C.R.PARTHIBAN,CHENNAI vs. ITO, CHENNAI

आदेश आदेश /O R D E R आदेश आदेश

PER BENCH:

The appeal by the Assessee, is directed against the order

dated31.03.2017of the Principal Commissioner of Income Tax-3, Chennai

(hereinafter referred as “PCIT”), in C.No.3033/263/PCIT-3/2016-17 for

the Assessment Year 2012 – 2013 wherein the assessee has challenged

that the impugned order was unwarranted and against the law as the

assessing officer has passed a well-reasoned assessment order as per

provisions of law.

::2 :: I.T.A. No.1023/Chny/2017 2. The brief facts of the case are that the Assesseefiled his return of income for the Assessment Year 2012 – 2013 on 31.03.2014 admitting

a total income of Rs.3,58,180/- and the same was processed u/s.143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The case was selected for scrutiny by the “Computer Assisted Scrutiny

Selection” [CASS] and a notice u/s.143(2) dated 02.09.2014 was issued and duly served on the Assessee on 17.09.2014.The assessee has declared income under the heads "Income from House Property" and "Long Term Capital Gains". He has also claimed deduction u/s

54 of Rs. 1,00,00,000/- on the ground that he had invested the capital gain in a residential house. The assessment was completed u/s. 143(3) of the IT Act on 28.03.2015 by making an addition

under the head Long Term Capital Gain of Rs.83,75,217/- after allowing re-investment claim u/s.54 of Rs.65,40,100/-. 3. It is noted that the Assessee has invested an amount of

Rs.65,40,100/- in a land measuring 4600 Sq.ft on 06.06.2011, well prior to the sale of the residential house for Rs.1,50,00,000/-. The Assessee has declared a capital gain of Rs.2,04,054/- on the sale of the original

asset, after claiming the investment in residential house of Rs.1,00,00,000/-. In making the investment claim, the Assessee has considered the cost of the land purchased as well as the cost of

construction of flats made by the flat promoter on behalf of the Assessee. The Assessing Officer has allowed the cost of land purchased amounting

::3 :: I.T.A. No.1023/Chny/2017 to Rs.65,40,000/- as eligible investment u/s.54 of the Act without taking

cognizance of the fact that the re-investment in the land has been made

prior to the date of sale of original asset, i.e.08.08.2011.

investment claim only when a residential house is purchased one year

before the date of sale of the original asset. In such circumstances, the

principal CIT observed that the allowance of the claim u/s.54 of the Act of

an amount of Rs.65,40,000/- in the assessment order is not in order.

Thus, the assessment order passed by the Assessing Officer is

erroneous, as well as prejudicial to the interests of the revenue, as an

amount of Rs.65,40,000/- has been unduly allowed as a deduction u/s.54

of the Act in the computation of “long term capital gains”. Accordingly, the

PCIT held that the Assessment order passed u/s.143(3) of the Act dated

28.03.2015 is to be revised as the deduction given u/s.54 of the Act to be

withdrawn and fresh Assessment Order to be passed.

learned counsel for the assessee has reiterated the submissions made

before the learned PCIT, the copy of the reply filed in compliance to show

cause notice issued in particular which reads as under

“With reference to the above subject and in pursuance to your office notice cited above, we would like to submit the following for your kind perusal and consideration. (1) I had inherited an house property from my grandmother, by way of a settlement deed, dated 03.07.2003. As I understand, this transaction by virtue of which I, became owner of the property, was a transaction which is not

::4 :: I.T.A. No.1023/Chny/2017

treated as transfer u/s.47 of the Act. The amount mentioned in this deed is only for the purposes of stamp duty and this value cannot be treated as cost of acquisition of the property in my hands, as this is not considered as a transfer for the purposes of section 45. Hence, the value of the cost of acquisition in the hands of the previous owner (my grandmother) has to be considered as the cost of acquisition in my hands as well as the indexation has to be with reference to the cost of acquisition in the hands of the previous owner (my grandmother). However, the Assessing Officer has not considered this fact of the issue rightly. The Assessing Officer on the other hand has not rightly understood this aspect and had taken the value mentioned in the settlement deed as the cost of acquisition in my hands and proceeded accordingly.

(2) My grandmother had constructed a house property, obviously after acquisition of the land from the Tamil Nadu Housing Board (hereinafter referred to as ‘TNHB’). The Assessing Officer has sought for documents such as bills, etc. for the construction done by her way back in 1980s, more than three decades ago. It was not possible for any person to maintain such paper based documents over such a long period, as they are prone, if not certain, to decay and obliterate, beyond recognition if not completely. Under such circumstances, as has been held in several court cases, it is better to rely circumstantial evidences and estimate cost construction, based on the description and / or kind of the construction. These aspects have been conveniently ignores by the Assessing Officer.

(3) After sale of the property inherited by me, I acquired an immovable property admeasuring about two grounds of the landed property in Shenoy Nagar (hereinafter referred to as the ‘new property’) for Rs.60.00 lakhs and have incurred about another Rs.90.00 lakhs to perfect my title to the property. (as the property was under illegal occupation of other persons who have paid some amounts to original owner of and by virtue of that had occupied the property), to demolish the structure that stood on the new property bought and to raise the ground level of the land. This fact was also ignored by the Assessing Officer. The market value of the land was much more than a crore per ground and I was able to buy the land at that rate only because of legal and other problems associated herewith. These impediments / encumbrances had to be declared by me at some cost through an advocate, whose identity can be established and proved.

::5 :: I.T.A. No.1023/Chny/2017

(4) After acquisition of the new property, I had to rely on third party builder to construct an house property for me, as I could not pay for construction to the builder in cash and had to enter into joint development agreement, by which I agreed to transfer 25% of the undivided share in the land (“the new property”). In Assistant Commissioner of Income Tax Vs. Smt. Sunder Kaur Sujan Singh Gadh (2006) 9 (II) ITCL 496 (Mum ‘H’-Trib) : (2005) 3 SOT 206 (Mum-Trib), it was held that where the Assessee got constructed residential property through builder, then in view of the CBDT Circular Nos.471, Dated 15.01.1986 and 672 dated 16.12.1993. It was a case of construction of residential flat and not purchase of residential flat and as the Assessee had fulfilled all the conditions precedent, he was entitled to exemption under section 54. In ITO Vs. K.C. Gopalan (1999) 107 Taxmann 591 (ker), the court observed that the Assessee has to construct or purchase, a house property for his own residence in order to get the benefit of Section 54. The wording of the section itself would make it clear that the law does not insist that the sale consideration obtained by the Assessee itself should be utilized for the purchase of house property.

(5) In other words through the joint development agreement, I only sought to ensure that I can cause to construct a house property for my residence, within the time limit u/s.54 of the Act.

(6) Section 54(1) requires investment of the amount of capital gain only and not the amount of consideration or the net consideration flowing as a result of transfer of the long- term capital asset. In view of this, if only the amount of gain is invested in acquiring the new residential house, it would be sufficient compliance of the provisions. The balance amount of consideration may be utilized by the Assessee for any other purpose.

(7) The cost of land is an integral part of the cost of the residential house, whether purchased or built. Accordingly, if the amount of capital gain for the purposes of Section 54, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54 of the Act provided that the acquisition of plot and also the construction thereon are completed within the period specified in the Section 54, as explained by Circular No.667, dated 18.10.1993.

::6 :: I.T.A. No.1023/Chny/2017

(8) There was no amount of capital gains left required to keep deposited u/s.54(2) of the Act, Sub-section (2) of Section 54 provides the Assessee with an option to deposit the amount of gain not appropriated towards the purchase of the house one year before the date of transfer or towards the purchase / construction of house before the due date for furnishing return of income specified under section (13((1) of the Act, in an account to be opened by him in accordance with ‘Capital Gains Accounts Scheme’. The amount, so deposited along with the amount already utilized for purchase or construction of the new asset will be treated as cost of the new asset for the purpose of Section 54(1) of the Act.

(9) I had acquired the land (comprised in the new property) only to construct an house property for my family, the purchase of the land with the structure signifies initiation of the process culminating in construction of an house property within the time limit and not the initiation of the process. In Harsutrai J. Raval vs. Commissioner of Income Tax [2002] 255 ITR 315 (Guj.) it was held that the fact that nearer to the date of transfer of the original asset, the Assessee had purchased or constructed any house property for purposes other than residential, will not take away his entitlement to claim the benefit qua the new asset meant for residential, will not take away his entitlement to claim the benefit qua the new asset meant for residential purpose.

(10) I thought and I still think that there may be a possibility that one flat on the ground floor may not serve the purpose of residence for my family, as such, and accordingly, I thought I could retain more than one flat in the same building and all such flat may be considered to be purchase or construction of a residential house, even though such flats are on different floors. In K.G. Vyas vs. Seventh ITO (1986) 16 ITD 195 (Bom-Trib.), the Bombay Bench of the Tribunal held it to be in order where four flats were purchased in the same building on two different floors because of the large size of the family. In CIT vs. Smt. Sunita Aggarwal (2007) 13 (I) ITCL 66 (Del-HC), in this case, the Assesseesold his residential house property and purchased four portions of a property within the stipulated period by four separate deeds. The revenue authorities denied exemption to the Assessee under section 54 on the ground that the Assessee had purchased more than one house property. The Tribunal however, allowed the claim of the Assessee. It was held that the property purchased by the Assessee was a single unit and used for her own residence, exemption was therefore, allowable for such

::7 :: I.T.A. No.1023/Chny/2017 transaction under section 54). The amendment made to Section 54 by the Finance (No.2) Act of 2014 was applicable only from the Assessment Year, 2014 – 2015, (as is specifically mentioned in the section itself) certainly not for the Assessment year under consideration. It was to similar effect in ITO vs. P.C. Ramakrishna [HUF] (2007) 108 ITD 251 (Chen-Tribunal): (2007) 107 TTJ (Chen-Trib.) 351.

(11) Aggrieved by the Assessment Order, I had appealed against the Assessment order u/s,.246A of the Act and the said appeal is right now under active consideration of the CIT(A) concerned. The issues contested in the appeal are the same issues as have been listed in the show cause notice issued and cited above.

(12) The above submissions are based on the facts as are understood by me. All the related files are with the Chartered Accountant who has been requested to handle the appeal case and represent me before the CIT(A) concerned. As this Chartered Accountant is not available in Chennai and is expected to be back only after Friday, the 10th day of March, 2017, I request you to kindly grant us an adjournment to effectively respond to the Notice, after collecting the files back from the Chartered Accountant. We request you to kindly re-post the case any after 17.03.2017.

(13) We hope your office understands our imperative need to make our representation in the light of the actual documents which are not available with us.”

He contended that the Assessee received seven flats as his business

venture through agreement dated 01.04.2012; thatthe Assessee is

utilizing the flat at ground floor measuring 1300 Sq.ft for his own purpose

and therefore, the Assessing Officer allowed the entire investment in land

of Rs.64,01,000/- which is not correct as the investment in land and

accordingly, the assesseewill not entitle for claim under section 54 of the

Act.

::8 :: I.T.A. No.1023/Chny/2017 7. We have heard the rival contentions, perused the material on record, assessment order and the impugned order. Admittedly, the Assessee sold a residential house for a consideration of Rs.1,50,00,000/- on 08.08.2011. The Assessee purchased a land measuring 4600 Sq.ft. for a total consideration of Rs.64,01,000/- on 06.06.2011. The learned AR’scontention is that the Assessee has given power of attorney to one Shri K. Lakshmanan who has no relevance as the same cannot be considered as transfer,is rightly observed by the learned PCIT, in the light of the decision of the Hon’ble Madras High Court in the case of C. Sugumaran reported in 281 CTR 115. Thus, the Assessee purchased land prior to date of sale of original asset but for construction, the period of investment should be calculated from the date of sale of original asset and accordingly, the assessee is not eligible to claim the investment for deduction u/s.54 of the Act. 8. It is noted that the assessee could not produce documents in support of its claim that he has spent remaining amount of ₹ 8,599,000 construction of residential house either before the PCIT for us. Thus, the fact remains that neither the Assessee has re-invested his capital gains in purchase or construction of residential house before the due date for filing of return of income nor he has invested the capital gains in capital gains accounts scheme. Hence, the same could not allowed for the deduction u/s.54 of the Act.

::9 :: I.T.A. No.1023/Chny/2017 9. Further, the Assessee entered into an agreement on 01.04.2012

in the capacity of Proprietor of M/s. North East Promoters (First Part of

the Agreement) with M/s. Sridhar Homes (Second Part of Agreement), on

01.04.2012 for developing the above said land into flats in the name of

Krishdev Apartments with the condition to handover the land measuring

4600 Sq.ft to the builder, M/s. Sridhar Homes for the conditions narrated

in paragraph – 4 above. Hence, the Assessee has parted with 27% of

the land and received 7 (seven) flats measuring 6817 Sq.ft. The area

constructed is 9338 Sq.ft and total consideration cost as per the District

Valuation Officer’s report dated 25.02.2015 which is available on record

is Rs.1,33,44,000/-. Hence, the Assessee parted with the land worth

Rs.16,20,000/- and received constructed area worth Rs.97,41,490/-

approximately. Thus, the Assessee earned short term capital gain and

the same is to be assessed in the year of receipt of flats. The learned

PCIT is justified in directing the Assessing Officer to verify the same and

tax the same as per law after giving opportunity to the Assessee.

flats on his business venture through agreement dated 01.04.2012. The

Assessee is utilizing the flat at ground floor measuring 1300 Sq.ft for his

own purpose. The Assessing Officer allowed the entire investment in

land of Rs.64,01,000/- which is not correct as the investment in land will

not entitle the Assessee for claim under section 54 of the Act. The

::10 :: I.T.A. No.1023/Chny/2017 citations relied upon by the assessee are distinguishable on peculiar facts of the case. 11. In the backdrop of the aforesaid discussion, we are inclined to agree with the findings of the learned PCIT thatthe assessment order passed by the Assessing Officer on 30.03.2015 is erroneous and prejudicial to the interest of the revenue and therefore, the order of the PCIT is sustained to set aside the assessment order with the direction to the assessing officer to pass the assessment order afresh as per law in terms indicated above after giving adequate opportunity of being heard to the Assessee. 8. In the result, the appeal of the Assessee it is dismissed Order pronounced in the court on 31st March, 2022.

Sd/- Sd/- (डॉ.एम.एल मीना) (महावीर �सह ) (Dr. M.L. MEENA) (MAHAVIR SINGH) लेखा सद�य/ACCOUNTANT MEMBER उपा�य� /VICE PRESIDENT

चे�ई/Chennai, �दनांक/Dated, the 31st March, 2022 IA, Sr. PS आदेशकी�ितिलिपअ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु� (अपील)/CIT(A) 4. आयकरआयु�/CIT 5. िवभागीय�ितिनिध/DR 6. गाड�फाईल/GF