PRAKASHI UNIYAL,DEHRADUN vs ITO, KOTDWAR

Income Tax Appellate Tribunal, [DEHRADUN BENCH]

Before: SHRI SUDHANSHU SRIVASTAVA & SHRI PRASHANT MAHARISHI

PER PRASHANT MAHARISHI, A.M.:

This appeal in ITA 7145/del/2017 for assessment year 2009 – 10 is filed by an individual assessee against the order of The Commissioner Of Income Tax – A, Dehradun dated 28/9/2017 raising following grounds of appeal a. That the order passed by the Honourable Commissioner of Income Tax (Appeals), is bad in law, against facts of the case, against principles of natural justice.

b. That the Honourable Commissioner of Income Tax (Appeals), erred in disallowing the source of investment of ₹ 8 19400 in the plot of land. c. That the Honourable Commissioner Of Income Tax (Appeals), erred in not allowing exemption under section 54 for the residential house constructed by the appellant out of the sale proceeds of the residential house/loan from the bank within the time allowed under section 54 of the income tax act 1961.

Brief facts available from the assessment order are that assessee is an individual. Action in her case was initiated under section 148 of The Income Tax Act based on cash deposit found in her savings bank account without mentioning the permanent account number. Notice under section 148 was issued on 5/11/2012. In response to that, on 1/3/2013 assessee filed her return of income declaring nil income. 3. Ld AO found that assessee has purchased a plot of land of ₹ 750000 and paid stamp duty thereon of ₹ 54400 and registration charges of ₹ 15,000/- on 7/10/2008. The source of the above fund was partly explained by assessee from her husband and son, who are employees. Partly it was stated that she received rental income. However, no further evidences were produced, therefore, the learned assessing officer held that the source of investment in purchase of property is met out of undisclosed sources and ₹ 819400 was added as income of the assessee as undisclosed income under section 69 of The Income Tax Act. 4. It was further found that assessee has made various deposits on 2 January 2009 amounting to Rs. 499000, Rs 500000 and ₹ 5 00000 on three different occasion on that day. The assessee was asked to explain the source of the above deposit. The assessee explained that assessee sold a property situated at Hrishikesh for ₹ 10 lakhs. As the assessee has deposited Rs. 499000 more than what has been received from sale of the property, the learned assessing officer questioned the same, which 2

was explained by the assessee that it was received from the buyer of the house against the excess adjoining land to the house property sold. However, no confirmation in this regard was initially filed. The assessee was asked to produce the buyer. In response to that, assessee explained that she is not aware about the whereabouts of the buyer however; she submitted an undated affidavit of the buyer. The AO examined the affidavit and found that the signature of the buyer on the registered sale deed and the affidavit submitted by the assessee is not matching. Therefore the learned AO made an addition under section 69 of The Income Tax Act of Rs. 499000/–. 5. It was further noted that as assessee has sold the house property for ₹ 10 lakhs and no capital gain was shown in the return of income filed in response to notice under section 148 of the income tax act, the assessee was asked to explain the amount of capital gain earned. Assessee submitted that assessee is entitled to exemption under section 54 of The Income Tax Act as she built a residential house on newly purchased plot. The AO denied the exemption holding that assessee has purchased the plot of land and assessee has failed to give any evidence about the construction completed on the said property within the prescribed time. The assessee submitted that she has constructed a house property showing withdrawal of Rs. Five lakhs from the account of her husband and further three withdrawals totaling to Rs. 9 lakhs on 13 June 2009, 1 October 2009 and 6 October 2009 respectively. However, the AO rejected the explanation, as house was not completed within the prescribed time. He took cost of the capital asset explained by the assessee of Rs. 402033/– and sale consideration as per deed was found to be ₹ 10 lakhs, consequently long-term capital gain of ₹ 5 97967/– was computed and it was added to the total income of the assessee. The total income of the assessee was assessed at Rs. 19,16,367/– vide order dated 13/3/2014 passed under section 143 (3) read with section 147 of The Income Tax Act. 3

The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT – A. The learned CIT Appeal confirmed the addition of ₹ 819400/- as undisclosed income of the assessee u/s 69 of the Act because of purchase of land at DHTC colony. He further confirmed the addition of Rs. 5 lakhs deposited by the assessee in Punjab National Bank over and above the sale consideration of the house property. With respect to the deduction under section 54 of the income tax act, he also confirmed that assessee is not eligible for exemption under that section. Thus, he confirmed the action of the learned assessing officer dismissing the appeal of the assessee. Assessee aggrieved with the order of the learned CIT – capital has preferred appeal before us. 7. The learned authorised representative vehemently submitted that the proper opportunity of hearing was not given to the assessee and therefore the order of the learned CIT – A as well as the assessing officer is in violation of the principles of the natural justice. He further referred to the order of the learned assessing officer and submitted that no proper opportunity of hearing was also given to the assessee before him. 8. Coming to the ground number two and three, he submitted that addition of ₹ 8 19400/– made in the hands of the assessee being the source of investment in the plot of land and further the disallowance of exemption under section 54 of the income tax act is devoid of any merit. He submitted that assessee has sold the property for ₹ 10 lakhs on 3/1/2009. The land was purchased by the assessee for ₹ 8 19400 on 7/10/2008 and c== house was constructed in FY 2009-10. He showed the withdrawal made by the assessee from her own account as well as the accounts of the husband of assessee. He submitted that on this plot of land undisputedly the assessee has constructed a property for her residence. He submitted that merely because the house was sold on 3/1/2009 and prior to the sale of the house, the assessee has purchased a plot of land on 7/10/2008 and construction thereon is 4

made after the sale of the impugned property, deduction u/s 54 cannot be denied to the assessee. He submitted that lower authorities have held that the construction on the above land of house property is beyond the prescribed time limit. For this proposition he relied upon the decision of the honourable Delhi High Court in case of CIT versus Bharti Misra [41 taxman.com 50] wherein it has been held that the deduction under section 54F cannot be denied for commencing the construction of new house before sale of original asset. He therefore submitted that issue is squarely covered in favour of the assessee. Therefore, he submitted that ground number two and ground number three of the appeal both are intertwined and interconnected and needs to be decided in favour of the assessee. 9. The learned departmental representative vehemently supported the orders of the lower authorities. He vehemently submitted that proper opportunity of hearing was given to the assessee at all the stages to justify the claim of exemption under section 54 of the income tax act as well as the amount of cash deposited in her bank account and the amount of funds invested in the plot of land. He therefore submitted that there is no violation of the principles of natural justice. Therefore ground no 1 of the appeal deserves to be dismissed. 10. With respect to the exemption claimed by the assessee under section 54 of the income tax act, he submitted that the case of the assessee does not fall within the timeframe provided by the law and therefore the exemptions have been correctly denied by the lower authorities. 11. We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly, the assessee has purchased a plot of land prior to the date of sale of the property. Admittedly, assessee has also made a construction on the plot of land. When the property was sold later on assessee claimed that the cost of the earlier purchase of plot of land as well as the construction made thereon after the sale of the impugned property should be granted to assessee as 5

deduction under section 54 of the income tax act against the eligible capital gain derived on sale of the house property. Now the brief question is whether the assessee was granted a proper opportunity of hearing or not. Admittedly, in the case of the assessee 148 notice was issued on account of cash deposited in her savings bank account without mentioning the permanent account number. Such notices were issued on 5/11/2012. At all the stages assessee was represented, therefore it cannot be said that no proper opportunity of hearing was granted to the assessee. It was also not shown before us that what prevented assessee to submit before lower authorities. Even before us, no new submissions are made. Therefore we are of the view that assessee has been granted proper opportunity of hearing, Thus ground no 1 is dismissed. 12. Coming to Ground no 2 and 3 of the appeal, with respect to source of amount of investment made by the assessee in the purchase of plot of land, it has been stated that in financial year 95 – 96 the assessee constructed one house property at Tapovan which was rented out by the assessee till it was sold i.e. up to 31 December 2008. Assessee has claimed to receive the rent of Rs 4 lakhs from the said property, which was used as source of part of the purchase consideration of the plot of land. Further, she claims that she also had some past savings of approximately ₹ three lakhs, which was used for the purpose of purchase of the above plot. It is not denied by the revenue authorities that assessee did not have the house property. It was also not denied that above house property was not used by the assessee for her own residence. It was also not denied that assessee did not receive the rent of the above property at that time. However for the only reason that assessee did not deposit the amount of rent in her bank account the above sum invested for acquisition of the plot of land was denied. Furthermore the assessee has claimed a meager sum per month of her household savings , which may be possible due to her family status, 6

was also disbelieved as same was not banked in her bank account. Thus, total amount of investment was added as her unaccounted d investment as her income. Further more from the side of the assessee also there was no evidences furnished with respect to the earning of the rental income. Further household saving of the assessee was also not explained showing the income of her husband and family withdrawals. As these facts have never been asked by the AO as well as not produced by assessee, same were not properly examined. This resulted in addition of Rs 8 19400/- as unaccounted investment in the plot of land by the assessee. If the sources of fund is the rental income as well as savings of the assessee, which if looked on monthly basis is not substantial, looking to the family of the assessee, we set aside this ground no 2 back to file of the learned assessing officer with a direction to the assessee to substantiate the rental income as well as the family status of the assessee to show that adequate amount was available with her for investment in the above property. Thus, Gr no 2 is allowed with above directions. 13. Per ground no 3, With respect to the claim of exemption under section 54 of the income tax act, it is apparent that assessee has sold house property on 3/1/2009 for Rs. 10 lakhs. The assessee has purchased a plot of land prior to the sale of the above property and subsequently construction was made thereon. For the purpose of the construction, the assessee has shown the details of electricity consumption for the construction as well as the regular bills of electricity of the residential house to show that the same was used for residential purposes by her within three years from the sale of the original asset. The same was also supported with certificate from the local authorities. However, the revenue authorities denied the deduction for the reason that assessee could not show that there is a construction of residential house property within the time limit provided under the provisions of section 54 of the income tax act. The assessee has supported her argument before us by 7

relying on the decision of the honourable Delhi High Court in 41 taxman.com 50 wherein it has been held that the provisions of section 54 and section 54F should be liberally interpreted and assessee cannot be denied benefit of section 54F on the ground that construction of House commenced before the sale of shares. Provisions of section 54 and section 54F of the income tax act are para materia similar. However, it also needs to be established by the assessee whether the assessee has constructed a residential house property or not as the revenue, authorities dismissed the claim of the assessee stating that it was merely a purchase of plot of land. However, the assessee has stated that she has withdrawn ₹ 5 lakhs through her husband’s saving account and further ₹ 9 lakhs were withdrawn by her on three different occasions for the construction of the house property. Apparently, the house was sold on 3/1/2009 and assessee has made investment in the construction of house property in the financial year 2009 – 10 though plot of land was purchased on 7/10/2008. Thus factual metric shows that assessee purchased the plot of land on 7/10/2008 on which house was constructed in financial year 2009 – 10. The above investment has been claimed as deduction under section 54 of the income tax act against the sale of house property made on 3/1/2009. Thus, the plot of land was purchased before sale of house property and construction was made after sale of house property. We do not think that there is any prohibition under the provisions of section 54 of the income tax act for not granting deduction in above situation. The case of the assessee is also supported by the decision of the honourable Delhi High Court cited supra. However the assessee herself has stated before the assessing officer that her husband has taken a loan on 11/6/2012 for the construction of the house property based on which the revenue authorities have held that the construction of the house was not completed within the prescribed time of three years. The assessee denies that and submitted before the learned CIT – A electricity bills to prove 8

that house was constructed and regular electricity was installed thereon on 14/7/2010. In view of the above facts, it requires proper examination of the fact that whether the house was constructed by the assessee within the stipulated period or not. Hence, we set aside the Ground no 3 of the appeal back to the file of the ld AO with a direction to the assessee to support her claim of exemption under section 54 of the income tax act. The LD AO is directed to consider the explanation of the assessee and decide the issue afresh. Accordingly, ground number three of the appeal is allowed with above directions. 14. In the result, appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 13/05/2020

-Sd/- -Sd/- (SUDHANSHU SRIVASTAVA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 13/05/2020 Copy forwarded to 1. Appellants; 2. Respondents; 3. CIT; 4. CIT (Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT,

PRAKASHI UNIYAL,DEHRADUN vs. ITO, KOTDWAR