ITO 1(2), GWALIOR vs. SMT REENA AGRAWAL, GWALIOR

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

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

ITA No. 161/Agr/2017 Assessment Year: 2012-13

Income-tax Officer, vs. Smt. Reena Agarwal, Near Hari 1(2), Gwalior. Nirmal Talkies, Nai Sadad, Gwalior. PAN: AELPA2217G) (Appellant) (Respondent)

Appellant by Shri Waseem Arshad, Sr. DR Respondent by Shri Rajendra Sharma & Shri Manuj Sharma, Advocates

Date of Hearing 04.07.2019 Date of Pronouncement 18.07.2019

ORDER Per Laliet Kumar, J.M.: This appeal is being filed by the assessee against the order passed by the ld.

CIT(A) dated 20.11.2015 for the assessment year 2010-11 on the following grounds:

“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and in fact in allowing a relief of Rs.99,95,501/- on account of claim under section 54F of the IT Act, in spite of the facts on records that the assessee has failed to produce proof of construction on land, during the course of assessment proceedings before the A.O.”

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declared an income of Rs.4,64,940/- . In the return of income, the assessee had

claimed capital gains of Rs.99,95,501/- u/s. 54F arising on account of sale of 20238

and 4762 equity shares of Rs.10/- each of M/s. R.P. Edible Oils Ltd. To

BhimtalNirman (PVT) Ltd. And Invox Management Consultancy Pvt. Ltd.

Respectively @ 420/- each for Rs.84,99,960/- and Rs.20,00,040/- on 29.03.2012

and 17.02.2012 respectively. It is the case of the assessee before us that the assessee

had claimed exemption from capital gains of Rs.99,95,501/- u/s. 54F. As per

assessee entire sale consideration of Rs.105.00 lacs were invested in purchase of

residential plot No. 15 along with front wall and entry gate at Emerland Garden,

Gutaiya Scheme No. VII vide registered purchase deed dated 30.03.2012. The said

plot was purchased by the assessee along with husband for a total consideration of

Rs.2,89,39,690/-. The assessee had also pointed out a contractor for the purpose of

construction of ground floor on turnkey basis for cost of Rs.23.20 lacs. It was also

the case of the assessee that the construction of the residential plot was commenced

in the month of January, 2014. The Assessing Officer noted in paragraph No. 2.4 that

the assessee has not invested the long-term capital gains arising on account of sale

of shares in purchase of residential house and therefore, the benefit as sought by the

assessee u/s. 54 was denied to the assessee by the Assessing Officer. Feeling

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aggrieved by the order of the Assessing Officer, the assessee filed appeal before the

Commissioner and the Commissioner in para 5.1.2 and 5.1.3 had held as under :

“5.1.2. In this regard, the submission put forth on behalf of the appellant as under:

Assessee after purchase of purchase of said residential plot commenced construction of residential house property in January, 2014. A contractor was appointed with whom an agreement was entered into for construction of ground floor on turnkey basis at a cost of Rs. 23.40 lacs. The construction activity on the residential plot was commenced in the month of January, 2014 and was under progress on the date of finalization of the assessment proceedings. The assessee has been paid a sum of Rs. 14.40 lacs on this count to the contractor. Complete details in this regard, such as, copy of agreement with the contractor, map of the house, proof of payments made to contractor etc. were furnished before the learned AO in the course of assessment proceedings.

Circular No.667 dated 18.10.1993 issued by the CBDT (copy enclosed) also indicates in cases where the residential house is constructed with in the specified period, the cost of such residential house can be taken to include the cost of plot also.

In support of exemption of long term capital gains of Rs. 9995501/- u/s 54 F, it was submitted that investment in land which is an integral and vital part of construction of a residential house qualifies for exemption u/s.54F and reliance on the following Judgments including the Judgment of Hon'ble Jurisdictional M.P. High Court was placed :

a. Smt. Shashi Verma V. CIT (1997) 224 ITR 106 (MP) b. CIT v. Sardarmal Kothari and Another [2008] 302ITR 286 (Mad) c. Mrs. Seetha Subrarnaniam v. ACIT 56TTJ (Mad) 417 d. Smt. Rajneet Sandhu v. Dy. CIT [2010] 133TTJ (Chd.) (UO) 64 e. Smt. V.A. Tharabai V. DCIT (2012) 50 SOT 537 f. CIT V. Sri, SambandamUdaykumar Income Tax Appeal No. 175 of 2012 (Karnataka High high Court) g. Smt. Usha Vaid v. ITO [2012] 53 SOT 385 (Amritsar) h. Narasimha Raju Rudra Raju v. Assistant Commissioner of Income Tax, Circle-8 (1) [2013] 35 taxmann.com 90 (Hyderabad -Trib.)

Copies of above Judgments were also filed before the AO. The AO without considering assessee's contentions and completely ignoring the ratio-decidendi of the above Judgments including the binding decision of the jurisdictional Hon'ble M.P. High Court, without a speaking order denied exemption claimed u/s 54 F of the Income Tax Act, 1961.

Since the entire sale proceed of sale of shares has been invested during the time frame of section 54 F and the house is under construction your honour are requested to kindly allow the exemption u/s 54 F as claimed in the return of income of Rs. 9995501/-.

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GROUND No. 2 : That the AO is not justified in not considering the written submission dated 19.03.2015 in toto which is bad in Law. Submission on the Ground No. 2 : “The written submission dated 19.03.2015 filed before the AO enclosing complete and cogent reply on all the query/s is not at all considered by the AO, which is bad in law and on the facts. The copy of the same is enclosed here with from page No. 13 to 17 to this written submission. Your honour are requested to kindly consider that same quash the additions made in the assessment order." 5.1.3. Decision: I have carefully considered the facts of the case, the finding of the Assessing Officer and also the written submissions put forth on behalf of the appellant. The case of the Assessing Officer is that since the entire sale proceeds of share of M/s R.P. Edible Oils Pvt. Ltd have been invested only in purchase of plot of land, the appellant is not entitled for deduction under sec. 54F of the Act. On the other hand, the claim of the appellant is that apart from purchase of land, the appellant has also made investment of Rs.14.40 lakhs in construction of residential house within the specified period. The A/R of the appellant placed reliance on a plethora judgments to support the argument that investment in land which is an integral and vital part of construction of a residential house qualifies for exemption u/ s 54 F of the Act. It is reiterated that since the entire sale proceed of sale of shares has been invested during the time frame of section 54 F and the house is under construction, the exemption u/s. 54F be allowed as claimed in the return of income of Rs.99,95,501/-.”

appeal on ground No. 1 mentioned hereinabove.

only such an assessee who had invested the long-term capital gain in construction of

a house. It was submitted by the ld. DR that no evidence of construction of house

was given by the AR/assessee before the lower authorities and therefore, the lower

authorities had mentioned in para 2.4 categorically that the assessee had failed to

bring on record documents/evidences to show commencement of construction or

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raising the construction after purchasing the plot within the statutory period

granted u/s. 54F. In the light of the above, it was submitted that the appeal of the

Revenue is required to be allowed.

submitted that the assessee had constructed the residential house within the period

of three years and in support of that the assessee had filed construction agreement

entered between the assessee and the contractor. It was also the case of the

assessee had earned Rs.14,40,000/-. It was also the case of the assessee that the

assessee had brought on record the plan for construction before the lower

authorities. Our attention was drawn to page 18 of the paper book, where the name

of the Architect and the signature of the assessee are appearing. The ld. AR had

submitted that the ld. CIT(A) was satisfied with the commencement of construction

and thereafter has granted relief to the assessee.

Section 54F provides as under :

Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. 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, one

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residential house in India (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 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 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

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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 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.”

On perusal of above section, following conditions are required to be fulfilled for

claiming the exemption :

(i). That there has to be a long-term capital gains arising on account of transfer of any long term capital asset.

(ii). The assessee within the period of one year before had purchased a capital asset or

(iii). The assessee within the period of two years from the date of transfer of the capital asset the assessee purchases new asset or

(iv). Within a period of three years, after the transfer took place construct one residential house in India.

had constructed one residential house within a period of three years from the date

of transfer of the capital asset.

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the conclusion that the assessee is entitled to benefit of section 54F only based on

the construction agreement and the site plan only or not. Undisputedly, the land was

purchased by the assessee along with her husband for total consideration of

Rs.2,89,39,690/- on 30.03.2012. The construction agreement filed before us and

before the lower authorities (CIT[A]) was dated 02.04.2014 and the capital asset

was disposed of (transferred) by the assessee on 29.03.2012 and 17.02.2012

respectively, i.e., the assessee had purchased the land immediately after transferring

the shares to M/s. Bhimtal Nirman Pvt. Ltd. and Invox Management Consultancy Pvt.

Ltd. The outer limit of raising the construction to claim the benefit of section 54F

would be 30.03.2015. Admittedly, the assessment year under consideration before

us is 2012-13 and the timeline for raising the construction as per the statute is upto

30.03.2015. The construction agreement entered between the assessee was dated

02.04.2014 and the period of raising the construction provided in the agreement is

upto 15.03.2015. Thus, as per construction agreement, the construction was

required to be completed on or before the last date provided by 54F, i.e., 30.03.2015

(as the capital asset was transferred on 29.03.2012). As per the facts, the Assessing

Officer had passed the assessment order on 23.03.2015. By that time as per the

agreement, construction should have been completed by the contractor in

pursuance to the construction agreement. Unfortunately, the assessee has not

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brought on record any evidence either by way of photographs, payment of house

tax, occupancy certificate, completion certificate or any other document on record to

show that the construction was completed by 15.03.2015, i.e., prior to completion of

assessment proceedings. Para 2.4 of the assessment order clearly shows that the

Assessing Officer has not made any enquiry about raising of construction after

purchase of plot. Whole case of the Assessing Officer was revolving around the

purchase of plot only and he has not done any Inquiry about the construction and

completion of the house after purchasing the plot. In our view, more enquiries were

required to be conducted by the Assessing Officer and the Assessing Officer has to

collect evidences from the assessee or on field inspection as to whether any

construction in pursuance to the construction agreement had started and if it was

started when it was completed, but nothing was brought on record by the Assessing

Officer as well as by the ld. CIT(A). Though there is construction agreement as well

as site plan, but merely on the basis of these documents, it cannot be concluded that

the assessee has constructed the house within the period of time stipulated by the

Act. The order passed by the Commissioner was silent on these aspects and is

stereotype and cryptic order. It is expected from the Commissioner to give reason

for agreeing to the contention of the assessee that the house has been constructed

on the basis of the construction agreement. Nothing has been brought on record by

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the Commissioner or by the assessee on record to show the completion of

construction before the end of 3 years from the date of purchase property.

8.1. In view of the above and in view of the fact that there is no categorical finding

recorded by the authorities below and more particularly when the order passed by

the Commissioner was stereotyped and cryptic order, we are constrained to remand

the matter to the file of ld. CIT(A) with the direction to conduct fresh enquiry and

decide the appeal dealing with the contention of the AO as well as of the assessee. It

is expected from the ld. CIT(A) to bring on record independent evidence regarding

the date of commencement of construction and date of completion of construction,

nature and quality of construction, photographs, if any and any other evidence

showing the construction of a residential house from this statutory authorities. In

view of the above the ground No. 1 of the revenue appeal is allowed for statistical

purposes.

5.2.3 of the CIT order wherein this issue was dealt. It was contended by the Ld. DR

that the order of the Ld. CIT was premised on the assumption that passbook is not

book of account and therefore the provision of section 68 are not applicable. In view

of this issue, whether the passbook is books of account or not is no more res Integra

as after the amendment in the definition of books of account there are many

judgments of the coordinate bench, wherein it was held that passbook is required to

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be considered as books of account. We may record that the books of account is

defined u/s. 2(12A) to the following effect :

"books or books of account" includes ledgers, day-books, cash books, account- books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device.

9.1. From the perusal of the above, it is clear that “other books” also come within

the definition of books of account. In fact, the bank maintains the passbook for and

on behalf of the assessee. The passbook is the property of the assessee maintained

by the bank and therefore, rigors of section 68 are applicable in case of entries in the

passbook are unexplained and will amount to credit in the books of account. Similar

view is also taken by the Co-ordinate Bench consisting of brother Prashant

Maharishi, A.M., in the matter of Shri Janak Goel vs. DCIT (ITA No. 937 &

938/Del/2012-order dated 13.05.2019), wherein it has been held that the passbook

is the books of account within the meaning of section 12A and therefore, section 68

of the IT Act is applicable. The relevant findings recorded by Co-ordinate Bench of

Tribunal read as under:

“19. We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case, admittedly, assessee has deposited money in bank account for which the source could not be explained properly and therefore lower authorities have made addition u/s 68 of the income tax act. The contention of the assessee is that he is not maintaining any books of accounts and therefore deposit made in the bank account of the assessee cannot be considered as an amount deposited in the books of accounts of the assessee and hence, the addition made u/s 68 of the income tax act stands vitiated and therefore it should be deleted. The first judicial precedent in this controversy is

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the decision of the honourable Bombay High Court in 141 ITR 67, wherein it has been held that that when monies are deposited in bank account, relationship that is constituted between the bank and the customer is of creditor and not the trustee and beneficiary. Therefore, it is not as if the bank passbook is maintained by the bank as an agent of the customer, nor can it be said that the passbook is maintained by the bank under the instructions of the customers. In view of this, the bank passbook supplied by the bank to the assessee cannot be regarded as a books maintained by the assessee under instructions. Accordingly, it was held that cash credit for the previous year shown in the assessee‟s bank passbook issued to him by the bank, but not shown in the cashbook maintained by him for that year, does not fall within the ambit of section 68 of the income tax act. The facts in that case are that assessee did maintain the books of accounts , certain sums were found in the bank account of the assessee but were not found in the regular cashbook submitted by the assessee. In the circumstances, the honourable High Court stated so. Further, the assessment year involved in that case is 1962 – 63. Admittedly on that date definition of the „books of accounts‟ as prescribed under section 2 (12A) was not there on statute, which is inserted by the finance act, 2001, with effect from 1/6/2001. Further, the honourable Bombay High Court in 85 taxmann.com 306, 250 taxman 362 and 399 ITR 256 (Bombay) in Arunkumar J Muchhala V CIT has considered an identical issue where the above decision of the honourable Bombay High Court in 141 ITR 67 was considered. The honourable Bombay High Court noted that in Sudhir Kumar Sharma (HUF) vs CIT, 46 taxmann.com 340, honourable High Court noted that when during the course of assessment proceedings, assessing officer noted that the assessee has deposited huge amount of cash in his bank account, the addition of the said amount in the income of the assessee, by invoking the provisions of section 68 of the income tax act is justified. It was further held that onus is on the assessee to explain the nature and source of the said cash deposits. Special leave petition was preferred challenging the above judgment before honourable Supreme court. However, the honourable Supreme Court has dismissed the same in 69 taxmann.com 219 [239 taxmann 264]. In view of this, even if the assessee does not maintain any books of accounts but the amount is deposited in the bank account of the assessee, which remains unexplained the addition could be correctly made u/s 68 of the act. Further looking at the definition of the „books or books of accounts‟ it is apparent that passbook is a daybook which is kept in the return form or as a printout of data stored in a floppy. Therefore, after the introduction of the definition of the books or books of account under section 2 (12A) of the act, the passbook can also be considered as books or books of account. There is no distinction who writes it, but it is record of the transactions entered into by the assessee with the bank. The provisions of

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section 68 of the income tax act also does not make any distinction about who maintains the books of account, the only requirement is that the books should be of an assessee. There is no requirement that the books of account should be maintained by the assessee himself. In view of this, we do not find any infirmity in the order of the learned CIT – A, in confirming an addition of INR 512000/– on account of unexplained bank deposits under section 68 of the income tax act. Accordingly, the additional ground raised by the assessee for assessment year 2004 – 05 is also dismissed.” Since this aspect has not been examined and considered by the ld. CIT(A) while

deciding the issue and the ld. CIT(A) merely relied upon the decision of Hon’ble

Bombay High Court in the matter of CIT vs. Bhaichand H. Gandhi (1983) 141 ITR 67

(Bom), holding that the books of account do not consists of the passbook. In our

respectful understanding, the said decision is rendered prior to insertion of

definition of books of account u/s. 2(12A), which was inserted w.e.f. 01.06.2001.

Therefore, the said decision is not applicable.

CIT(A) for deciding the issue afresh after affording the opportunity of hearing to the

assessee and further the ld. CIT(A) shall grant opportunity to the assessee to file

evidences, as may be advised, in this regard.

Order pronounced in the open court. Sd/- Sd/- (Dr. Mitha Lal Meena) (Laliet Kumar) Accountant Member Judicial member

Dated: *aks*