THE ITO,, COCHIN vs. LATE SRI.K.SASIDHARAN REP BY SMT. K.P.SAILAJA, COCHIN

Per BENCH:

This appeal filed by the Revenue and the Cross Objection filed by the

assessee are directed against the order of the CIT(A)-II, Kochi dated

14/12/2016 and pertains to the assessment year 2006-07.

1) The CIT(A) erred in granting exemption u/s. 54 without considering the fact that the sale consideration was not deposited in the capital accounts scheme before due date of filing return.

2) The CIT(A) has not considered the conditions stipulated under the provisions of section 54F(4) that the deposit of utilized amount in the Capital Gain Accounts Scheme within the due date of filing return u/s. 139(1).

3) Whether the CIT(A) was right in allowing the assessee’s appeal holding only the fact that the assessee had purchased new property within two years of the transfer.

reason that the tax effect in this case is only Rs.4,14,625/- which is below the

monetary limit of Rs.10 lakhs fixed by the CBDT Circular No.21/2015 dated

10/12/2015. Other grounds are in support of the order of the CIT(A).

cents of agricultural land belonging to the assessee at Attipa Village, Trivandrum

was acquired by the State Government for a compensation of Rs.4,14,625/-. The

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 assessee filed his return of income for the relevant assessment year on

19/07/2006 claiming the capital gains in respect of this land as exempt u/s.

10(37) of the Act. The assessee purchased 4 cents and 752 sq. links land and a

partially build house theeron on 22/01/2007 for a total consideration of Rs.7.03

lakhs. Additional amount of Rs.12.75 lakhs was incurred to complete the

partially completed house having an area of 1500 sq. ft., thereby reinvesting a

total amount of Rs.19.78 lakhs in the new residential house. The assessee died

on 20/03/2007 and proceedings were continued on his legal heir and widow,

Smt.K.P. Shailaja. At the time of the original assessment the assessee had

furnished details supporting the claims made in the return of income filed. The

claim made u/s. 10(37) was allowed by the Assessing Officer in the order u/s.

143(3) dated 24/12/2008. Subsequently, the CIT initiated proceedings u/s. 263

of the Act. Before the CIT, it was submitted that the land was agricultural and

documentary evidence to this effect was submitted on 23/11/2009. However,

the CIT set aside the assessment order directing the Assessing Officer to make

fresh assessment after making necessary enquiries and granting opportunity of

hearing to the assessee. In response to this, the assessee filed documentary

evidence substantiating the claim made u/s.10(37) of the Act. Further, an

additional contention was made that the proceeds from transfer was invested in

acquisition of residential property within the time limit specified u/s. 54F of the

Act before the Assessing Officer. However, the Assessing Officer vide order

dated 05/08/2010 rejected the contentions raised by the assessee u/s. 54F on

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 the ground that the new residential property was not acquired within three years

from the date of transfer and the assessee failed o deposit the amount in capita

gains depost accounts scheme before the due date of filing return of income for

the relevant assessment year.

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

transfer (i.e. 01/04/2005) or purchased before one year of transfer or two years

after the date of transfer. The CIT(A) observed that the Assessing Officer’s

conclusion that the assessee acquired new residential property only on

22/01/2007, i.e., after two years from the date of transfer is factually incorrect.

According to the CIT(A) 22/01/2007 is within 2 years from 01/04/2005. Since

the assessee has purchased new property within two years of transfer, he has

fulfilled the conditions laid down u/s. 54F. Thus, the CIT(A) deleted the addition

of Rs.15,28,925/-.

the assessee has not invested in the capital gain in capital gain accounts deposit

scheme within due date of filing the return of income so as to claim deduction

u/s. 54F and the assessee has invested capital gain in construction of new

residential building only on 22/01/2007. According to him during the

intermediary period from the date of transfer to the date of investment in the

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 residential building, the amount should have been kept in the capital gain

accounts deposit scheme which was not done, hence deduction u/s. 54F of the

Act cannot be granted.

against the order of CIT(A) in violation of clear directions given by the CBDT

fixing the monetary limit of filing appeal with ITAT as INR 10,00,000. Section

268A(1) of the Act empowers the Board to issues instruction fixing monetary

limit for regulating filing of appeal. The Ld. AR submitted that the validity of the

circular has been upheld in the following cases:

• Mumbal High Court in the case of CIT Vs Sunny Sounds Private Limited (2016) 381 ITR 443 (Bom); • ITAT Bangalore in the case ofACIT Vs Valmark Developers Private Limited (2018) ITA No.2648 to 2653/Bang/2017 [MANU/IL/0057/2018]; • ITAT Indore in the case of Income Tax Officer 5(3) Vs. Dinesh Khandelwal [MANU/II/0068/2016]; • ITAT Delhi in the case ofACIT Vs M/s Dallas Finance Limited ITA No.3946/Del/2010

7.1 The Ld. AR submitted that it is clear from assessment order dated 05

August 2010 that the tax effect of adjustment in the given case is only INR

4,53,100 (including interest) and hence, the tax effect is less than the monetary

limit fixed by the CBDT. The circular provides for four exceptions to filing of

appeal falling below the monetary limit, being:

Where constitutional validity of the provisions of the Act or Rule is under challenge;

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 Where Board's order, notification, instruction or circular has been held to be illegal or ultra virus;

Where the revenue audit objection in the case has been accepted by the department; and

Where the addition relates to undisclosed foreign assets/bank accounts, in this regard, the Ld. AR relied on the judgment of the High Court of Andhra Pradesh in the case of Commissioner of Income Tax Vs A Raajendra Prasad [2008] 299 ITR 227 (AP), wherein the court has laid down the procedure the department needs to follow in case an appeal is filed where tax effect is below the monetary limit prescribed. The court has directed the department to clearly plead in the memo of appeal itself that the appeal falls under the exception;

7.2 Further, the Ld. AR submitted that clause 6 of the CBDT circular and

Section 268A(2)of the Act clarifies that in the case the appeal is not filed merely

on the ground of low tax effect there shall be no presumption that the

department has acquiesced in the decision on the disputed issues. Given the fact

that the tax effect is less than the monetary limit and that the department has

not pleaded in the memorandum of appeal of any exception, it was requested to

dismiss the appeal filed by revenue without going into the merits of the case.

7.3 The Ld. AR submitted 27 Cents of agricultural land belonging to Late K.

Sasidharan, at Attipra Village, in Trivandrum was acquired by the State

Government on 1.4.2005 for a compensation of Rs.20,25,925 and the rteturn of

income for AY 2006-07 was filed claiming the capital gains in respect of this land

as exempt u/s 10(37). The assessee purchased 4 cents and 752 Sq. links land

and a partially built house thereon on 22-01-2007 for a total consideration of

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 Rs.7.03 Lakhs and additional amount of Rs. 12.75 Lakhs was incurred to

complete the partially completed house having an area of 1500 Sq ft, thereby

reinvesting a total amount of Rs.19.78 Lakhs in the new residential house. It was

submitted that since the assessee was under the impression that capital gain is

exempt u/s 10(37), alternate claim for deduction u/s 54F was first raised before

the assessing officer during the course of hearing, the assesse failed to comply

with the condition stipulated under section 54F(4) of the Act of depositing of

unutilized amount in the Capital gain account scheme within the due date of

filing return under section 139(1) of the Act. According to the Ld. AR, the

assessee was under the impression that the entire Long Term capital gain of Rs.

15,28,925 will be exempt from Tax under section 10(37) being the capital gain

on sale of Agriculture property, though the assessee, during the time of filing

return of income, had the intention of investment of sale proceeds for purchase

of new residential property, the same was not disclosed in the return of income

as exemption u/s 10(37) was claimed. Hence, it was submitted that the assessee

did not deposit the amount in capital gain account Scheme to be utilized for the

purchase of house property and for completion of the construction, instead

deposited the same in his ordinary Savings Account. It was submitted that

Section 54F being a benevolent provision intended for development of

infrastructure calls for a liberal interpretation. It was submitted that beneficial

provisions of law should be interpreted fairly, reasonably, and liberally favoring

the assessee so as to achieve the intended purpose. It was submitted that the

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 CIT(A) had rightly granted deduction u/s 54F going by the spirit of the law,

hence it was requested to dismiss the ground raised by the department o non-

allowance of deduction claimed u/s. 54F.

7.4 The Ld. AR relied on the following case law:

(a) CIT Vs. Rajesh Kumar Jalan (206 CTR 361)(Guwahati) (b) CIT Vs. Fatima Bai (32 DTR 243)(Kar) (c) CIT Vs. Jagriti Agarwal (339 ITR 610)(P & H) (d) Nipun Mehrotra Vs. ACIT (110 ITD 523)(Bang.) (e) Muthuletchumi Janardanan Vs. DCIT (34 CCH 193)(Coch) (f) ACIT vs. Smt. Umayal Annamalai (ITA No. 415/Mds/2015 (dt. 22/04/2016) (g)) Pr. CIT vs. Shankar Lal Sahni (253 taxman 308)(Raj.)

assessee sold the capital asset on 01/04/2005. Admittedly, the assessee filed

the return of income on 18/07/2006 for the assessment year 2006-07. As per

section 139(1) of the Act, the return of income for assessment year 2006-07

should have been filed on or before 31/07/2006. The assessee is said to have

made investment in construction of new building on 22/01/2007. According to

the Assessing Officer, the assessee should have made investment in the

residential building before 31/07/2006. The Assessing Officer denied the

exemption u/s.54F of the Act on the reason that the return filed within the

extended time limit available of filing of return of income u/s. 139(4) cannot be

considered.

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 8.1 The Karnataka High Court in the case of CIT vs. Fathima Bai (32 DTR 243),

the Guwahati High Court in the case of CIT vs. Rajesh Kumar Jalan (206 CTR

361) held that the due date for the assessee to invest the amount of capital

gains in purchase/construction of new residential asset or investment in capital

gains scheme u/s. 54F of the Act refers to the “extended due date” u/s. 139(4)

of the Act. So far as the time limit for assessee to invest in construction of

residential building, the time limit available u/s. 139(4) is to be considered to

that extent we are agreeing with the contention of the Ld. AR. However, during

the intermediary period, i.e., after the sale of capital asset till the date of

investment, the amount has to be deposited in an account in any such bank or

institution as may be specified in and utilized in accordance with any scheme of

Central Government notified in official gazette framed in this behalf and the

assessee shall file proof for such deposit. The Assessing Officer in this case has

rejected the claim of assessee that the assessee has not utilized the capital gains

on transfer of capital asset in investment in residential building as specified in

section 54F(1) of the Act on the reason that the assessee has not filed the return

of income within due date in terms of sec. 139(1) of the Act.

8.2 The Ld. DR made a plea that the assessee has not invested the capital gain

in the capital gain accounts deposit scheme before the due date of filing of

return of income u/s. 139(1) of the Act and the investment in the residential

building was made after the due date of filing the return of income and hence,

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 the assessee is not entitled for deduction u/s. 54F of the Act. The Ld. AR’s

contention is that the assessee has purchased the land with partially completed

building on 22/01/2007 for the consideration of Rs.7.03 lakhs and additional

expenses were incurred at Rs.12.36 lakhs to complete the project. Thus, the

total investment is Rs.19.78 lakhs and hence, deduction u/s. 54F is to be

granted.

8.3 In our opinion, the decision of the Karnataka High Court in the case of CIT

vs. K. Ramachandra Rao (56 taxman.com 163) is applicable wherein it was held

that as per sec. 54F(4), in the event of the assessee not investing the capital

gains either in purchasing the residential building or in constructing a residential

house within the period stipulated in sec. 54F(1), if the assessee wants the

benefit of sec. 54F, then he should deposit the said capital gains in an account

which is duly notified by the Central Government. In other words, if the

assessee claims exemption from payment of income tax by retaining the cash

then the said amount is to be invested in the said account notified by the Central

Government on this behalf. 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 i.e., section 139(4), then section 54F(4) is

not 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

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 also not correct. A similar view was taken by the Kerala High Court in the case

of Dr. Xavier J. Pullikal vs. DCIT (104 DTR 134). In our opinion, the assessee

could make investment in construction of new residential building within three

years from the date of transfer of original asset to claim deduction u/s. 54F of

the Act. Provisions of section 54F are beneficial provisions and are to be

considered liberally.

8.4 In view of the above discussion, we are inclined to remit the issue to the

file of the Assessing Officer to examine the fulfillment of the conditions u/s. 54F

of the Act through intermediary period, i.e., from the date of transfer of the

capital asset to the date of actual investment in construction of residential

building. Accordingly the issue of allowability of deduction u/s. 54F is remitted to

the file of the Assessing Officer with the direction to the assessee to prove the

investment in the residential building as prescribed u/s. 54F of the Act before the

due date of filing of return of income u/s. 139(4) of the I.T. Act, i.e.,

31/03/2007. Accordingly, this issue is remitted to the file of the Assessing

Officer for fresh consideration after giving adequate opportunity of hearing to the

assessee. The appeal of the Revenue is partly allowed for statistical purposes.

Objection filed by the assessee in C.O. No.23/Coch/2017 has become infructuous

and dismiss the same as infructuous.

I.T.A. No.56/C/2017 & C.O. No.23/Coch/2017 10. In the result, the appeal filed by the Revenue is partly allowed for

statistical purposes and the Cross Objection filed by the assessee is dismissed.

Order pronounced in the open Court on this 10th July, 2018.

sd/- sd/- ( GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 10th July, 2018 GJ Copy to: 1. Late Shri K. Sasidharan, Rep. by Smt. K.P. Sailaja, Shakunthala Bhavan, Karumakkad, Thrikkakara, Kochi-21. 2. The The I.T.O., Non-Corporate, Ward-2(3), Kochi. 3. The Commissioner of Income-tax(Appeals)-II, Kochi 4. The Pr. Chief Commissioner of Income-tax, Kochi 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin