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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 6775/Mum/2019 (A.Y: 2013-14) ITO 23(2)(1) Vs. Smt. Leena tulsi Room No. 111, Matru Bhimjayani, Mandir, Grant road, Flat No. 1, 1st Floor, Mumbai – 400 007. Ashford Apartments, 26A Bridge, Mumbai – 400 006. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AEVPB1375C Appellant .. Respondent Appellant by : Shri Brajendra Kumar. DR Respondent by : Shri Devendra Jain. AR Date of Hearing 07.07.2021 Date of Pronouncement 06.09.2021 आदेश / O R D E R PER PAVAN KUMAR GADALE JM: The revenue has filed the appeal against the order of the Commissioner of Income Tax (Appeals)– 32, Mumbai order passed u/s 143(3) and 250 of the Income Tax Act, 1961. The revenue has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case the Ld. CIT(A) erred in allowing the deduction claimed by the assessee u/s 54 of the Act for reasons discussed in details in the assessment order.
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On the facts and in the circumstances of the case the Ld. CIT(A) failed to appreciate the words used ‘has within a period of three years that date constructed one residential house in India’ u/s 54 of the Act and allowed the expenses made post facto of transfer. 3. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO be restored. 4. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary. 2. The Brief facts of the case are that, the assessee has derived income from capital gains and income from other source. The assessee has filed the return of income for the A.Y 2013-14 on 31.07.2013 with a total income of Rs. 2,10,680/-.Subsequently, the case was selected for scrutiny under the CASS and notice u/s 143(2) and 142(1) of the Act was issued. In compliance, the Ld. AR of the assessee appeared from time to time and furnished the information. The A.O on perusal of the financial statements found that the assessee as a co-owner has sold a flat for a consideration of Rs. 39 crores which was held jointly with her husband Shri Tulsi C Bhimjayani and her two sons Shri Anshul T Bhimjayani and Shri Devang T Bhimjayani and all the family members owned equal share of 25% in the flat which was acquired during the F.Y.1990-91. The assessee’s share of sale consideration @25% was worked out to Rs. 9.75 crores.
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Whereas in the computation of long term capital gains the total index cost of acquisition of flat to the extent of the assessee’s share is worked out to Rs. 1,50,61,922/- The long term capital gain after reducing the indexed cost of acquisition is worked out to Rs. 8,24,38,078/- and the assessee has claimed exemption u/s 54 of the Act by investment in construction of residential house of Rs. 10,13,17,660/- and the exemption was restricted to the extent of 8,24,38,078/-.
The A.O observed that the assessee has claimed the exemption u/s 54 on the construction of a residential house jointly with other co-owners at a cost of Rs. 40,52,70,641/-. The assessee was called for the details and sources in support of investments made in the residential house. The assessee has filed the information and details in respect of development agreement with Sea-Green Co-operative Society to develop the society at their own cost and the society admitted all the co-owners including the assessee as society member and as per the construction of development agreement the assessee along with three co-owners were allotted flats. The A.O found that the assessee has claimed total exemption of long term capital gains on the investments made in the construction of the residential house and also produced the completion certificate . The fact remains that the
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society applied for NOC for occupation certificate on 01.12.2010 and also some other formalities such as allowing the registration of 30 years lease was completed till 24.05.2012. The project was supposed to be completed by 29.04.2011 i.e within three years from the date of NOC to commencement certificate issued. The A.O observed that the total construction cost has worked out to Rs. 40,52,70,641/- with respect to all the co owners from F.Y 2006-07 to the date of sale of original capital asset. Whereas the A.O observed that assessee has incurred 98.88% of the cost of construction claimed in return of income before the date of sale of the original asset. The assessee was issued a show cause notice and in compliance the assessee has filed written submissions on 29.032016 explaining the sources and substantiated with evidence that the assessee is entitled for claim of exemption u/s 54 of the Act, even when the new residential house construction began before the sale of old residential house and the expenses incurred on construction prior to sale is also allowable while computing the deduction u/s 54 of the Act and also supported with the judicial decisions. Finally, the A.O. is of the opinion that the investments made by the assessee in construction of residential property within the period stipulated after the sale of property are only entitled for
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deduction u/s 54 of the Act and made an addition of long term capital gains of Rs. 7,49,25,443/- and assessed the total income of Rs. 7,51,36,130/- and passed the order u/s 143(3) of the Act dated 31.03.2016.
Aggrieved by the A.O. order, the assessee has filed an appeal before the CIT(A). Whereas, the CIT(A) considered the grounds of appeal, submissions of the assessee findings of the A.O and dealt on the sources of investments, the Honble High Court decisions and Honble Tribunal decisions and has directed the A.O. to re- compute the long term capital gains and allow deduction u/s 54 of the Act and partly allowed the assessee appeal. Aggrieved by the order of the CIT(A), the revenue has filed an appeal before the Honble Tribunal.
At the time of hearing the Ld. DR submitted that the CIT(A) has erred in directing the A.O to allow the deduction u/s 54 of the Act irrespective of the fact that the assessee has made the investments prior to the date of sale and relied on the order of the Assessing Officer.
6.Contra, the Ld. AR supported the order of the CIT(A) and submitted that the Hon’ble Tribunal in assessee’s co- owner’s case has considered the facts of investments and granted the relief. The contention of the Ld. AR that the
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Hon’ble Tribunal has set aside the revision order of Pr.CIT passed u/sec263 of the Act in respect to two co-owners, who has disclosed the long-term capital gains and similarly claimed exemption u/sec54 of the Act and was accepted by the assessing officer.
We heard the rival submissions and perused the material on record. The Ld. DR submitted that the CIT(A) has erred in granting the relief to the assessee though the investment in residential house was incurred from the A.Y 2006-07 and was much prior to the date of sale of original asset. The A.O. has not allowed the claim of the investment in house property made by the assessee before the date of sale of original asset as the assessee has to make investment in residential house within a period of three years from the date of transfer of asset. In the course of hearing, the Bench required the assessee to give the bifurcation of the cost. The Ld. AR submitted the cost of construction till the date of sale and the cost incurred from the date of sale till the occupation certificate which is filed on record and the LD. DR also has knowledge on the issue. At this juncture, we consider it appropriate to refer to the observations of the CIT(A) at page 14 Para 4.3 to 4.3.1 of the order which is read as under:
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4.3 “I have considered the AO order, submissions made by the applicant and details filed. I find that the issue whether the investment made in the construction of house prior to the date of sale of original asset can be allowed as the cost of construction for the purpose of sec. 54 if the construction has been completed within the period of three years from the date of sale of the asset has been decided in favour of the appellant in a number of cases which are as under:
i. C. Aryama Sundaram Vs. CIT -3, ITA No 520 of 2017 Madras High Court order dated 6.08.2018
In the above referred case the assessee has sold residential property at Sundar Nagar for Rs. 12,50,00,000/- against which he has claimed deduction u/s 54 for newly constructed new residential house at Jorbagh and total expense incurred was Rs. 18,73,85,491/- (Land Cost Rs. 15,96,46,446/- and construction cost Rs. 2,77,39,045/-). Even though the construction of the same has started before the sales, but as the same is completed within three years of sales, it is not requisite of Sec 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. In this case out of the total construction cost of Rs. 2,77,39,045/- only Rs. 1,14,81,067/- was incurred after the date of sale but High Court has allowed the full cost the property i.e Rs. 18,73,85,491/- (including land cost of Rs. 15,96,46,446/-) as cost of the new residential asset. The relevant extract of the judgment is below;
At the cost of repetition, it it reiterated that exemption of capital gain from being charged to income tax as income of the previous year is attracted when another residential house has been purchased within a period of one year before or two years after the date of transfer or has been constructed within a period of three years after the date of transfer of the residential house. It is not in dispute that the new residential house has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a requisite of Section 54 that construction could not have commenced prior to the
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date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged under Section 45 of the said Act.
For the reasons discussed above, the appeal is allowed. The questions framed above are answered in favour of the appellant assessee and against the respondent revenue. The first question is answered in the affirmative and the second question is answered in the negative. No costs.
ii) Mr. Mustanir Tehsidar Vs ITO in ITA No. 6108/Mum/2017 dated 18.12.2017.
Section 54 of the Act provides the condition that the construction of new residential house should be completed within 3 years from the date of transfer of old residential house. According to Ld A.R, section 54 is silent about commencement of construction and hence commencement of construction can precede the date of sale of old asset. In the instant case, the assessee had booked the flat much prior to the date of old flat. We notice that the Hon’ble Karnataka High Court has held in the case of CIT Vs. J.R.Subramanya Bhat (supra) that commencement of construction is not relevant for the purpose of sec. 54 and it is only the completion of 6 ITA No. 6108/Mum/2017 Mr. Mustansir I. Tehsildar construction. The above said ratio was followed in the case of Asst. CIT Vs. Subhash Sevaram Bhavnani (2012)(23 taxmann.com 94)(Ahd. Trib.). Both these cases support the contentions of the assessee. Accordingly, for the purpose of sec. 54 of the Act, we have to see whether the assessee has completed the construction within three years from the date of transfer of old asset. In the instant case, there is no dispute that the assessee took possession of the new flat within three years
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from the date of sale of old residential flat. Accordingly, we are of the view that the assessee has complied with the time limit prescribed u/s 54 of the Act.
iii. In the case of Anshul Bhimjyani (son and Co-owner) and Devang Bhimjyani (Son and Co-owner) the Hon’ble ITAT for A.Y 2013-14 in ITA No. 3373 & 3374/Mum/2018 dated 13.12.2018 has set aside the order passed u/s 263 dated 23.03.2018 passed by the Pr. CIT and relied upon the ratio laid down in C. Aryama Sundaram (Supra) and Smt. Beena K. Jain (1996) 218 ITR 363 of Bombay HC.
4.3.1 From the above said decisions, it is clear that even though the construction of the residential house property has started before the sales of the original asset, but as the same is completed within 3 years of sales deduction u/s 54 would be allowable in respect of such investment in the cost of construction. It is not the requisite of sec 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. Respectfully following the above said decisions, it is held that the A.O was not correct in not allowing the claim of investment made in the construction of residential house which was incurred prior to the date of sale of original asset. The A.O is directed to allow the same recomputed the long term capital gains and deduction u/s 54 of the Act and allow relief to the appellant Ground No. 2 and 3 are allowed.
8.We find the Honble Tribunal in the case of co-owners and Shri Anshul T Bhimajayani and Devang T Bhimjayani sons for the A.Y 2013-14 in ITA No. 3373 & 3374/Mum/2018 dated 31.12.2018 has set aside the revision order of Pr.CIT and observed at page 7 Para 6 to 6.2 of the order, which is read as under:
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“6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. The short question here is whether a taxpayer can claim deduction u/s 54 of the Act, where the amount is incurred before the date of transfer of the capital asset. In the instant case, as recorded by the Pr. CIT, 98.88% of investment claimed by the assessee as deduction u/s 54 was incurred prior to the date of transfer of the capital asset. The two decisions narrated infra address the present issue.
In the case of C. Aryama Sundaram (supra), the assessee sold a residential house property flat No. 137, Sundar Nagar, New Delhi on 15.01.2010 in favour of one Smt. Vandana Manchanda, for a total consideration of Rs.12,50,00,000/- and the total long term capital gain that arose to the assessee was Rs.10,47,95,925/-. In the meanwhile, on 14.05.2007, the assessee purchased the property with superstructure thereon at No. 138, Jor Bagh, New Delhi for a total consideration of Rs.15,96,46,446/-. After demolishing the existing superstructure, the assessee constructed a residential house at a cost of Rs.18,73,85,491/-. The assessee claimed entire long term capital gain as exempt from tax u/s 54 of the said Act. The AO held that only that part of the construction expenditure incurred after the sale of the original asset would be eligible for exemption u/s 54 of the said Act and based on records held that the cost of construction incurred after the sale of the original asset was Rs.1,14,81,067/- and therefore, allowed exemption of the above sum as relief u/s 54 of the Act. In appeal, the Ld. CIT(A) confirmed the order passed by the AO. In further appeal, the ITAT, observing that the assessee is entitled for cost of construction in respect of residential property, even though he has not invested in capital gain accounts scheme, but complied the main condition of the provisions of section 54 of the Act, remitted the matter to the AO for fresh consideration. In further appeal by the assessee, the Hon’ble Madras High Court held as under:
“22. It is axiomatic that Section 54(1) of the said Act does not contemplate that the same money received from the sale of a
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residential house should be used in the acquisition of new residential house. Had it been the intention of the Legislature that the very same money that had been received as consideration for transfer of a residential house should be used for acquisition of the new asset, Section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer, which gave rise to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase, subject to purchase from any advance that might have been received for the transfer of the residential house which resulted in the capital gain.
At the cost of repetition, it it reiterated that exemption of capital gain from being charged to income tax as income of the previous year is attracted when another residential house has been purchased within a period of one year before or two years after the date of transfer or has been constructed within a period of three years after the date of transfer of the residential house. It is not in dispute that the new residential house has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a requisite of Section 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged under Section 45 of the said Act.
6.1 In Smt. Beena K. Jain (supra), the assessee had sold office premises on 23rd July, 1987, which resulted in long term capital gains of Rs.24,05,050/-. Prior to the sale she had entered into an agreement for purchase of a residential flat which agreement was dated 4th September 1985. The agreement was for purchase of a flat for a total consideration
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of Rs.12,26,751/-. On the date of the agreement of sale, the assessee paid a sum of Rs.1,35,000/- as earnest money. This agreement was registered on 27th October 1985. The construction of the flat was finally completed in July, 1988. The assessee paid the consideration amount of Rs.10,44,375/- plus Rs.47,376/- on 29th July, 1988, and she was put in possession of the said flat on 30th July, 1988. The assessee claimed the benefit of exemption under section 54F of the Act. The Tribunal allowed her exemption on Rs.11,04,423/- u/s 54F of the Act. The Hon’ble High Court agreed with the order of the ITAT and held :
“Under section 54F of the Income-tax Act, in the case of an assessee if any capital gain arises from the transfer of any long-term capital asset, not being a residential house, and the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased a residential house, the capital gain shall be dealt with as provided in that section. As per the section certain exemption has to be allowed in respect of the capital gains to be calculated as set out therein. The Department contends that the assessee did not purchase the residential house either one year prior to or two years after the sale of the capital asset which resulted in the longterm capital gains. According to the Department, the agreement for purchase of the new flat was entered into more than one year prior to the sale. Hence, the petitioner is not entitled to the benefit under section 54F. In our view, the Tribunal has rightly negatived this contention and has held that the new residential house had been purchased by the assessee within two years after the sale of the capital asset which resulted in long-term capital gains. The Tribunal has held that the relevant date in this connection is July 29, 1988, when the petitioner paid the full consideration amount on the flat becoming ready for occupation and obtained possession of the flat. This has been taken by the Tribunal as the date of purchase. The Tribunal has looked at the substance of the transaction and come to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by
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payment of full consideration on July 29, 1988, and handing over of possession of the flat on the next day.
6.2 In the instant case, the Pr. CIT invoked the provisions of section 263 on the reason that the order passed by the AO is erroneous and prejudicial to the interests of revenue in so far as the allowance of deduction u/s 54 is concerned, the assessee has made the payment before the date of transfer of capital asset.
We find that the ratio laid down in C. Aryama Sundaram (supra) and Smt. Beena K. Jain (supra) narrated at 6 and 6.1 hereinbefore squarely applies to the instant case. Following the same, we set aside the order u/s 263 dated 23.03.2018 passed by the Pr. CIT.
Facts being identical, our decision in the case of Shri Anshul T. Bhimjyani applies mutatis mutandis to the case of Shri Devang T. Bhimjyani.”
Whereas the Honble Tribunal find that the Assessing officer has accepted the claim of two co-owners in respect of investment of the House property. Whereas in the revision proceeding the Pr. CIT has set aside the order of the A.O on the ground it is the erroneous and prejudicial to the interest of the revenue. The Hon’ble Tribunal has considered the Judicial decisions and also the facts that the co owners have made investments which cannot be disputed. The only disputed issue in the present appeal is
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with respect to time period whether the investment made prior to the date of original sale is eligible of exemption u/s 54 of the Act. We found that the Hon’ble Tribunal in the above paragraphs has made observations in respect of investments which cannot be overruled. We are of the opinion that the Provisions of Sec. 54 of the Act are the beneficiary provisions and has to applied liberally. Further, the A.O has only disputed the time frame from cost of construction to the date of sale of original asset to the date of construction.
The Ld. AR also substantiate with the bifurcation of cost of construction between the cost incurred till the date of sale of capital asset and cost incurred till the date of receipt of occupation certificate which cannot be disputed The Ld.DR could not controvert the findings of the CIT(A) with any new cogent evidence or information. Accordingly we find the CIT(A) has considered the provisions of law, facts and circumstances and the judicial decisions and directed the assessing officer (A.O) to grant the exemption u/s 54 for investment of long term capital gains and passed a logical and reasoned order. Accordingly, we are not inclined to interfere with the
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order of the CIT(A) and uphold the same and dismissed the grounds of appeal of the revenue.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 06.09.2021.
Sd/- Sd/- (SHAMIM YAHYA) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated 06.09.2021
KRK, PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. 3. संबं�धत आयकर आयु�त / The CIT(A) 4. आयकर आयु�त(अपील) / Concerned CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Mumbai 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// 1. ( Asst. Registrar) ITAT, Mumbai