VINODCHANDRA T PARIKH,AHMEDABAD vs. ITO, WARD-2(1)(2),, AHMEDABAD

आदेश/O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeal)-2, Ahmedabad, dated 29/02/2016 arising in the matter of Assessment Order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2013-2014.

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4.1 From the above disclosure of income in the assessment year 2010-11, it was noted that the assessee besides claiming the exemption under section 54EC of the Act has also claimed the exemption on account of advance money given for the investment in the land and the money deposited in the capital gain account scheme amounting to Rs. 65,00,000.00 lakhs and Rs. 3,40,20,000.00 respectively aggregating to Rs. 4,05,20,000.00 only.

4.2 Under the scheme of the provisions of section 54 of the Act, the assessee was to utilize the amount of capital gain aggregating to Rs. 4,05,20,000.00 for the construction of the residential property within a period of 3 years from the date of transfer of the bungalow. In other words, the assessee was under the obligation to complete the construction of residential house on or before 17th March, 2013.

4.3 The assessee subsequently made the investment in the land for the balance amount amounting to Rs. 1,83,49,050 on various dates in the financial year 2010- 11. Thus, the total investment in the land came at Rs. 2,48,49,050.00 only.

4.4 It is pertinent to note that the assessee acquired the land which was agricultural in nature but the same was converted into Non-Agricultural dated 21- 02-2011 as evident from the pages 15 to 19 of the paper book.

4.5 However, the assessee failed to complete the construction with in the stipulated time/ period i.e. 17-3-2013 provided under the provisions of section 54 of the Act. Therefore, the assessee at his own has offered an income in the year under consideration amounting to Rs. 1,56,70,950/- as capital gain which was worked out in the manner as detailed below: Total Exemption Claimed u/s 54 in the A.Y. 2010-11 Rs. 4,05,20,000.00 Less: - Investment made up-to A.Y. 2013-14 Rs. 2,48,49,050.00 Deemed Long Term Capital Gain u/s 54 Rs. 1,56,70,950.00

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Sr.No. Date Amount Particular 1. 18-03-2010 8,80,00,000 Assessee has sold residential bungalow. 2. 18/23/-03-2010 -- Assessee immediately shifted to the rented premise by way of duly registered lease deed between assessee and on Mrs Bhavna Raval. 3. 02-07-2010 4,05,20,000 Amount deposited in SBI Capital Gain Scheme ( 65 lacs land purchase account + 3,40,20,000/- deposited in SBI Capital Gain Scheme) on 22/23-07-2010. Land cost of Rs.65 lacs is as on 14-0802010 and ultimately it is enchanced to Rs.2,48,49,050/- 4. 22-07-2010 65,00,000 Consideration paid for purchase of land and thereafter to construct the residential house thereon. 5. 13-09-2010 2,48,49,050 Total cost value of the land purchased for construction Rs.2.23 crores land cost and other expenditure as per paper book . page 13. 6. 17-09-2010 1,68,00,000 Balance amount has been paid towards purchase of land for construction.

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7.1 The assessee also submitted the break-up of the amount invested to construct the house to claim the exemption u/s 54 of the Act as detailed under:

7.2 The assessee, thus was of the view that he, as per the provision of section 54 of the Act, is entitled to claim the exemption of the amount already offered to tax i.e. Rs. 1,56,70,950.00 as the amount was utilized towards the construction of the house. For this the assessee also filed the additional ground of appeal before the ld. CIT-A which is reproduced as under: The additional ground of appeal raised by the appellant during the course of appellate proceedings is as under:

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XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 4.2 have carefully considered the facts of the case, assessment order and submission of the appellant. Appellant has filed additional ground Shot appellant in F, Y. 2016-17 constructed the new bungalow for Rs.5.03.86.713/-. therefore, entire claim of Rs.5.03.86.7137- should be allowed u/s. 54F. The appellant has relied on the case of NTPC [229 ITR 383] (SC) to admit the above ground being legal in nature. 4.3. The AO in the assessment order has noted that appellant has not constructed the new building within three years from the date of sale of residential property. The AO has noted that the construction is not complete even on the date of passing the assessment order- Appellant on his own has offered Rs.1.56,70,9507- being unutilised amount as deposit from 5BI Capital Gain Scheme u/s. 45- in view of the above facts, i! is seen that the ground raised is not emanating from the assessment order and based on new facts, and therefore, cannot

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be admitted. Even otherwise. it has been held vide ground No. 1 that appellant has not completed the construction of house within the stipulated period, therefore, is not entitled for deduction u/s, 54F. The ground of appeal is accordingly dismissed.

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are inclined to refer the following judgments where the assessee was given the relaxation as far as the time is concerned for completing the construction of the property.

12.1 The Hon’ble High Court of Karnataka in the case of Commissioner of Income Tax vs. Sambandam Udaykumar reported in 19 taxmann.com 17 has held as under: Section 54F is a beneficial provision of promoting the construction of residential house. Therefore, the said provision has to be construed liberally for achieving the purpose for which it was incorporated in the statute. The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are 'purchased' or 'constructed'. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming benefit under the said provision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favour of the assessee before the period stipulated, he cannot be denied the benefit of section 54F. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F. The essence of the said provision is whether the assessee who received capital gains has invested in a residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as requited under the law, that would not disentitle the assessee from the said benefit.

12.2 We also draw support and guidance from the judgment of Hon’ble High Court of Bombay in the case Commissioner of Income Tax vs. Girish L Ragha reported in 69 taxmann.com 95 where it was held as under; “On perusal of the records, it is to be found that the fact finding authorities below have concurrently come to the conclusion that the consideration amount was in fact paid for the purpose of purchasing the flat to the developer. It is also not disputed that the construction was incomplete as there was a dispute between a bank and the original owner in respect of the subject property. Only after the injunction was vacated, the developers could complete the premises and hand over possession to the respondent which admittedly is beyond the period of two years. On the basis of such fact, as the payment of the total consideration was paid by the respondent, merely because the residential premises were not occupied, as the possession was not delivered to the respondent by the developer and the deed of conveyance was not executed within such period would not by itself be a ground to deprive the respondent from availing the deduction of payment of capital gain under section 54.[Para 2]

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It is to be agreed with the view taken by the Delhi High Court to come to the conclusion that the purchase would be computed when the consideration is duly paid by the assessee for the purpose of purchasing the premises and the construction had already commenced by the builder which remained to be completed on account of the litigation. In the present case, the Tribunal has noted that the assessee has sold the property on 1-12-2009 and the assessee has made the payment on 16-3-2010. The assessee was required to get the house and occupancy certificate on or before 1-12-2011. But however, the assessee got the occupancy certificate of the property on 17-1-2014. The Tribunal further noted that the assessee submitted the documentary evidence to show that after purchasing the property, there was a civil suit filed by the other parties and the assessee could not complete the construction and the licence for constructing the house was accordingly delayed. The Tribunal further noted that Commissioner (Appeals) in his order relied upon the decision of the Madras High Court in the case of CIT v. Sardarmal Kothari [2008] 302 ITR 286 wherein, it is held that in order to get the benefit under section 54, the assessee need not complete the construction of the house and occupy the same. It is further noted that the assessee has invested the money and the occupancy certificate is delayed which is beyond the control of the assessee then the assessee is entitled for deduction under section 54 of the Act. The Tribunal as such found that the assessee was entitled for deduction under section 54 and consequently, dismissed the appeal of the revenue. Considering the said facts and the ratio of the judgment referred to herein above, it is to be found that there is no substantial question of law which arises for consideration in the present appeal under section 260A. Hence, no case is made out by the appellant for interference in the order passed by the Tribunal. The appeal stands accordingly rejected.”

12.3 To our opinion the law does not compel to perform a function which is impossible to perform. If the non-construction of the residential house was beyond the scope of assessee's capabilities and, therefore, the purchase of the land itself should be considered as sufficient investment for claiming exemption under section 54F of the Act. In this regard we place our reliance on the judgment of Hon’ble Apex Court provided in the case of State of Rajasthanv. ShamsherSingh, 1985 (Supp) SCC416 where it was held that a person should not be deprived of justice for not doing a particular thing, which was not capable of doing. We also relied on another judgment of the Hon'ble Supreme Court in the case of Cochin State Power & Light Corpn. Ltd.v. State of Kerala, [1965] 3 SCR 187, to reiterate the same judicial principle.

12.4 From the above judgments, we hold that the time stipulated under the provisions section 54 of the Act for acquisition/ construction of the house can be relaxed depending upon the facts and circumstances particularly in a situation where

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the assessee was prevented to complete the construction of the house within 3 years due to some unavoidable reasons.

12.5 Now let us proceed to check whether there exist any reasonable cause for the delay in the construction period. As we note that the assessee has applied to obtain the BU permission and construction permission vide letter dated 16-10-2012 i.e. within 3 years from the date of transfer of bungalow to town planning officer. However, the town planning officer granted the permission only to fencing the boundary vide order dated 24-01-2013. From the reading of the above details it can be safely interpreted that there was certain compelling circumstances which prevented the assessee to complete the construction within the stipulated time. As such, the assessee was unable to fulfill the requirement of the provisions of law for claiming the exemption under section 54 of the Act. At this juncture, it is also pertinent to note that the assessee while filing the application for the construction of residential house has also made the reference to the provisions of the income tax Act as applicable for exemption under section 54 of the Act i.e. subject to the condition of the completion of the construction of the house within the period of 3 years. Thus, a conjoint reading reveals that the delay in constructing the house was not attributable to the assessee. Furthermore, there was enough funds available with the assessee which is evident from the fact that the assessee has made the deposit in the capital gain account scheme which can only be utilized for the purpose of constructing the house. Thus we hold that, the assessee, cannot be denied the benefit of exemption under section 54 of the Act merely on the reasoning that the construction was not completed within the period of 3 years from date of transfer of property in the given facts and circumstances.

12.6 Be that as it may be, the law is fairly clear that the assessee can claim exemption only upon the completion of the construction of the house. Now, we proceed to check when the construction of the house was completed. Admittedly, the land was registered in the name of the assessee vide conveyance deed dated

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12-09-2011. Thus the land was acquired by the assessee within the stipulated time. However, on perusal of the construction expenses placed on pages 14 and 28 to 36 of paper book, we note that these expenses were incurred up-to the financial year 2016-17 amounting to Rs. 2,26,67,540 which implies that the construction of house was not completed in the year under consideration. Admittedly, the construction of the house should have been completed with the financial year 2012-13 but what is evident from the facts is that the construction was completed in the financial year 2016-17. This fact can be verified from the electricity bill dated 13 October 2016 pertaining to the month of August and September 2016 placed on pages 25-26 of the paper book. But admittedly, the assessee has made substantial compliance. There was also no allegation of the revenue that the assessee has diverted the fund received by him on the transfer of the bungalow other than the construction of new house.

12.7 A question also arises whether all these details were available before the AO during the assessment proceedings. In this connection, we note that the assessment order was passed under section 143(3) of the Act dated 29th February 2016 whereas order of the learned CIT-A was passed dated 19 December 2017. Thus, it can be inferred that all the expenses incurred by the assessee in connection with the construction of the house were not available during the assessment proceedings. However, all the expenses were incurred by the assessee as verified from the paper book before passing the order of the learned CIT-A. In other words the necessary details of the expenses were available before the ld. CIT-A during the appellate proceedings. However, we note that the assessee before the AO vide letter dated 25th February 2016 has submitted as under:

"Explanation for Not making addition of Rs. 24849850 : In continuation and addition of our earlier submissions in captioned matter, we wish to submit as under: Provisions contained u/s 54 being beneficiary provision has to be construed liberally. In various judicial precedents it has been held that the condition precedent to claim benefit u/s 54F is that the capital gain realized from the sale of the capital assets should be parted by the assessee and invested in either purchasing a residential house or in constructing a residential house. In case the assessee could not perform what was not possible for performance then the deduction cannot be denied to the extent the assessee has performed.

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Various courts have obtained a liberal view on stipulated time limit to complete the constructions of new residential house within 3 years if circumstance were not in control of the assessee for delay in construction. Such relaxation has been granted by Honble Supreme Court in the case of Sanjeev Lal Ect. Vs C1T Chandigarh (365 ITR 389). In the said case law, the assessee has made agreement to sale the property on 27-12-2002 and assessee has purchased new house as on 30-04- 2003. However appellant's brother has filed a civil suit in court of law challenging a validity of will. The court has passed an interim order and restrained appellant to sell the property. The appellant's brother died leaving behind him no legal heirs. The suit filed by him has been dismissed in May 2004. There after the appellant has executed sale deed as on 24-09- 2004. Even though the exemption u/s 54 was allowed against capital gain accepting the facts that house was purchased before one year of executing the registered sales deed. In assessee's case also, the assessee has started constructing a residential house from May 2014. We enclose herewith the_ pictures,of constructed house as Annexure A for your consideration and we are also agreeing to arrange the inspection of said house for your reference. We request you to liberally interpret the beneficiary provisions. Courts have 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 the honorable Supreme Court has observed that a purposive interpretation of the provision of the ACT should be given while considering a claim for exemption of tax. It has also been said that harmonious construction of the provisions which subserve the object and purpose should be made while construing any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax. In our case, the assessee was willing to build residential house and therefore has entered agreement to purchase a land as on 13-09-2010. After getting NA permission of said land as on 30-08-2011, the land was purchased by executing registered deed on 12-09-2011. After that assessee wanted to start construction of said land but as final approval of Draft TP Scheme 213 has not been received, the authorities did not accept the plans for construction of house. So for reasons beyond the control of the assessee the delay in construction has taken place. Further the fact remains that the assessee did not have any other house to live so was living in a rented premises. So, there were no reasons on the part of the assessee to do not construct residential house on plot of land purchased. We request you to consider these all facts and legal cases referred before making any disallowance in the matter. "

12.8 Thus, from the above details, it is transpired that the assessee substantially complied the requirement for constructing the house before passing the assessment order. Therefore, merely the assessee could not complete the construction within the stipulated time, he cannot be denied the benefit of the provisions of section 54 of the Act for the reasons elaborated above in the given facts and circumstances. Furthermore, all the expenses incurred by the assessee were available before the learned CIT-A and the genuineness of the same has not been denied by him.

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12.9 At this juncture, we feel to deal with one more issue that the assessee at his own has offered an income of Rs. 1,65,70,950/- under the head capital gain but claim the exemption of the same before the Ld. CIT-A by way of filing the additional ground of appeal which was not adjudicated by the Ld. CIT-A. It is the settled provisions of law that the Revenue cannot take the benefit of the ignorance of the assessee. In simple words if the assessee is eligible for any benefit provided under the statute the same cannot be denied merely on the reasoning that the assessee did not claim the same in the income tax return. The Hon’ble Supreme Court in the case of Commissioner of Income Tax vs. Shelly Products reported in 129 Taxman 271 has held as under: “One cannot lose sight of the fact that the failure or inability of the revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment had been made. In a case where an assessee chooses to deposit by way of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of assessment proceeding. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which, if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the concerned authority in a case when refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief. In cases governed by section 240, an obligation is cast upon the revenue to refund the amount to the assessee without his having to make any claim in that behalf. In appropriate cases, therefore, it is open to the assessee to bring facts to the notice of the concerned authority on the basis of the return furnished which may have a bearing on the quantum of the refund, such as those which the assessee could have urged under section 237. The concerned authority, for the limited purpose of calculating the amount to be refunded under section 240, may take all such facts into consideration and calculate the amount to be refunded. So viewed, an assessee will not be placed in a more disadvantagious, position than in what he would have been, had an assessment been made in accordance with law.” 12.10 Moving further and after analyzing the construction expenses, we note that the major expenses on the construction of the house were incurred by the assessee and he was also granted the electricity connection. The details of electricity connection/electricity bills are placed on pages 25 and 26 of the paper book. Thus it appears that the assessee was able to comply the provisions of law substantially though some part of the expenses were incurred belatedly. However, the provisions

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of section 54 of the Act provide to treat the amount deposited in the capital gain account scheme if it is not utilized for the purpose of the construction in the year in which the period of three years expires from the date of transfer of the property. Thus the issue of taxability of capital gain has to be settled in the year under consideration only as the time limit expires in this year. In the light of the above discussion and after perusing the relevant records, especially the electricity bill and the application made by the assessee for the permission placed on pages 20 to 23 of the paper book, we feel that the assessee cannot be denied the benefit of exemption under the 54 of the Act in the given facts and circumstances. Hence, we set aside the finding of the Ld. CIT-A, and direct the AO to delete the addition made by him. As such the assessee is entitled for relief of the entire amount of capital gain i.e. Rs. 4,05,20,000 which includes the amount offered by the assessee in the income tax return. Hence, the appeal of the assessee is allowed.

Order pronounced in the Court on 21/10/2022 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 21/10/2022 Manish