B.PURUSHOTHAMAN,CHENNAI vs. ITO NCW 10(3), CHENNAI

This appeal filed by the assessee is directed against the order of the learned CIT(A)-12, Chennai dated 25.09.2018 and pertains to assessment year 2013-14.

The assessee has raised following grounds of appeal:-

Brief facts of the case are that the assessee is engaged in the business of running printing press filed his return of income for assessment year 2013-14 on 30.07.2013 admitting total income of Rs.4,20,820/-, which consists of income from house property, income from business, long term capital loss from sale of property and income from other sources. During the financial year relevant to assessment year 2013-14, the assessee has sold property on 09.11.2012 for a consideration of Rs.1,25,00,000/-. However, while computing capital gain has adopted sale consideration Rs.1,00,00,000/- only. The Assessing Officer has obtained copy of sale deed from O/o.

The Assessing Officer, however, was not convinced with explanation furnished by the assessee and according to him, the assessee has not justified cost of improvement claimed for the year 1996 and hence, rejected claim of the assessee on the ground that no evidence has been filed to prove cost of improvement. As regards exemption claimed u/s.54 of the Act, the Assessing Officer has admitted claim of the assessee, but allowed exemption to the extent of Rs.5,00,000/- towards advance paid for purchase of property on 15.07.2013 only on the ground that balance amount was not kept in capital gain deposit account scheme on or before filing return of income u/s.139(1) of the Act as required u/s.54(2) of the Income Tax Act, 1961. Thus, he has recomputed long term capital gain by adopting sale consideration of Rs.1,25,00,000/- and further, allowed indexed cost of acquisition of Rs.9,23,994/- and further exemption u/s.54 of the Act at Rs.5,00,000/-.

Being aggrieved by the assessment order, the assessee preferred an appeal before learned CIT(A). Before the learned CIT(A), the assessee has reiterated his arguments made before the Assessing Officer along with certain additional evidences.

The learned CIT(A), after considering relevant facts and after taking note of remand report issued by the Assessing Officer observed that since the assessee did not have any proof of payment of cost of construction (improvement) for the property for which long term capital gain is computed, the Assessing Officer has rightly denied claim of cost of improvement. As regards claim of exemption u/s.54 of the Act, the learned CIT(A) observed that although various courts have held that benevolent consideration of due date as per section 139(4) is to be taken, but the assessee did not even make a claim u/s.54 in the return of income and hence, the Assessing Officer’s reasons for allowing claim of exemption to the extent of Rs.5.00 lakhs towards reinvestment made for purchase of new asset on or before due date of filing return of income u/s.139(1) of the Act is in accordance with law and thus, rejected arguments of the assessee and confirmed additions made by the Assessing Officer towards recomputation of long term capital gain. Aggrieved by the learned CIT(A) order, the assessee is in appeal before us.

The learned A.R for the assessee submitted that the learned CIT(A) has erred in not considering arguments of the assessee that benefit of indexation should be allowed from 01.04.1981, when the property was inherited by the assessee by one of the modes mentioned in section 49 of the Income Tax Act, 1961. The learned AR further submitted that although the assessee has filed evidences for cost of improvement in the form of construction agreement with the builder, but the learned CIT(A) has ignored such evidences only on the ground that evidences filed by the assessee is for another property, ignoring specific arguments of the assessee that construction agreement related to impugned property was handed over to purchaser, who is a non-resident and said document was immediately not available. The AR further referring to various decisions submitted that it is well settled principle of law that when a property was acquired by inheritance in any one of the modes specified u/s.49 of the Act, then benefit of indexation should be allowed from the date the previous owner had acquired property or from 01.04.1981, whichever is later. In this case, the assessee has acquired property by inheritance and thus, benefit of indexation should be allowed from 01.04.1981, but not from 01.04.1996. The AR further referring to number of decisions regarding claim of exemption u/s.54 of the Act, submitted that it is a matter of fact that the assessee has invested full sale consideration for purchase of new asset and made substantial payments on or before due date of filing return of income u/s.139(4) of the Act. Though the assessee has not satisfied conditions of sub-section (2) of section 54, but conditions prescribed for claiming exemption u/s.54(1) are fully satisfied and thus, benefit of exemption claimed u/s.54 of the Act cannot be denied.

The learned DR, on the other hand, strongly supporting order of the learned CIT(A) submitted that the Assessing Officer as well as learned CIT(A) has apprised facts in light of various evidences filed by the assessee and held that the assessee is not entitled for cost of improvement in absence of any specific evidence and hence, there is no error in the reasons given by the learned CIT(A) to sustain additions made by the Assessing Officer . As regards exemption claimed u/s.54 of the Act, he submitted that law is very clear, inasmuch as to get benefit of exemption, the assessee must invest sale consideration for purchase of another house on or before due date of furnishing return of income and if consideration is not invested on or before due date of filing of return of income u/s.139(1) of the Act, then balance consideration should be deposited in capital gain deposit account scheme. Since the assessee has not invested balance consideration in capital gain deposit account scheme, as required under section 54(2) of the Act, the Assessing Officer has rightly denied benefit and hence, there is no error in the reasons given by the Assessing Officer to deny benefit of exemption u/s.54 of the Income Tax Act, 1961.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no dispute with regard to fact that the assessee has sold a property for consideration of Rs.1,25,00,000/- and said property was acquired by inheritance from his grandmother before 01.04.1981. The dispute is with regard to indexed cost of acquisition, indexed cost of improvement and exemption claimed u/s.54 of the Income Tax Act, 1961. As regards indexed cost of acquisition, the Assessing Officer has considered only cost of land and given benefit of indexation from 01.04.1981. It was case of the assessee before the Assessing Officer that there was a building, which was demolished in the year 1996, and therefore, pre-existed building also needs to be considered for the purpose of cost of acquisition. In the remand proceedings, the Assessing Officer has admitted claim of the assessee that there was a building which was demolished and reconstructed in the year 1996.

Coming back to cost of improvement claimed by the assessee. The assessee has claimed cost of improvement to the building at Rs.9.57 lakhs and has applied benefit of indexation from 01.04.1981. The Assessing Officer has denied deduction claimed towards cost of improvement on the ground that no evidence has been placed in support of cost of construction. The assessee claims that it has entered into construction agreement with M/s. Palace Investments by registered deed dated 21.08.1995 for which an amount of Rs.9.57 lakhs was paid to builder towards construction cost .

We have carefully considered arguments of the assessee in light of reasons given by the Assessing Officer to reject claim of cost of improvement and we do not ourselves in agreement with the reasons given by the Assessing Officer for simple reason that when the Assessing Officer is not disputed fact of existence of building and further, evidences placed on record clearly shows that building was constructed in the year 1996, then there is no reason for the Assessing Officer to deny deduction towards cost of improvement only for the reason that no evidence was filed to justify cost. It is an admitted fact as per sale deed of impugned property that there existed a building admeasuring 1559 sq.ft and said building was constructed in the year 1996. Therefore, we are of the considered view that once having accepted fact that there existed a building, then the Assessing Officer ought to have allowed cost of improvement claimed by the assessee , Hence, we direct the Assessing Officer to allow cost of improvement claimed by the assessee for Rs.9,57,000/- incurred in the year 1996.

As regards exemption u/s.54 of the Income Tax Act, 1961, admitted facts are that the assessee has not made any claim for exemption in return of income filed for relevant assessment year. However, claim was first time made before the Assessing Officer at the time of assessment by filing a letter along with evidences, as per which the assessee has reinvested sale consideration for purchase of new asset by entering into sale deed dated 29.04.2015 with Mr. R.Baskar and construction agreement dated 29.04.2015 entered into with M/s. Indus Alliance Foundations India Pvt.Ltd. As per said agreement, the assessee has agreed to purchase a flat for a consideration of Rs.54 lakhs, which includes Rs.11,52,000/- for undivided share of land of 573 sq.ft and Rs.41,44,800/- for construction of flat. The assessee had also made advance payment of Rs.5.00 lakhs on 15.07.2013. If you go through evidences filed by the assessee, there is no doubt that the assessee has satisfied conditions prescribed u/s.54(1) of the Income Tax Act, 1961 to be eligible for exemption u/s.54 of the Act. The only dispute is with regard to payment of agreed consideration. According to the Assessing Officer, except advance payment of Rs.5.00 lakhs, balance sale consideration was paid beyond due date specified u/s.139(1) of the Act for filing return of income and further said sale consideration was not invested in capital gain deposit account scheme, as required u/s.54(2) of the Income Tax Act, 1961. We have gone through reasons given by the Assessing Officer to deny benefit of exemption u/s.54 of the Act and we ourselves do not in agreement with reasons given by the Assessing Officer for simple reason that it is well settled principle of law that any investment made for purchasing / constructing a new asset on or before extended due date of filing return of income u/s.139(4) qualifies for exemption u/s.54 of the Income Tax Act, 1961. The Hon’ble Jurisdictional High Court of Madras in the case of Venkata Dilip Kumar Vs.CIT (2019) 111 taxmann.com 180 (Mad) had considered an identical issue and held that mere non-compliance of procedural requirement u/s.54(2) itself cannot stand in way of assessee in getting benefit u/s.54, if he is, otherwise, in a position to satisfy that mandatory requirement u/s.54(1) is fully complied with within time limit prescribed therein. The ITAT., Chennai Benches in the case of R.K.P Elayarajan Vs. DCIT (2012) 23 taxmann.com 206 had considered a similar issue and held that merely because investment is made after due date of filing return of income section 54 exemption cannot be denied, where investment is made prior to filing of return of income u/s.139(4) of the Act.

In this case, there is no dispute with regard to fact that the assessee has satisfied conditions prescribed u/s.54(1) to be eligible for exemption for reinvestment, but only lapse is not invested balance sale consideration in capital gain deposit account scheme. However, fact remains that the assessee has invested sale consideration for purchase of another house property and has made substantial payment on or before extended due date of return of income u/s.139(4) of the Income Tax Act, 1961. Therefore, in the facts and circumstances of this case and also by following decision of the Hon’ble Madras High Court in the case of Venkata Dilip Kumar Vs.CIT (supra), we are of the considered view that the assessee is entitled for benefit of exemption u/s.54 of the Income Tax Act, 1961. Hence, we direct the Assessing Officer to allow exemption claimed u/s.54 of the Act.