SMT. KANTADEVI RATHI,,SURAT vs. THE INCOME TAX OFFICER, WARD-2(2),, SURAT

PER SUDHANSHU SRIVASTAVA, JM: This appeal filed by the Assessee is directed against the order of 1. the Ld. Commissioner of Income Tax (Appeals)-II, Surat,(in short “the CIT (A)”) vide dated 27.04.2015 pertaining to Assessment Year2011-12.

2.0 The brief facts of the case are that the Return of Income was filed declaring a total income of Rs. 2,42,830/-. Subsequently, the case was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer observed that the assessee had sold two properties for a total sale consideration of Rs.1,36,51,000/- and

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had computed capital gain thereon at Rs.3,93,306/- after claiming exemption of Rs.55 lakhs u/s 54 of the Income Tax Act, 1961 hereinafter called “the Act”.

2.1 Further, the assessee had also claimed cost of improvement at Rs.1,61,850/-. In proof of the investment made for the purpose of claiming deduction u/s 54 of the Act, the assessee had furnished a confirmation letter for receipt of Rs.55 lakhs from the builder M/s Pooja Complex and also an allotment letter for Flat No.401, 4th Floor, Pooja Complex, Nokha, Rajasthan.

2.2 The Assessing Officer was of the view that mere advancing of money could not be termed as purchase under the Act. The Assessing Officer proceeded to compute the taxable income of the assessee at Rs.63,60,890/- after making disallowance of assessee’s claim of Rs.55 lakhs. The assessee was also denied the benefit of cost of improvement amounting to Rs.1,61,850/-.

2.3 Being aggrieved, the assessee approached the Learned First Appellate Authority challenging the disallowances. However, the Ld. CIT (A) also did not accept the assessee’ contentions and dismissed the appeal of the assessee. 2.4 Now, the assessee is in appeal before this Tribunal (ITAT) has raised the following grounds of appeal:

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“1. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of assessing officer in making disallowance of Rs.55,00,000/- u/s.54 of the I.T.Act. 2. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of assessing officer in making disallowance of Rs.2,24,757/- on account of indexed cost of improvement. 3. On the facts and circumstances of the case as well as law on the subject, the ld. CIT(A) has erred in confirming the action of assessing officer in not considering Long term capital gain of Rs.3,93,306/- already shown by assessee in the returned income while re-computing Long term capital gain of Rs.61,18,063/-. 4. It is therefore prayed that the above disallowance made by Assessing Officer and confirmed by learned commissioner of Income-tax (Appeals) may please be deleted.” 3.0 The Learned Authorised Representative submitted that the Lower Authorities had mis-interpreted the provisions of section 54(2) of the Act in as much as the section mentioned that only the amount of capital gain which is not appropriated by the assessee towards the purchase of new asset has to be deposited in the specified amount before furnishing the Return of Income which clearly meant that the intention of the legislature was to ensure that the assessee utilizes the capital gain towards the purchase of new asset and the giving of advance to a builder will mean appropriation towards the purchase of the house. It was also submitted that the Hon'ble Bombay High Court in the case of CIT Vs. Dr. Laxmichand Narpal Nagda reported in 78 Taxmann 219 (BOM.) had held that taking into consideration the letter as well as the spirit of section 54 and the words ‘towards’ used before

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the word ‘purchase’ in sub-section (2) of section 54 has not been used in the sense of legal transfer and, therefore, holding of a legal title within a period of one year is not a condition precedent for attracting section 54. The Learned Authorised Representative submitted that in the present appeal the assessee had given the advance for purchase of property and had also received the allotment letter dated 10.07.2011 and the only reason that the formal purchase deed could not be executed was because some residents of the neighboring areas had filed a civil suit against the builder M/s Pooja Complex and had succeeded in getting the construction stayed. It was further submitted that this event was beyond the control of the assessee and the property disputes were yet to be sorted out in this regard and the assessee was still hopeful that the property would be received as per the allotment letter. Our attention was also drawn to the copy of the civil court order placed in the paper book to substantiate this claim of the Assessee.

3.1 With respect to Ground No.2 regarding denial of deduction of cost of improvement, the Learned Authorised Representative submitted that out of Rs.1,61,850/-, Rs.75,000/- was incurred towards stamp duty charges for registering sale deed of the property and the rest pertained to expenditure incurred towards labour and material etc., towards the improvement of the property. However, it was

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fairly accepted that due to the nature of transaction no vouchers were available but the entries were duly recorded in the books of accounts.

3.2 With respect to Ground No.3, it was submitted that the Assessing Officer, while computing the disallowance u/s 54, had taxed the long term capital gains of Rs.3,93,306/- twice as and, thus, there was a double disallowance leading to double taxation to the extent of Rs.3,93,306/- and the same required rectification.

4.0 In response, the Learned Departmental Representative vehemently argued that as far as the disallowance of Rs.55 lakhs was concerned, the assessee had not furnished any agreement to purchase and, therefore, in absence of such agreement the entire arrangement appeared to be a sham transaction. He also placed reliance on the observation of the Assessing Officer that in the balance sheet of the builder there was no work in progress for the residential house and the building in which the residential house was to be constructed was a commercial complex not meant for residential housing. The Learned Senior Departmental Representative also submitted that no building plan or approved scheme of the project had been filed by the assessee in support of his contention. The Learned Senior Departmental Representative also submitted that the assessee has not filed any suit for recovery against the builder and, thus, this again proved that the assessee had not come out with clean hands. The Learned Senior

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Departmental Representative submitted that the assessee should prove the status and existence of the residential house bearing Flat No.401 before he could be given the benefit of the law as laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Dr. Laxmichand Narpal Nagda (supra).

5.0 We have heard the rival submissions and have also perused the material on record. The facts are not in dispute in so far as the fact of the assessee having made an advance of Rs.55 lakhs is concerned. It is also a fact on record that a civil suit had been filed against M/s Pooja Complex in the court of the Learned Senior Civil Judge, Bikaner and vide order dated 07.01.2015 the court of the Learned Senior Civil Judge had directed that the builder was to proceed with the construction only after getting the approval of Municipal Board, Nokha, Rajasthan. A perusal of the assessment order shows that the Assessing Officer has observed that there were no other advances in the balance sheet of M/s Pooja Complex except that of the assessee and further no work in progress towards construction of residential houses is reflected in the balance sheet. The Assessing Officer has also mentioned that although the assessee had booked a Flat on the 4th Floor, the building was approved only till the 3rd Floor. It has also been mentioned by the Assessing Officer that commission u/s 131 of the Act was sent to verify the correctness of the claim of the assessee

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and as per the report of ITO, Ward-1(2), Bikaner, vide report dated 20.03.2014, there was no Flat No.401 in the said building complex and the said complex had only 50 shops and one marriage hall. On the other hand, the assessee has pleaded that due to circumstances beyond the control of the assessee like civil court proceedings against the builder and the stay of construction by the civil court, the construction/delivery of the flat could not take place within the stipulated time. On a query from the Bench, the Ld. AR submitted that although he was not aware of the status of the construction at that particular time, suitable directions may be given to the AO to allow the benefit of the claim to the assessee after due verification. The Ld. Departmental Representative also has vehemently argued that the benefit of the judgment of the Hon’ble Bombay High Court in the case of CIT Vs. Dr. Laxmichand Narpal Nagda (supra) should not be extended to the assessee without verification of the facts since the AO has pointed out various factual deficiencies. Therefore, in view of the factual matrix of the case as well as in the interest of substantial justice, we deem it expedient to restore the issue to the file of the assessing officer with a direction to re-consider the claim of the assessee in light of the judgment of the Hon’ble Bombay High Court in the case of CIT Vs. Dr. Laxmichand Narpal Nagda (supra) after duly verifying the factual position and after giving due opportunity to the assessee to present its case along with required evidences.

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In the final result, the appeal of the assessee stands allowed for 6.0 statistical purposes.

The order is pronounced in the open court on 31.07.2019.

Sd/- Sd/- (VIKRAM S. YADAV) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 31st JULY, 2019