ANIL SHRICHAND SADHWANI,NASHIK vs. ITO, WARD 2(1), NASHIK

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.

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.

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 ITA No.2443/PUN/2024 [A]

The appellant craves, leave to add, alter, amend and delete any of the above grounds of appeal.”

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

1 Aggrieved by the assessment order, the Assessee filed appeal before the ld.CIT(A).

2 The ld.CIT(A) upheld the assessment order. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.

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

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.

Ld.DR for the Revenue relied on the order of Assessing Officer(AO) and ld.CIT(A).

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 :

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:

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 We are discussing the appeal ground wise :

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).

1 It is noted that Assessing Officer has not referred the issue to the DVOfor Valuation.

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 ITA No.2443/PUN/2024 [A]

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.

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.

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.

In the result, Ground No.3, 4 and 5 are allowed for statistical purpose.

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

1 ITAT Pune in the case of Shri Mahesh Nemichandra Ganeshwade & Others in ITA No.594/PN/2010 & 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 ITA No.2443/PUN/2024 [A]

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.

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.

3 Ground No.9 is general in nature. No ground was added, amended, altered. Accordingly, Ground No.9 is dismissed.

गाडᭅफ़ाइल / Guard File.