JAGWINDER SINGH vs. COMMISSIONER OF INCOME TAX, APPEALS-II, LUDHIANA & ORS

The court fee has already been affixed. CM stands disposed of. CM No.1018 CII of 2014

The delay of 16 days in refiling the appeal is condoned. CM stands disposed of. CM No.1019 CII of 2014

Allowed as prayed for. CM stands disposed of. ITA No.28 of 2014

This appeal has been preferred by the assessee under Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 19.2.2013, Annenxure P.3 passed by the Income Tax Appellate Tribunal, Chandigarh Bench B, Chandigarh in ITA No.944/CHD/2010 for the assessment year 2002-03, proposing to raise following substantial questions of law:- i) Whether the act on part of the Assessing Officer to initiate the assessment proceedings under section 148 read with section 147 of the Act is justified? ii)Whether the act on part of the Assessing Officer in rejecting the appellants claim under section 54F of the income Tax Act is justified? iii)Whether the act on part of the Assessing Officer to make the assessment under section 144 of the Act, 1961 in exceeding their juri iction is legally sustainable in the eyes of law? iv)Whether in fact and circumstances of the case, the action of the authorities below, the impugned orders Annexures P.1 to P.3 are legally sustainable in the eyes of law?

A few facts relevant for the decision of the controversy involved, as narrated in the appeal, may be noticed. The assessee is an agriculturist and owns land in Village Bhattian,Tehsil Khanna, District Ludhiana. He also owned ½ share of 67 kanals 16/11/12 marlas of land situated near Dholewal Military complex i.e. 33 kanals 18/11/24 marlas which was acquired in the year 1955 by the Union of India through Secretary, Ministry of Defence, New Delhi. The appellant received enhanced compensation on 16.6.2006 of ` 15,14,211/- (` 13,14,211/- plus `1,66,563/- TDS) as a co-sharer on account of acquisition of his share of land. Respondent No.2 issued Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh notice under section 148 of the Act on 21.3.2006 and passed the assessment order dated 19.12.2006, Annexure P.

We have heard learned counsel for the appellant and perused the record.

The issue that arises for consideration in this appeal is whether in the facts and circumstances of the case, the assessee is entitled for exemption under section 54F of the Act.

It would be apposite to refer to relevant portion of section 54F of the Act, which reads thus:- 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 Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh 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, a residential house (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,— Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh “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) to (4) xx xx xx xx xx xx”

Section 54F of the Act deals with capital gain on transfer of certain capital assets which is not to be charged to tax where the assessee invests the consideration in residential house. According to sub section (1) thereof, where the capital gain arises from long term capital asset other than residential house and the assessee has within 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 a residential house, the capital gain shall be exempt to the extent of investment made in the residential house. The said provision nowhere relates to investment made in renovation or modification of an existing house.

The CIT(A) while partly upholding the order of the Assessing Officer declined benefit of section 54F of the Act to the assessee and vide order dated 22.6.2009, Annexure P.2 held as under:- “6. I have carefully considered the contention of the learned counsel for the appellant and perused the relevant record. It is the contention of the learned counsel that the appellant being an agriculturist by profession and being completely unaware of the provisions of IT Laws did not obtain any vouchers for the purchase of building material etc. Though this contention of the learned counsel might have some merit it was for him to see as to in the absence of such Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh bills and vouchers etc. what best evidence could be produced in support of the contention as above. Admitted position in this case is that neither before the AO nor during appeal proceedings any evidence in the form of bills and vouchers for the purchase of material or labour in respect of the alleged construction has been produced. No other evidence has further been filed in this regard by the appellant at any stage. The learned counsel is mainly relying upon the report of the Registered Valuer. However, as brought out in the assessment order itself the registered valuer had admitted before the AO that he had not seen any bills or vouchers and that he had made the report without confirming the year in which the constructon was carried out. In view of the above statement of Shri Raheja, the registered Valuer, coupled with the report of the Inspector who physically inspected the site, the AO cannot be said to be unjustified in concluding that neither new construction nor the alteration/addition to the said property was made by the appellant during the relevant period. In the assessment order the AO has also discussed that even the mother of the appellant and their old servant Shri Gopal working with the appellant for more than 10 years also informed that no new house was constructed. This would further go to strengthen the findings of the AO in this regard. Further though it is contended by the learned counsel that if the AO was not satisfied with the report of the registered Valuer the matter should have been referred to the Departmental Valuer, I do not agree with the learned counsel in this regard. The above procedure is required to be taken into account when action is taken under the relevant provisions of section 55A of the Act etc. However, this was not a case where the provisions of section 55A were Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh involved. The Valuation Report of the registered Valuer was rather filed by the appellant in support of its claim that the construction was carried out during the eligible period and that this had nothing to do with the valuation of the construction etc. Rather in view of the categorical admission of the registered valuer that he gave the report without verifying the actual period of construction etc., and there being no other evidence filed by the appellant, there was no need to further refer this matter to the departmental Valuer etc. While making the statement as above in the presence of Shri R.S.Khera, C.A., the learned counsel for the appellant, the AO has brought out in the assessment order that, even the learned counsel did not cross examine the registered valuer, though specific opportunity was allowed by the AO. Therefore, the facts stated by the registered Valuer in the statement recorded before the AO are impliedly admitted to be correct.”

The Tribunal while affirming the aforesaid findings dismissed the appeal of the assessee vide order dated 19.2.2013, Annexure P.3 and recorded as under:- “16(i) A bare perusal of the relevant facts and findings of the AO and the CIT(Appeals) including the paper book filed by the assessee reveals that the assessee appellant has failed to file any evidence, to support his claim of exemption under section 54F of the Act. The assessee merely filed a valuation report, from the Registered valuer, which is a dumb document, as to the year of renovation of the said residential house. The Registered Valuer admitted before AO that no bills or vouchers were made available to him and he made the report, without confirming the year, in which the Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh construction was carried out. The Valuer also admitted that such details and facts should have been incorporated in the valuation report. However, the same had not been done. The relevant valuation report has been incorporated by the AO in his findings, reproduced above wherein it has been specifically admitted by the Registered Valuer that bills and vouchers of construction material were demanded, but were not made available by the assessee. It was admitted by the Registered Valuer before the AO, that the valuation report was prepared by him, on the basis of statement made by the appellant, without confirming the year in which the construction was made, as required vouchers were not available. Learned AR referred to the valuation report, as an evidence, to support his contention, in the face of non production of any evidence, whatsoever in the course of assessment proceedings, proceedings before CIT(Appeals) and even before this Bench. The contention raised by the learned AR that Inspector's report is bias, is merely an assertion without corroborating by independent evidence, hence the same does not carry any evidentiary value. The assessee appellant has failed to comply with the statutory conditions of section 54F of the Act, as the assessee failed to adduce even prima facie evidence, at any stage of proceedings, establishing the construction of residential house and eligibility of claim made under section 54F of the Act. It is admitted fact that no bills and vouchers or any evidence was produced by the appellant to justify his claim. Learned DR placed reliance on the order of Hon'ble Juri ictional High Court, in the case of Pawan Kumar Garg v. CIT(supra) wherein it has been clearly held that onus to prove construction on residential house is on the assessee and Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh in case of failure to discharge such onus, the assessee is not entitled for exemption under section 54F of the Act. The relevant part of the decision is reproduced hereunder:- 'Capital Gains – exemption – Investment of gains in residential house-burden on assessee to prove such investment – finding that no residential house had been constructed within the stipulated time – assessee not entitled to exemption under section 54F – Income tax Act, 1961. S54F' The assessee had shown long term capital gains of ` 4,64,400 on the sale purchase of 2,900 shares. He also claimed exemption under Section 54F of the Income Tax Act, 1961. The claim of the assessee that he had built two small rooms which constituted an independent dwelling unit and therefore he was entitled to clarification of Circular No.667 dated October 18,1993 (see [1993] 204 ITR (St.) 103) issued by the Central Board of Direct Taxes was rejected because it was held that the construction of those two rooms did not constitute a dwelling unit and those rooms were constructed only in the month of February 2001. This was upheld by the Tribunal which recorded a categorical finding that the assessee had constructed only two rooms – covering an area which was less than 150 sq.ft. and there was virtually no construction at the site. On appeal to the High Court: Held, dismissing the appeal, that the onus to prove construction of a residential house was on the assessee which was never discharged as he did not furnish evidence to prove the construction of the house before April 22, 2000. Hence, he was not entitled to the exemption under section 54F.' 16(ii) The contention of learned AR that assessee is Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh illiterate, lives in a village and does not maintain any accounts, cannot absolve the appellant from discharging the onus cast on the appellant, for establishing the eligibility of exemption under section 54F of the Act, hence, such assertions are without any factual and legal foundation. 16(iii). Learned 'DR' also placed reliance on the decision of Kerala High Court in Mrs. Meera Jacob v. ITO (supra) wherein it has been held that for investment in expansion of existing residential house, the assessee is not entitled to exemption under section 54F of the Act. The relevant part of the decision is reproduced hereunder: 'Capital Gains – Long term capital gain- Computation-Deductions-Investment in expansion of existing residential house-Not entitled to deduction under Section 54-F-Income Tax Act, 1961-S.54F. Held, that since the assessee had only made addition to the plinth area, which was in the form of modification of an existing house, she was not entitled to deduction claimed under section 54F of the Income Tax Act, 1961. 16(iv) We have also considered the decisions of the Hon'ble Supreme Court, relied upon by learned AR as referred to above and found that the same are factually different and distinguishable and, hence not applicable to the typical fact situation of the present case. 16(v) In view of the above legal and factual discussions, and having regard to the express provisions of section 54F of the Act, we are of the considered opinion that the findings of learned CIT(Appeals) do not suffer from any infirmity and, hence the same are upheld. Accordingly, Ground No.3 is dismissed.” Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh

A perusal of the findings recorded by the CIT(A) and the Tribunal clearly spells out that the appellant had failed to comply with the statutory conditions of Section 54F of the Act. He also failed to adduce any evidence establishing the construction of new residential house. No bills or vouchers were produced by the appellant to justify his claim. Therefore, it has been rightly held that the appellant has failed to discharge the onus to prove construction of residential house and thus is not entitled for exemption under Section 54F of the Act.

In view of the above findings, which have not been shown to be perverse or illegal, no substantial question of law arises. Finding no merit in the appeal, the same is hereby dismissed. (Ajay Kumar Mittal) Judge April 22, 2014 (Jaspal Singh) 'gs' Judge Singh Gurbax 2014.06.04 16:28 integrity of this document High Court Chandigarh