SHRI PARDEEP KUMAR JAIN,ZIRAKPUR vs. ITO, W-2(3), CHANDIGARH

आदेश/Order

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order dated 27.02.2017 of the Commissioner of Income Tax (Appeals)- 1, Chandigarh [hereinafter referred to as ‘CIT (A)’].

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 2 CIT(A) on 27.2.2017. It has been alleged by the Department that the

copy of the order sent through post on 11.3.2017. That however, the

assessee never received any copy of the said order. It was only at time

of receipt of show cause notice regarding penalty proceedings u/s 271

(1)(c) of the Income Tax Act, 1961, that the assessee came to know

about the passing of the appellate order. Thereafter, the assessee

applied for certified true copy of the order of the CIT(A) which was

provided to him on 20.2.2019 and the appeal was filed immediately

within the period of limitation. The above averments made by the

assessee are supported by the affidavit of the assessee.

documents on file to show that the copy of the order sent through Speed

Post was actually delivered to the assessee. Since the assessee’s

contention have been supported with his Affidavit and no contrary

evidence has been filed by the Revenue, hence, the delay in filing the

present appeal is hereby condoned and we proceed to decide the appeal

on merits.

appeal:-

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 3

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 4 6. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.

require any specific adjudication.

assessee sold his share in built up residential property at Chandigarh for

a consideration of Rs. 1.40 crores. Thereafter, the assessee purchased a

residential Plot No. 21, at Kansal Enclave, village Kansal for a

consideration of Rs. 51,56,500/- on 16.2.2011, however, when the

construction of the residential plot No. 21 over the said plot was under

progress, the Government of Punjab through a notification banned the

construction activity in Village Kansal in the month of May 2017. The

assessee, therefore, could not construct the residential house over the

said plot. Thereafter, the assessee entered into an agreement to purchase

a residential flat No. C-2/609 at Nirmal Chhaya, Zirakpur and amount

of Rs. 32,55,398/- was paid for the purchase of the said flat. Further, the

assessee purchased another Flat No. C-3/606 at Nirmal Chaya, Zirakpur

for Rs. 31,93,400/-. The assessee submitted that both the flats were

adjacent to each other which are being used as a single unit. The

assessee accordingly claimed deduction u/s 54 of the Act in respect of

the amount of consideration paid for purchase of the plot at Kansal

Village for a sum of Rs. 51,56,500/- and further in respect of the two

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 5 adjacent flats used as a single unit for Rs. 32,55,398/- plus Rs.

31,93,400/- totaling Rs. 6448798/-. The Assessing Officer, however,

denied the deduction to the assessee u/s 54 of the Act in respect of the

consideration paid for residential plot at village Kansal amounting to

Rs. 51,56,500/- and further in respect of second flat bearing No.C-3/606

for Rs. 31,93,400/-. However, he allowed the claim of the assessee in

respect of the first flat i.e. C-2/609 for a sum of Rs. 32,55,398/-.

Assessing Officer. The assessee, thus, has come in appeal before us.

Representatives of both the parties and gone through the record. From

the facts it is revealed that after the sale of the share in the residential

property, the assessee invested a sum of Rs. 51,56,000/- for purchase of

plot No. 121 at Kansal Enclave, Village Kansal. The assessee also

started constructing the residential house over the said plot. However,

in the meantime, in compliance of the order of the Hon'ble Punjab &

Haryana High Court, the Government of Punjab banned the construction

in the Kansal village area. The assessee was, therefore, prevented from

constructing the residential house over the said plot for the reasons

beyond his control. Under the circumstances, it is not a case where the

assessee had failed to construct the house /residence within a period of 3

years from the date of sale of his property, rather, the assessee duly

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 6 proceeded to purchase a plot and construct residential house over that,

however, was prevented due to the ban on construction by the

Government which was a subsequent event. Hence, the non-construction

of house over the said plot was due to the reasons which were beyond

the control of the assessee. Though, as per the provisions of section 54

of the Act, an assessee is required to construct a residential house

within 3 years from the date of sale of the property, however,

considering the exceptional facts and circumstances of the case of the

assessee, it cannot be said that there was a default on the part of the

assessee for non-complying with the provisions of section 54 of the Act.

Under the circumstances, the denial of deduction u/s 54 of the Act

to the assessee, which is a beneficial provision, in our view, is not

justified. In view of this, the action of the lower authorities in denying

the deduction in respect of the purchase of plot in Kansal Enclave,

Village Kansal is set aside and it is held that the assessee is entitled to

deduction u/s 54 of the I.T. Act on the purchase of the said plot.

purchase of two flats used as a single unit is concerned, the Ld.

Counsel for the assessee has submitted that the issue is covered by the

various decisions of the Hon'ble Higher Courts. He, in this respect has

relied on the following decisions:-

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 7 1. CIT(A) vs Gita Duggal (357 ITR 153) [2013] Delhi High Court] 2. CIT vs Syed Ali Adil ()352 ITR 418) (AP High Court)

‘CIT vs Ananda Basappa’ (309 ITR 329), the Hon'ble Karnataka High

Court) has held that in the word Expression "a residential house", ‘a’

should not be understood to indicate a singular number.

Courts, wherein, it has been held that where two adjacent flats are

purchased and are being used as a single unit, deduction u/s 54 of the

Act is allowable to the assessee in respect of purchase of both the units.

Next grievance of the assessee is against denial of deduction u/s

54 of the Act of the exemption of Rs. 31,93,400/- on account of

purchase of second flat on 3.12.2012 by holding the purchase of flat has

to be made before the due date of filing of return u/s 139(1).

The case of the assessee is that the assessee had purchased second

flat within the extended date of filing of the return u/s 139(4) of the

Act. This issue is squarely covered by the decision of the Hon'ble

jurisdictional High Court in the case of ‘Jagriti Aggarwal 339 ITR 610

(2011) (P&H) wherein the Hon'ble High Court has held that -

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 8 “As per sub-s. (2) of s. 54, the amount of capital gains is required to he deposited by the assessee before furnishing the return not later than the due date under s. 139(1) in a specified account only if such amount is not appropriated by the assessee towards the purchase or construction of new asset before the date of furnishing thus return under s. 139. That Sub-s. (4) of s.139 is in fact, a proviso to sub-s. (1) and provides for extension of period of due date for filing the return in certain circumstances and such provision is not an independent provision but relates to the time contemplated under sub-s. (1) of s.139. That due date for furnishing the return of income as per s.139(1) is subject to the extended period provided under sub-s. (4) of s. 139. In the instant case, assessee sold her residential house on 13th Jan., 2006 and purchased, another property jointly with her father-in -law on 2nd Jan, 2007, and filed her return on 28th March, 2007, i.e. before the extended due date of filing of return under s. 139(4) for the relevant asst. yr. 2006-07—Therefore, assessee is entitled to exemption under s. 54."

Moreover, the issue is squarely covered by the decision dated 5.2.2018

of the Coordinate Chandigarh Bench of the Tribunal in Mrs. ‘Seema

Sabharwal vs ITO Panchkula’ in ITA No. ITA No. 272/Chd/2017 for

assessment Year: 2013-14, wherein, the Tribunal after detailed

discussion has held as under:-

“8. We have heard the rival contentions. Before deliberating further on this issue we would like to reproduce the relevant provisions of section 54 of the Act herein under:- “Profit on sale of property used for residence. 54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur

9 the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (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 residential house in India, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,— (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain 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

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur

10 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 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 not so utilised shall be charged under section 45 as the 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 such amount in accordance with the scheme aforesaid. Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1.4.1993” 9. A perusal of the above reproduced provisions of section 54 of the Act reveals that it deals with the capital gains earned on sale of property used for residence and as per the provisions of sub section (1) of section 54 of the Act, if an assessee, after sale of his residential property, has within a period of one year before or two years after the date of such transfer or within a period of three years, constructs a residential house, the capital gains will not be charged to tax upto the extent of the amount spent on the purchase or construction of residential house. Sub Section (1) of section 54 of the Act is a substantive provision enacted with the purpose of promoting purchase / construction of residential houses. However, sub section (2) of section 54 is an enabling provision which provides that the assessee should deposit the amount earned from capital gains in a scheme framed in this respect by the Central Government till the amount is invested for the purchase / construction of the residential house. This provision, in our view, has been enacted to gather the real intention of the assessee to invest the amount in purchase / construction of a residential house. As per the provisions of sub section (1) of section 54, the assessee has been given two years time to purchase and three years time to construct a residential house subsequent to the date of transfer of the original asset. At the time of the assessment proceedings, subsequent to the date of transfer of the original asset, an assessee may claim that he will invest the amount in purchase / construction of a new house, though not have

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur

11 taken any steps towards that direction till then. In such a scenario, there should not be any method or procedure before the Assessing officer through which he could gather the real intention of the assessee, as the assessee, by saying so, may delay the taxation of the capital gains earned at least for three years from the date of transfer of original asset. Hence, sub section (2) puts an embargo to the assessee to casually claim the benefit of section 54 at the time of assessment, without being any act done to show his real intention of purchasing / constructing a new residential unit. Sub section (2), therefore, governs the conduct of the assessee that the assessee should put the amount of capital gains in an account in any such bank or institution specifically notified in this respect and that the return of the assessee should be accompanied by submitting a proof of such deposit, hence, sub section (2) is an enabling provision which governs the Act of the assessee, who intends to claim the benefit of the exemption provisions of section 54. The real purpose of the enabling provision is the compliance of the substantial provision of sub section (1) to section 54 of the Act. Sub section (2), in fact, regulates the procedure for the substantive rights of the exemption provisions u/s 54 of the Act. This enabling section, in our view, cannot abridge or modify the substantive rights given vide sub section (1) of section 54 of the Act, otherwise, the real purpose of substantive provision i.e. sub section (1) will got defeated. The primary goal of exemption provisions of section 54 is to promote housing. The procedural and enabling provisions of sub-section (2) thus cannot be strictly construed to impose strict limitations on the assessee and in default thereof to deny him the benefit of exemption provisions. In our view, if the assessee at the time of assessment proceedings, proves that he has already invested the capital gains on the purchase / construction of the new residential house within the stipulated period, the benefit under the substantive provisions of section 54(1) cannot be denied to the assessee. Any different or otherwise strict construction of sub section (2), in our view, will defeat the very purpose and object of the exemption provisions of section 54 of the Act. Our above view, is fortified with the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Shri K Ramachandra Rao, ITA No. 47 of 2014 c/w ITA No. 46/2014, ITA No. 494/2013 and ITA No. 495/2013, decided vide order dated 14.7.2014 wherein the Hon'ble High Court has directly dealt with this issue while interpreting the identical worded provisions of

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur

12 section 54F(2) of the Act. The following question of law was framed by the Hon'ble High Court on this issue:- “2) When the assessee invests the entire sale consideration in construction of a residential house within three years from the date of transfer can he be denied exemption under Section 54F on the ground that he did not deposit the said amount in capital gains account scheme before the due date prescribed under Section 139(1) of the IT Act?” 10. The said question has been answered by the Hon'ble High Court in the following words:- “As is clear from Sub Section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in Section 54 F(1), if the assessee wants the benefit of Section 54 F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words if he want of claim exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54 F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct.” 11. Though the Hon'ble High Court in relation to the issue of claim of exemption u/s 54F of the Act has held that what matters is the intention of the assessee to purchase / construct new house. The Hon'ble Karnataka High Court has held that if the intention is not to retain cash but to invest in construction or any purchase in property and if such investment is made within the period stipulated therein, than section 54F(4) is not at all attracted. We may clarify here that provisions of section 54(2) are almost identically worded as in section 54F(4) of the Act. Admittedly, in this case, the assessee has invested the amount for the purchase / construction of the house within the stipulated period as also observed above while deciding the first issue. The assessee has proved such investment during the assessment proceedings and, thus, the assessee has complied with the requirement of

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 13 substantive provisions and, thus, is entitled to the claim of exemption u/s 54F of the Act. In view of this, we direct the Assessing officer to grant exemption to the assessee as permissible under the provisions of section 54 of the Act. 12. In the result, the appeal of the assessee stands allowed.”

favour of the assessee.

contesting the action of the CIT(A) in confirming the action of the

Assessing Officer in taking the cost of acquisition of the sold capital

asset / property as per fair market value of the property at Rs. 3 lacs as

on 1.4.1981 as against claimed by the assessee at Rs. 6 lacs. Apart from

that, the assessee claimed indexed cost of the improvement of the

residential house at Rs. 1,60,200/- in respect of first floor and Rs.

1,64,000/- in respect of the second floor. However, the Assessing

Officer observed that the assessee had not given any reliable evidence to

prove the fair market value of the plot and ground floor and further no

reliable evidence had been produced regarding the cost of improvement

i.e. construction of first floor and second floor. The Assessing Officer

estimated the fair market value of the plot as on 1.4.1981 at Rs. 1 lac

and construction of the house at Rs. 8 lacs totaling to Rs. 9 lacs, in which the assessee’s share @ 1/3rd of the total house was calculated at

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 14 Rs. 3 lacs and after indexation, the benefit of Rs. 23,55,000/- was

given.

acquisition as on 1.4.1981 was on the basis of the valuation report of the

Registered valuer, however, the said report was not available before the

Assessing Officer. The assessee also prayed before the CIT(A) that the

said report be admitted as ‘additional evidence’ under Rule 46A of the

Income Tax Rules, 1962. However, the Ld. CIT(A) ignored the above

contentions / submissions of the assessee. The Ld. Counsel for the

assessee has further submitted that the Assessing Officer has adopted

the market value of the property sold by the assessee as on 1.4.1981 at

Rs. 3 lacs of his own without making any reference to the Departmental

Valuation officer (DVO) u/s 55A of the Income Tax Act.

though the assessee had failed to furnish the report of the registered

valuer before the Assessing Officer, however, the same was submitted

before the CIT(A). However, the possibility cannot be ruled out of

some inflation in the report at the direction of the assessee as the

registered valuer was engaged by the assessee himself. At the same

time, the Assessing Officer had also not referred the matter to the DVO.

He simply estimated the cost of acquisition of the house and cost of

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 15 construction of the house as per his own assumptions even without

suggesting any scientific basis for the same.

both the parties and also considering the fact that the cost of acquisition

and cost of construction as on 1.4.1981, has to be arrived on estimation

basis and also considering the report of the registered valuer as well as

estimation done by the Assessing Officer, we direct that the cost of the

acquisition / purchase of the house as on 1.4.1981 be taken at Rs. 4.5

lacs as against the claim of the assessee of Rs. 6.0 lacs. However, so far

as the cost of improvement is concerned, though, the assessee has

claimed the same to be at Rs. 3,24,400/- (Rs. 1,64,000 + Rs. 1,60,200),

however, considering the over all facts of the case, the same is directed

to be adopted at Rs. 2 lacs and the cost of indexation be accordingly

computed over the said amount.

These grounds of the appeal are disposed of in the above terms.

Ground No. 6: Ground No. 6 is general in nature and does not 17.

require any specific adjudication.

In the result, the appeal of the assessee stands partly allowed.

Order pronounced in the Open Court on 31.12.2019.

Sd/- Sd/- (अ�नपूणा� गु�ता / ANNAPURNA GUPTA) (संजय गग� / SANJAY GARG) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member Dated : 31.12.2019

ITA No. 190-Chd/2019 Shri Pradeep Kumar Jain, Zirakpur 16 “आर.के.”

आदेशक���त�ल�पअ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकरआयु�त/ CIT 4. आयकरआयु�त (अपील)/ The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यआ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File