ACIT, NEW DELHI vs. SMT. SEEMA SOBTI, NEW DELHI

PER H.S. SIHU, JM

This appeal is filed by the Revenue against the Order dated

21/08/2015 passed by the Ld. CIT(A)-17, New Delhi relating to

assessment year 2012-13 on the following grounds:-

4,10,45,578/- and Rs. 50,00,000/- on account of exemption

u/s. 54 and 54EC of the Act treating the said house as being

“Constructed by the assessee and not considering the facts

that the assessee has entered into buyer seller purchase

agreement on 10.02.2006, thereby purchasing the said

house on 10.02.2006 only.

50,00,000/- on account of exemption u/s. 54EC of the Act

without considering the date of purchase of REC bonds.

Rs.14,07,474/- without considering the facts that as per

para 8(v) in lease deed of M/s DT Cinema, the assessee has

received maintenance charges as income in disguise.

the grounds of appeal before or during the course of

hearing of the appeal.

its return on 01.08.2012 declaring an income of Rs. 72,38,440/-.

The case was selected for scrutiny under CASS. Notice u/s. 143(2)

of the Income Tax Act, 1961 (in short “Act”) was duly served upon

the assessee. Subsequently, notice u/s. 142(1) of the Act along-

with questionnaire was issued on 28.8.2014. In compliance to

notices, the AR of the assessee attended the hearing from time to

time and furnished the written submissions and required details as

called for. The Assessee is individual lady. The assessee declared

income from house property, income from capital gain and income

from other sources. During the course of hearing the AR of the

assessee submitted necessary details which have been examined

and placed on records. Books of accounts have been verified on test

check basis and returned back. Thereafter, the AO after seeking

various explanations, framed the assessment u/s. 143(3) of the Act

at Rs. 5,47,34,750/- by making disallowance of deduction under

section 54 on the ground that the assessee entered into an

agreement dated 10.2.2006 and therefore the date of agreement be

treated as the date of acquisition and which falls beyond the period

of one year prior to the date of transfer prescribed under section 54

of the Income Tax Act, following the judgment of Hon’ble Delhi High

Court in the case of Gulshan Malik vs. CIT in ITA No. 55 of 2014

and CIT vs. RL Sood (2008) 109 taxman 227/245 ITR 727 (Delhi).

Thereafter, AO made the disallowance of Rs. 50,00,000/- u/s. 54 of

the Act as against the deduction claimed by the assessee amounting

to Rs. 1,00,00,000/- following the decision of the ITAT, Jaipur

Bench in ACIT Circle-2 vs. Sh. Raj Kumar Jain Sons HUF, January

31, 2012 as per the details in the impugned assessment order

dated 4.2.2015. Further, AO made the addition of Rs. 14,07,474/-

in the rental income of above said amount on the grounds that the

assessee has received Rs. 646412/- from the tenant M/s DT Cinema

Ltd.; add maintenance charges as per 8v of the Lease Deed;

allowing deduction therefrom of 30% on account of statutory

deduction under section 24(a) of the Income Tax Act resulting into

the net addition of Rs. 14,07,474/- (Rs. 6464112/- add

maintenance charges (as per para 8v of the Lease Deed) Rs.

2010672/- and total rent received comes to Rs. 8474784/- and less

deduction u/s. 24(a) Rs. 2542435). Against the assessment order,

the assessee appealed before the Ld. CIT(A), who vide his

impugned order dated 21.08.2015, has deleted the additions in

dispute and allowed the appeal of the assessee. Aggrieved with the

order of the Ld. CIT(A), the Revenue is in appeal before the

Tribunal.

reiterated the contentions raised in the grounds of appeal and

stated AO made the disallowance of deduction under section 54

was made on the ground that the assessee entered into an

agreement dated 10.2.2006 and therefore the date of agreement be

treated as the date of acquisition and which falls beyond the period

of one year prior to the date of transfer prescribed under section 54

of the Income Tax Act, following the judgment of Hon’ble Delhi High

Court in the case of Gulshan Malik vs. CIT in ITA No. 55 of 2014

and CIT vs. RL Sood (2008) 109 taxman 227/245 ITR 727 (Delhi),

which does not need any interference. She further stated that AO

made the disallowance of Rs. 50,00,000/- u/s. 54 of the Act as

against the deduction claimed by the assessee amounting to Rs.

1,00,00,000/- following the decision of the ITAT, Jaipur Bench in

ACIT Circle-2 vs. Sh. Raj Kumar Jain Sons HUF, January 31, 2012 as

per the details in the impugned assessment order dated 4.2.2015,

hence, requested to cancel the order of the Ld. CIT(A) on the issue

in dispute. She further stated that AO has rightly observed that

addition of Rs. 14,07,474/- in the rental income of above said

amount on the grounds that the assessee has received Rs. 646412/-

from the tenant M/s DT Cinema Ltd.; add maintenance charges as

per 8v of the Lease Deed; allowing deduction therefrom of 30% on

account of statutory deduction under section 24(a) of the Income

Tax Act resulting into the net addition of Rs. 14,07,474/- (Rs.

64,64,112/-; add maintenance charges (as per para 8v of the

Lease Deed) Rs. 20,10,672/- and total rent received comes to Rs.

8474784/- and less deduction u/s. 24(a) Rs. 25,42,435) and net

income from house property comes to Rs. 45,24,878/- as rental

income from this property, hence, the AO add the difference of Rs.

14,07,474/- to the income of the assessee under income from

house property. In view of above, she requested to cancel the order

of the Ld. CIT(A) and allow the revenue’s appeal.

upon the order of the Ld. CIT(A) and stated that he has passed a

well reasoned order, which does not need any interference. In

support of his contention, he filed the synopsis of arguments on

behalf of the assessee, which read as under:-

“1. INTRODUCTION

1.1. The Assessee filed his return of income for

Assessment Year (‘AY’) 2012-13 on 01.08.2012 at

a total income of Rs. 72,38,440/-. The Assessee’s

case was selected for scrutiny by issuance of

notice u/s 143(2) of the Act, and after seeking

multiple clarifications / explanations, the

assessment was framed u/s 143(3) by making

disallowance of claim u/s 54 of the Act at Rs.

4,10,45,578/-, disallowance of claim u/s 54EC of

the Act at Rs. 50,00,000/- and addition of Rs.

14,07,474/- towards purported amounts received

from M/s DT Cinemas Ltd.

1.2. Aggrieved by the said order, the Assessee

preferred an appeal before the Commissioner of

Income-tax (Appeals) (hereinafter referred to as

‘CIT(A)’) whereby vide order dated 21.08.2015,the

appeal of the assessee was allowed and the

additions made by the Assessing Officer (‘AO’) were

deleted.

1.3. The Revenue did not accept the above-

referred order of the CIT(A) and instead preferred

an appeal before this Hon’ble Tribunal, seeking

restoration of the additions made in the assessment

order.

2.1. With regard to the above additions, the

Assessee wishes to bring to the attention of this

Hon’ble Tribunal the following facts, as under:

2.2. The Assessee had acquired a property at Jor

Bagh during Financial Year (‘FY’) 2002- 03, which

was subsequently sold during the subject AY on

28.12.2011 for a sum of Rs. 6 Crores.

2.3. As the said property was a long-term capital

asset, the Assessee claimed benefit of indexation

whereby the indexed cost of acquisition was arrived

at Rs. 79,12,653/- resulting in capital gains of Rs.

5,20,87,347/-. Against the same, the Assessee

claimed exemption u/s 54 of the Act of Rs.

3,00,26,154/- towards the amounts paid to M/s DLF

towards construction of house at DLF Magnolias

Golf Links, and a further sum of Rs. 1,10,19,424/-

towards bank charges and cost of improvement on

the same. It may also be stated at this juncture

that the above amounts were paid to M/s DLF in

pursuance of an agreement dated 10.02.2006.

2.4. Further, the Assessee, on 31.01.2012 also

purchased eligible bonds u/s 54EC of the Act worth

Rs. 50,00,000/-, and further, on 31.05.2012, also

purchased additional eligible bonds u/s 54EC of the

Act worth Rs. 50,00,000/-.

2.5. It may also be stated here that during the

relevant year, the Assessee had received a sum of

Rs. 64,64,112/- from M/s D.T. Cinemas, in terms of

lease deed dated 29.10.2004, which amounts were

duly offered to tax. However, the AO observed that

the terms of the lease deed require payment of Rs.

12/- per sq. ft. as maintenance charges, and the

said amounts were proportionally added to the

income of the Assessee, despite Assessee’s

explanation that such amounts were never received

by it, and in fact, were paid directly to the Mall

Management Company.

3.1. With regard to the said claim, the Assessee

first wishes to draw the attention of this Hon’ble

Tribunal to the provisions of section 54 of the Act,

as under:

“54. (I) Subject to the provisions of sub-section (2),

where, in the case of an assessee being an

individual or a Hindu undivided family, the capital

gain arises from the transfer of a long-term capital

asset, being buildings or lands appurtenant thereto,

and being a residential house, the income of which

is chargeable under the head “Income from house

property” (hereafter in this section referred to as

original asset), and the assessee has within a

period of one year before or two years after the

date on which the transfer took place purchased, or

has within a period of three years after that date

constructed, a residential house, then, instead of

the capital gain being charged to income-tax as

income of the previous year in which the transfer

took place, it shall be dealt with in accordance with

the following provisions of this section, that is to

say-

(i) If the amount of capital gain is greater than the

cost of the residential house so purchased or

constructed (hereafter in this section referred to as

the new asset), the difference between the amount

of capital gain and the cost of the new asset shall

be charged under section 45 as the income of the

previous year; and for the purpose of computing in

respect of the new asset any capital gain arising

from its transfer within a period of three years of

its purchase or construction, as the case may be,

the cost shall be nil; or

(ii) ...”

3.2. In terms of the said provision, an assessee, in

order to avail of the exemption u/s 54, is required

to purchase a new asset one year before or within

two years after the date of sale of the original

asset, or construct a new asset within a period of

three years after the date of transfer of original

asset. It is the contention of the Assessee herein

that by virtue of the agreement dated 10.02.2006,

the Assessee had contracted with M/s DLF for

construction bare residential house, which

thereafter the Assessee undertook to get completed

and furnished with all the necessary amenities,

which was offered only as on 31.10.2013,

possession of which was duly taken and is not

disputed, and this period is within three years of

sale of the original asset.

3.3. However, the AO has contended that the

present is a case of purchase of new asset, which

purchase, as per the AO, was carried out on

10.02.2006, which is the date of entering into the

agreement with M/s DLF, and therefore, the period

mandated for purchase u/s 54 of the Act (one year

before or within two years of sale) was alleged to

have been violated, thereby disentitling the

Assessee to claim the subject exemption.

3.4. In this regard, the Assessee, at the outset

wishes to contend that the present is a case of

construction and not purchase. In support of this

proposition, the Assessee places reliance on the

Circular No. 672 dated 16.12.1993 whereby it has

been clarified that schemes of allotment and

construction of flats / houses similar to that

mentioned in Circular No. 471, dated 15.10.1986

will be treated as cases of construction of new asset

and not purchase.

3.5. In this regard, the findings of CIT(A) are

relevant, which read as under:

“In the instant case, since the appellant entered

into an agreement for construction of a bare shell of

a house by periodic payment of instalments and he

had to carry the internal fit-outs to make it liveable

as per Annexure-V of the agreement with the

Builder Company, within Six months from the date

of certificate of occupation from the competent

Authorities, this is to be treated as the case of

construction. Further, the construction has been

completed within three years of the sale of original

asset, which is accepted by the Assessing Officer,

the relief under section 54 is genuinely claimed by

him and therefore, disallowance made under

section 54 amounting to ... may be deleted”

3.6. Assessee also places reliance on the decision

of the Hon’ble Delhi High Court in the case of CIT v.

Smt. Brinda Kumari [2002] 253 ITR 343 (Delhi),

wherein it was observed as under:

“4. We find substance in the assessee’s stand. The

Tribunal has, inter alia, recorded a positive finding

in the following terms:

“In the present case on the facts there is no dispute

that the late Maharani advanced a sum of Rs.

5,25,000 for the specific purpose of construction

offlats for her on third floor of the Akash Deep

Building. The Akash Deep Building was constructed

after demolishing 9, Hailey Road, which was sold by

late Maharani to Ansal & Sehgal Properties (P.) Ltd.

If therefore, the latter constructed the flats on

behalf of the late Maharani with the funds advanced

by her, there appears to be no difficulty in treating

the construction as the construction made by her. ”

In view of the afore said findings, which are factual,

no question of law arises... ”

3.7. The Assessee also wishes to place reliance on

a decision of the Delhi Bench of this Hon’ble

Tribunal in the case of ACIT v. Vineet Kumar Kapila

[ITA/ 6868/ DEL/ 2015], wherein the facts of the

case and the finding of the Hon’ble Tribunal were

recorded thus:

“2. ... During the assessment proceedings the AO

also noticed that the assessee has entered into an

‘Apartment Buyer Agreement' with M/s Standard

Farms Pvt. Ltd. and Tata Housing Development Co.

Ltd. on 27/08/2010. In this regard on consideration

of facts and submission of the assessee, the AO was

of the view that the impugned acquisition on new

property by the assessee through ‘Apartment Buyer

Agreement’, amounted to “purchase ” of new

house...

case laws and CBDT Circular discussed therein, we

are of the view that booking of flat with the builder

has to be treated as construction of flat by the

assessee and hence period of three years would

apply for construction of new house from the date

of transfer of long term capital asset. Therefore, the

Ld. CIT(A) has rightly allowed the exemption u/s 54

of the Act, because in the present case also the flat

booked with the builder by the assessee has to be

considered as a case of construction of flat... ”

3.8. Therefore, the Assessee submits that it cannot

be denied that the Assessee has constructed the

new asset, within the meaning thereof under

section 54, and therefore, the consequent timelines

would necessarily follow.

3.9. The Assessee submits that once it is accepted

that it is a case of construction of new asset, the

only objection of the AO remaining is that the

construction of the same was commenced before

the sale of the original asset. In this regard, the

Assessee wishes to draw the attention of this

Hon’ble Tribunal to the clear language of section 54

of the Act, which makes it clear that in case of

construction, no requirement exists for the date of

commencement of the construction, and it is only

the date of completion of construction that is

relevant, which is admittedly within 3 years in the

case of the Assessee.

3.10. In this regard, the Assessee places reliance on

an early decision of the Hon’ble High Court of

Karnataka in the case of CIT v. J.R. Subramanya

Bhat, reported as [1987] 165 ITR 571, involving an

identical issue. The facts of the case were that the

assessee therein had sold the original asset on

09.02.1977, whereas construction of the new asset

was commenced sometime around March 1976 and

completed in March 1977. The AO disallowed the

claim u/s 54, inter alia, on the ground that the

construction activity was commenced before the

sale of the original asset. The Hon’ble High Court,

while dismissing the appeal of the Revenue, had the

occasion to observe as under:

“6. So too the next conclusion reached by the

Tribunal. The date of the sale of the old building

was 9-2-1977. The completion of construction of

the new building was in March 1977 although the

commencement of the construction started in 1976.

It is immaterial as the Tribunal, in our opinion, has

rightly observed about the date of commencement

of the construction of new building. Since the

assessee has constructed the building within two

years from the date of sale of the old building, he

was entitled to relief under section 54. ”

3.11. The Assessee also wishes to place reliance on

a decision of the Hon’ble High Court of Allahabad in

the case of CIT v. U.K. Kapoor, reported as [1998]

234 ITR 753 (Allahabad). In the said case, the facts

were as follows: assessee therein sold a residential

house on 10.07.1963, whereas construction of the

new asset was commenced on 10.03.1963. The

claim for deduction u/s 54 of the Act was rejected

by the concerned AO on the ground that

construction of the new asset was commenced

before sale / transfer of the original asset. In its

decision, the Hon’ble High Court of Allahabad, while

approving the above-cited decision of the Hon’ble

High Court of Karnataka, observed as under:

"In the case before the Karnataka High Court, the

date of the sale of the old building was February 9,

1977. The completion of the construction of the

new building was in March, 1977, although the

commencement of construction started in 1976. On

these facts, the Karnataka High Court held that it

was immaterial that the construction of the new

building was started before the sale of the old

building. We fully agree with the view taken by the

Karnataka High Court. The Appellate Tribunal was

right in holding that capital gains arising from the

sale of the Golf Link house to the extent it got

invested in the construction of the Surya Nagar

house, will be exempted under section 54 of the

Act. ”

3.12. The finding of the Hon’ble Tribunal in the

order under appeal in the above referred case has

also been reproduced in the judgment, as under:

“A perusal of the above provision will show that it

does not lay down that the construction of any

house must be begun after the sale of the old

residential house and that the sale proceeds of the

old residential house must be used for the

construction of the new residential house. We are,

therefore, of the opinion that the assessee complied

with the requirement of section 54 in respect of the

construction of the house at 64, Surya Nagar, Agra,

and that he is entitled to the exemption out of the

capital gains from the sale of the house at Golf Link

to the extent of the cost of construction of the

house at 64, Surya Nagar, Agra. We, therefore,

direct the Income-tax Officer to modify the

assessment accordingly. ”

3.13. The above referred two decisions of the

Hon’ble High Court of Karnataka and the Hon’ble

High Court of Allahabad were concurred with by the

Hon’ble Delhi High Court (jurisdictional) in the

decision of CIT v. Bharti Mishra, reported as [2014]

265 CTR 374 (Delhi), albeit in the context of section

54F of the Act. The relevant observations of the

Hon’ble Court are reproduced hereunder:

"13. For the satisfaction of the third condition, it is

not stipulated or indicated in the Section that the

construction must begin after the date of sale of the

original / old asset. There is no condition or reason

for ambiguity and confusion which requires

moderation or reading the words of the said sub-

section in a different manner. The apprehension of

the Revenue that the entire money collected or

received on transfer of the original / capital asset

would not be utilised in the construction of the new

capital asset, i.e., residential asset, is ill- founded

and misconceived....

applicable to an assessee when the old capital asset

is replaced by a new capital asset in the form of a

residential house. Once an assessee falls within the

ambit of a beneficial provision, then the said

provision should be liberally interpreted... ”

.14. Lastly, reference may also be made to a recent

decision of Delhi Bench of this Hon’ble Tribunal in

the case of Tarun Jalali v. DDIT

(ITA/2376/Del/2014] wherein it has been observed

as under:

“5. ... Accordingly, respectfully following the ratio

laid down by the Hon’ble Delhi High Court and the

Hon 'ble Karnataka High Court as aforementioned,

we are of the view that provisions of section 54F do

not prescribe any condition as to the date of

commencement of construction of new house

property, meaning thereby that the construction of

house property may be commenced even before the

date of transfer of original asset... ”

3.15. In view of the above-cited position of law and

interpretation of section 54 of the Act, the Assessee

wishes to contend that firstly, the acquisition of

house from M/s DLF is a case of construction of

house and not purchase of a house, secondly, the

Assessee submits that the fact that the construction

was commenced earlier would not have any bearing

on the allowability of the claim under section 54 of

the Act.

4.1. The relevant facts regarding this claim are

that against the capital gains arising out of

sale of the residential house on 21.12.2011, as

detailed above, the Assessee purchased eligible

bonds of the Rural Electrification Corporation

(‘REC’) worth Rs. 50 Lakhs on

31.01.2012 vide No. 0900848, and worth Rs.

50 Lakhs on 31.05.2012 vide No. 0912416.

4.2. Before addressing the merits of the instant

claim, the Assessee first wishes to draw the

attention of this Hon’ble Tribunal to the amendment

brought into section 54EC of the Act by way of the

Finance Act, 2014, whereby a second proviso was

inserted in the said section, which reads as

under:

“Provided further that the investment made by an

assessee in the long-term specified asset, from

capital gains arising from transfer or one or more

original assets, during the financial year in which

the original asset or assets are transferred and in

the subsequent financial year does not exceed fifty

lakh rupees. ”

4.3. The Notes on Clauses appended to the

Finance Act, 2014 explain the proviso, which, to the

extent relevant, read as under:

“Clause 23 of the Bill seeks to amend section 54EC

of the Income-tax Act relating to capital gain not to

be charged on investment in certain bonds. The

existing provisions contained in sub-section (1) of

section 54EC provide that where capital gain arises

from the transfer of a long-term capital asset and

the assessee has within a period of six months

invested the whole or part of capital gains in long-

term specified asset, the proportionate capital gains

so invested in the long-term specified asset out of

total capital gain shall not be charged to tax. The

proviso to the said sub-section provides that the

investment made in the long-term specified asset

during any financial year shall not exceed fifty lakh

rupees.

It is proposed to insert a proviso below first proviso

in said sub-section (1) so as to provide that the

investment made by an assessee in the long-term

specified asset, from capital gains arising from

transfer of one or more original assets, during the

financial year in which the original asset or assets

are transferred and in the subsequent financial year

does not exceed fifty lakh rupees... ”

4.4. The Assessee further wishes to bring to the

attention of this Hon’ble Tribunal the Memorandum

explaining the provisions of the Finance Act, 2014

issued by the Central Board of Direct Taxes (‘CBDT’

or ‘the Board’), which to the extent relevant,

provides as under:

“The existing provisions contained in sub-section (I)

of section 5 4 EC of the Act provide that where

capital gain arises from the transfer of a long-term

capital asset and the assessee has, at any time

within a period of six months, invested the whole or

any part of capital gains in the long-term specified

asset, out of the whole of the capital gain, shall not

be charged to tax. The proviso to the said sub-

section provides that the investment made in the

long-term specified asset during any financial year

shall not exceed fifty lakh rupees.

However, the wordings of the proviso have created

an ambiguity. As a result the capital gains arising

during the year after the month of September were

invested in the specified asset in such a manner so

as to split the investment in two years i.e., one

within the year and second in the next year but

before the expiry of six months. This resulted in the

claim for relief of one crore rupees as against the

intended limit for relief offifty lakh rupees.

Accordingly, it is proposed to insert a proviso in

sub-section (I) so as to provide that the investment

made by an assessee in the long-term specified

asset, out of capital gains arising from transfer of

one or more original asset, during the financial year

in which the original asset or assets are transferred

and in the subsequent financial year does not

exceed fifty lakh rupees.

This amendment will take effect from 1st April,

2015 and will, accordingly, apply in relation to

assessment year 2015-16 and subsequent

assessment years. ’’

4.5. The purport and meaning of the above

amendment qua the claim of Rs. 1 Crore u/s 54EC

was examined by the Hon’ble Madras High Court in

the case of CIT v. C. Jaichander, reported as [2015]

370 ITR 579 (Madras), wherein, after referring to

the provisions of the Finance Act, 2014 and above-

referred notes on clauses and the memorandum

issued by the Board, it was held as under:

“10. The legislature has chosen to remove the

ambiguity in the proviso to Section 54EC(1) of the

Act by inserting a second proviso with effect from

1.4.2015. The memorandum explaining the

provisions in the Finance (No.2) Bill, 2014 also

states that the same will be applicable from

1.4.2015 in relation to assessment year 2015-16

and the subsequent years. The intention of the

legislature probably appears to be that this

amendment should be for the assessment year

2015-2016 to avoid unwanted litigations of the

previous years. Even otherwise, we do not wish to

read anything more into the first proviso to Section

54EC(1) of the Act, as it stood in relation to the

assessees.

54EC(1) and the first proviso, it is clear that the

time limit for investment is six months from the

date of transfer and even if such investment falls

under two financial years, the benefit claimed by

the assessee cannot be denied. It would have made

a difference, if the restriction on the investment in

bonds to Rs.50,00,000/- is incorporated in Section

54EC(1) of the Act itself. However, the ambiguity

has been removed by the legislature with effect

from 1.4.2015 in relation to the assessment year

2015- 16 and the subsequent years.”

4.6. The above decision was subsequently applied

by the Hon’ble Madras High Court in the case of CIT

v. Coromandel Industries Ltd., reported as [2015]

370 ITR 586 (Madras), wherein the facts were that

a capital asset (land) was sold for Rs. 1,13,74,000/-

on which capital gains were declared at Rs.

1,09,98,256/-, out of which a sum of Rs. 1 Crore

was claimed as a deduction under section 54EC of

the Act, by purchase of REC bonds worth Rs. 50

Lakhs each on 31.03.2009 and 30.04.2009. While

dismissing the appeal of the Revenue, the High

Court affirmed its earlier above-cited decision and

dismissed the appeal by the Revenue.

4.7. The aforesaid decision of the Madras High

Court has also, inter alia, been referred to and

followed, inter alia, in the following decisions:

• ACIT v. Ajay Kalia (ITA/6907/Del/2015; order

dated September 2017)

• Bharatkumar M Jain (HUF) v. ACIT (ITA/169

& 170 / Mum/2015; order dated 07.09.2016);

• Ms. Lilavati M. Sayani v. ITO (2014) 151 ITD

659 (Mum.);

• Shri Vivek Jairazbhoy v. CIT (ITA No.

236/Bang/2012; order dated 14.12.2012)

• Tulika Devi Dayal v. JCIT (2018) 89

taxmann.com 442

4.8. In view of the above position of law, the

Assessee submits that subject ground of appeal

may kindly be decided in favour of the Assessee

and against the Revenue.

AMOUNTS RECEIVED

FROM M/S DT CINEMAS

5.1. The Assessee submits that the instant addition

is completely devoid of any factual basis and has

been made by the AO based solely on conjectures

and surmises.

5.2. The Assessee submits that the AO has placed

reliance on the clause 8(v) of the lease deed, which

has been reproduced in the assessment order,

whereunder the lessee was required to pay monthly

maintenance charges at the prescribed rate (Rs.

12/- per sq. ft. per month) and has observed that

the presence of this clause in the rent agreement

was sufficient to make the addition of the amount

arrived at in terms of the stated rate.

However, the AO failed to consider in the proper

perspective the complete terms of the lease deed

whereby clause 1 (c) of the lease deed was not

considered in the right context which recorded that

the maintenance tasks were handed over by the

lessor (Assessee) to M/s DLF Services Ltd. and

therefore no question arose of the Assessee

receiving such amounts.

The AO also failed to consider in the right spirit the

confirmation letter dated 29.01.2015 received from

the lessee, i.e. M/s DLF Utilities Ltd., which stated

as under:

“This is confirmed that We, M/s DLF Utilities

Limited, have made payment of rent under

the lease agreement to the owners (i.e. M/s

Akshay Sobti, Pradeep Sobti and Seema

Sobti) as per the TDS certificates already

issued to them and no other payment has

been made to them on any account

whatsoever under above mentioned lease

agreement. Further, this is clarify that the

during FY 2011-12, maintenance of said

property are done by ourselves and not paid

any charges to M/s Akshay Sobti, Pradeep

Sobti and Seema Sobti on account of that.”

5.5 Despite the above-stated clear confirmation

from the lessee, the AO proceeded to

disregard the same and make the subject

addition, despite the Assessee never having

even received the said amounts. In view of

this, it is submitted that the subject addition is

liable to be deleted.

5.6 Without prejudice to the above, the Assessee

submits that the AO also appears to have

formed a misplaced view that as deduction of

maintenance expenses is not permitted for the

purposes of computation of income chargeable

to tax under the head of ‘house property’, the

maintenance amounts can be taxed. However,

the AO has completely overlooked that the

amounts still need to represent the Assessee’s

income, which is not even the case of the AO

herein. Therefore, in this view of the matter,

even if these amounts had been received by

the Assessee (though denied), no addition

thereof could have been validly made.”

has filed a Paper Book of compilation of cases i.e. copy of Circular

672 issued by the Central Board of Direct Taxes (1994) 205 ITR

(St.) 47; CIT vs. Smt. Brindra Kumari (2002) 253 ITR 343 (Del.);

ACIT vs. Vineet Kumar Kapila ITA /6868/Del/2015; CIT vs. JR

Subramanya Bhat (1987) 165 ITR 571 (Karnataka); CIT vs. HK

Kapoor (1998) 234 ITR 753 (Allahabad); CIT vs. Bharti Mishra

(2014) 265 CTR 374 (Delhi); Tarun Jalali vs. DDIT

ITA/2376/Del/2014; CIT vs. C. Jaichander (2015) 370 ITR 579

(Madras) and ACIT vs. Ajay Kalia ITA/6907/DEL/2015.

Paper Book filed by the assessee; submissions of both the parties,

case laws cited by the Ld. counsel for the assessee and especially

the impugned order passed by the Ld. CIT(A). With regard to

ground no. 1 relating to disallowance of deduction u/s. 54 of the

Act is concerned, we find that the assessee declared long term

capital Rs.6,00,00,000/- from the sale of property at 146, 1st floor

Jorbagh, New Delhi on 28.12.2011 on which he claimed deduction

u/s 54 amounting to Rs.4,00,97,217/-. However, the AO disallowed

the claim on the grounds that the assessee had entered into an

agreement dated 10.02.2006 and therefore the date of agreement

be treated as the date of acquisition, which falls beyond the period

of one year prior to the date of transfer prescribed under section 54

of the Income-tax Act, owing the judgment of Honorable Delhi High

Court in the case of Gulshan Malik Vs. in ITA no. 55 of 2014 and CIT

vs R.L.Sood [2008] 109 taxman 227/245 ITR 727 Delhi), he

disallowed the claim of the assessee. According to Assessing officer,

the assessee could have purchased a house property between

28.12.2010 to 28.10.2011 in order to claim deduction under section

namely DLF Magnolia way back in F.Y. 2005-06 which is clearly

outside the time period mentioned in section 54 of the Income-tax

Act, it does not fit in case of exemption under section 54 of the Act.

The Assessing officer placed reliance on the judgement of Honorable

High Court at Delhi in the case of Gulshan Malik Vs. CIT in ITA no.

55 of 2014 and CIT vs R. L. Sood [2008] 109 taxman 227/245 ITR

727 (Delhi). However, the assessee submitted that in order to avail

the benefit under section 54 of Income-tax Act he is required to

purchase a residential house property either one year before or

within two year after the date of transfer of original asset; or within

a period of three years after that date he is required to construct a

residential house. We note that it has been clarified by the CBDT in

Circular No.672 dated 16.12.1993 in which it has been made clear

that the earlier circular No. 471 dated 15.10.1986 in which it was

stated that acquisition of flat through allotment by DDA has to be

treated as a construction of flat would apply to co-operative

societies and other institutions. The builder would fall in the

category of other institutions as held by Mumbai Bench of Tribunal

in the case Smt. Sunder Kaur Sujan Singh Gadh and therefore

booking of the flat with the builder has to be treated as construction

of flat by the assessee. Thus, in the present case, the period of

three years would apply for construction of new from the date of

transfer of the original asset. The above circulars are binding on

revenue authorities under s. 119 of the Act. He referred the decision

rendered by Honorable High Court of Bombay in the case of Mrs.

Hilla J. B. Wadia (216 ITR 376), wherein the Honorable High Court

has held that it is a case of "Construction". Reliance was placed on

the judgment of Honorable Karnataka High Court in the case of CIT

Vs. J.R. Subramanya Bhatt (1887) 165 ITR 571 (Karn), wherein it

has been held at it is immaterial whether the construction of the

new house was started before the ate of transfer, it should be

completed after the date of transfer of the original house. In the

present case, he had booked a semi finished flat with the builder,

namely DLF Universal Limited in the residential group housing

complex named as Magnolias DLF Golf Links) and as per agreement,

he was to make payment in installments and the builder was to

construct the unfinished bare shell of flat for finishing by the buyers

on their own to make it live-able (having specifications set out in

Annexure-V) as per clause 10.1 of the said agreement. It is also

noted that Builder Company offered vide letter dated 30.12.2011

that the Occupation certificate has been received from the

Competent Authorities and the six months period for completing the

interiors, in terms of agreement shall commence from 01.01.2012

and is to be completed before 30.06.2012. Builder Company's letter

dated 20.03.2012 and 20.01.2012 offered to finalise the details of

interiors and extended the time for completion of interior to

30.09.2012 and finally possession was granted on 30.10.2013. It

has therefore to be considered as a case of construction of new

residential house and not purchase of a flat. Since the flat has been

allotted to the assessee by the builder who would fall in the

category of other institutions mentioned in the circulars, it has to be

taken as a case of construction of the residential flat and not as a

purchase of a residential flat. Therefore, he had time window of

three years period available to him commencing from 21.12.2011

till 21.12.2014 to construct a house property. Having come to this

conclusion that it is case of construction it is now to be seen if the

assessee fulfils the conditions laid down under s. 54(1) of the Act.

In the instant case, the assessee has occupied the house property

during 2013 vide letter dated 30.10.2013 offering occupation of

House property. Further, the assessee has claimed the deduction on

amount invested till the due date of filing of return under section

139(1) of the Income Tax Act. Further, the reliance placed by the

Assessing officer on the judgment of Honorable Delhi High Court in

the case of Gulshan Malik Vs. CIT in ITA no. 55 of 2014 is not

relevant to the facts of the case under appeal, since the issue

involved in the case of Gulshan Malik was pertaining to the period of

holding of an asset for the purpose of establishing whether resultant

gain is long term capital gain or is short term capital gain. It was

held a right or interest in an immovable property can accrue only by

way of an agreement embodying consensus ad idem as against the

confirmation letter that does confer any right to claim title. Similarly

in the case of CIT vs. R.L.Sood [2008] 109 man 227/245 ITR 727

(Delhi), the Honorable High Court has declined request of the

revenue to call for reference on the proposed question. It has

further been clarified at realizing the practical difficulties faced by

the assessee in such situations, the CBDT issued a circular No. 471,

dt. 15th Oct,. 1986. The relief extending instructions of the CBDT, in

wake of realization of practical difficulties faced by the assessees, by

way of circular extending relief to even marginally non compliant

assessees in its literal sense of hyper technicalities, cannot be used

as a tool to interpreted instructions of the board or decision of the

law Courts, to deny the very relief to the otherwise compliant

assessees. In a recent reference to Honorable Delhi High Court, in

the case of CIT vs Kuldeep Singh, the Honorable Court has observed

and discussed various decision of the other Honorable High Courts

and Honorable Supreme Court; as follows;

A. CIT Andhra Pradesh vs. T. N. Aravinda Reddy (1979) 4 SCC

721;

B. Civil Appeal nos. 5899-5900/2014 titled Sh Sanjeev Lai etc

etc vs. CIT Chandigarh & Anr decided on 01/07/2014, 2014 (8)

SCALE 432

C. Reference was made to the decision of Supreme court in CIT

vs J.H. Gotla [1985] 156 ITR 323 (SC).

D. Moreover in CIT vs Bharati C Kothari (2000) 244ITR 352

In the instant case, since the assessee entered into an agreement

for construction of a bare shell of a house by periodic payment of

installments and he had to carry the internal fit-outs to make it live-

able as per Annexure-V of the agreement with the Builder Company,

within Six months from the date of certificate of occupation from the

competent Authorities, this is to be treated as the case of

construction. Further, the construction has been completed within

three years of the sale of original asset, which is accepted by the

Assessing Officer, the relief under section 54 is genuinely claimed by

him and therefore, disallowance made under section 54 amounting

to Rs. 4,00,97,217/- needs to be deleted. It is it is clear that the

facts of the present case that it was a case of construction of flat

and not purchase of flat as held by the AO. Since, the case pertains

to construction, benefit of section 54 of the Act are available to

assessee. In view of above, the booking of bare shell of a flat is a

construction of house property and not purchase, therefore, the

date of completion of construction is to be looked into which is as

per provision of section 54 of the I.T. Act., therefore, the Ld. CIT(A),

has rightly directed the AO to allow benefit to the assessee as

claimed u/s.54 of the I.T. Act, which does not require any

interference on our part, hence, we uphold the action of the ld.

CIT(A) on the issue in dispute and reject the ground raised by the

Revenue.

6.1 As regards ground no. 2 which relates to disallowance of

deduction u/s.54EC to the extent of Rs.50,00,000/- is concerned,

we find that the AO had restricted the deduction claimed u/s.54EC

to Rs. 50,00,000/- as against the deduction claimed by the

appellant amounting to Rs. 1,00,00,000/- following the decision of

the Honorable Income tax Appellate Tribunal, Jaipur Bench in the

case of ACIT Circle-2 vs. Shri Raj Kumar Jain & Sons HUF, January

31 2012. However, the assessee submitted that the Assessing

Officer has strangely and obliquely stopped short of making

observation / mention of the very recent Judgment of Honorable

High Court of Madras dated December 16, 2014 in case of

Commissioner of Income tax Vs. Coromandal Industries Limited

placed before him for the reason best known to him only. This is to

be understood that the restriction of Rs. 50,00,000/- in a financial

year was placed for evenly distributing the invest into the capital

gains bonds on continued basis throughout the year. Therefore, the

alternative was put into operation were in the capital gain bonds are

available on tap throughout the year without stopping but the limit

of investment has been capped to Rs. 50,00,000/- per assessee per

financial year. This has resulted in even distribution of benefit to

public at large. Had the intention of the legislation was cap the total

investment to Rs. 50,00,000/-, the amendment in statute would

have prescribed the limit on deduction allowed under the section

54EC and not on investment allowed under section 54EC. Therefore,

the interpretation of ITAT, Jaipur Bench in ACIT Circle-2 vs. Shri

Raj Kumar Jain & Sons HUF, is misplaced, in total disregard to

juagment of the higher authority (i.e. Honorable Madras High Court)

which has elaborately discussed the issue involved, ambiguity of law

and the provisions of latest amendments made to section 54EC by

the Finance Act 2014 including the Notes on clauses – Finance Bill

2014 and Memorandum : Explaining the provisions in the Finance

(No. 2) Bill, 2014; placing restriction on "lent to Rs. 50 lakhs with

effect from 01.04.2015 by inserting a second proviso, assessing

officer has totally ignored his reply in as much as reliance placed on

the judgment of the Honorable Madras High Court. The Honorable

High of Madras has held as under:-

“The legislature has chosen to remove the ambiguity in

the proviso to Section 54EC(1) of Act by inserting a

second proviso with effect from 1.4.2015. The

memorandum explaining the provisions in the Finance

(No.2) Bill, 2014 also states that the same will applicable

from 1.4.2015 in relation to assessment year 2015-16

and the subsequent years. The intention

of the legislature probably appears to be that this

amendment should be for the assessment year 2015-

2016 to avoid unwanted litigations of the previous years.

Even otherwise, we do not wish to read anything more

into the first proviso to Section 54EC (1) of the Act, as it

stood in relation to the assessees.

The Honorable High court has further observed and

underlined as under;

"In any event, from a reading of Section 54EC(1) and the

first proviso, it is clear that the time limit for investment

is six months from the date of transfer and even if such

investment falls under two financial years, the benefit

claimed by the appellant cannot be denied. It would have

made a difference, if the restriction on the investment in

bonds to Rs.50,00,000/- is incorporated in Section

54EC(1) of the Act itself. However, the ambiguity

has been removed by the legislature with effect from

1.4.2015 in relation to the assessment year 2015-16 and

the subsequent years.

For the foregoing reasons, we find no infirmity in

the orders passed by the Tribunal warranting interference

by this Court. The substantial questions of law are

answered against the Revenue and these appeals are

dismissed."

6.2 After going through the facts and circumstances of the case,

we find that the judgement of the Hon’ble Madras High Court is

applicable on the facts of the present case. Therefore, following the

decision of Hon'ble High Court, Ld. CIT(A) has rightly allowed the

ground of the, which does not need any interference on our part,

hence, we uphold the action of the Ld. CIT(A) on the issue in

dispute and reject the ground raised by the Revenue.

6.3 As regards ground no. 3 which relates to deletion of addition fo

Rs. 14,07,474/- made on account of rental income received from

D.T. Cinemas is concerned. We find that the Assessing Officer had

made addition in the rental income on the ground that the assessee

had received 20,10,672/- from the tenant M/S D.T. Cinema Ltd. as

per the calculation given in the impugned assessment orders dated

04.02.2015 and allowing deduction there from of 30% on account of

statutory deduction under section 24(a) of the Income-tax Act

resulting into the net addition of Rs. 14,07,474/-, however, the

assessee submitted that the Assessing officer has miserably failed to

arriving at any Annual value of the property under section 23(1)(a)

and 23(1)(a) of the Income tax Act. The Assessing Officer has erred

in treating the clubbed up Income as composite rent under the head

'Income from House Property' and in the process has failed to

segregate composite rent into the rent of the premises taxable

under the head 'Income from House Property' and taxable income of

maintenance/service charges received by the appellant for

provisioning of services under the head 'Income from business &

Profession'. The Assessing Officer has misplaced reliance on the

judgment of Honorable Delhi High Court in the case of CIT vs. H.G.

Gupta & Sons [19841 149 ITR 253 (Delhi) and Honorable High Court

at Calcutta in the case of Indian City Properties vs. CIT [1965] 55

ITR 262 (Cal). The facts and rationale of both the Honorable high

Courts in the respective judgment are totally different footings and

facts, which are not relevant to the instant appeal. The cases

pertain to the allowablity of certain deductions on income from

House property. Whereas, in the instant case, the Assessing Officer

as presumed that the assessee is in receipt of certain amount

towards the provisioning of certain services which have not been

disclosed which is patently false and based on his own conjecture

and surmises, and without fully appreciating records and

explanations placed before him. Further, the Assessing Officer has

not made any inquiry or undertaken any exercise to prove the

evidences / confirmations placed before him to be incorrect or false.

He had in his written submissions dated 29.01.2015 stated that he

had only received the monthly rental of the premises as per details

attached with the bank statement and had further supported, by

means of a confirmation from the tenants namely DLF Utilities

Limited which reads as under;

"This is confirmed that We, M/S DLF utilities Limited, have made

payment of rent under the lease agreement to the owners (i.e.

Akshay Sobti, Pradeep Sobti and Seema Sobti) as per TDS

certificates already issued to them and no other payment has been

made to them on any account whatsoever under the above

mentioned lease agreement. Further this is clarify that during the FY

2011-12. Maintenance of the said property are done by ourselves

ana not paid any charges to M/S Akshay Sobti, Pradeep Sobti and

Seema Sobti on account of that".

The reconciliation of rent received with the entries in the bank

accounts have already been placed on the file of the department,

which has been ignored by the Assessing officer. The Assessing

officer has not placed on record even an iota of evidence as to

receipt of any amount on account of maintenance by the appellant

despite having examined the books of account and other details to

support his assertion that the appellant has received any

maintenance charges from the tenant despite having placed a

confirmation from the tenant to the effect that no maintenance

charges have been paid by them. The observation of the Assessing

Officer in paragraph 4 is contrary as to the fact that the :

"The appellant has not shown any proof that the charge is not

received by him. As per the para 1(c) of the said deed nowhere

mentions that the maintenance charge is not taken by the lessor

(assessee). It is case of receiving the maintenance charges from the

M/S D T Cinema and then paying to mall Management Company of

the maintenance work. Even the appellant has not shown any proof

with regard to this that he has not been receiving any maintenance

charge. While in the said deed at para no. 8 (v) it is clearly

mentioned that the assessee is receiving maintenance charge along

with the rent in advance."

6.3.1 Keeping in view of the facts and circumstances of the

case as explained above, we find that no maintenance charges were

received by the assessee as confirmed by the tenant. This fact also

gets confirmed from perusal of the bank statement, TDS certificate

and details reflected in Form 26AS. Since, no maintenance charges

were received or receivable by the assessee, hence, Ld. CIT(A) has

rightly directed the AO to delete the addition in dispute, which does

not need any interference on our part, therefore, we uphold the

action of the Ld. CIT(A) on the issue in dispute and reject the

ground raised by the Revenue.

Order pronounced on 15-05-2019.

Sd/- Sd/-

[PRASHANT MAHARISHI] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date:15/05/2019

SRBhatnagar