ANIL KUMAR GOYAL HUF,FIROZABAD vs. ITO WARD-5(1), FIROZABAD

In the Income-Tax Appellate Tribunal, Agra Bench, Agra

Before : Shri Laliet Kumar, Judicial Member And Dr. Mitha Lal Meena, Accountant Member

ITA No. 189/Agr/2017 Assessment Year:2012-13

Sh. Anil Kumar Goyal, HUF, vs. Income-tax Officer, Flat No. G-1205, Purva Venezia Ward 5(1), Firozabad. Appartment, Near Mother Dairy, Yelhanka, New Town, Bangalore. PAN- AAGHA1364K (Appellant) (Respondent)

Appellant by Sh. Ravi Agarwal, Advocate Respondent by Sh. Waseem Arshad, Sr. DR

Date of Hearing 17.07.2019 Date of Pronouncement 30.07.2019

ORDER Per Laliet Kumar, J.M.: This appeal is being filed by the assessee, feeling aggrieved by the order

passed by the CIT(A) dated 28.02.2017, inter alia, on the following grounds :

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delivered on 30th June, 2013 as per said writing. Thus, the assessee complied with all the requirement u/s 54 of IT Act and was entitled to exemption in the said section. The authority below was not justified in not allowing the exemption u/s 54 of Income tax Act to the assessee.

On account of the Court order, construction of building beyond 10th floor was stayed by the Hon'ble High Court. Thereafter the company by letter dtd. 25.04.14 made a mitigation program requesting the customers either to exit from the purchase agreement beyond 10 floor or to agree for relocation of flat below 10th floor. The applicant thereafter by letter dtd. 23.05.14 opted for relocation of the flat in lieu of old location within 10 floor in the building and the location process of the flat is in process. Thus the allotment of flat as per writing dtd. 07.01.2011 still stands.

Thus, it is clear the assessee has done all the efforts to procure possession of the flat from the builder against the payment of full sale price, but it was beyond control of assessee due to stay order of High Court, on account of which possession could not be delivered to assessee in time. However, the structure of the building up to 17th was already constructed by builder in time.

On the facts and circumstances of the case, the learned CIT Appeal was not justified in confirming the disallowance of exemption u/s 54 to the assessee and has erred in sustaining the disallowance of exemption of Rs. 91,95,570/- and adding the same to the income of the assessee.

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authorities below were not justified is not properly appreciating the position of law and facts and have erred in not allowing exemption u/s 54 of IT Act.

Brief facts:

Firozabad on 15.04.2011 for total price of Rs. 1,06,22,000/-,having circle rate value

of Rs.1,15,00,000/-. On account of sale of the residential house, a long term capital

gain of Rs.91,95,570/- was accrued to the assessee after deduction of the cost of

indexation.

2.1 The assessee had claimed exemption u/s. 54F, as the assessee had invested an

amount of Rs. 1,13,76,245/- for the purchase of a residential flat bearing Flat No. E-

1601, 16th Floor in the building, Vivarea, at Koramangla Industrial Layout,

Bangalore.

2.2 As per the case of the assessee, a Memorandum of Understanding (MOU) in

respect of purchase of flat was entered between the assessee and the builder, Chalet

Hotels Limited on 07.01.2011. However, the first payment of Rs.26 lakhs was made

on 01.12.2010. The assessee had made various payments over a period 01.12.2010

to 05.10.2011 for a total amount of Rs.1.80 crores for the purchase of flat No. E-

1601, 16th Floor, Vivarea, at Koramangla Industrial Layout, Bangalore. As per the

MOU, the builder was to deliver the possession of the flat by 30.07.2013.

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2.3 After entering into the said agreement and after making the payments of

Rs.1,80,44,590/-, the assessee learnt that Hindustan Aeronautical Ltd. (HAL) earlier

had issued a No Objection Certificate (NOC) on 28.10.2010. However, the said NOC

was cancelled by the HAL vide their communication dated 16.08.2011.

2.4 Feeling aggrieved by the cancellation of NOC granted by HAL, the builder,

namely, Chalet Hotels Pvt. Ltd. had preferred a writ petition before the Karnataka

High Court at Bangalore vide W.P. No. 37571 of 2013. It was stated at Bar by the

counsel for the assessee that the said writ petition is still pending adjudication and

is now fixed for 24.07.2019.

2.5 It was the case of the assessee that on account of the matter being subjudice

before the High Court of Karnataka (Revocation of NOC by HAL), the builder had not

allotted flat No. E-1601, 16th Floor, Vivarea, at Koramangla Industrial Layout,

Bangalore as per MOU. Till date, the possession is not given to the assessee on

account of the court order and pendency of petition of the builder before the

Hon’ble High Court of Karnataka. The Assessing Officer in the assessment order

records the submissions of the assessee and at page 2 of the order, it was mentioned

as under :

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“Vide this office order sheet date 04.03.2015, the assessee was required to furnish the details of investment i.e., source of investment made by the assessee in A.Y. 2012-13, and he was further required to explain as to how in the absence of purchase deed/transfer of property in question it can be established that the assessee has purchased the said property. During discussion, the assessee stated that due to litigation, possession of property is not handed over to him. For proof he furnished a copy of paper cutting dated 24.10.2013 of “Daily City”, wherein it is reported that Hon’ble High Court, Karnataka has directed the company not to sell, agree to sell or enter into agreement with regard to parties and whatsoever in manner in respect of portion of building above 40 meter. For ready reference copy of paper cutting is reproduced on next page:”

2.6 The Assessing Officer after considering the submissions of the assessee had

disallowed the claim of the assessee u/s. 54F.

preferred an appeal before the ld. CIT(A) and the ld. CIT(A) had confirmed the order

passed by the Assessing Officer in paragraph No. 7 to 7.3, wherein it was held as

under :

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7.1 The assessee can derive no benefit from the provisions of circular No. 672 dated 16th December, 1993 in as much as the scheme contemplated in paragraph 2 of circular no. 471 is not available to the appellant. The appellant has not filed any allotment letter during appeal proceedings which confer title until the agreement for sale is registered. In the present case, however, it is not in dispute that no agreement for sale is registered. In the present case, however, it is not at dispute that the no agreement for sale was entered into within the period of three year from the date of sale of old residential house. Moreover, the developer had no approval for construction above 10th floor wherein the asseseee had booked his flat, as also Hon'ble Karnataka High Court stayed the construction above 40 meters. Thus, apparently the appellant has invested in a flat which was never to be allotted to the assessee in those apartments. It is also equally true that the in the reallocation plan also, the appellant did not get the flat within the stipulated time i.e. 15.04.2014. Thus, there is no question that the assessee can establish his title over the property which was not been approved for construction at the material time.

7.2 Though the provisions like section 54 of the Act gets beneficial interpretation, and as far as possible a beneficial provisions should be interpreted liberally however not to the extent that renders the intent of the provision redundant. The restrictions on the time within which the conditions of Section 54 have to be complied with are reasonable. This limit does give an assessee a time period of three years, which is quite reasonable. Such restriction of time cannot be diluted.

7.3 As regards the assessee's reliance in the Circular No. 471 of the CBDT is concerned, it is observed that said circular has no applicability in the appellant's case. In the said circular the allotment of flat under self financing scheme shall be treated as cases of construction. However, as per undisputed facts, in the assessee's case the construction, what to say of completion, was not even started within three years from the date of transfer of residential house. For this reason the judicial decisions relied upon by the Ld. AR for the appellant, especially in the case of Smt. Shashi Verma Vs. Commissioner of Income-tax and Balraj v CIT(2002) 254 ITR 22, due to the reasons mentioned above, is not found to be having any application to the facts of instant case. Therefore, for the reason that the construction of house(flat) for which the appellant claimed benefit of section 54F of the Act was not even started within three years from the date of transfer and even till date the appellant has not got the possession of any flat in place of flat booked with the builder, I am therefore in all agreement with the findings of the AO that the amount paid to the builder upto the date of filing of the return would not render the appellant to claim benefit of section 54F of Act. Thus, in

ITA No. 189/Agr/2017 7

view of the foregoing, the AO's order in denying assessee's claim of exemption u/s 54F is sustained and the addition of Rs. 91,95,570/- made under head capital gain is confirmed. As a result, all the grounds taken by assessee are dismissed.”

Now, the assessee is in appeal before us on the grounds stated herein above.

arose in favour of the assessee, the assessee had invested whole of the long-term

capital gain in purchase of residential flat pursuant to MOU entered between the

assessee and the builder. There was no mistake on the part of the assessee for

investing in the said tenement where specific flat was allotted to the assessee by the

builder. It was submitted that the MOU may not be nomenclatured as agreement to

sale or allotment letter, but all the pre-requisite of a binding agreement and

allotment of flats were there in the MOU dated 07.01.2011. It was further submitted

that the said MOU was legally enforceable and on account of interdiction by the

Karnataka High Court, the possession of the flat was not handed over to the assessee

by the builder. The assessee has complied with the provisions of law and therefore,

the benefit of 54F should be granted to the assessee. It was submitted that the delay

in handing over the possession of the flat was on account of stay granted by

Karnataka High court and pendency of writ petition for cancellation of NOC by HAL.

The ld. AR relies upon the decision of Hon’ble Supreme Court in the matter of Sanjiv

Lal vs. CIT, 365 ITR 389 (SC). Further he relied upon the decision of Chennai Bench

of ITAT in the matter of Kanan Chandra Sekhar vs. ITO, 165 ITD 315 (Chennai). He

has also relied on the decision of Chandigarh Bench of Tribunal in the matter of

ITA No. 189/Agr/2017 8

Seema Sabharwal vs. ITO, 193 TTJ 128 (Chandigarh ITAT) and also relies upon the

CBDT Circular No. 471 dated 15.02.1986 and 672 dated 16.02.2093. In nutshell, it

was the contention of the assessee that the allotment of land was not within the

power and control of the assessee. The assessee with all bona fide invested the long

term capital gain for purchase of residential flat and also invested huge amount of

Rs.1.80 crores. The assessee cannot be made to suffer twice on account of denial of

benefit of section 54 as well as non-handing over the possession pursuant to the

directions of Hon’ble Karnataka High court.

and the relief sought by the assessee and had submitted as under and has drawn our

attention to the following aspect :

Page 6 of MOU - PLAN NOT IN EXISTENCE.

ITA No. 189/Agr/2017 9

(c) The said Residential building Tower E is estimated to be completed by you by 30th June, 2013 (subject to the modified plans in respect of the amendments or modifications referred in clause 2(B)(c) being sanctioned by the concerned authorities1 subject to FORCE MAJEURE. Page 11 DOES NOT PURPORT TO BE AN AGREEMENT FOR SALE. (a) Possession of the captioned Apartment shall not be transferred and is not being transferred nor is it being agreed to be transferred to me/us on the basis of this writing. I/We further confirm that possession of the captioned Apartment shall be handed over to me/us only as provided in the proposed Agreement for Sale and simultaneous with the execution of the Deed of Apartment.

ONLY AN OPTION - TO EXERCISE THE RIGHT. (b) This writing is not and does not purport to be and shall not be deemed to be an "Agreement for Sale" in as much as the purpose of this writing/arrangement contemplated herein is, to reserve the said premises for me/us as and by way of an option to be exercised by me/us exclusively prior to entering into and executing the Agreement for sale, as envisaged herein. Consequently, I/we shall under this writing be deemed to have acquired a right only to exercise the option and enter into, execute and register the purposed Agreement for Sale with you in respect of the said premises on fulfillment of the terms and conditions recorded in this writing.

Page 12 MOU : Page 17- NO PROPERTY OR RIGHT, TITLE OR INTEREST IN THE PROPERTY. "I/We are aware that my/our right to acquire any interest in the said premises shall become effective only on execution of the said Agreement for sale and compliance of the terms and conditions thereof and not otherwise."

Assessment Order Page 8- NOC AWAITED HC ONLY A STUDY AT ASSESSEE'S COST – FOR A FURTHER CONSIDERATION TOWARDS NOC.

"Hon'ble High Court has clearly directed the seller (to whom the assessee has made payments in question) to restrain from modifying, altering, removing and developing a high rise residential apartment complex above 40 meters from the ground level. Hon'ble court has further directed that the sale of flats was subject to outcome of the litigation. From perusal of letter dated 31-12-2013 reproduced above, it transpires that the Flat no.

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E-1601 at 16th floor of the apartment was booked for the assessee. In this very letter the developer has mentioned that Hon'ble High Court has through interim order in the pending Writ Petition has temporarily stayed construction above 10th floor. This means that the Flat booked for the assessee will certainly be affected by the Hon'ble High Court i.e. as on date it cannot be said that Flat will be allotted to the assessee."

agreement for purchase of residential flat by the assessee and the builder nor there

was any commitment on the part of the builder to build-up the flat nor it was a case

that NOC was granted by the HAL. Lastly, it was submitted that the assessee/buyer

should be aware about his rights and should not have invested in the apartment

which has no legal sanction. The ld. DR relied upon the decision rendered in the

case of Banaria Engineering Ltd. vs. ITO and has submitted that the allotment letter

being not a titled document, cannot be acted. In the alternative, it was submitted

that the MOU is neither a titled document nor sale agreement in favour of the

assessee. It was submitted that the assessee is not entitled to any relief from this

Tribunal.

facts before us are as under :

ITA No. 189/Agr/2017 11

(i). The long term capital gain of Rs.91,95,570/- was accrued to the assessee on account of sale of residential plot.

(ii). It is also not in dispute that the assessee had entered into a MOU on 07.01.2011 with the builder Chalet Hotels Ltd.

(iii). It is also not in dispute that by MOU, the assessee was given flat No. E- 1601, 16th Floor, Vivarea, at Koramangla Industrial Layout, Bangalore.

(iv). It is also not disputed that pursuant to MOU, the assessee made huge investment of Rs.1.80 crores in the said residential flat.

(v). The NOC initially granted by HAL was recalled by it by subsequent letter dated 16.08.2013.

(vi). The Karnataka High Court has granted stay (as recorded by the AO) for not allotting the flat.

7.1 In the light of the above, if we consider the claim of the assessee then we come

to the conclusion that the assessee pursuant to MOU has invested huge sum of

Rs.1.80 Crores in purchase of residential unit in the builder Apartment at

Kormangla, Bangalore. The reason given for denial of 54F by the Assessing Officer as

mentioned at page 11 of the assessment order was as under :

In this very letter the developer has mentioned that Hon'ble High Court has through interim order in the pending Writ Petition has temporarily stayed construction above 10th Floor. This means that the Flat booked for the assessee will certainly be affected by the Hon'ble High Court i.e. as on date it cannot be said that the flat will be allotted to the assessee. There is every chance that in case of adverse Judgment by Hon'blc High Court, the flat booked for the assessee is demolished and the assessee may not be allotted any flat and the money deposited by him with the seller be refunded to him . From the facts of the case, the following situation emerges :

ITA No. 189/Agr/2017 12

7.2 From the perusal of the above, it is clear that as the builder failed to adhere to

the timeline given in the MOU. The Assessing Officer has denied the benefit of

section 54F. It was not the case of the Assessing Officer that the assessee has not

booked the flat with the builder. It is also not the case of the Assessing Officer that

he has not made the payment to the builder in time. It is also not the case of the

Revenue that there was no stay by the High Court and the matter is not sub-judice

before the High Court. The only reason given by the AO is that in case the writ

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petition is disallowed and the relief sought is declined then the assessee would not

be entitled to flat. In our view what is required to be seen is intention of the assessee

at the time of making the investment in the building project. If there was no

inhibition or embargo at the time of investment, at that time the assessee was

entitled to the title of the residential unit, then the assessee is entitled to benefit of

section 54F. In our view the assessee cannot be denied benefit of section 54F on

account of delay by the builder or on account of the reason for delay in

allotment/construction of the flat, which are not attributable to the assessee.

Undisputedly, the assessee had invested the amount for purchase of flat pursuant to

illegally binding agreement. However, on account of withdrawal of NOC by HAL,

project could not be completed and the flat was not allotted to the assessee.

7.3 Further, we may like to add that section 54F is a beneficial legislation and has

been inserted with a view to promote investment of the long term capital gains in

the building of residential premises. On account of technical reasons, as mentioned

above or on account of fraud or unscrupulous activities of the builder where said

residential units without having proper clearance (not disclosed to the assessee at

the time of booking or subsequent thereto) cannot be made a ground for denial of

benefit of section 54F. In our view, the assessee is entitled to benefit of section 54F.

However, on account of interdiction by Karnataka High Court, the possession had

not been handed over to the assessee. We may fruitfully apply the mechanism that

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no order of the court was intending to harm any person. For no fault of the assessee,

the assessee cannot be denied benefit of section 54F merely because the clearance

of the project is pending before the Hon’ble Karnataka High Court. Hence, the appeal

of the assessee is allowed. We rely upon the decision of Karnataka High Court in the

matter of Dileep Ranjrekar, 101 taxman.com 104 (Karnataka HC) and the Tribunal

order in the matter of Balkishan Atal vs. ACIT 104 taxman.com 432.

Order pronounced in the open court.

Sd/- Sd/- (Dr. Mitha Lal Meena) (Laliet Kumar) Accountant Member Judicial member

Dated: *aks* Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Agra Bench, Agra