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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV
आदेश / O R D E R
The Assessee is in appeal before us against the order of Ld.Commissioner of Income Tax(Appeals), Ahmedabad-5 [‘CIT(A)’ in short] dated 14/07/2017 passed for Assessment Year (AY) 2013-14.
Though the assessee has taken two grounds of appeal, but his grievance revolves around a single issue; namely, Ld.CIT(A) has erred in
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 2 - confirming disallowance of exemption amounting to Rs.13,62,433/- claimed u/s.54(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
The Registry has pointed out that appeal is time-barred by 30 days. In order to explain the objection of Registry, assessee has submitted a letter contending therein that while filling Serial No.9 of Form No.36, assessee has committed a typographical error about the date of communication of CIT(A)’s order. He has written 14/07/2017 as receipt of order of CIT(A), whereas, in fact, it was received on 14/08/2017. Necessary evidence has been submitted to this effect.
Considering the explanation of the assessee, I am of the view that the appeal is not time-barred.
The brief facts of the case are that the assessee has filed his return of income on 07/09/2013 electronically declaring total income at Rs.1,98,970/-. The case of the assessee was selected for scrutiny assessment and notice u/s.143(2) was issued and served upon the assessee.
On scrutiny of the accounts, it revealed that assessee was co-owner along with 32 persons of an immovable property. It was sold on
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 3 - 28/03/2013 for a sum of Rs.9.83 crores. The share of the assessee out of the sale consideration was Rs.21,09,437/-. The assessee claimed exemption u/s.54 of the Act on the ground that he has purchased a new residential house situated at Flat No.302, Second Floor, Shreeji Villa Flats, Vejalpur, Ahmedabad for Rs.49,00,000/-. This house was purchased on 18/03/2014 in joint capacity with her wife. The Ld.Assessing Officer has denied the exemption claimed by the assessee on the ground that the house was not purchased within one year before the date of sale i.e. it ought to have been purchased within one year before 28/03/2013. He could purchase a house within two years after the date of sale but, in that case, as per sub-section (2) of section 54 of the Act, he has to deposit the sale consideration received by him in an account before the due date of filing return u/s.139(1) of the Act. According to the Assessing Officer, though assessee has purchased the house within two years from the date of sale but failed to deposit the amounts in the specified account notified by the Central Government and therefore he has not complied with conditions enumerated in sub- section(2) of section 54 of the Act. The Ld.AO accordingly disallowed the exemption claimed by the assessee u/s.54 of the Act.
On appeal to the Ld.CIT(A), did not bring any relief to the assessee.
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 4 - 8. Before me, ld.counsel for the assessee contended that identical situation has been considered by the Division Bench of ITAT Chandigarh in the case of Mrs. Seema Sabharwal vs. ITO Ward-4. He placed on record copy of the Tribunal’s order passed in ITA No.272/Chd/2017. He pointed out that ITAT has based its order on the decision of Hon’ble Karnataka High Court in the case of CIT vs. K.Ramachandra Rao and other orders of the ITAT Bombay, Calcutta, etc. He also placed on record copy of the decision of Hon’ble Karnataka High Court in the case of CIT vs. K.Ramachandra Rao reported at (2015) 277 CTR 522 (Kar.).
On the strength of these two decisions, he contended that conditions provided in sub-section(2) of section 54 are obligatory and not mandatory. The conditions provided in this sub-section were for the objective to keep a track on the intention of the assessee whether he is going to purchase a new house from the sale proceeds or not. Basic exemption has been granted in sub-section (1) of section 54 of the Act and assessee has fulfilling all the conditions.
On the other hand, ld.DR relied upon the orders of the lower authorities.
I have duly considered the rival contentions and have gone though the record carefully. A perusal of the order of ITAT Chandigarh would
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 5 - reveal that ITAT has considered an identical situation in the above case. It has explained the scope of section(2) of section 54 of the Act on the strength of various decisions including the decision of Hon’ble Karnataka High Court in the case of K.Ramachandra Rao as well in the case of Hon’ble Calcutta High Court in the case of CIT vs. Smt.Bharati C.Kothari (2000) 160 CTR 165. I am of the view that Division Bench of the ITAT has made a lucid enunciation of law while explaining the scope of section 54(2). I cannot do better than to extract the discussion made by the ITAT which read as under:
“4. We have heard the rival contentions and have also gone through t h e r e c o r d s . A d m i t t e d l y, t h e c a p i t a l g a i n h a d a r i s e n t o t h e a s s e s s e e o n 17.9.2012 and the amount was paid by the assessee to the builder for p u r c h a s e o f a n e w h o u s e o n 9 . 9 . 2 0 1 4 i . e . w i t h i n 2 ye a r s o f t h e d a t e o f t r a n s a c t i o n o f s a l e o f t h e h o u s e p r o p e r t y. T h e A s s e s s i n g o f f i c e r denied the claim because as per the agreement with the builder, the h o u s e w a s t o b e c o m p l e t e d w i t h i n 4 ye a r s , w h e r e a s , a s p e r t h e provisions of section 54 of the Act, the house should have been c o n s t r u c t e d w i t h i n 3 ye a r s f r o m t h e d a t e o f r e c e i p t o f t h e c a p i t a l gains. Though the assessee has relied upon various cases wherein liberal construction has been taken by the Tribunal as well as various High Courts which is in consonance of the object for which the exemption provisions of sections 54 & 54F of the Act have been enacted i.e to promote purchase and construction of residential houses. Various courts have held that if assessee invests the amount in purchase / construction of building within the stipulated period and the construction is in progress, then the benefits of exemptions, cannot be denied to the assessee. Reliance in this respect can be placed on the decision of the Jurisdictional High Court of Punjab & H a r ya n a i n t h e c a s e o f ' M r s . M a d h u K a u l V s . C I T ' ITA No. 89 of 1999 vide order dated 17.1.2014 and further on the decision of the Hon'ble Calcutta High Court in 'CIT s Bharati C.Kothari' (2000) 160 CTR 0165 and also on the decisions of the various Coordinate Benches of the Tribunal. We have also gone through the provisions of sections 54 & 54F of the Act and we do not find any such distinction as drawn by the CIT(A) or any such dissimilarity in the wordings of the provisions from which any such conclusion can be drawn that u/s 54F of the Act the investment is to
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 6 - be considered and / or that u/s 54 of the Act, the house must be completed within the stipulated period o f t h r e e ye a r s o r t h a t i n v e s t m e n t i s n o t b e c o n s i d e r e d . W e m a y further point out here that even the decision of the Hon'ble Calcutta High Court is in relation to the provisions of s e c t i o n 5 4 o n l y, wherein, the Hon'ble Calcutta High Court has categorically held that if agreement for purchase of residential flat is made and the entire a m o u n t i s p a i d w i t h i n t h r e e ye a r s f r o m t h e d a t e o f s a l e , t h e b a s i c requirement for claiming relief u/s 54(1) of the Act is to be taken as fulfilled. The issue, thus, is squarely covered in favour of the assessee by the various decisions of the Hon'ble High Court.
Now the second point on which claim has been denied to the assessee is that the assessee did not deposit the amount of sale receipt in the capital gains account scheme before the due date for filing of return u/s 139(1) of the Act.
The Ld. Counsel for the assessee in this respect has submitted that since the provisions of section 54are beneficial provisions promoting purchase / construction of residential houses, hence, liberal construction should be taken to the provisions. He has further submitted that since the assessee had complied with the investment of the amount earned in purchase / construction of other house, within the stipulated period, hence, substantial compliance has been made by the assessee.
On the other hand, Ld. DR while referring to the provisions of section 54 of the Act, has submitted that the assessee was required to deposit the capital gains in the relevant scheme and since the said requirement under the provisions was not complied with, hence, the assessee is not entitled to claim for the benefit under the exemption provisions of section 54 of the Act.
We have heard the rival contentions. Before deliberating further on this issue we would like to reproduce the relevant provisions of section 54 of the Act herein under:-
"Profit on sale of property used for residence.
(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (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, one residential house in India, then, instead of the capital
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 7 - gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,-- (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.
(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of 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 not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 8 - (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
Explanation.--[Omitted by the Finance Act, 1992, w.e.f. 1.4.1993"
A perusal of the above reproduced provisions of section 54 of the Act reveals that it deals with the capital gains earned on sale of property used for residence and as per the provisions of sub section (1) of section 54 of the Act, if an assessee, after sale of his r e s i d e n t i a l p r o p e r t y, h a s w i t h i n a p e r i o d o f o n e ye a r b e f o r e o r t w o y e a r s a f t e r t h e d a t e o f s u c h t r a n s f e r o r w i t h i n a p e r i o d o f t h r e e ye a r s , constructs a residential house, the capital gains will not be charged to tax upto the extent of the amount spent on the purchase or construction of residential house. Sub Section (1) of section 54 of the Act is a substantive provision enacted with the purpose of promoting purchase / construction of residential houses. However, sub section (2) of section 54 is an enabling provision which provides that the assessee should deposit the amount earned from capital gains in a scheme framed in this respect by the Central Government till the amount is invested for the purchase / construction of the residential house. This provision, in our view, has been enacted to gather the real intention of the assessee to invest the amount in purchase / construction of a residential house. As per the provisions of sub s e c t i o n ( 1 ) o f s e c t i o n 5 4 , t h e a s s e s s e e h a s b e e n g i v e n t w o ye a r s t i m e t o p u r c h a s e a n d t h r e e ye a r s t i m e t o c o n s t r u c t a r e s i d e n t i a l h o u s e subsequent to the date of transfer of the original asset. At the time of the assessment proceedings, subsequent to the date of transfer of the original asset, an assessee may claim that he will invest the amount in purchase / construction of a new house, though not have taken any steps towards that direction till then. In such a scenario, there should not be any method or procedure before the Assessing officer through which he could gather the real intention of the assessee, as the assessee, by saying so, may delay the taxation of the capital gains e a r n e d a t l e a s t f o r t h r e e ye a r s f r o m t h e d a t e o f t r a n s f e r o f o r i g i n a l asset. Hence, sub section (2) puts an embargo to the assessee to casually claim the benefit of section 54 at the time of assessment, without being any act done to show his real intention of purchasing / constructing a new residential unit. Sub section (2), therefore, governs the conduct of the assessee that the assessee should put the amount of capital gains in an account in any such bank or institution specifically notified in this respect and that the return of the assessee should be accompanied by submitting a proof of such deposit, hence, sub section (2) is an enabling provision which governs the Act of the assessee, who intends to claim the benefit of the exemption provisions of section 54. The real purpose of the enabling provision is the compliance of the substantial provision of sub section (1) to section 54 of the Act. Sub section (2), in
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 9 - fact, regulates the procedure for the substantive rights of the exemption provisions u/s 54 of the Act. This enabling section, in our view, cannot abridge or modify the substantive rights given vide sub section (1) of section 54 of the Act, otherwise, the real purpose of substantive provision i.e. sub section (1) will got defeated. The primary goal of exemption provisions of section 54 is to promote housing. The procedural and enabling provisions of sub-section (2) thus cannot be strictly construed to impose strict limitations on the assessee and in default thereof to deny him the benefit of exemption provisions. In our view, if the assessee at the time of assessment proceedings, proves that he has already invested the capital gains on the purchase / construction of the new residential house within the stipulated period, the benefit under the substantive provisions of section 54(1) cannot be denied to the assessee. Any different or otherwise strict construction of sub section (2), in our view, will defeat the very purpose and object of the exemption provisions of section 54 of the Act. Our above view, is fortified with the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Shri K Ramachandra Rao, ITA No. 47 of 2014 c/w ITA No. 46/2014, ITA No. 494/2013 and ITA No. 495/2013, decided vide order dated 14.7.2014 wherein the Hon'ble High Court has directly dealt with this issue while interpreting the identical worded provisions of section 54F(2) of the Act. The following question of law was framed by the Hon'ble High Court on this issue:-
"2) When the assessee invests the entire sale consideration in construction of a residential house within three years from the date of transfer can he be denied exemption under Section 54F on the ground that he did not deposit the said amount in capital gains account scheme before the due date prescribed under Section 139(1) of the IT Act?"
The said question has been answered by the Hon'ble High Court in the following words:-
"As is clear from Sub Section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in Section 54 F(1), if the assessee wants the benefit of Section 54 F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words if he want of claim exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54 F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 10 - stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct."
Though the Hon'ble High Court in relation to the issue of claim of exemption u/s 54F of the Act has held that what matters is the intention of the assessee to purchase / construct new house. The Hon'ble Karnataka High Court has held that if the intention is not to retain cash but to invest in construction or any purchase in property and if such investment is made within the period stipulated therein, than section 54F(4) is not at all attracted. We may clarify here that provisions of section 54(2)are almost identically worded as in s e c t i o n 5 4 F ( 4 ) o f t h e A c t . A d m i t t e d l y, i n t h i s c a s e , t h e a s s e s s e e h a s invested the amount for the purchase / construction of the house within the stipulated period as also observed above while deciding the first issue. The assessee has proved such investment during the assessment proceedings and, thus, the assessee has complied with the requirement of substantive provisions and, thus, is entitled to the claim of exemption u/s 54F of the Act. In view of this, we direct the Assessing officer to grant exemption to the assessee as permissible under the provisions of saeciton54 of the Act.”
11.1. In the light of above, if facts of the present case are being looked into, then it would reveal that land was sold by assessee on 28/03/2013 and new residential house was purchased on 18/03/2014, i.e. within one year from the date of sale of the immovable property. The only lapse on the part of the assessee alleged by the Assessing Officer is that he failed to deposit the amounts in specified account. This very aspect has been considered by the ITAT. Therefore, respectfully following the order of Division Bench, I allow this appeal of the assessee and direct the Assessing Officer to grant exemption u/s.54 of the Act to the assessee.
ITA No.2287/Ahd/2017 Shri Bhupesh Navinchandra Raval vs. ITO Asst.Year – 2013-14 - 11 - 12. In the result, appeal of the assessee is allowed.
Order pronounced in the Court on 22nd February-2019 at Ahmedabad.
Sd/- ( RAJPAL YADAV ) JUDICIAL MEMBER
Ahmedabad; Dated 22/ 02 /2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A), Ahmedabad-5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation ..22.2.19 (dictation-pad 14- pages attached at the end of this File) 2. Date on which the typed draft is placed before the Dictating Member ..23.2.19 3. Other Member... 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….22.2.19 7. Date on which the file goes to the Bench Clerk…………………22.2.19 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………