RAJESH MIRAJKER,,CHENNAI vs. DCIT, NCC-10(1),, CHENNAI

आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Appeals)-12, Chennai, dated 27.11.2019

and pertains to assessment year 2013-14.

his return of income for the AY 2013-14 on 04.11.2013, declaring total

income of Rs.2,41,78,130/-. During the previous year relevant to the AY

2013-14, the assessee had sold a property on 19.04.2012 for a

consideration of Rs.12 Crs. The assessee had computed long term capital

gains from sale of property and has claimed exemption u/s.54 of the Act,

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for purchase of new residential house property on 20.07.2012 for an

amount of Rs.8,90,39,216/-, which includes cost of purchase of old building

and expenses incurred to make the building habitable. During the course

of assessment proceedings, the AO called upon the assessee to

substantiate the claim of deduction u/s.54 of the Act, for re-investment in

residential house property. In response, the assessee vide letter dated

12.01.2016 submitted that it has purchased a residential house property

for a consideration of Rs.4.5 Crs. and had also incurred an amount of

Rs.3.80 Crs. for renovation of the house, which is suitable for habitation.

The AO, however, was not satisfied with the explanation furnished by the

assessee and according to the AO, the assessee is not entitled for deduction

u/s.54 of the Act, because the construction of house was not completed

within a period of three years from the date of transfer of original asset.

Further, assessee has not produced any evidence to show that new house

is for residential purpose, except construction bills issued by M/s.Mermaid

Swimming Pools, Akkarai, Chennai, who is expert in swimming pools in

Guest Houses in ECR location. The AO further noted that the assessee has

also not proved the fact that the house was occupied by the assessee for

his residential purpose, since in the specific location of ECR, only

guesthouse and farm house are operating. Therefore, he opined that the

assessee is not entitled for deduction u/s.54 of the Act and thus, rejected

the arguments of the assessee and made addition of Rs.8,90,39,216/-.

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appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee submitted

that when entire capital gains derived from transfer of property has been

utilized for acquiring new house, then merely for the reason of non-

completion of house, deduction u/s.54 of the Act, cannot be denied. The

assessee had also argued in light of certain judicial precedents, including

the decision of the Hon’ble Madras High Court in the case of CIT v.

Sardarmal Kothari reported in [2008] 302 ITR 286 and submitted that if

entire sale consideration is invested in residential house, the assessee need

not complete construction of house. The Ld.CIT(A) after considering

relevant facts and also taken note of various facts brought by the AO,

opined that the AO has erred in not allowing deduction u/s.54 of the Act,

for re-investment of capital gains derived from sale of property to the

extent of purchase value of house property and Stamp Duty paid.

Therefore, allowed deduction u/s.54 of the Act, towards purchase of house

and relevant Stamp Duty paid, including commission expenses. However,

rejected the arguments of the assessee in respect of amount invested for

making the house habitable, including amount incurred for construction of

compound wall, amounting to Rs.3.8 Crs. on the ground that although, the

assessee claims to have incurred expenditure for alteration and

improvement of the house to make it habitable, but failed to complete the

construction of house within a period of three years as prescribed under

the Act. Therefore, rejected the arguments of the assessee and sustained

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:: 4 ::

additions made by the AO towards construction of house amounting to Rs.3

Crs. and construction of compound wall, amounting to Rs.80 lakhs along

with payment made to Architect. The relevant findings of the Ld.CIT(A)

are as under:

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denying exemption claimed u/s.54 of the Act, to the extent of Rs.3.80 Crs.

without appreciating the fact that the assessee has filed all possible

evidences, including agreement with the builder for construction of house,

relevant bills & vouchers and also Electricity Bill paid for the house to prove

that the house was a residential house and the assessee has incurred

expenditure to make the building habitable. The Ld.AR for the assessee

further submitted that when the Ld.CIT(A) never disputed the fact that the

assessee has made investment in purchase of residential property, but

failed to appreciate the fact that he had incurred further amount to make

the house habitable, which is also eligible for deduction u/s.54 of the Act.

The Ld.AR further submitted that when entire sale consideration and capital

gains derived from transfer of original asset, is invested in acquiring new

house property, then if such house property is not completed within a

period of three years as specified u/s.54 of the Act, deduction u/s.54 of the

Act, cannot be denied. In this regard, he has relied upon certain judicial

precedents, including the decision of the Hon’ble Madras High Court in the

case of CIT v. Sardarmal Kothari (supra). The assessee had also relied

upon the decision of ITAT Chennai Benches in the case of Mrs.Seetha

Subramanian v. ACIT reported in 59 ITD 94.

submitted that the assessee is failed to file necessary evidences to prove

that he had spent amount for construction of house property and further,

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said house property has been completed within a period of three years as

specified u/s.54 of the Act. The Ld.CIT(A) after apprising relevant facts has

rightly allowed relief to the assessee to the extent of amount incurred for

purchase of new house property, wherever the assessee is produced

necessary evidences, but rejected amount spent for renovation of house

and compound wall on the ground that said expenditure is not eligible for

deduction u/s.54 of the Act. Hence, there is no error in the reasons given

by the Ld.CIT(A) to sustain additions made towards disallowance of amount

incurred for construction of house property and compound wall and their

orders should be upheld.

record and gone through orders of the authorities below. The facts borne

out from the record clearly indicate that the assessee had sold a residential

house property and has claimed deduction u/s.54 of the Act, for re-

investment in capital gains for acquiring new house property. In fact, the

AO as well as the Ld.CIT(A) have never disputed the fact that the assessee

has acquired new house property within the specified period. Further, the

Ld.CIT(A) has allowed deduction towards cost of purchase of house

property and relevant Stamp Duty and other expenses incurred by the

assessee. The only dispute is with regard to the amount incurred for

construction of house property to make it habitable. The assessee claims

to have incurred a sum of Rs.3 Crs. to make the house habitable and the

assessee had also made an investment of Rs.80 lakhs to construct

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compound wall for the house. Apart from the above, the assessee had also

spent an amount of Rs.1.20 lakhs towards Architect fees. The Ld.CIT(A)

has rejected deduction claimed towards amount incurred for construction

of house property and compound wall on the ground that although, the

assessee has filed necessary evidences to prove construction expenses, but

said expenditure is not entitled for deduction u/s.54 of the Act, because,

the assessee has incurred expenditure for renovation of the house, which

is not eligible for claiming deduction u/s.54 of the Act. In other words, the

Ld.CIT(A) never disputed the fact that the assessee has acquired a new

house property and further spent an amount of Rs.3.80 Crs. towards further

construction of house property to make it habitable. The Ld.CIT(A) had

also not disputed the fact that the assessee has furnished relevant bills &

vouchers and has also made the payment by account payee cheque. The

only reason for the Ld.CIT(A) to reject the claim of deduction was that

expenditure incurred by the assessee, is not for construction of house

property, but to renovate the existing house. Further, new house property

was not completed within a period of three years from the date of transfer

of original asset.

the Ld.CIT(A) in light of various arguments advanced by the assessee and

we ourselves do not subscribe to the reasons given by the Ld.CIT(A) for

simple reason that when the Ld.CIT(A) never disputed the fact that what

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was purchased by the assessee is house property and further, the assessee

has invested sale consideration for acquiring new house property within a

specified period, then he ought not to have rejected the arguments of the

assessee towards expenditure incurred for making the house habitable.

Therefore, in our considered view, when the assessee has incurred a

substantial amount for making the house habitable, then it amounts to

construction of new house property and thus, the authorities could not have

rejected deduction claimed u/s.54 of the Act. This proposition is supported

by the decision of the ITAT Mumbai Benches in the case of Gulshanbanoo

R. Mukhi v. JCIT reported in 83 ITD 649 and the decision of the ITAT

Bangalore Benches in the case of Estate of Late Dr.S.Zakaulla Masood v.

ITO in ITA No.775/Bang/2018 dated 14.10.2020, wherein, it has been

clearly held that expenses incurred to make the house habitable, amounts

to construction of building and entitled for deduction u/s.54 of the Act. In

this case, there is no dispute with regard to the fact that the assessee has

incurred substantial amount for renovating the house to make it habitable

and further, the authorities below never disputed the fact that the house is

a residential and thus, we are of the considered view that amount incurred

by the assessee towards further construction of the house to make it

habitable and amount incurred for construction of compound wall, is

entitled for deduction u/s.54 of the Act.

years from the date of transfer of original asset, we find that when the

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assessee has incurred full amount of capital gains derived from transfer of

original asset to acquire new residential house property or to construct a

new house property, then it should be deemed that sufficient steps have

been taken to complete the house property and thus, merely, because, the

house property was not completed, benefit of deduction u/s.54 of the Act,

cannot be denied. In this case, the allegation of the AO was that the

assessee could not produce Completion Certificate obtained from

competent authorities to prove completion of house property within a

period of three years as specified under the Act. It was the explanation of

the assessee that since the house property is located in ‘No Construction

Zone’ and further, he cannot construct a house therein, the question of

obtaining necessary approvals, plan and Completion Certification, does not

arise. We find that the house property is located in ECR which is declared

as ‘No Construction Zone’. The assessee cannot construct certain types of

house properties in that locality. Therefore, the assessee has purchased a

house and incurred substantial amount to make the house habitable within

the permissible limits. In this regard, the assessee submitted that copies of

plan of the building, agreement with the Builder and relevant bills &

vouchers to prove amount spent for construction of building. The assessee

had also filed proof of Electricity Bill and a letter from TANGEDCO, which

mentions that the house property was for domestic purpose. The assessee

had also filed a Property Tax receipts assessed from local municipal

authorities, which clearly shows the description of the property is

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residential one. Therefore, from the above it is very clear that the new

house property acquired by the assessee, is a residential property and

further amount incurred by the assessee for further construction to make

the house habitable, amounts to construction of building. Hence, we are

of the considered view that the assessee is entitled for deduction towards

amount incurred for acquiring new house property, including amount

incurred for further construction of house property. The Ld.CIT(A)

although, allowed relief to the assessee in respect of amount spent for

purchase of house property and relevant Stamp Duty and other expenses,

but, erred in denying deduction towards amount incurred for further

construction of house property and compound wall, including Architect fees,

without appreciating the fact that unless, the assessee incurred said

amount for further construction of house to make it habitable, it cannot be

called said house property is a house property. Hence, we are of the

considered view that the Ld.CIT(A) is erred in denying the benefit of

deduction u/s.54 of the Act, to the extent of Rs.3.8 Crs. towards amount

incurred for construction of house property. Hence, we reversed the

findings of the Ld.CIT(A) and direct the AO to allow the benefit of deduction

u/s.54 of the Act, in respect of total amount incurred by the assessee,

including amount incurred for further construction of house property,

construction of compound wall and Architect fees.

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grounds filed by the assessee is towards application of provisions of

Sec.50C of the Act, and made addition of Rs.5,85,300/- to the taxable

income. The assessee has taken additional grounds challenging the

findings of the AO in invoking the provisions of Sec.50C of the Act, and

making addition of Rs.5,85,300/- and argued that since variation between

guideline value of the property and agreed consideration between the

parties is less than the specified percentage, the AO ought not have invoked

the provisions of Sec.50C of the Act and made additions. We find that the

AO has made addition of Rs.5,85,300/- u/s.50C of the Act, being difference

between the sale consideration received on transfer of capital asset and

Stamp Duty value as on the date of registration which works out to 0.48%,

which is bound to occur in some transactions as the exact guideline value

cannot be put while negotiating the value of the property. Further, the

provisions of Sec.50C of the Act, inserted by the Finance Act, 2018

w.e.f.01.04.2019 held to be retrospective effect from the date of

introduction of Sec.50C of the Act and hence, in case, difference between

agreed consideration and Stamp Duty of the property is less than the

specified percentage, then the AO ought not have made additions u/s.50C

of the Act. In this case, difference between the agreed consideration and

Stamp Duty value is less than 1%, which is much below the specified

percentage of 5% variation as prescribed under the Act. Therefore, we are

of the considered view that additions made by the AO u/s.50C of the Act,

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Order pronounced on the 25th day of May, 2022, in Chennai.

Sd/- Sd/- (वी. दुगा� राव) (जी. मंजूनाथा) (G. MANJUNATHA) (V. DURGA RAO) लेखा सद+/ACCOUNTANT MEMBER ाियक सद+/JUDICIAL MEMBER चे#ई/Chennai, िदनांक/Dated: 25th May, 2022. TLN आदेश की �ितिलिप अ-ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु./CIT 2. ��थ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु. (अपील)/CIT(A) 6. गाड� फाईल/GF