Loading judgment…
Facts
The assessee sold an immovable property and claimed deductions under Section 54F and 54EC of the Income Tax Act. The Assessing Officer made an addition under Section 50C for the difference between the stamp duty value and the sale consideration and disallowed the deductions under Sections 54F and 54EC. The CIT(A) upheld the Assessing Officer's order.
Held
The Tribunal held that the addition under Section 50C was not sustainable as the AO failed to refer the valuation to the DVO. Regarding Section 54F, the issue was set aside for denovo verification due to issues with evidence. For Section 54EC, the Tribunal held that the investment in bonds was made within six months of the receipt of sale consideration, thus allowing the deduction.
Key Issues
1. Whether the addition under Section 50C is sustainable without referring the matter to the DVO. 2. Whether the assessee is eligible for deduction under Section 54F when investment was made prior to the sale of original asset. 3. Whether the assessee is eligible for deduction under Section 54EC when investment was made after receipt of sale consideration but beyond six months from the date of transfer.
Sections Cited
50C, 250, 143(3), 263, 54F, 54EC, 45(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER PER DR. DIPAK P. RIPOTE, AM: Thisappeal filed by the assessee is against the order of ld.Commissioner of Income Tax(Appeals)[NFAC], passed under section 250of the Income Tax Act, 1961; dated 23.09.2024 for Assessment Year 2015-16. The assessee has raised the following grounds of appeal :
1. The learned CTT(A) erred in confirming the addition u/s 50C of Rs.6,15,600 by taxing the appellant's share in difference between govt. valuation of Rs.2,52,31,000 and actual consideration of Rs 2,40,00,000 received on sale of immovable property as income u/s 50C without appreciating that the above difference was within the range of 10% and hence, the said addition was not justified in view of the consistent view taken by Honorable Courts holding that the amendment made to section 50C vide Finance Act, 2020 is retrospective in nature.
2. Without prejudice to Ground No. 1, it is submitted that the learned CIT(A) erred in confirming the addition u/s 50C of Rs.6,15,600 without appreciating that the actual consideration received by the appellant was equivalent to the fair market value of the impugned property and the govt. valuation of the said property was on a higher side and hence, the above addition made u/s 50C without referring the matter to the DVO was not sustainable in law.
The learned CIT(A) erred in sustaining the disallowance of Rs.42,38,018 claimed u/s 54F in respect of long term capital gain on the ground that the appellant had made investment in construction of new bungalow prior to the date of transfer of original asset without appreciating that the said disallowance was not warranted on facts and in law.
The learned CIT(A) failed to appreciate that the investment in the impugned asset was made within a reasonable period and further, the construction of the new asset was completed within the prescribed period of three years itself and therefore, no disallowance could have been made in respect of the above investment made by the appellant in view of the consistent view taken by Honorable Courts.
Without prejudice to ground no. 3 & 4, it is submitted that the investment made in construction of bungalow after the date of transfer of original asset may be allowed as a deduction u/s 54F of the Act.
6. The learned CIT(A) erred in holding that the appellant was not entitled to exemption u/s 54EC in respect of the investment in the eligible bonds on the ground that the appellant had not invested in those bonds within a period of six months from the date of transfer of the asset.
The learned CIT(A) failed to appreciate that the appellant had invested in the eligible bonds within a period of 6 months from the receipt of the sale consideration and accordingly, he was entitled to claim the deduction u/s 54EC.
8. The learned CIT(A) erred in not appreciating that if the appellant did not receive the sale consideration within 6 months from the date of transfer, he had no source to invest the amount and accordingly, the benefit of exemption u/s 54EC ought to have been granted if the [A] appellant had invested in the specified bonds within 6 months from the date of receipt of the sale consideration. 9. The appellant craves, leave to add, alter, amend and delete any of the above grounds of appeal
.” Brief History of the appeal :
2. Assessee is an Individual who filed Return of Income for A.Y.2015-16 on 30.09.2015. The assessee’s Return of Income was selected for limited scrutiny on the ground to verify Assessee’s sale consideration, claim of deductions, turnover etc. The Assessing Officer passed the original assessment order under section 143(3) on 24.12.2017 accepting the Returned Income of Rs.13,11,710/-. It is mentioned in the original assessment order that assessee sold agricultural land for Rs.1.20 crores and claimed deduction u/s.54F and 54EC of the Act. The ld.Principal Commissioner of Income Tax-2, Nashik issued a notice u/s.263 of the Act for A.Y.2015-16.It is mentioned by Pr.CIT in his order that the ld.AR accepted that the original assessment order was erroneous, but Assessee had not filed any submission before him. The ld.Pr.CIT-2 Nashik passed on order u/s.263 on 16.03.2020 setting aside the order u/s.143(3) dated 24.12.2017 for denovo adjudication. Accordingly, the Assessing Officer passed an order u/s.143(3) r.w.s. 263 of the Act, on 13.09.2021, after giving opportunity to the assessee. The Assessing Officer has mentioned in the order dated 13.09.2021 that assessee has not complied any notices and not filed any submissions. The Assessing Officer vide order dated 13.09.2021 denied the assessee’s claim of deduction u/s.54F of Rs.42,38,020/-, u/s.54EC of Rs.45 lakhs and also made addition u/s.50C of Rs.6,15,600/- of the Act.
2.1 Aggrieved by the assessment order, the Assessee filed appeal before the ld.CIT(A).
2.2 The ld.CIT(A) upheld the assessment order. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.
Submission of ld.AR : 3. Ld.AR for the assessee filed a paper book containing following documents : Sr. Particulars Clarification Letter addressed to Hon'ble Bench with the following Annexures thereto- 1 Commencement Certificate dated 08.05.2012 2 Architect’s Certificate dated 19.12.2017 filed before A.O. during scrutiny asst, proceedings u/s 143(3) 3 Application dated 24.04.2025 filed before A.O. for obtaining copy of Site Verification Report conducted during scrutiny asst, proceedings u/s 143(3) 4 Letter filed before Audit Party, referring to Inspectors Site Verification Report at end of page 1. 5 Photos captured by son of assessee waiting at Income Tax Office, Nashik 6 Revision Order u/s 263 7 Asst. Order u/s 143(3) dated 24.12.2017 8 Audited Balance Sheet as on 31.03.2015 filed before AO during scrutiny asst, proceedings u/s 143(3) 9 Reply to AO dated 20.12.2017 filed before AO during scrutiny asst, proceedings u/s 143(3) 3.1 The Written Submission filed by ld.AR is reproduced here as under : “1] The construction of the bungalow was commenced vide Commencement Certificate dated 08.05.2012 issued by Nashik Municipal Corporation (NMC) which is attached herewith as Annexure 1. The construction of the house was completed in all respects in the month of May, 2015. The application for obtaining completion certificate before Nashik Muncipal Corporation (NMC) was filed in the month of July, 2015. The Certificate of the Architect dated 19.12.2017 affirming the above facts, which was also filed before the A.O. in the scrutiny asst, proceedings u/s 143(3) is attached herewith as Annexure 2. However, the Completion Certificate was issued by the NMC after a considerable delay after 08.01.2018 due to technical issues beyond the control of the appellant. 2] In order to verify the issue as to whether the construction of the bunglow was completed within three years i.e. before 08.01.2018, the A.O., in the course of scrutiny assessment proceedings concluded vide Asst. Order u/s 143(3) dated 24.12.2017 had conducted Physical Site Verification of the Bunglow by assigning Inspector in the month of December 2017. Upon physical inspection, the A.O. was satisfied that the construction of the bunglow was completed within the stipulated period and only after this satisfaction, the A.O. accepted the claim of deduction u/s 54F. It is submitted that the Inspector's Site Verification Report is available on record of the A.O. and the assessee has filed an application on 24.04.2025 with the A.O. to obtain copy of the said Inspection Report. Copy of the said Application is attached herewith as Annexure 3. 3] The son of the assessee is continuously following up with the Dept, to obtain copy of the said Report, however, he has been informed that the file is an old one and therefore, locating the old records may take a period of four to five days. The photo captured of the Income Tax Office, Nashik for this work is also attached herewith as Annexure 4, in order to assure Hon'ble Bench of the sincere efforts being made from the side of the assessee to obtain the required documents. Therefore, it is prayed that further time of 7 days may please be granted to the assessee to produce the Verification Report from the file of the A.O.
Alternatively, it is prayed that this fact may also be independently verified by Honorable Bench by calling for the assessment records from the Jurisdictional A.O. i.e. ITO. Ward 2(1). Nashik who had passed the Asst. Order u/s 143(3) dated 24.12.2017. 4] It is reiterated that the condition u/s 54F of completion of construction within the stipulated period of three years was specifically verified and found to be satisfactory by the A.O. in scrutiny asst, proceedings u/s 143(3). Therefore, after verifying the asst, records, the learned PCIT had not raised any objection on satisfaction of this condition u/s 54F in the revision order u/s 263. Copy of the Order u/s 263 is attached herewith as Annexure 5. The only objection raised by the Id. PCIT as regards deduction u/s 54F as discussed on page 2, para (ii) of the Revision Order u/s 263, was that the investment in cost of construction was made one year prior to the transfer of the original asset. Thus, it is submitted that even technically, the verification of this concluded issue which was also not disputed by the PCIT in his revision order u/s 263, is outside the scope of the present appeal arising against the asst, order u/s 143(3) r.w.s. 263 which is impugned before Hon'ble Bench. Copy of the original Asst. Order u/s 143(3) dated 24.12.2017 is attached herewith as Annexure 6. 5] It is further clarified that the total cost of construction of the bunglow was around Rs. 1,24,00,000 as also confirmed by the Architect in his Certificate dated 19.12.2017. The Audited Balance Sheet as on 31.03.2015 reflecting investment in Bunglow at around Rs.1.09 Crs. upto 31.03.2015 is also attached herewith as Annexure 7. However, while making the claim for deduction u/s 54F in the ITR, the appellant had only claimed cost to the tune of Rs.54,39,681 which was incurred one year prior to the date of sale of original asset i.e. from 10.01.2014 to 09.01.2015. This fact was duly clarified before the A.O. vide Reply dated 20.12.2017 which is attached herewith as Annexure 8. 6] It is most humbly submitted that the A.R. had called for clarifications and information on all the above aspects from the assessee. However, the erstwhile Tax consultant of the assessee who was handling the matter had left the assignment and hence, compilation of the relevant information was taking time. Presently, the assessee is also not keeping well which is leading to delay in obtaining the relevant documents. In view of these difficulties, the A.R. had sought an adjournment on 22.04.2025. The A.R. appreciates and honours the encouragement provided by Hon’ble Bench to conclude the hearing involving covered legal issues without seeking adjournment on the date of hearing. Under the above constraints, the A.R. has made his best efforts to conclude the hearing.
6] In view of the above clarifications, it is submitted that the fact that the construction of the bungalow was already completed within the stipulated period of three years from transfer of original asset on 09.01.2015, It as been duly verified and accepted by the A.O. by undertakings Physical Verification of the Property in December 2017 before passing the Asst. Order u/s 143(3) dated 24.12.2017. The Physical Verification Report of the Dept, is available in the asst, records of ITO, Ward 2(1), Nashik. The assessee has already filed an application on 24.04.2025 for obtaining copy of the same and the said Report shall be furnished as soon as it is obtained from the A.O. Alternatively, this fact can also be cross verified by Hon’ble Bench by calling for the asst, records.” Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of Assessing Officer(AO) and ld.CIT(A).
Findings &Analysis : 4. We have heard both the parties and perused the records. 4.1 In this case the first hearing before the ITAT was scheduled 24.02.2025. The ld.AR filed a letter dated 24.02.2025 requesting for adjournment, the content of the letter is reproduced as under : “Sir, Sub: Request in the case of Mr. Anil Sidhwani fixed for hearing before Hon’ble ‘A Bench on 24.02.2025. This is the assessee’s appeal involving two issues regarding addition made u/s 50C and disallowance of deduction/s 54F. The Counsel. CA Sanket M.Joshi is based in Nashik. He has recently received the brief and he has called for the relevant documents and information for preparation of the case. Hence, the assessee requests for an [A] adjournment. The assessee will be grateful if the adjournment is granted.”
4.2 The ld.AR sought adjournment, accordingly the Bench granted adjournment and scheduled hearing for 08.04.2025. Again on 08.04.2025, ld.Counsel for the Assessee filed letter for adjournment. The content of the letter dated 07.04.2025 is as under: “Sir, Sub: Request in the case of Mr.AnilSidhwani [ITA No.2443/PUNE/2025] fixed for hearing before Hon’ble ‘A Bench on 08.04.2025. This is the assessee’s appeal involving two issues regarding addition made u/s 50C and disallowance of deduction u/s 54F. The Counsel, CA Sanket M.Joshi has called for the relevant documents for preparation of the Paperbook, which are being compiled by the briefing Counsel. Hence, the assessee requests for an adjournment. The assessee will be grateful if the adjournment is granted.”
4.2.1 The hearing was adjourned to 22.04.2025. 4.3 Again on 22.04.2025 ld.Counsel for the Assessee requested for adjournment. Accordingly, the hearing was scheduled on 23.04.2025. Ld.Counsel appeared on 23.04.2025 and pleaded the case.
4.4 We are discussing the appeal ground wise :
Ground No.1 & 2 : 5. As per the Assessment order, assessee has sold a Flat No.5, Omkar Palace Apartment, Nashik for a sale consideration of Rs.2,40,00,000/-. Assessee is 50% owner of the said sold property. The value adopted by Stamp Authorities for the purpose of registration was Rs.2,52,31,000/-. As per Section 50C(2) of the Act, where the Assessee disputes the valuation, the Assessing Officer may refer the case for valuation to the District Valuation Officer (DVO).
5.1 It is noted that Assessing Officer has not referred the issue to the DVOfor Valuation.
5.2 Regarding reference for valuation to the DVO in the context of Sec.50C(2) of the I.T.Act, Hon’ble Calcutta High Court in the case of Sunil Kumar Agarwal vs CIT reported in 372 ITR 83 / 47 Taxmann.com 158 observed that even where no prayer is made by Advocate representing the assessee who may not have been properly instructed in law, the Assessing Officer discharging a quasi-judicial function has bounden duty to act fairly and to give a fair treatment by giving him an option to follow the course provided by law and [A] remanded the issue of valuation to Assessing Officer for reference to DVO for proper valuation as per law. Hon’ble ITAT, Pune in the case of Subhash Vinayak Supnakar vs. ACIT reported in 152 ITD 389 has observed that when assessee had objected stamp valuation adopted by Assessing Officer, the Assessing Officer should refer matter to valuation. Hon’ble ITAT, Delhi in the case of Sarwan Kumar vs ITO reported in 150 ITD 289 held that where an assessee has claimed before Assessing Officer that the value of the land and building assessed by Stamp Valuation Authority exceeded Fair Market Value of the property, then in terms of Sec.50C(2)(a), Assessing Officer ought to have referred matter to Valuation instead of straight away deeming the value adopted by Stamp Valuation Authority. The ratio of the decisions of the, the Hon’ble Calcutta High Court, Hon’ble ITAT cited supra squarely applies to the facts of the case.
Therefore, respectfully following the judicial precedents, we set-aside the issue of addition made under section 50C to the Assessing Officer for denovo adjudication. We also direct ld.Assessing Officer to refer the Asset for valuation to the DVO.
Accordingly, Ground No.1 and 2 raised by the assessee are allowed for statistical purpose.
Ground No.3, 4 and 5(regarding 54F) : 7. It is noted in the assessment order that inspite of providing opportunities, Assessee failed to file required details and explanation to the show-cause notice before the Assessing Officer. Therefore, Assessing Officer held that Assessee was not eligible for deduction u/s.54F of the Act. On perusal of the order of the ld.CIT(A), it is observed that Assessee has not made any factual submission before the ld.CIT(A). It is noted that Assessee had claimed investment in the immoveable property prior to one year of sale of original asset. The relevant paragraph of the ld.CIT(A) is reproduced here as under:
Before us, Assessee has filed a paper book. As per the said paper book, at page no.4 to 6 is the Commencement Certificate issued by Nashik Municipal Corporation on 08.05.2012 in the name of Shri Shreechand Bhagatram Sadhwani for construction of a Building. Neither the Assessing Officer, nor the ld.CIT(A) has mentioned about it. Thus, it is an additional evidence. However, it goes to the root of the issue involved, hence, we admit the said additional evidence. At page 7 of the paper book, is a Certificate dated 19.12.2017 issued by Architect Sanjay Pabari. Again, this is an additional evidence. However, it goes to the root of the issue, hence we admit it as an additional evidence.
8.1 On perusal of the additional evidence, it is observed that the impugned construction approval is in the name of Shrichand Sadhwani and not in the name of Assessee i.e.AnilShirchand Sadhwani. The Architect has claimed that he had made an application before Nashik Municipal Corporation for Completion Certificate. However, Assessee has not filed copy of any Completion Certificate.
8.2 In these facts and circumstances of the case, we set-aside the issue of allowability of deduction u/s.54F of the Act, to the Assessing Officer for denovo verification. The Assessing Officer shall provide opportunity of hearing to the assessee. Assessee shall file all necessary documents within Three Effective Hearings. Accordingly, Ground No.3, 4 and 5 raised by the Assessee are allowed for statistical purpose.
In the result, Ground No.3, 4 and 5 are allowed for statistical purpose.
Ground No.6, 7 and 8 (regarding 54EC) : 10. The Assessee had made investment in REC Bonds on 30.09.2015. The Assessing Officer has not allowed deduction u/s.54EC of the Act, as the Investment was beyond a period of six months. However, the Assessee had submitted before the ld.CIT(A) that Assessee had not received the entire sale consideration on the date of agreement i.e. 09.01.2015. Assessee also submitted before the ld.CIT(A) that the last installment was received on July, 2015. Assessee has filed copy of the Bank Statement to demonstrate that major part of the sale consideration was received in July, 2015. We have perused the Bank Statement and the Ledger Account and are convinced that Major Part of the Sale Consideration was received in July, 2015. The Assessee has invested the sale consideration in REC Bonds on 30.09.2015. In this case, all the conditions have been satisfied by the assessee for availing deduction u/s.54EC of the Act. The delayed receipt of sale consideration was not in the control of the assessee. However, Assessee has invested in REC Bonds, immediately after the receipt of sale consideration.
10.1 ITAT Pune in the case of Shri Mahesh Nemichandra Ganeshwade & Others in & Others dated 29.03.2012 has held as under : “16. We have carefully considered the rival submissions. In this case, the dispute before us is with respect to the claim of exemption of long term capital gain on sale of land with respect to investments of Rs 12,50,000/- and Rs 37,50,000/- made on 3.8.2007 and 27.10.2007 respectively. Section 54EC prescribes that the exemption shall be available if the investment in specified Bonds is made within a period of six months after the date of transfer of the capital asset which, in the present case, is 12.7.2005. The assessee has explained that he could not make the investments within six months from the date of transfer, i.e. 12.7.2005 because the aforestated consideration was received on subsequent dates, namely, 12.12.2007, 14.5.2007, 19.6.2007 and 3.7.2007. A technical interpretation of section 54EC in this regard would imply that the exemption from tax on capital gains is not available qua the impugned investment of Rs 50 lakhs. So, however, the plea set-up by the assessee is on 14 account of the purpose and spirit of the section and on account of the fact that the right to collect such sale consideration arose after the period of six months from the date of [A] transfer. It is pleaded that the requirement of section 54EC stipulating investment in six months from the date of transfer has to be appropriately understood and applied so as to further the purpose and spirit of the section.
In a somewhat similar situation, the requirement of section 54EC to the effect that investment in specified assets is to be made within a period of six months from the date of transfer, was put to some clarification by the CBDT in Circular No 791 (supra). The question arose before the CBDT regarding exemption of a long term capital asset which had arisen on conversion of a capital asset into stock-in- trade. Such capital gain would arise in the year of conversion, so however, in terms of section 45(2) of the Act, its taxability is postponed to the year in which such stock-in-trade is actually sold or otherwise transferred by the assessee. The question arose as to whether the date of transfer as referred to in section 54E of the Act is the date of conversion of capital asset into stock-in-trade or the date on which the stock-in-trade is sold or otherwise transferred by the assessee. As per the phraseology of sections 54EA, 54EB and 54EC the date of transfer in such cases is the date on which the capital asset is converted by the assessee into stock-in-trade and not the date on which such stock-in- trade is sold or otherwise transferred by the assessee. Thus, as per the aforesaid understanding it may not be possible for an assessee to make the required investment under the aforesaid sections at the point of conversion of capital into stock-in-trade because right to collect sale consideration in such cases arises only at the point of sale or transfer otherwise of stock-in-trade. The CBDT in consultation with the Ministry of Law decided that the period of six months for making investment in specified assets for the purpose of sections 54EA, 54EB and 54EC of the Act should be 15 taken from the date such stock-in-trade is sold or otherwise transferred in terms of section 45(2) of the Act, though the taxability of capital gain was on the basis of ‘transfer’ as understood in section 45(2) of the Act. Therefore, having regard to the impossibility of performance to invest the amount in specified assets within six months from the date of transfer (i.e. the date of conversion of capital asset into stock-in-trade) the CBDT appreciated and has clarified that the period of six months for making investment in specified assets has to be reckoned from the date of the sale of such stock-in-trade when the right to collect sale consideration in such cases arose, which was much after the date of transfer as contemplated for the purpose of taxation.
In our considered opinion, the interpretation placed by the CBDT in consultation with the Ministry of Law to the condition of making investment within six months from the date of transfer in section 54EC would support the claim of the assessee in this case also for exemption from capital gain with respect to the impugned sum of Rs 50 lakhs invested in specified assets on 3.8.2007 and 27.10.2007. In the present case, admittedly the impugned amount of sale proceeds have been received by the assessee much after the date of transfer i.e. 12.7.2005, so however, it is also emerging from the record that the investments of Rs 12,50,000/- and Rs 37,50,000/- made on 3.8.2007 and 27.10.2007 respectively have been made within six months of receipt of such consideration. Therefore, having regard to the interpretation placed by the CBDT to understand the requirement of making investment within six months from the date of transfer in section 54EC of the Act we are inclined to uphold the plea of the assessee for exemption from tax on capital gains qua impugned amount of Rs 50 lakhs .Therefore on this aspect, assessee has to succeed. Thus, this Ground of appeal is allowed.
10.2 Therefore, we are of the opinion that Assessee is eligible for deduction u/s.54EC of the Act. We find support from the order of the Hon’ble Bombay High Court in the case of CIT vs. Dr.Arvind S. Phake [2018] 401 ITR 96(BOM) and Hon’ble Karnataka High Court in the case of Dr.(Smt) Sujatha Ramesh vs. CBDT [2017] 87 taxmann.com 228(KAR). Accordingly, Ground No.6, 7 and 8 raised by the Assessee are allowed.
10.3 Ground No.9 is general in nature. No ground was added, amended, altered. Accordingly, Ground No.9 is dismissed.