54F on the ground that construction of new property was not completed within 3 years i.e. upto 16.07.2011. The legislative intention was that the sale consideration, if invested in residential house, shall give a boost to the housing sector. Therefore, the appellant must have been allowed the period prescribed in law. Before the expiry of the statutory period of 3 years, it could not be said that the appellant could not comply with the conditions laid u/s 54F. The inability of the appellant to fulfill the
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condition of making investment of the sale consideration in the residential house within the prescribed time limit was impossibility due to the attachment over the bank a/c as above. Thus, Doctrine of impossibility of performance applies in all force in this case and hence, the appellant cannot be denied the exemption claimed u/s 54F. It may be clarified that the appellant was not able to get a loan and even if he could arrange, as per Revenue’s stand it was not permissible.
It was submitted that the Doctrine of impossibility of performance has been recognized and frequently applied by the Courts. Kindly refer National Aviation Co. of India v/s Deputy Commissioner of Income Tax (2011) 137 TTJ 662 (Mumbai)/53 DTR 379 wherein it was held that:
“TDS—Payment to non-resident—Payment as per arbitral award abroad vis-a-vis impossibility of performance—If the payment does not contain the element of income, the payer cannot be made liable and he cannot be declared to be an assessee in default—Assessee cannot be shut out from taking a legal lea that the payment is not chargeable to tax under the provisions of the Act—Award in question has not been confirmed by any Indian Court and it cannot be said that CPC applies to this award— Court in India has not been approached for deciding the enforceability of the award—Proposition of the counsel for the assessee that in the case of an arbitral award, it is a deemed decree and hence a judgment debt is not sustainable—However, facts demonstrate beyond doubt that the assessee had bona fide made all possible efforts to comply with the order of the IT Department under s. 195(2)—Issues were not within the assessee’s control—Assessee has approached each and every forum and Court with a plea that he be allowed to comply with the order
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passed under s. 195(2) passed by the AO—Courts of Appeal in UK have not permitted it to comply and on the other hand, by directing the assessee to pay the amount into the escrow account of the solicitors, for which even the RBI permitted and thereafter allowing C to withdraw the same, made it impossible for the assessee to deduct tax at source and put the issues beyond the control of the assessee—Doctrine of impossibility of performance applies in all force in this case—Due to uncontrollable circumstances, the performance of the obligation to deduct tax at source and remit the same to the Government became impossible—Under the peculiar facts and circumstances of the case, the assessee cannot be held to be an assessee in default in terms of ss. 201 and 201(1A)”
In case of Jagdish Malpani v/s ACIT (2005) 94 TTJ 321 (Ind), it was held held as under:
“Admittedly, there was fire in the strong room of the Department wherein the seized books and documents of the assessee were destroyed. Had the same not been destroyed, admittedly, there was no excuse with the assessee for filing the return late. The assessee had also applied for the copies of the seized books and documents to the Department along with required challan of Rs. 100 but due to destruction of the same in the fire, these could not be supplied by the Department to the assessee. There is also no doubt that whatever reason for the delay has been assigned by the assessee which was beyond his power and control is bona fide one. Though impossibility of performance is in general no excuse for not performing an obligation, yet when the obligation is one implied by law, impossibility of
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performance is a good excuse. There is also no dispute that provision laid down under s. 80 is a machinery provision. Rule of strict construction applies only to charging provision or one imposing penalty and not machinery provision. Thus, there was sufficient reason beyond his power and control with the assessee for delay in filing the return and the law does not compel a man to do that which he cannot possibly perform. There is no reason to deny the claim of carry forward of loss of the assessee only on the basis that the return was filed late due to the reason which was admittedly a bona fide one beyond the power and control of both the parties. The AO is directed to allow the claim of carry forward of the loss while accepting the return of income filed by the assessee.—CIT vs. National Taj Traders (1980) 14 CTR (SC) 348 : (1980) 1 SCC 370 applied.”
It was further submitted that on one hand, the department has denied the benefit to the assessee of the deduction claimed u/s 54F merely on a technical and venial breach of the law (if assumed it is to be so) of making a deposit in a private bank which is not a designated Capital Gain Account however, and at the same time they did not appreciate that the assessee has already been put to a great loss in as much as at the time of acquisition of the subjected piece of land, the assessee was paid only 1/4th of the auction prices by the JDA and not even the full value of the property acquired. It is otherwise a matter of common knowledge that the auction prices at which the JDA acquires land, used to remain much below the prevailing Fair Market Prices and this way, what the assessee could get, was hardly 20% of the prevailing Market Prices and hence the assessee has been put to a great loss and made to suffer on many counts. Considering this aspect, the mere fact
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of deposit in a Private Bank but not in the designated account was not such a big default (if assumed) so as to deny the whole benefit of the deduction.
Needless to say, it is only because of the ignorance of the assessee, who was not much conversant with the complexities of tax laws to take care of such a complicated requirement of law, which even an educated tax payer perhaps could not have known unless advised. Further the awareness program about the provisions of the Income Tax Act existing in a lucid manner, for a layman citizen, is not easily available in our country. The underline purpose having already been achieved being that the subjected sales considerations being out of the pocket of the assessee, it has come into the productive national use as per the intention of the legislature. Thus taking a circumspect view of the entire issue in hand, the assessee fully deserves the benefit of the deduction so claimed. The appellant feel compelled to say that the totality of facts and circumstances and the way, the ld. AO proceeded in this case, clearly shows a highly arbitrary and capricious approach on his part when he went even to the extent of rewriting the law by curtailing the time permitted by law. Providing name sake opportunity to confront an adverse material and then to complete the assessment in a haste, is yet another example. Thus, the appellant having deposited/utilized the entire sale consideration within the time allowed by the ld. AO (i.e. date of transfer 16.07.2008 to the date of attachment 01.12.2010), the appellant kindly be held entitled to deduction u/s 54F.
It is a settled law that an incentive provision has to be construed liberally. Kindly refer Bajaj Tempo Ltd. v/s CIT 188 ITR 196 (SC) and
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CIT v/s Krishna Copper and Steel Rolling Mills 193 ITR 281 (SC), recently in CIT v/s Baby Marine Exports 160 Taxman 160 (SC) and recently followed in Shri Arvind Gupta v/s AO 116 TTJ 92 (JP).
It was further submitted that the AO has simultaneously proceeded and has levied penalty u/s 271(1)(c) and during the course of appellate proceedings against the penalty imposed u/s 271(1)(c) in this very matter, the appellant again filed a detailed submission clarifying the entire factual and legal position and notably, an affidavit of the then Bank Manager, HDFC, Shri Ashok Kumar Taksali dated 10.03.2015 which was even cross verified by the ld. AO by recording the statement of Shri Taksali on 06.02.2017 during the remand proceedings. Considering the same, the ld. CIT(A) thoroughly examined and recorded his finding in order dated 15.05.2017 and has held as under
"I have gone through the written submission and penalty order carefully. It is seen that the assessee in the past did not have any taxable income. He is an agriculturist. Return of income for the A.Y. 2009-10 was filed by the appellant as he had received compensation from RIICO on compulsory acquisition of land. The appellant opened a new bank account with HDFC on 20.07.2008 with cash deposit of Rs. 5000/- and on 21.07.2008 deposited the entire compensation received by him in that account. In this bank account, the appellant had not made any deposit. Though the assessee already had a bank account with OBC since 11.08.2005, yet the new bank account in HDFC was opened only for the purpose of depositing the compensation received
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by the appellant. The Bank Manager of HDFC in his affidavit dated 10.03.2015 has affirmed as under: -------------------
--------- The AO during the course of remand proceedings has also recorded the statement of Shri Ashok Kumar Taksali, the then Branch Manager of HDFC Bank. In his statement also, he confirmed that he accepted the deposit in the bank account of the appellant as capital gain account. The appellant has withdrawn the money from the HDFC Bank only for constructing the property. No other investment out of this bank account has been made by the appellant. The compensation deposited but the appellant in HDFC Bank account could not be utilized fully as the AO has attached the bank account on 01.12.2010. In view of the affidavit and statement of Shri Ashok Kumar Taksali, the then Branch Manager of HDFC Bank and keeping in mind the fact that the assessee had first time file the return of income and he was an agriculturist, the contention of the appellant that he had no intention of concealing any particulars of income and he had opened the bank account in HDFC Bank with bonafide belief that it was capital gain account, cannot be rejected. --------"
The CIT(A) considering all the aspects ultimately deleted the penalty. Since the finding of the ld. CIT(A) are crucial and going directly to the root of this very matter therefore we place strong reliance on the various submissions and the finding of the ld. CIT(A) which strongly support the contentions raised by the assessee.
It was finally submitted that no opportunity of cross examination of the bank manager and of the approved valuer was even provided. Hence, the impugned disallowance has to be deleted in the light of
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Andaman Timber vs CCE (2015) 281 CTR 241 / 127 DTR 241 (SC), wherein it was held as under:
“Conclusion: Not allowing Assessee to cross-examine witnesses by Adjudicating Authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice”
Here also, despite specific request made by the assessee vide letter dated 17.06.2011, no such opportunity was provided by the authorities below. Hence, the entire disallowance be deleted. This is more particularly when during the appellate proceedings against penalty order, the then branch manager duly appeared and categorically confirmed the contention of the assessee. It was also submitted that the ld. CIT(A) in last para, wrongly observed that the assessee has accepted that sale consideration was not deposited in the capital gain account which however, is an incorrect statement of facts without any evidence. Had it been so, why the CIT(A) should have even admitted the appeal. Therefore, the claim of the assessee of investment in a residential house u/s 54F may kindly be allowed.
Per contra, the ld CIT DR contended that the assessee has obtained a normal saving bank account maintained with HDFC Bank Ltd., Kamal Kunj, C-Scheme, Jaipur and necessary enquiries were made by the Assessing officer during the assessment proceedings from the bank u/s 133(6) of the Act. Thereafter, the assessee was issued a specific show-cause by the Assessing officer and the submissions of the assessee were considered by the Assessing Officer but however not
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found acceptable. It was submitted that there is no dispute that the word “appropriation of sale proceeds” as referred to in section 54(4) of the Act cannot be taken in the sense that the amount received from the buyer of the original assets should only be used for purchasing/construction of new residential house. As an interim measure, the assessee has to deposit the net consideration in a capital gain deposit account maintained with a nationalized before the due date for filling of the return and thereafter, the assessee will have to withdrawn the money from that account for making investment in residential house. However, in the instant case, the assessee has deposited the sale proceeds in a normal saving bank account and if any bank employee has given a certificate which is not correct, even then benefit of section 54F cannot be allowed to assessee. It was submitted that the legislature has allowed some relaxation to the taxpayers by allowing them the time relaxation for investment in residential house. It is clearly mentioned in section 54F of the Act that in case the assessee fails to utilize the amount before the date of filing of return or 6 months then he had an option to deposit the unutilized amount in Capital Gain Account Scheme. In the instant case, the assessee has failed to deposit this amount in the specified account, therefore, exemption u/s 54F has rightly been disallowed by the Assessing officer. It was further submitted by the ld CIT DR that private banks like HDFC bank are not authorized to open capital gains account scheme accounts, under such circumstances, how the Manager of bank can certify that the account was capital gains scheme account. Further to verify the authencity of certificate which was relied upon by the assessee, necessary information were called for u/s 133(6) and the bank has submitted that
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the account is normal saving bank account and has not confirmed that any certificate was issued by the bank to the effect that account was capital gain account.
Regarding the alternate claim of the assessee that he had incurred an expenditure of Rs. 79,08,495/- which include cost of the land amounting to Rs. 41,000,00/-on which he had constructed a new residential house and therefore, deduction u/s 54F to that extent may be allowed, it was submitted by the ld CIT DR that the Assessing Officer referring to the report of the Ward Inspector as well as the valuation report and held that the assessee has not constructed any residential hoouse but constructed a commercial building. It was submitted that an expert and Government valuer has classified the building as commercial and it was not residential building converted to commercial. Therefore, the submission of assessee was not correct and it is fact that this building was commercial and not a residential one.
It was submitted by the ld CIT DR that the exemption u/s 54F is not allowable to the assessee because he failed to purchase a new residential house upto 16.07.2010 i.e. 2 years from the date of sale or failed to construct new residential house upto 16.07.2011 i.e. within 3 years from the date of sale. The assessee’s claim that he had deposited the entire capital gains in capital gains accounts scheme with HDFC Bank Ltd. is not acceptable, since the amount was deposited in saving bank account and not in capital gains account scheme as informed by the bank in their letter dated 15.06.2011. Further, even if it is presumed that the assessee had deposited the amount in saving account under bonafide belief that the account was capital gains account, then also
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exemption u/s 54F cannot be granted since the assessee failed to invest the entire capital gains in purchase/construction of new residential house within specified period of 2 years and 3 years. Thus long term capital gains from sale/acquisition of land was rightly assessed at Rs. 3,55,40,752/- and added to the total income of assessee.
Further, our reference was drawn to the order of the ld CIT(A) who has confirmed the findings of the Assessing Officer and her relevant findings are reproduced as under:-
“ 10. After going through rival submissions, following points emerge:-
1 Amount of compensation of Rs 3,59,39,080/- received by the appellant on acquisition on land by RICCO is not disputed. Neither the date of transfer as 16.7.2008 is disputed.
For availing exemption u/s 54F the net consideration not used for purchase or construction of a new residential house has to be deposited only in a Capital Gains account. Statute does not say that it can be deposited in a savings bank account. The appellant made a wrong claim in the return that the amount had been deposited in a Capital Gains account. He quoted "Capital Gains Account Scheme 1998: 34729250" in the first return filed. Copy of computation showing this wrong information is enclosed as Annexure-1 of this order. In the revised return computation the same was repeated. This time amount informed deposited was Rs. 3,59,39,080. It was quoted by the appellant: ("land at Sitapura — cost 824500 * (582/281) = 1707683; Exemption on deposition in Capital Gains Account Scheme 1998 u/s 54F: 35939080"). The
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computation showing this wrong information even in revised return is enclosed as Annexure-2 of this order. So the explanation that the appellant is not aware about complexities of law cannot be trusted. It was the AO who thought it fit to verify the information and on verifications found the information wrong. In HDFC Bank a savings bank account was opened and the bank is not authorized to open a Capital Gains Account.
The Capital Gains Account is to be opened as per section 54F(4) before due date of filing of return. As per certificate dated 11.11.2009 of HDFC Bank given to the AO through submission dated 21.11.2011 only Rs. 3,20,04,256 were deposited in the Bank on 21.07.2008 Rs. 3,07,94,426 on 21.07.2008 and another Rs. 12,09,830/- on 21.07.2008 totaling to Rs. 3,20,04,256). This amount is informed deposited till 31.7.2009 but the appellant informed Rs. 3,47,29,250 deposited in Capital Gains Account in the original return and Rs. 3,59,39,080 in the revised.
Even if the savings bank account was attached by the department but the amount withdrawn earlier from this account before attachment and claimed utilized (Rs. 79 lac odd) in purchase of plot and construction there upon at Jaishree Nagar, Jaipur was found not utilized in the construction of a residential house, rather as per the Valuer's report filed by the appellant himself, it was incomplete commercial construction. Therefore the appellant is not eligible for deduction of Rs 79,08,495 u/s 54F.
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The case laws cited by the appellant are not applicable. In the case of Kishore Galaiya the assessee had spent more than the Capital gains, within three years on construction of new house, so the facts are not applicable in this case. The cases of Jagtar Singh Chawla and Mrs. Hilla J.B. Wadia have been cited by the appellant without informing how the facts are applicable. Even the case of Jagan Nath Singh Lodha is not applicable because in that case it is not disputed that the assessee purchased residential house within two years of the sale of plot, whereas this is not the case here.
As clear from the points discussed in para 10 above the amount of consideration was NOT deposited in the Capital Gain Account by the appellant, which is now accepted by the appellant also and neither the capital gains was used in construction of a residential house, section 54F credit was rightly denied by the AO, however in the interest of justice capital gains shown at Rs 3,42,31,39. In the computation filed by the appellant should be taken for taxation of LTCG instead of Rs. 3,55,40,752 taken by the AO because indexed cost of improvement for boundary wall constructed several years back and other incidental expenses like brokerage claimed should be allowed to the appellant in the interest of justice.”
We have heard the rival contentions and perused the material available on record. The issue under consideration relates to denial of deduction U/s 54F of the Act to the assessee. It would be appropriate to refer to the provisions of Section 54F of the Act, relevant for the impunged assessment year, which reads as under:
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“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 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 a residential house (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, that 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:
Provided that nothing contained in this sub-section shall apply where— (a) the assessee,—
(i) Owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one
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residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".
Explanation.—For the purposes of this section,—
"net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub- section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred. (4) The amount of the net consideration 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
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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 the assessee for furnishing the return of income under sub-section (1) 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 (1), 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 by which—
(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), Exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset,
shall be charged under section 45 as income of the previous
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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 the unutilised amount in accordance with the scheme aforesaid.”
The above provisions provides that where in the case of the assessee, the 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 has purchased, or has within a period of three years after that date has constructed a residential house, the capital gain so arising shall not be charged U/s 45 of the Act subject to the satisfaction of prescribed conditions and the quantum of investment made in the new residential house. The above is the primary condition for availing exemption under section 54F of the Act. However, sub-section (1) which contains the said primary condition is subject to sub-section (4) to Section 54F of the Act. It provides that the amount of net consideration which is not appropriated by the assessee towards the purchase/construction of the new residential house before the date of furnishing the return of income U/s 139, it shall be deposited by him in an account in such bank or institution as may be specified as may be specified and the same shall be utilized in accordance with the scheme notified by the Central Government in this regard. Where the amount is so deposited before furnishing the return of income and such deposit is made not later than the due date for furnishing the return of income u/s 139(1), the amount so deposited shall be deemed to be the cost of
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the new asset for the purposes of sub-section (1) of section 54F of the Act and will thus be eligible for deduction.
The legislature has thus framed the scheme in such a manner that the assessee would be eligible for exemption U/s 54F of the Act where he either purchases or construct a new residential house within the prescribed period. At the same time, the legislature has also emphasized a scenario that the assessee may not be able to purchase or construct the new residential house before furnishing his return of income for the specified previous year in which the original asset has been transferred and in such a situation, it has been provided that the assessee will still be eligible for exemption U/s 54F of the Act where the amount of net consideration is deposited by him in an account as per the scheme notified by the Central Government and where such an amount is deposited and necessary proof is furnished to the satisfaction of the Assessing Officer, the assessee would continue to be eligible for exemption U/s 54F of the Act in the year of transfer of the original asset in respect of which he is exigible for capital gains tax under section 45 of the Act. At the same time, adequate safeguards have been provided to ensure that the assessee comply with the basic conditions of purchase/construction of the new residential house within the specified period and the consequences of non-compliance thereof. In this regard, the provisions of sub-section (4) to section 54F further provide that whether the amount so deposited is not utilized wholly or partly for the purchase or construction of the new residential house within a period so specified then the amount of capital gain arising from the transfer of the original asset which was earlier not charged U/s 45 of the Act in the year of transfer, the same shall be brought to tax and
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charged U/s 45 of the Act as income of the previous year in which the period of 3 years from the date of transfer of the original asset expires. Therefore, in such a situation where the amount is either not utilized fully or has been partly utilized for the purchase or construction of the new residential house, the taxability of the capital gain get shifted to the year in which the period of 3 years from the date of transfer of the original asset expires. In this regard, reference can be drawn to the decision of Hon’ble Bombay High Court in case of Humayun Suleman Merchant reported in [2016] 73 taxmann.com 2 (Bom) wherein it was held as under:
“(e) We shall first examine the scheme of Section 54F of the Act. Section 54F is part of Chapter IV of the Act which inter alia provides for computation of total Income and for that purpose, sets out the various heads of income. Part E of Chapter VI deals with the head of income viz. Capital Gains. It provides for Computation of Capital gains and also for exemption available thereunder. Section 54F of the Act introduced into the Act with effect from 1st April, 1983 by the Finance Act, 1982 provides exemption from Capital gain on transfer of any long term capital asset in case the same is invested in a residential house. However, the Section when introduced provided that any capital gain arising from transfer of long-term capital asset would not be chargeable to capital gains tax, if the same were utilized for purchase of an housing accommodation within a year before or after the date on which the transfer of an capital asset took place or was used for construction of a residential house within a period of three years from the date of transfer of the Capital Asset.
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(f) Thus, Section 54F of the Act as incorporated made available the benefit of exemption to purchase a house within one year (amended to two years) or construct a residential house within a period of 3 years from the date on which capital asset has been sold. However, while implementing Section 54F of the Act, it was noticed that at times assessments were completed prior to the expiry of above period of two/three years from the date of sale of the Capital Asset and the assessee had not utilized the amount within the prescribed period provided in Section 54F of the Act. This would lead to Assessment orders being rectified by appropriate orders, to determine the availability of benefit of exemption under Section 54F of the Act.
(g) This led to the introduction of sub-section (4) to Section 54F of the Act by the Finance Act, 1987 with effect from 1st April, 1988. Besides introducing sub-section (4) to Section 54F the Finance Act, 1978, also amended Sub-section (1) of Section 54F of the Act to make it subject to provision of sub-section (4) thereof.
(h) As we are concerned with Assessment Year 1996-97, it is the amended provision which applies. Therefore, now Section 54F(1) of the Act which grants exemption from Capital gain tax where a flat is purchased either within one year prior to the sale of capital asset or within 2 years after the date of sale of the capital asset or where a residential house is constructed within 3 years from the date of sale of the capital asset, is now subject to the provisions of Section 54F(4) of the Act. Thus, where the consideration received on sale of capital asset is not appropriated (where purchase was earlier than sale) or utilized (where purchase is
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after the sale) then the same would be subject to the charge of capital gain tax, unless the unutilized amounts are deposited in specified bank account as notified in terms of Section 54F(4) of the Act. The exemption would be available to the unutilized amounts only if the mandate of sub-section (4) of Section 54F of the Act is complied with. Further the proviso to sub-section (4) of Section 54F of the Act, safeguards the Revenue where the assessee had not invested the amounts chargeable to Capital Gains within the time prescribed under sub-section (1) of Section 54F of the Act. This by providing that in such cases, Capital Gain under Section 45 of the Act would be charged on the unutilized amount as Income of the previous year in which the period of three years from the date of transfer of the capital asset expires.”
We now refer to the scheme framed by the Central Government referred to as Capital Gains Accounts Scheme, 1988 which has been notified for the purposes of availing exemption u/s 54F(4) and other similar provisions of the Act and the salient features of the said scheme reads as under:
“Deposits how to be made. 3. A deposit or deposits may be made under the provisions of section 54 or section 54B or section 54D or section 54F or section 54G or section 54GB of the Act by any depositor intending to avail of the benefit under the said section or sections of the Act, as the case may be, in accordance with the provisions of this Scheme. Types of deposits. 4. (1) There shall be two types of deposit accounts, namely :—
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(i ) "Deposit account-A"; and (ii ) "Deposit account-B". (2) The deposit made under account-A shall be in the form of ‘savings deposit’ and subject to the other provisions of this Scheme, withdrawals under this account can be made from time to time by the depositor. (3) The deposit made under account-B shall be in the form of ‘term deposit’ with an option to the depositor to keep the deposit as cumulative or non-cumulative deposit. Except as provided under paragraph 7 and paragraph 9, withdrawals under this account can be made only after the expiry of the period for which the deposit under this account has been made and accepted. (4) Such deposits may be made in one lump sum or in instalments at any time on or before the due date of furnishing the return of income under sub-section (1) of section 139 of the Act as is applicable in the case of the depositor or the eligible assessee as referred to in section 54GB. Application for opening account 5. (1) Every depositor who is desirous of opening an account or accounts, as the case may be, under this Scheme for the first time, shall apply to the deposit office in Form A or as near thereto as possible, in duplicate and tender the amount of deposit payable in the manner specified in sub-paragraph (4) and a depositor intending to avail of the benefit under more than one section of the Act, as referred to in paragraph 3, shall make separate applications in the same manner, for opening account or accounts under each of such sections.
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(2) While applying under sub-paragraph (1) the depositor shall exercise his option as to whether the amount is to be deposited in account-A or in account-B or in both the accounts, and in case of the depositor exercising his option to open account-B, the depositor shall also exercise his option as to whether the deposit is to be made as cumulative or non-cumulative deposit as referred in sub-paragraph (3) of paragraph 4. (3) On receipt of an application under sub-paragraph (1), the deposit office shall open an account or accounts in the name of the depositor as opted by him under sub-paragraph (2). (4) The payment of amount of deposit shall be made by the depositor either in cash or by crossed cheque or by draft along with the application. (5) Every subsequent deposit shall be made into the deposit office at which the account stands, in the same manner as stipulated in sub- paragraph (4). (6) If the deposit is made by a cheque or a draft then, subject to such cheque or draft being realised, the effective date of deposit for the purpose of claiming exemption under the Act will be the date on which the cheque or draft is received by the deposit office along with the application under sub-paragraph (1) or sub-paragraph (5), as the case may be. (7) The interest on the amount of deposit shall accrue and will be calculated subject to the provisions of paragraph 8, with effect from the date of deposit in cash or the date of realisation of the proceeds of the cheque or the draft tendered by the depositor.
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(8) In the case of deposit under account-A, the deposit office shall issue a pass book to the depositor wherein all amounts of deposits, withdrawals, together with interest due, shall be entered over the signature of the authorised officer of the deposit office. (9) In the case of deposit under account-B, deposit office shall issue a deposit receipt wherein the principal amount of deposit, date of deposit, date of maturity of deposit, shall be entered over the signature of the authorised officer of the deposit office. Utilisation of the amount of withdrawal 10. (1) A depositor, withdrawing any amount out of the deposit made in pursuance of sub-section (2) of section 54 or sub-section (2) of section 54B or sub-section (2) of section 54D or sub-section (4) of section 54F or sub-section (2) of section 54G or sub-section (2) of section 54GB , shall utilise the whole or any part of the amount so withdrawn for the purposes specified in sub-section (1) of the section in relation to which the deposit has been made. (2) The amount withdrawn shall be utilised by the depositor within sixty days from the date of such withdrawal for the purposes specified in sub-paragraph (1) and the amount or any part thereof which has not been so utilised shall be re-deposited in account-A immediately thereafter. Closure of the account 13. (1) If a depositor, other than an eligible company as referred to in section 54GB desires to close his account, an application shall be made with the approval of the Assessing Officer who has jurisdiction over the depositor to the deposit office in Form G or as near thereto as possible,
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and the deposit office shall pay the amount of balance including interest accrued, to the credit in the account of the depositor by means of crediting such amount to any bank account of the depositor. (1A) If a depositor, being an eligible company, referred to in section 54GB, desires to close its account, then, - (i) it shall make a joint application signed by the eligible assessee referred to in section 54GB; (ii) the application shall be made with the approval of the Assessing Officer having jurisdiction over the eligible assessee referred to in section 54GB; and (iii) such application shall be made in Form G to the deposit office or as near thereto as possible, and the deposit office shall pay the amount of balance including interest accrued, to the credit in the account of the depositor by means of crediting such amount to any bank account of the depositor. (2) If a depositor in respect of whose deposit account a nomination is in force, dies, the nominee, if he desires to close the account or accounts and obtain the payment of the balance standing to the credit in the account of the deceased depositor, shall make an application to the deposit office in Form H or as near thereto as possible with the approval of the Assessing Officer who has jurisdiction over the deceased depositor, and the deposit office shall pay the amount of balance standing to the credit in the account of the deceased depositor including amount of interest accrued, by means of crediting such amount to any bank account of the nominee.
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(3) If a depositor, in respect of whose deposit no nomination is in force, the legal heir of the deceased depositor shall make an application to the deposit office in Form H or as near thereto as possible, with the approval of the Assessing Officer who has jurisdiction over the deceased depositor, and the deposit office shall pay the balance standing to the credit in the account of the deceased depositor including the amount of interest accrued, by means of crediting such amount to any bank account of the legal heir : Provided that where there are more than one legal heir of the deceased depositor, the legal heir making the claim individually may do so by producing the letter of disclaimer or letter of authorisation from other legal heirs in his favour : Provided further that before granting the approval for closure of the account under this sub-paragraph, the Assessing Officer shall obtain from the legal heir a succession certificate issued under Part V of the Indian Succession Act, 1925, or a probate of the will of the deceased depositor, if any, or letter of administration to the estate of the deceased in case there is no will in order to verify the claim of such legal heir to the account of the deceased depositor. (4) The depositor or the nominee or the legal heir, in order to obtain payment of the amount standing to the credit in the account shall while applying in Form G or Form H, also submit the pass book of account-A or deposit receipt of account-B, as the case may be, to the deposit office. (5) The payment made by the deposit office to the depositor or the nominee or the legal heir in accordance with the provisions of this
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paragraph shall constitute a full discharge to the deposit office of its liability in respect of the deposit. (6) Nothing contained in this paragraph or in paragraph 11 shall affect the right or claim which any person may have against the person to whom any payment is made under this paragraph.”
The above Capital Gain Account scheme thus provides for opening of a bank account by the assessee intending to avail of the benefit under section 54F(4) of the Act. The account can be opened in form of a savings account or a fixed deposit account. The amount of deposits in such account shall be utilised for the purposes specified in sub-section (1) of the section 54F in relation to which the deposit has been made. Any withdrawal made and not utilised shall be deposited back in the said account and thereafter, there are provisions for grant of interest and final closure and withdrawal of the balance amount in the said account. The whole purpose and scheme of deposit so envisaged is thus to closely monitor the utilisation of the amount for the purposes of purchase or construction of the residential house. The whole idea is to delineate the funds from other funds regularly maintained by the assessee and has to ensure that the benefit which has been availed by the assessee by depositing the amount in the said account is ultimately utilized for the purposes for which the exemption has been claimed i.e, for purchase or construction of a residential house.
In the instant case, the assessee has received compensation of Rs 3,59,39,080 on 16.07.2008 on compulsory acquisition of his land by
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RIICO. The assessee thereafter opened a savings bank account with HDFC on 20.07.2008 with cash deposit of Rs. 5000/- and on 21.07.2008, Rs 3,20,04,256 was deposited which was actually received by the assessee from RIICO net of TDS of Rs 39,34,824. Subsequently, the TDS amount of Rs 39,34,824 which was refunded by the Revenue was also deposited in the same bank account. Thus, the entire compensation amounting to Rs 3,59,39,080 received by the assessee has been deposited in the said account. It is also emerging from perusal of records that the assessee was already having a bank account with Oriental Bank of Commerce since 11.08.2005, yet the new bank account with HDFC Bank was opened on 20.07.2008 specifically for the purpose of depositing the compensation received by the assessee. Subsequently, the assessee has purchased a plot of land measuring 381.11 sq yards situated at Plot No. 10, Mitra Grirh Nirman Sahkari Samiti Ltd, Jayshree Nagar, Malviya Nagar, Jaipur from Jaishree Kanwar vide sale deed executed on 19.08.2008. The said plot of land was purchased for Rs 41 lacs and the amount of Rs 40 lacs was paid through cheque cleared on 12.09.2018 from the aforesaid savings bank account maintained with HDFC and balance Rs 1 lacs withdrawn from the said account. The assessee has thereafter carried out certain construction on the said plot of land and has spent Rs 38,08,495 on such construction which is withdrawn from the said bank account. The return of income for the impunged assessment year was filed on 30.07.2009 wherein the assessee has claimed exemption U/s 54F of Rs 3,47,29,250 which was subsequently revised at Rs 3,42,31,397 in the revised return of income filed on 28.12.2010. Therefore, at the time of filing of the return of income, the entire compensation amounting to
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Rs 3,59,39,080 stand deposited in the savings bank account maintained with HDFC bank and the withdrawals have been limited to the extent of purchase of plot of land and partial construction thereon. These are undisputed facts which are emerging from the records and have not been disputed by the Revenue either during the assessment or appellate proceedings before the ld CIT(A) or even before us., thus remain uncontroverted. Therefore, at the time of filing of return of income, the residential house has not been constructed and therefore, the conditions of sub-section (1) to section 54F are not fulfilled. At the same time, the amount of compensation stand fully deposited including the TDS thereon in the savings bank account maintained with HDFC bank and deposits and withdrawals have been strictly for the purposes of purchase of plot of land and construction thereof. In our view, the assessee’s claim will qualify for exemption u/s 54F as he has, in substance, complied with the requirements of sub-section (4) of the Act for the impunged assessment year as the whole of the compensation has been deposited in the said bank account and the withdrawals are limited to purchase of plot of land and construction thereof and are monitored closely by the assessee himself. As we have stated above, the whole idea of opening a capital gains account scheme is to delineate the funds from other funds regularly maintained by the assessee and has to ensure that the benefit which has been availed by an assessee by depositing the amount in the said account is ultimately utilized for the purposes for which the exemption has been claimed i.e, for purchase or construction of a residential house. In the instant case, even though the saving bank account technically speaking is not a capital gain account, the essence and spirit of opening and maintaining
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a separate capital gain account has been achieved as well as demonstrated by the assessee. Therefore, merely because the saving bank account is technically not a capital gains account, it cannot be said that there is violation of the provisions of sub-section (4) of the Act in terms of not opening a capital gains account scheme. The Revenue has not disputed that the deposits in the said account are from the compensation received by the assessee from compulsory acquisition of his land by RIICO and the Revenue has equally not disputed that there are any withdrawals other than for the purposes of purchase of plot of land and construction thereon.
Further, it is noted that during the course of assessment proceedings, the assessee has submitted that he was given to understand at the time of account opening by the Branch Manager of HDFC Bank that they would open a capital gain accounts and thus, the assessee was under a bonafide belief that it is the capital gain account which has been opened and in support, certificate dated 11.11.2009 of Branch Manager has been furnished. The said understanding has however been found to be incorrect on subsequent verification by the AO where he found that the account was a normal saving account. Interestingly, during the appellate proceedings (in context of penalty proceedings arising from the impunged transaction), the Branch Manager of the HDFC Bank has subsequently filed an affidavit dated 10.03.2015 and during the remand proceedings, his statement has also been recorded by the Assessing officer where he has again confirmed that he had accepted the deposit in the bank as capital gains account. The said understanding given by the Branch Manager would not make a normal saving account as a capital gain account, however it atleast
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shows the bonafide of the assessee in relying on the representation of the Branch Manager at the time of opening the bank account. Further, it is noted that during the course of assessment proceedings, the assessee has also sought permission of the Assessing officer to transfer the funds from his savings accounts to capital gain account, however, the Assessing officer has not taken cognizance of the said account. Had the Assessing officer accepted the said request, the matter would have been resolved by now.
Having said that in the subsequent years, the assessee still has to demonstrate that he has constructed the residential house before the expiry of period so specified and where the amount so deposited is not utilized either fully or partially, the cause of action for the Revenue will lie in the year in which three years period expires from the date of transfer by way of compulsory acquisition of land wherein it can bring the same to tax u/s 45 of the Act. In this regard, reference can be drawn to the decision of Hon’ble Allahabad High Court in case of Ranjit Narang vs CIT reported in 317 ITR 332 wherein it was held as under:
“9. We have given thoughtful consideration and we find force in the submission made by Sri Shambhu Chopra. The proviso to section 54F specifically deals with the situation where the assessee who in order to save himself from payment of tax of capital gains decided to either purchase a house or construct the house within the specified period and fails to do so in that event the statute provides as to when capital gains is to be treated and in which year it is to be taxed. It is because of postponement of capital gains the Income-tax Act takes care of such a situation.
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Not only in the case of capital gain but in other matters also. We may mention here that the petitioner has not challenged the validity of the proviso to section 54F(4) by means of writ proceeding.
From a plain reading of section 54F of the Act we are of the considered opinion that the amount of capital gains which has not been utilised under section 54F has to be charged under section 45 as income of the previous year, after the expiry of three years from the date of sale of the asset which in the present case is for the assessment year 1993-94.”
At this stage, we may also note that the subject bank account of the assessee was attached by the Department from 1.12.2010 and remain attached atleast till 30.06.2012, therefore, there is no way the assessee could have met the deadline of 16.7.2011 for constructing the new house, being three years from the date of transfer of the original land and the period during which the bank account remain attached has to be excluded as no fault lies with the assessee. In the interim, the assessment order was passed by the Assessing officer on 5.12.2011. In such a situation, firstly, when the bank account of the assessee was attached, how can he be expected to have utilized the amount so deposited in the said account within the prescribed period and secondly, there is no way, the Assessing officer could have verified such utilization by the time he passed the assessment order. Hence, the utilization or non-utilization and any related non-compliance or failure on part of the assessee is an event subsequent to the year under consideration and the same cannot be made the basis for denial of exemption for the
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impunged assessment year once it has been demonstrated that the amount has been deposited in an account in substantial compliance with the provisions of sub-section (4) to section 54F of the Act. In this regard, we refer to the decision of the Co-ordinate Bench in case of ACIT vs Dr S. Sankaralingam reported in 99 Taxmann.com 85 wherein it was held as under:
“5. We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the property was sold for Rs. 9 Crores. The sale consideration disclosed in the sale deed was only Rs. 6 Crores. The assessee apparently received sale consideration to the extent of Rs. 3 Crores in cash. However, he deposited the same in S.B. Account in the names of self, his wife and children. It is not in dispute that Rs. 1.40 Crores was used for repayment of loan and Rs. 4.60 Crores was deposited in Capital Gains Account. The balance amount to the extent of Rs. 2,99,50,000/- was deposited in State Bank of India in the name of assessee, his wife and children and the same was taken over by the Department before the due date for filing of return of income. Therefore, as rightly submitted by the Ld.counsel for the assessee, the assessee was prevented from depositing the money in the Capital Gains Account. The total capital gain is Rs. 6,71,08,935/-. Hence, considering the deposit of Rs. 4.60 Crores in Capital Gains Account and the money taken by the Department to the extent of Rs. 2,99,50,000/-, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly allowed the claim of the assessee under Section 54F of the Act.”
51 ITA No. 517/JP/2013 Shri Goverdhan Singh Shekhawat vs. ITO 45. In light of above discussions and in the entirety of facts and circumstances of the case, the assessee is held eligible for exemption under section 54F for the impunged assessment year and the Assessing officer is directed to allow the same.
In the result, ground no. 2 of the assessee’s appeal is allowed. The ground no. 1 is general in nature and ground no. 3 is consequential in nature and thus, doesn’t require any separate adjudication.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 11/01/2019.
Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 11/01/2019 *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Goverdhan Singh Shekhawat, Jaipur 2. izR;FkhZ@ The Respondent- ITO, Ward-6(1), Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File { ITA No. 517/JP/2013} vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत