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Before: SHRI H.S. SIDHU & DR. B.R.R. KUMAR
This appeal by the Assessee is directed against the Order dated 04.1.2016 of the Ld. Commissioner of Income Tax (Appeals)-18, New Delhi pertaining to assessment year 2012-13.
The grounds of appeal raised in the assessee’s appeal read as under:-
1. That the Commissioner of Income-tax (Appeals) [in short "CIT(A)"] on the facts and in law in confirming the addition made by the assessing officer aggregating Rs.81,66,515/- in the assessment order dated 02.03.2014 passed under section 143(3) of the Income-tax Act, 1961 ('the Act') is bad in law.
2. That on the facts and circumstances of the 'case and in law, the CIT (A) has failed to appreciate the provisions of section 54 and has made the addition ultra vires of section 54.
2.1. That the assessee has rightly claimed the deduction under section 54 as per the provision of the Act.
2.2. That on the facts and circumstances of the case and in law, the CIT (A) has failed to understand the intention of the provisions of deduction available under section 54 i.e. for the investment/utilization of capital gain proceeds in another eligible property.
2.3. The CIT (A) has erred in law and facts in making the addition where the assessee has already invested Rs.l,14,51,375 in residential plot before filing of return and therefore utilized the entire capital gain and satisfying the condition of section 54 of the Act.
That the CIT (A) has erred in facts and in law in appreciating that the assesse could not get the possession of the plot, due to the reason beyond the control of the appellant, hence could not start the construction on the residential plot. Thus the appellant was prevented by sufficient cause for not starting the construction. However, the entire capital gain proceeds have already been utilized in purchase of the plot hence satisfying the conditions of section 54.
Without. prejudice, the CIT(A) and assessing officer have erred in facts and in law in failing to understand the provisions of section 54 where in case of any failure to fulfill the conditions for investment in construction of house property within stipulated time the utilized amount shall be taxable in the previous year in which period of three years expire and therefore not in the year of capital gain.
That the CIT (A) has erred in upholding of charging interest under section 234B of the Act, without giving any directions in the assessment order about levy of interest.
6. That the CIT(A) has erred in law and facts in upholding initiating of penalty proceedings under section 271(1)(c).
7. That the assessee craves to add, to amend, to delete any other ground of appeal.
3. The brief facts of the case are that the assessee is an individual having income from business or profession, house property, capital gain and other sources during the assessment year 2012-13. The assessee filed her return of income on 24.09.2012 declaring an income of Rs. 73,32,060/-. The case of the assessee was selected for scrutiny through CASS. Accordingly, notice u/s. 143(2) of the Income Tax Act, 1961 (in short “Act”) was issued on 06.8.2013 and served upon the assessee. Subsequently, notice u/s. 142(1) of the Act alongwith questionnaire was issued and served upon the assessee. In response to the same, the AR of the assesee attended the proceedings from time to time. During the under consideration, assessee sold residential property situated at 28/28, East Patel Nagar, New Delhi for a total consideration of Rs. 300 lacs, however, assessee’s share was 1/3rd in the said residential property which comes to Rs. 100 lacs and accordingly claimed the deduction of entire capital gain under section 54 of the Act for Rs. 81,66,515/- by investing Rs. 1,14,51,375/- in residential plot of Greenbay Gold Village GB Nagar UP for the purpose of construction of 3 residential house. The assessee could not get the possession of the said residential plot within the stipulated time for the reasons beyond the control of assessee and delay on the part of the developer. However, the AO completed the assessment u/s. 143(3) of the Act at Rs. 1,54,98,570/- vide order dated 02.03.2015 by denying the benefit of deduction under section 54 of the Act for Rs. 81,66,515/- on the contention that the construction could not be started within the stipulated time and added the same amount in the income of the assessee on account of long term capital gain. Against the assessment order, assessee appealed before the Ld. CIT(A) who vide his impugned order dated 04.10.2016 has dismissed the appeal of the assessee. Aggrieved the impugned order, assessee is in appeal before the Tribunal.
4. Ld. Counsel for the assessee stated that Ld. CIT(A) erred in confirming the addition made by the Assessing Officer aggregating to Rs.81,66,515/- in the assessment order dated 02.03.2014 passed u/s. 143(3) of the Act and further submitted that Ld. CIT (A) has also failed to appreciate the provisions of section 54 of the Act and has made the addition ultra vires of section 54 of the Act. It was further submitted that the assessee has rightly claimed the deduction u/s. 54 of the Act. He further submitted that Ld. CIT(A) has failed to understand the intention of the provisions of deduction available under section 54 of the Act i.e. for the investment/utilization of capital gain proceeds in another eligible property. It was further submitted that Ld. CIT(A) has erred in making the addition where the assessee has already invested Rs.1,14,51,375/- in residential plot before filing of return and therefore utilized the entire capital gain and satisfying the condition of section 54 of the Act. It was further submitted that Ld. CIT (A) has erred in appreciating that the assesse could not get the possession of the plot, due to the reason beyond the control of the assessee, hence assessee could not start the construction on the said residential plot. Thus the assessee was prevented by sufficient cause for not starting the construction. However, the entire capital gain proceeds have already been utilized in purchase of the plot hence satisfying the conditions of section 54 of the Act. It was further submitted that Ld. CIT(A) and Assessing Officer have erred in in understanding the provisions of section 54 of the Act where in case of any failure to fulfill the conditions for investment in construction of house property within stipulated time the utilized amount shall be taxable in the previous year in which period of three years expire and therefore not in the year of capital gain. In support of his contention, he filed the copy of the ITAT, ‘A’ Bench decision dated 18.11.2019 passed in the case of Abodh Borar vs. ITO in (AY 2013-14) and stated that the issue in dispute in hand is squarely covered by the aforesaid decision wherein exactly similar issue has been adjudicated by the Tribunal in favour of the assessee and against the revenue by following the ITAT, Delhi Bench decision in the case of Varun Seth vs. ACIT 47(1) (2019) 107 taxmann.com 133 (Delhi – Trib.). In view of above, he requested that the disallowance made and confirmed by the lower authorities may kindly be deleted and appeal of the assessee may be allowed.
5. On the contrary, Ld. DR relied upon the order of the authorities below and stated that the Ld. CIT(A) has passed a well reasoned order which does not need any interference, hence, the same may be affirmed. No contrary decision has relied upon by the Ld. DR.
We have heard both the parties and perused the records available with us, especially the orders passed by the Revenue authorities. On going through the facts, we note that during the year under consideration the assessee has sold a residential house property having her 1/3rd share therein situated at East Patel Nagar New Delhi for Rs. 100 lacs and had a long term capital gain of Rs. 81,66,515/-. The assessee claimed the deduction under section 54 of the Act by investing the entire sale proceeds (aggregate investment of Rs. 1,14,51,375 and details thereof as shown at 5 page no. 39, 42 & 41 of the Paper Book) before the due date of filing Income Tax Return u/s. 139 of the Act for the purchase of another residential property at Green Bay Gold Village, Yamuna Expressway, Distt. Gautam Budh Nagar, UP. Construction on the said land could not be completed within the stipulated period of three years for the reasons beyond the control of the assessee i.e. Farmers agitation against Yamuna Authority related to the area in which plot was located, as seen from page 21-31 of the Paper Book and change of developer as Silverglades Pvt. Ltd. sold the project to other developer – Orris Infrastructure. In such circumstances, we are of the view that benefit of deduction cannot be denied to the assessee. Our aforesaid view is fortified by the ITAT, ‘A’ Bench decision dated 18.11.2019 passed in the case of Abodh Borar vs. ITO in (AY 2013-14) wherein by respectfully following the ITAT, Delhi Bench decision in the case of Varun Seth vs. ACIT in ITA No. 1388/Del/2019 dated 14.05.2019 wherein, it has been held as under:-
“6. We have heard the rival submission and perused the relevant finding given in the impugned orders passed by the authorities below and the paper book filed by the assessee.The only issue in the appeal is the denial of deduction claimed by the assessee under section 54 and 54F of the Act. It is an undisputed fact that, firstly, the assessee has earned capital gain and has invested the same in purchase of a residential plot; secondly, the assessee has made a total investment of Rs.63,03,005/- which is more than the exemption of Rs.52,90,424/- claimed by her; and lastly, the assessee made this investment within the prescribed period. This payment was made to the developer Omaxe Chandigarh Extension Developers Pvt. Ltd. Consequent to that, the developer issued allotment letter and also entered into an agreement dated 05.07.2011. As per the agreement the developer was supposed to hand over the possession of plot within 18 months from the date of allotment letter. However, the developer did not deliver the possession. Hence, the assessee could not complete the construction within the prescribed period of 3 years. This delay in construction was not attributable to the assessee. Thus, the AO and the CIT (A) have denied the exemption in view of the provision of section 54 and 54F of the Act. Further, the AO and the CIT (A) both have ignored the fact that the assessee has made a full payment to the developer and such payment was more than the amount of the deduction claimed by the assessee. Since, the delay was not on the part of the assessee but on the part of the developer and thus it was beyond the control of the assessee. In such circumstances, we are of the view that benefit of deduction cannot be denied to the assessee. Our view is supported by the judgment of coordinate bench of the ITAT in the case of Varun Seth vs. ACIT dated 14.05.2019, wherein it has been held as under:-
“9. The real issue in the present case is that new residential house has not been constructed within a period of three years from the date of the transfer of the residential property which resulted in the long-term capital gain. On this issue, the assessee’s contention has been that inspite of having made payment for the plot, the Jaypee (Developer) failed to offer possession and execute sale deed even up till the expiry of three years from the date of sale of property by him, because of reasons beyond his control which cannot be disputed. This vital fact assumes great significance as assessee had taken all the steps to make the investment for the purchase of house, and also assessee had deposited ₹ 25,10,000/- in the capital gain account with PNB so as to construct the house. This unequivocally demonstrate that assessee really intended to construct the new residential house thereon. It was based on this bonafide intention assessee had claimed exemption under section 54 of the Act. Without the purchase of land, house could not have been constructed. The first step was to purchase the land, which was done. Thereafter the developer was to handover the plot, so that assessee could have constructed the house within time allowed of 2 years. However, no step could be put forward thereafter because possession of land was not given by the Developer, for reasons beyond the control of the assessee. If an assessee sells his house property and utilises the money for acquiring a plot for the construction of the house and if facts and circumstances point out that assessee intended to construct the house, which has been found so, then it is clear that he wants to avail exemption as provided under the law. Now if the developer after receiving the money could not fulfill the obligation within time, then can assessee be held responsible for not complying the law.
The Hon’ble Supreme Court in the case of Sanjeev Lal Vs. CIT [2014] 365 ITR 389 (SC) has laid down the purposive interpretation of section 54 to give a liberal approach to the assessee who clearly intended to claim benefit of section 54. Their Lordships held that section 54 is a beneficial provision and is to be construed keeping in view the intention of the Legislature to give relief in the matter of payment of tax on the long-term capital gain, relevant observation of their Lordships reads as under: -
“22. In addition to the fact that the term "transfer" has been defined under section 2(47) of the Act, even if looked at the provisions of section 54 of the Act which gives relief to a person who has transferred his one residential house and is purchasing another residential house either before one year of the transfer or even two years after the transfer, the 9 intention of the Legislature is to give him relief in the matter of payment of tax on the long term capital gain. If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under section 54 of the Act, the Legislature does not want him to be burdened with tax on the long-term capital gain and, therefore, relief has been given to him in respect of paying income-tax on the long-term capital gain. The intention of the Legislature or the purpose with which the said provision has been incorporated in the Act, is also very clear that the assessee should be given some relief. Though it has been very often said that common sense is a stranger and an incompatible partner to the Income-tax Act and it is also said that equity and tax are strangers to each other, still this court has often observed that purposive interpretation should be given to the provisions of the Act. In the case of Oxford University Press v. CIT [2001] 3 SCC 359 this court has observed that a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax. It has also been said that harmonious construction of the provisions which sub-serve the object and purpose should also be made while construing any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax. Considering the afore stated observations and the principles with regard to the interpretation of statute pertaining to the tax laws, one can very well interpret the provisions of section 54 read with section 2(47) of the Act, i.e., the definition of "transfer", which would enable the appellants to get the benefit under section 54 of the Act.”
If we apply the law as clarified by the Hon’ble Apex Court, on the facts of the instant case, then we are of the opinion that the amount utilized by the assessee in the acquisition of land should be construed as amount invested in purchase/ construction of residential house. The intention of the statute as provided in section 54 has been fully satisfied by the assessee in the present case. Thus, on the facts of the present case, we hold that the assessee is entitled for exemption
under section 54 of the Act and AO is directed to allow the exemption us/ 54.”
7. Respectfully following the above decision which is applicable on the facts of the present case also, we hold that assessee is entitled to the exemption claimed by her and direct the AO to delete the disallowance.
In the result, the appeal of the assessee is allowed.”
6.1 Keeping in view the aforesaid discussions and respectfully following the precedent, as aforesaid, which is applicable on the facts of the present case also, we hold that assessee is entitled to the exemption claimed by her and, therefore, delete the disallowance in dispute by allowing the appeal of the assessee.
In the result, the appeal filed by the Assessee stands allowed.
Order pronounced on 13/12/2019.