RAM NIRANJAN BANKA,KOLKATA vs. A.C.I.T., CIRCLE - 40,, KOLKATA

3.4. The Ld. AO in his order observed that The possession of the building had already been handed over to the developer much earlie. The assessee, therefore, became the rightful lease hold right holder of the 4 flats, including the flat on the 1st floor.The contention of the assessee in this regard cannot be accepted for the purpose of computation of capital gains as this is against the provisions of section 54(1)(ii) of the Act. The provision talks about ‘new asset’. In the present case, the flat in question is the ‘new asset’. Hence has to be treated as whole and cannot be broken up into components as contended by the assessee.

3.6. Capital Gain on transfer of 1st Floor Flat was computed as under: -

As per Assessee As per Asst Order Long Term Capital Short term Capital gain Gain Consideration (as per Stamp duty value) 5,51,24,940 5,51,24,940 Deduct: Indexed cost of acquisition Proportionate to 1st Floor area 74,19,522 74,19,522 Deduct: Proportionate cost of construction (difference due to area set apart for Original Lessor) 1,72,43,164 1,68,17,757 Capital Gains 3,04,62,254 3,08,87,661 Add; Proportionate Capital Gains reduced from cost as per section 54 (1) (ii) 1,10,74,204 Short Term Capital Gain as per AO 4,19,61,865

From Transfer of Developer’s allocation 4,65,63,334 From Transfer of 1st Floor Flat 3,04,62,254 3.8. The assessee claimed deduction u/s 54 only in respect of the cost of construction of the 5th, 6th and 7th floors, being ‘New Asset’ as per the said provision, amounting to Rs. 6,34,46,509/- as under:-

Total cost of construction of Owner’s allocation 8,06,89,673 Deduct: Proportionate cost of construction of 1st Floor 1,72,43,164 3.9. The assessee claimed balance amount as exempt for deposit having been made with a bank for utilization of said amount for construction by way of extension of certain area on eighth floor of the new building and for super finishing of construction on 5th, 6th & 7th floors and claimed deduction U/s 54(2) of the Act.

3.10. The ld CIT(A) upheld the assessment order on this issue by holding that the flat on the first floor was sold within three years and therefore the capital gain from the sale would be short term capital gain. The ld CIT(A) after taking into account the assessee submissions observed and held as under”

5.6 From the the consideration of a detailed order of ld. PCIT and the order of the AO dated 27.12.2019, I am of the considered opinion that in the facts of the present case the first floor flat which included the construction and land pertaining to it is rightlfully considered as a new asset and has to be considered as a unit whole without breaking it into components of land and construction. The purchaser of the said flat ultimately became the owner construction and land related to the flat. Therefore the assessing officer has rightfully computed the capital gain at Rs. 4,19,61,865/- on the transfer of new asset i.e. the flat on the first floor. This ground of appeal no. 1 is dismissed.

3.11. We have heard the rival contention and perused the materials as placed before us.We note that the assessee claimed deduction u/s 3.13. Considering the facts as narrated above , we are of the considered view that assessee has correctly calculated the gain as long term capital gain and consequently we direct the AO treat the same long term capital gain at Rs. 4,19,61,865/- by setting aside the order of ld CIT(A). The ground no 2 is allowed

4. The issue raised in ground no 3 is against the order of ld CIT(A) confirming the disallowance of Rs.44,26,906/- as made by the AO made u/s 48 which was incurred by the assessee on the construction of area provided to the lesser as per the term of indenture of lease of property under development.

4.2. However, as per the construction plan, only an area of 1121 Sq Ft. could be provided for which a total cost of Rs. 44,26,906/- was incurred by the Developer and paid by the assessee. The said amount should have been deducted while computing Capital Gains. The Ld. AO, in the order has also admitted the fact that the fulfilment of the commitment was binding upon the assessee and in case such expense had not been incurred, the construction could not have been made and the transfer could not have taken place. However, the expenses incurred on the same were disallowed on the ground that the condition of granting the constructed area to the Lessor was only a ‘personal obligation’ and there was no requirement in the lease deed that leasehold rights could be transferred only after providing area to the lessor.This has consequential effect on determination of Construction Cost relatable to Owners’ allocation, being consideration for transfer of undivided share in Land proportionate to Developer’s allocation. The Ld. AO should have allowed deduction of Rs. 4.3. The ld. CIT(A) after taking in to account the submission of the assessee upheld the order of AO on this issue by observing and holding as under:

“5.7 In the ground no. 2 , the appellamt claims for an allowance of 44,26,906/- on account of expenditure incurred in connection with the transfer.The appellant claims that it was obligation of the assessee as per per the lease deed. It was noted from the lease deed that there was no requirement in it for the assessee to transfer his leqasehold rights only after providing the constructed area to the lessor. Therefore the expenditure in no case can be claimed to be incurred in relation the transfer of property. The assessing officer has therefore rightfully denied deduction of Rs. 44,26,906/-. The ground no. 2 is dismissed.” 4.4. We have heard the arguments of both the parties and perused the records as placed before us. We note that the cost incurred by the assessee through the developer under the Indenture of Lease dated 19/01/1974, the assessee had an existing obligation to the original lessor to provide an area of 1250 Sq. Ft. fully completed and furnished with all fittings and fixtures and usual amenities on ownership basis. In our considered view the cost incurred is under obligation and therefore has to be allowed while computing gain from the property.Accordingly we set aside the order of ld. CIT(A) on this issue and direct the AO to delete the addition. The ground no. 3 is allowed.

5.2. The ld CIT(A) after taking in to account the submission of the assessee upheld the order of AO on this issue by observing and holding as under:

“The ground no. 3 relates to deductiuon of Rs. 1,50,00,000/- u/s 54(2).It is noted that the said deposit of amount should have been deposited within the specified date in an account in any such bank or institution as may be specified in and utilized in accordance with the specific capital gain scheme.The amount though deposited in a nationalised bank but is not as per the capital gain scheme.Therefore the eligibility of deduction u/s 54(2) is not fulfilled. Thus this ground of appeal no. 3 is dismissed.” 5.3. We have heard rival contentions and perused the material on records. As per Sub-section (2) of Section 54, amount of capital gain which is not appropriated by the assessee towards the purchase of new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing return of income U/s 139, should be deposited in a separate account maintained in accordance with the Capital Gain Deposit Scheme (CGDS) to be utilized by him as per specified scheme. In the present case, the assessee made term deposits of the amount of capital gain in a nationalized bank without specifying the “The intention of the assessee from very beginning was to purchase a flat, it could not be said that there was any hanky panky on the part of the assessee to avoid payment of tax. The default committed by the assessee was a technical default that the assessee did not deposit the amount meant for reinvestment in the capital gain account scheme before filing return under section 139 was a technical default. Keeping in view the totality of the facts and circumstances of the case, the amounts which were ultimately invested within the stipulated time was to be exempt from tax although the assessee failed to technically deposit the same in the capital gain account. The intention of the Act as well as the intention of the assessee are to be considered in the right perspective. It was not the case of the department that the assessee wanted to utilise the amount for purpose other than to purchase a house. As a result, the addition was deleted to the extent of Rs. 4.01 lakhs as per Rules and the remaining amount was sustained.” 5.4. It is to be noted that although the completion certificate was obtained on 30th November, 2013, construction was only completed with minimum required normal finishes as per municipal laws and the assessee intended to utilise the surplus capital gain amount for super finishes and extension of area on 8th floor. The said amount was utilized by the assessee subsequently for construction activity i.e. on extension of certain area on the 8th floor of the residential house and also for the super finishing work of the flats on 5th, 6th and 7th floors.

5.5. The fact that the amount invested in term deposits, was specifically utilized for the purpose of construction and super finishes is not disputed and hence, the intention of the assessee is to be considered in right perspective as suggested in the case supra. In this regard, reference can also be drawn to the case of Smt. Aarti Kumaria where it had been held by the

Order pronounced in the open court on 21.11.2025.