CHAMARTHI MOUNIKA,,ELURU vs. INCOME TAX OFFICER, WARD-2, , ELURU

Per Shri D.S.Sunder Singh, Accountant Member : These appeals are filed by the assessee against the order of the Commissioner of Income Tax [CIT(A)]-12, Hyderabad vide Appeal No. 10208 & 10368/2017-18 dated 16.04.2018 for the Assessment Year (A.Y.)2012-13 and 2013-14. For the sake of convenience, these appeals are clubbed, heard together and a common order is being passed as under.

2 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru

3 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru

4 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru show cause letter to the assessee proposing to adopt the cost of construction of building at Rs.1.70 crores as valued by the DVO and to make the addition of difference amount in cost of construction as unexplained investment. In response to the notice issued by the AO, the assessee filed explanation stating that she has spent the entire amount of expenditure from the explained sources and accounted the same in the books, thus no addition is called for. Further she submitted that till the date of inspection by the DVO, the cost of construction incurred was Rs.1,36,06,190 from the F.Y.2011-12 to 2016-17 and the same was accounted in the books of account which should be considered as expenditure declared for construction of the building for arriving the unexplained investment if any. The year wise breakup of cost of construction stated to be accounted in the books of accounts was as under : F.Y. Amount (Rs.) 2011-12 31,77,838 2012-13 15,97,308 2013-14 52,96,193 2014-15 2,64,205 2015-16 14,57,226 2016-17 incurred till the date 18,13,420 of inspection by the DVO Total 1,36,06,190

5 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru 5.2. The assessee also requested for rebate in rates of construction of CPWD and the local rates from the valuation made by the DVO, since, the DVO had adopted the CPWD rates for valuing the cost of construction. In addition to the above, the assessee made a request for savings in cost of construction for self supervision. The AO did not accept the assessee’s contention for adopting the revised cost of construction of Rs.1,36,06,190/- which was stated to be incurred and accounted in the books of accounts, for the reason that the assessee had already communicated the cost of construction at Rs.1,11,10,744/- to the DVO till the date of inspection and subsequent increase in cost of construction to Rs.1,36,06,190/- was held to be nothing but an afterthought to wriggle out the taxability on unexplained investment and accordingly rejected the assessee’s request to adopt the revised cost of construction. The AO also rejected the assessee’s request for allowing rebate for rate difference and for self supervision, stating that DVO had already allowed the necessary discount for self supervision @ 7.5% in the valuation report, hence held that no further deduction is required to be allowed in the assessment. Accordingly, apportioned the cost of construction valued by the DVO proportionately, year wise on the basis of the cost of construction declared by the assessee. The allocation of

6 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru expenditure in construction for the F.Y.2011-12 to 2016-17 year wise worked out as under : Amounts considered Proportionate for Cost as proportionate Amount % of communicated Difference F.Y. working in (Rs. Total by valuation (Rs.Lakhs) keeping in Lakhs) Cost cell report view of (Rs.lakhs) valuation report 2011-12 31,77,838 31.77 27.97 47.73 15.95 2012-13 14,47,308 14.47 12.74 21.74 7.26 2013-14 48,09,568 48.09 42.34 72.23 24.13 2014-15 2,64,205 2.64 2.33 3.97 1.33 2015-16 (The said accounts are not finalized 9,25,200 9.25 8.14 13.89 4.64 and returns are yet to be filed 2016-17 7,35,500 7.36 6.67 11.05 3.69 Total 1,13,59,619 113.60 100 170.60 57.00

5.3. For the A.Y.2012-13 (F.Y.2011-12), the cost of construction admitted by the assessee was Rs.31,77,838/-. On the basis of the cost of construction originally declared by the assessee before the DVO, the AO has worked out the cost of construction as per DVO’s report at Rs.47.73 lakhs

7 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru proportionately and the difference amount of Rs.15.95 lakhs was added as unexplained investment. Accordingly, the AO made the addition of Rs.15.95 lakhs for the assessment year under consideration.

8 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru 7. Aggrieved by the order of the Ld.CIT(A), the assessee filed appeal before us. During the appeal hearing, the Ld.AR argued that the assessee had incurred the cost of construction till the date of inspection at Rs.136.06 lakhs, which was duly accounted in the books of accounts. The Ld.AR further submitted that from the communication sent to the Valuation Cell, it can be verified that the assessee had intimated the cost of construction for the A.Y.2015-16 till 31.03.2016 at Rs.9,25,200/- and mentioned that the accounts were not finalized and the returns were yet to be filed. Subsequently on finalization of accounts, the assessee realized that she had spent an amount of Rs.18,13,420/- till the date of inspection for the F.Y.2016-17 which was accounted in the books of accounts. The Ld.AR further submitted that the Departmental Valuation Cell authorities has inspected the building on 03.08.2016 and the assessee submitted details of cost of construction on 30.07.2016 in response to the letter received from the DVO. By the time, the details were submitted, the accounts of the assessee were not finalized which can be verified from the information furnished to the DVO. The Ld.AR further stated that the assessee could not furnish the details of expenditure incurred during the period from 01.04.2016 to 30.07.2016 pending finalisaiton of accounts. The information

9 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru furnished to the DVO was only provisional. Therefore, submitted a note to the DVO stating that the expenditure furnished to the DVO was provisional account, but not the final account. The AR further submitted that against the actual expenditure of 14,57,226/- for the F.Y.2015-16, the assessee had submitted expenditure details of Rs.9,25,200/- and the remaining expenditure could not be included pending finalization of accounts. Therefore, the Ld.AR argued that some genuine mistakes were crept in the reply submitted to the DVO, hence requested to consider the actual expenditure incurred by the assessee till the date of inspection at Rs.1,36,06,190/- in place of original cost of construction communicated to the DVO at Rs.1,11,10,744/-. Similarly for the F.Y. 2016-17, the assessee had incurred the expenditure of Rs.18.13 lakhs which could not be furnished to the Departmental Valuation Cell, pending receipt of bills from the various suppliers of the materials, credit purchases and the labour payments etc. In a nut shell, the Ld.AR argued that the assessee had spent total amount of Rs.1,36,06,190/- which was duly accounted in the books of accounts and there were mistakes in the cost of construction originally communicated to the DVO and the adoption of original cost of construction of Rs.1,11,10,744/- is incorrect, and unjustified, hence requested the AO to

10 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru take the actual expenditure accounted by the assessee at Rs.1,36,06,190/- as cost of construction declared by the assessee for building. The Ld.AR further argued that the assessee had actually spent the sum of Rs.31.77 lakhs in the F.Y.2011-12 related to the A.Y.2012-13 against which the AO has taken the cost of construction at Rs.47.73 lakhs which is excessive and arbitrary without any basis. There is no reason to jack up the cost of construction for the A.Y.2011-12 and to make the addition of Rs.15.95 lakhs and accordingly requested to delete the addition made by the AO.

11 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru construction at Rs.1,11,10,744/- for the F.Y.2011-12 to 2015-16 and there is no reason to disturb the cost of construction adopted by the AO. Similarly, the Ld.DR argued that the AO has taken the proportionate cost of construction basing on the percentage of cost of construction declared by the assessee for the impugned assessment years and allocated the total cost of construction as valued by the DVO which worked out to Rs.47.73 lakhs for the A.Y.2012-13 as against the cost of construction declared by the assessee at Rs.31.77 lakhs. The Ld.DR argued that the AO has adopted the fair and reasonable method for determining the cost of construction during the construction period and there is no reason to interfere with the year wise cost of construction allocated by the AO. Accordingly, the Ld.DR supported the orders of the lower authorities and argued that no interference is called for in the order of the Ld.CIT(A) with regard to the addition of Rs.15.95 lakhs for the A.Y.2012-13.. The Ld.DR argued that since the AO has reasonably determined the cost of construction for the impugned assessment year, requested to uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee.

12 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru residential building consisting of Ground plus 3 floors at Door No.22C-13- 21, D.Chennakesavulu Veedhi, Powerpet, Eluru, W.G.Dist., during the period from 21.11.2011 to May, 2015. Certain modifications like additions, alterations in third and ground floor parking area were made after April 2016. For a letter issued by the DVO, the assessee has submitted a reply admitting the cost of construction at Rs.1,11,10,744/-. For the F.Y.2015-16, while admitting cost of construction at Rs.9,25,200/- the assessee has also given a note that cost of construction declared for F.Y.2015-16 was provisional pending finalization of accounts. DVO had inspected the building on 03.08.2016 and estimated the total cost of construction at Rs.1,70,60,047/- after allowing deduction for self-supervision @7.5%. The AO apportioned the cost of construction determined by the DVO of Rs.170.60 lakhs for the F.Y.2011-12 to 2015-16 on the ratio of cost of construction declared by the assessee to the DVO. For the show cause notice issued by the AO the assessee has submitted the revised cost of construction till the date of inspection at Rs.1,36,06,190/- which was not accepted by the AO stating that since the assessee had declared the cost of construction at Rs.1,11,10,744/- to the DVO no alteration is permissible. The Ld.AO further observed that in the revised cost of construction, the

13 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru assessee has claimed to have spent the sum of Rs.14.57 lakhs against the original amount of Rs.9,25,200/- for the F.Y.2015-16 which was not informed to the DVO, hence did not accept the enhanced cost of construction declared by the assessee. Similarly, the assessee has declared the revised cost of construction for the A.Y.2016-17 at Rs.18,13,420/-, out of which the AO had accepted only the sum of Rs.7,35,500/- stating that as per the ledger, the sum of Rs.7,35,500/- only was incurred till the date of inspection. The AO had rejected the revised cost of construction for the F.Y.2015-16 and 2016-17 only on the basis of the information furnished by the assessee to the DVO, even though the assessee stated before the DVO that the cost of construction declared was provisional for the F.Y.2015-16 and 2016-17 pending finalization of accounts. After rejecting the revised cost of construction declared by the assessee, the AO has taken the year- wise percentage of cost of construction declared in the original letter dated 30.07.2016 to DVO and accordingly determined the cost of construction for the F.Y.2011-12 relevant to the A.Y.2012-13 at Rs.47.73 lakhs and made the addition of Rs.15.95 lakhs being the difference amount as unexplained investment. As per the valuation report, the ground floor and first floor of the building was completed during the period from 21.11.2011 to

14 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru 07.06.2012, second and third floors of the building was commenced on 05.04.2012 and completed in May 2015 which shows that the expenditure of ground floor and first floor was related to the F.Y.2011-12 and 2012-13 and second floor and third floors were related to F.Y.2013-14 and 2014-15. Thus, the expenditure incurred on ground floor and first floor was only relatable to the impugned assessment year i.e. 2012-13, but not the other floors. On close scrutiny of the valuation report, it reveals that the cost of construction of ground floor was estimated at Rs.23.94 lakhs and first floor was Rs.26.72 lakhs as per page No.47 of the paper book as per the plinth area rate apart from services and other accessories. Against which, without giving any finding, the AO has jacked up the cost of construction from 31.77 lakhs to 47.73 lakhs without bringing any material or without making any enquiries purely on estimation basis which is arbitrary and unjustified. The assessee has declared the cost of construction of Rs.14.57 lakhs and 18.13 lakhs in the revised letter for F.Y.2015-16 and 2016-17 respectively against the original sum of Rs.9.25 lakhs and nil amount. The AO had accepted Rs.9.25 lakhs for the F.Y.2015-16, Rs.7.35 lakhs for the F.Y.2016-17 as per ledger extracts and rejected the balance expenditure without verifying the books of accounts and the material placed by the assessee in support of

15 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru revised cost of construction declared and admitted in the books of accounts. Though the assessee had stated that the cost of construction declared for the F.Y. 2015-16 and 2016-17 was provisional before the DVO, the assessee explained before the AO as well as the CIT(A) that the assessee could not account some of the expenses which were incurred on credit basis and for non receipt of bills etc. Since the assessee stated to have maintained the books of accounts and having proper vouchers, the fact regarding the incurring of expenditure for the F.Y.2015-16 and 2016-17 ought to have been verified and determined the actual cost instead of summarily rejecting the submission of the assessee. The fact whether the actual expenditure is Rs. 136.06 lakhs or 111.10 lakhs is verifiable fact from the books of accounts and the vouchers. The AO instead of verifying the facts from the books of accounts and vouchers, summarily rejected the contention of the assessee which is incorrect and unjustified. The AO ought to have decided the year wise cost of construction after verifying the books of accounts and the details instead of finding easy way of estimating the cost of construction on the basis of original cost of construction declared by the assessee. The DVO calls for information from the assessee to determine the cost of construction and estimates the cost of construction of the

16 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru building. The value determined by the DVO with regard to cost of construction of the building has evidentiary value and the AO should not disturb the valuation without having valid reason. However with regard to cost of construction incurred by the assessee is an independent issue and the intimation given to the DVO is not final and sacrosanct. The assessee is free to submit the details of cost of construction of the building with details and produce the accounts. The AO is obliged to consider the explanation and the evidences placed before him to arrive at the finding with regard to the accounted expenditure on construction of the building. When the evidences are available, the AO is not permitted to reject the submission of the assessee merely on the premise that the assessee had already intimated the cost of construction to the DVO. In the instant case though initially the assessee has intimated the DVO that she had incurred the cost of construction till the date of inspection at Rs.111.10 lakhs, subsequently reexamined the facts and found that the actual expenditure incurred was Rs.136.06 lakhs but not Rs.110.10 lakhs and submitted the same before the AO with relevant evidences and the books of accounts. The AO without causing any inquiry rejected the contention of the assessee which is incorrect and unreasonable. Therefore, we hold that there is no reason for

17 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru rejecting year-wise cost of construction declared by the assessee aggregating to Rs.136.06 lakhs and accordingly we direct the AO to accept the cost of construction declared by the assessee at Rs.136.06 lacs for arriving the unexplained investment in place of Rs.111.10 lakhs adopted by the AO.

18 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru Out of which the assessee had admitted the sum of Rs.31.77 lakhs for the F.Y.11-12 and Rs.15.97 lakhs for the F.Y.2012-13 which is matching with cost of construction declared by the assessee and the valuation made by the DVO as per valuation report after giving due credit for self supervision and rate difference. Therefore, we find no reason to increase the cost of construction for the F.Y.2011-12 relevant to the A.Y.2012-13. It is also unjustified to estimate the cost of construction when the assessee has maintained the books of accounts without verifying the same and giving valid reasoning. Further after giving rebate for rate difference and discount for self supervision, the cost of construction of the building worked out to less than the revised cost of construction declared by the assessee. Since we have already directed the AO to adopt the revised cost of construction in the earlier paragraphs, we find no reason to uphold the order of the Ld.CIT(A), accordingly we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. Thus, the appeal of the assessee is allowed for the A.Y.2012-13.

19 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru

ITA No.309/Viz/2018, A.Y.2013-14 11. In this appeal all the grounds of appeal are related to the deduction u/s 54F of the Act. For the A.Y.2013-14, the assessee filed the return of income declaring total income of Rs.7,93,920/- on 27.09.2013 and claimed the deduction u/s 54F for a sum of Rs.58,37,025/-. The case was selected for scrutiny under CASS and the AO found that the assessee has sold the vacant land for a consideration of Rs.60.20 lakhs resulting in capital gains of Rs.58.72 lakhs and claimed the deduction u/s 54F for acquiring the residential house. The JCIT has given direction u/s 144A in F.No.144A/JCIT/ELR/2015-16 dated 29.03.2016. The facts with regard to sale of capital asset and denial of deduction u/s 54F of the Act is discussed in para No.5 of the assessment order is extracted as under : 5. Accordingly, the JCIT of Eluru Range, vide order u/s 144A in F.No.144A/JCIT/ELR/2015-16 dated 29.03.2016 has held that the assessee is not eligible for exemption u/s 54F. The gist of the order passed by the JCIT is reproduced hereunder : “The records in this case have been called for and examined. As seen from the return of income and the accompanying documents, it is noticed that the assessee has transferred 10 pieces of vacant land between 19.02.2013 and 31.03.2013 for a total consideration of Rs.60,20,500/- and computed the long term capital gains at Rs.58,72,025/- after deducting the indexed cost of acquisition. The assessee further claimed that the said capital gain is exempt u/s 54F on the ground that she has invested the sale proceeds in the construction of a residential house. 2. In order to find out the correctness of the claim made by the assessee u/s 54F, notice u/s 144A was issued to the assessee on 01.03.2016, wherein the assessee was requested to furnish justification

20 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru

for claiming exemption u/s 54F. In response thereto, the assessee’s Authorized Representative (AR) furnished his reply on 07.03.2016 wherein he submitted that the assessee has sold vacant land and has invested the sale proceeds in the construction of a residential house between 05.04.2012 and 31.01.2013, that the assessee does not own any other residential house as on the date of sale and accordingly the assessee claimed exemption u/s 54F. The assessee also furnished the approved municipal plan obtained from Eluru Municipal Corporation on 08.12.2011 according to which the assessee obtained approval for construction of residential house (Ground Floor + First Floor + Second Floor, each of 128.47 sq mts.) on a piece of land of 298 sq.yds situated at Powerpet, Eluru. It is also seen from the records that the assessee has obtained bank loan to the extent of about Rs.40.00 lakhs from Bank of Baroda, Eluru for the purpose of constructing the said residential house during January, 2012 to June 2012. 3. The assessee was afforded a further opportunity to justify the claim for exemption u/s 54F. In response thereto the assessee’s AR filed another reply on 29.03.2016. In his reply the AR submitted that the assessee has constructed the shop and godown on the ground and first floor during the period Nov, 2011 to June, 2012 and that the residential house comprising of two floors which is duplex in structure was built on the shop and godown during the period 05.04.2012 to 23.01.2014 at a cost of Rs.67.24 lakhs. The AR has further reiterated that the assessee has fulfilled all the conditions required for claiming exemption u/s 54F. 4. I have carefully considered the submissions made by the assessee and perused the material available on record. The fact which was not explicitly revealed by the assessee during the present 144A proceedings is that the assessee has taken a housing loan to the extent of about Rs.40.00 lakhs from Bank of Baroda, Eluru between January 2012 and June 2012 to construct the very house on which the assessee is now claiming exemption u/s 54F. The same approved municipal plan which was submitted now during the present proceedings was also presented earlier to the Bank of Baroda for the purpose of obtaining loan. The assessee has further submitted to the bank an estimate obtained from approved valuer for Rs.50.00 lakhs for the construction of the residential house. The assessee has also intimated the bank regarding the progress of construction from time to time and obtained the loan in installments. As per the letter dated 28.06.2012 submitted by the assessee to the bank, a copy of which is enclosed to this order, the assessee stated that “….We have almost completed our project GF+FF+SF including all slabs. Apart from the patch work like painting, wood work and other electrical fittings, the work was almost completed..”

21 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru

Along with his letter, the assessee has also submitted vouchers for the expenditure incurred. It is therefore clear that the assessee has constructed the residential house by June 2012 or shortly thereafter. The completion of construction of the property is further evidenced by the fact that the same was subjected to municipal assessment with effect from 01.04.2013. 5. To recapitulate, the assessee has transferred 10 pieces of vacant land during February and March, 2013 for a total consideration of Rs.60.20 lakhs giving rise to a Capital Gain of Rs.58.72 lakhs. It is in respect of these transactions that the assessee is claiming exemption u/s 54F. The said 10 pieces of vacant land have been acquired by the assessee only during August, 2012 by way of gift from her father. It can therefore be seen that by the time the assessee acquired the 10 pieces of vacant land in August 2012, the residential house consisting of Ground Floor + First Floor + Second Floor on which 54F exemption was claimed has already come into existence. Thus, at the time of completion of the construction of the residential house around June 2012, the assessee did not even own / acquire the 10 pieces of land in respect of which she is claiming exemption u/s 54F. The said 10 pieces of land have been sold in March, 2013 giving rise to Capital Gain of Rs.58.72 lakhs. As per the provisions of section 54F, in order to claim exemption there under, the assessee is required to construct a residential house within a period of 3 years after the date of transfer. Here, the crucial words mentioned in section 54F are ‘after the date’ i.e. after the date of transfer. Hence, in order to claim exemption u/s 54F, the assessee should have constructed a residential house after the date of transfer i.e. after March, 2013. But, in the instant case, a constructed house was already in existence at the time of transfer, which was assessed to Municipal Tax from 01.04.2013 on which the assess is now claiming exemption u/s 54F. Thus, the assessee’s claim for exemption u/s 54F is not in order since the house on which the assessee is claiming exemption was not constructed after the date of transfer but before the date of transfer. Had the assessee purchased a residential house, within one year or after two years from the date of transfer, exemption u/s 54F would have been available. The benefit of exemption u/s 54F by way of investing in residential house within one year before the date of transfer is available only if such investment is for purchase of a residential house. When it comes to construction of a residential house, the benefit of ‘within one year’ is not available. Such construction of residential house, in terms of express provisions of sec.54F should take place only after the date of transfer. In the present case, a residential house was already in existence at the time of transfer of 10 pieces of land. Hence, exemption u/s 54F in respect of a house which was already constructed prior to

22 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru

the date of transfer cannot be extended to the assessee. It may be true that the assessee has invested some more money on the said residential house after the date of transfer of the 10 pieces of land, but such investment can only be viewed as extension / renovation of the existing residential house and section 54F does not envisage for providing the benefit of exemption in the case of extension / renovation of the existing house. This view is further fortified by the decision of the Kerala High Court in the case of Mrs. Meera Jacob Vs. ITO [2009] 313 ITR 411 (Ker.). In their decision, their lordships observed that “…The question involved is whether the assessee in the computation of long-term capital gains is entitled to deduction under section 54F of the Income Tax Act in respect of investment in modification / expansion of an existing residential house. The Tribunal took the stand that exemption is available only when the investment is in the construction of a house and not for investment in modification or renovation. Admitted facts are that the assessee had a fairly big house to which the assessee made addition of 140 sq.meters of plinth area. However, it is the conceded position that the assessee has not constructed any separate apartment or house. Section 54F does not provide for exemption on investment in renovation or notification of an existing house. On the other hand, construction of a house only qualifies for exemption on the investment…” 6. In the aforementioned decision, the Hon’ble Kerala High Court has also observed that had the assessee constructed a separate and self contained residential unit after the date of transfer, the assessee would have probably been eligible for exemption u/s 54F in respect of such unit. But in the instant case, the residential house involved is a duplex house constituting single unit as admitted by the assessee himself and no separate self contained residential unit has come into existence after the date of transfer. Hence, viewing from this angle also, the assessee is not eligible for exemption u/s 54F. 7. One more relevant point is that though the assessee has obtained approval from Municipal Authorities for construction of a residential house, the assessee in reality has, since inception, been using the ground and first floors exclusively for the electrical business carried on by her. Out of the total construction, nearly 2/3rd of the plinth area pertains to commercial space and only the balance pertains to residential part. However, the assessee in her books has allocated less than 1/3rd of the cost to the commercial space, which is even less than her own estimate submitted to the bank and more than

23 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru 2/3rd of the cost to the residential space, which is prima facie not in order. However, the correctness of such allocation has not been examined in the present proceedings for the reason that the assessee was found to be not eligible for exemption u/s 54F on other grounds also as discussed above. 8. In view of the foregoing discussion, it is hereby held that the assessee is not eligible for the exemption u/s 54F claimed by her. Accordingly, the Assessing Officer is directed to disallow such claim for exemption u/s 54F and bring the long term capital gains arising out of transfer of 10 pieces of land to tax.” 11.1. According to the Ld.JCIT, the assessee has completed the construction of residential unit before 31.03.2013 and sold the capital asset subsequent to the completion of construction of residential house and as per the Income Tax Act, for claiming deduction u/s 54F, residential unit has to be constructed within 3 years after transfer of the asset. In the instant case, according to the Ld.JCIT, the residential unit has already come into existence before the transfer of capital asset, hence, the JCIT viewed that the assessee is not entitled for deduction u/s 54F of the Act. For coming to conclusion that construction of residential unit was completed before the sale of capital asset, the Ld.JCIT has taken the support of the letter given by the assessee to the Bank of Baroda dated 28.06.2012 for obtaining the bank loan, wherein, she had stated that the project consisting of ground floor, first floor and second floors were almost completed except for small minor works and the municipal assessment was also assessed on 01.04.2013.

24 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru Therefore, the Ld.JCIT held that the residential unit was already constructed before the transfer of capital asset and thus the assessee is not eligible for deduction u/s 54F and accordingly directed the AO to disallow the deduction claimed by the assessee u/s 54F of the Act. Following the directions of the JCIT, the AO disallowed the deduction claimed u/s 54F of the Act and completed the assessment.

25 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru disbursal of the last instalment of loan also. Therefore, argued that as per the assessments made by the AO in the earlier year and as per the facts, the construction of the house was completed only after the sale of vacant land and the assessee is entitled for deduction u/s 54F of the Act. Alternatively, the Ld.AR submitted that the deduction u/s 54F is permissible even if the construction of new house was commenced prior to the transfer of the original asset. Though there is time limit for completion of construction after the date of transfer, there is no bar in the Act to commence construction before transfer of the capital asset. The Ld.AR relied on the decision of this Tribunal in the case of DCIT, Circle-3(1) Vs. Sri Bollina Srihari Rao vide ITA No.548/Viz/2014 dated 28.03.2017. Accordingly requested to set aside the order of the Ld.CIT(A) and allow the appeal of the assessee.

26 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru capital gains was invested in construction of a new residential house at Door No.22C-13-21, Eluru. The said building consists of ground floor plus three floors. Ground and first floor were commercial and second and third floors are residential units. The assessee stated that she has constructed the ground and first floor from 21.11.2011 to 07.06.2012 and second and third floors from 05.04.2012 to May 2015. On the basis of submissions made by the assessee, the District Valuation Cell had estimated the cost of construction as per the prevailing rates in the concerned financial years under consideration. The assessee also submitted before the DVO that the second and third floor was commenced on 05.04.2012 and completed in May 2015 and the modifications were taken in third floor, ground floor, parking area after April 2016. These facts were not disputed by the AO and accordingly made the assessment and allocated the cost of construction for the F.Ys 2013-14 to 2016-17 and assessed the unexplained investment in respective assessment years. It is seen from the assessment order that the proportionate cost of construction determined by the AO for the F.Y.2013- 14 was Rs.72.23 lakhs as per page No.8 of the assessment order of A.Y.2012-13. This fact was also supported by the valuation report, wherein the DVO had valued the cost of construction of second and third floor each

27 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru at Rs.38.03 lakhs aggregating to approximately Rs.80 lakhs for second and third floors. Having determined the cost of construction for the A.Y. 2013- 14 to 2016-17 for the purpose of assessment of unexplained investment in cost of construction, the AO cannot take a different stand for disallowing the deduction u/s 54F of the Act. The assessment order passed by the AO for the A.Y.2012-13 and the allocation of cost of construction for various assessment years establishes that the assessee had completed the building after transfer of the capital assets and incurred the cost to the extent of Rs.101.14 lakhs during the F.Y.2013-14 to 2016-17 as per the page No.8 of the assessment order of A.Y.2012-13. Having determined the cost of construction and assessed the unexplained investment if any, for the F.Y.2013-14 to 2016-17, the AO is not permitted to take different stands for the purpose of assessment and for the purpose of deduction u/s 54F of the Act which shows the inconsistent approach of the department and it is against the justice. In view of the fact that the AO himself determined the cost of construction incurred for the A.Y.2013-14 to 2016-17 in the assessment order of A.Y.2012-13, we are under the considered opinion that the residential unit was constructed after transfer of capital asset and we

28 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru

do not find any merit to uphold the order of the Ld.CIT(A) and the same is set aside and direct the AO to allow deduction u/s 54F of the Act.

29 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru construction of house property prior to the date of transfer should also be allowable as deduction for the purpose of section 54F of the Act.” 15.1. Respectfully following the view taken by the Tribunal, we hold that even if the construction was commenced prior to the date of transfer of capital asset, the assessee would be eligible for deduction u/s 54F. However, in the instant case, as per the detailed observations made by us, it is established that the residential unit was constructed after the transfer of capital asset, hence the case law relied upon by the assessee is only of academic interest and has no relevance to the assessee’s case. Accordingly, the appeal of the assessee is allowed.

Order pronounced in the open court on 14th August 2019.

Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBERलेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नदनधंक /Dated : 14.08.2019 L.Rama, SPS

30 I.T.A. No.308 & 309/Viz/2018. A.Y.2012-13 and 2013-14 Chamarthi Mounica, Eluru आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee- Chamarthi Mounica, Prop.Surya Ganesh Electricals D.No.22C-12-21, Ch.Ranga Street, Powerpet, Eluru 2. रधजस्व/The Revenue - Income Tax Officer, Ward-2, Eluru 3. The Pr.Commissioner of Income Tax, Rajahmundry 4. The Commissioner of Income Tax (Appeals)-12, Hyderabad 5. तिभागीय प्रतितिति, आयकर अिीिीय अतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्डफ़ाईि / Guard file आदेशािुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, Visakhapatnam