ANURAG TYAGI,GHAZIABAD vs. ITO, WARD- 1(1), GHAZIABAD

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D/SMC’, NEW DELHI Before Sh. N. K. Saini, Hon’ble Vice President and Ms. Suchitra Kamble, Judicial Member ITA No. 2626/Del/2018 : Asstt. Year : 2009-10 Anurag Tyagi, Vs Income Tax Officer, S/o R B Tyagi, Flat No. 303, Ward-1(1), Super Tech, Avant Grade Plot Ghaziabad No. 1, Sector-5, Vaishali, Ghaziabad (APPELLANT) (RESPONDENT) PAN No. AAGPT6848P Assessee by : Sh. Anup Sharma, Adv. & Sh. Sanjay Prasar, Adv. Revenue by : Sh. Surendra Pal, Sr. DR Date of Hearing : 19.09.2018 Date of Pronouncement : 27.11.2018 ORDER Per N. K. Saini, Vice President: This is an appeal by the assessee against the order dated 09.01.2018 of ld. CIT(A), Ghaziabad.

2 ITA No. 2626/Del/2018 Anurag Tyagi based issues raised in written submission, thereby disposing the appeal in a summary manner. 3. That the Ld. CIT(A) also erred in law, on facts and in surrounding circumstances in failing to appreciate that the case involves exemption u/s 54 of I.T. Act, whereas the Ld. CIT(A) in her wisdom treated the case involving exemption u/s 54F of I.T. Act by holding that claim of exemption u/s 54F is not maintainable. 4. That in doing so, the Ld. CIT(A) as well as Ld. A.O. erred in law, on facts and in the surrounding circumstances in failing to take into consideration the provision of section 54 of I.T. Act in right perspective, wherein word “purchase” of another residential house within one year before the date on which transfer took place, has been mandated in unequivocal manner. 5. That the Ld. CIT(A) erred in law, on facts and surrounding circumstances in failing to appreciate that term purchase means when the purchase deed is actually registered being 23-06-2007, which is clearly within one year before sale of original asset on 30-04-2008. 6. That the Ld. CIT(A) erred in law, on facts and in surrounding circumstances in failing to appreciate that there need not be direct live link between capital gain and its investment because requirement for exemption is satisfied, if yet another property is acquired within prescribed period stipulated in section 54 of I.T. Act. 7. The Ld. CIT(A) erred in law, on facts and in surrounding circumstances in failing to appreciate that there is no necessity that same funds must be used for acquiring another residential house. The mandatory requirement for exemption is satisfied if

3 ITA No. 2626/Del/2018 Anurag Tyagi another property acquired within period prescribed in section 54 of I.T Act. That the appellant craves leave to modify/amend or add any one or more grounds.” 3. From the above grounds, it is gathered that only grievance of the assessee relates to the rejection of claim for deduction u/s 54 of the Income Tax Act, 1961 (hereinafter referred to as the Act).

4 ITA No. 2626/Del/2018 Anurag Tyagi However, the AO made the addition of Rs.12,40,093/- by observing as under: In this case, although the registry of the flat has been done within one year before, the whole payment of the flat has been done 4 years ago i.e. in F.Y. 2004-05. Therefore, the assessee has wrongly claimed exemption u/s 54 of the Act for Rs. 21,28,200/- on purchase of this flat for F.Y. 2008-09. In view of the above, the claim of exemption u/s 54 of the Act for Rs. 21,28,200/- is hereby disallowed. Therefore, computation of Long Term Capital Gain is done as below: Assessee’s share in sale of two houses (30.04.2008): Rs. 35,00,000/- Less: Indexed value as per Chart submitted by the assessee (-)Rs. 16,09,907/- Rs. 18,90,093/- Less: Investment in Capital Gain Bonds of National Highways (-)Rs. 6,50,000/- Authority of India dt. 30.09.2008 ____ ______ ____ Taxable Long Term Capital Gain Rs.12,40,093

5 ITA No. 2626/Del/2018 Anurag Tyagi ignoring the fact that though its payment had been made in advance, as per section 54(1) of I.T. Act, yet the purchase took place only on 23/06/2007, the date on which purchase deed was registered. ON MERITS That at the outset, I would like to assert that disallowance of claim for exemption amounting to Rs. 2128200/- u/s 54 of I. T. Act has been made on technical and illogical grounds. That in doing so, the Ld. A.O., in a zeal to make addition for addition sake, has converted a simple case into controversial and contentious case. That the simple fact is that the appellant had claimed exemption u/s 54 of the Act on purchase of Flat No.303 at 3rd Floor "Supertech Avanti" Garde, residential building complex, built by company under name and style of "M/s Surya Merchants Ltd. Delhi, vide sale deed duly registered on 23/06/2007. That it would be significant to appreciate word "purchase" has all along been specifically mentioned in section 54 of I. T. Act. The Ld. A.O., however, has not only ignored the above insertion of word 'purchase' in section 54 of I.T. Act itself, but also skipped the written submission dated 24/11/2016, 28/11/2016, dealing extensively the factual- legal aspects, presented before him during the course of assessment proceedings, without his own comments on the issues raised therein is reproduced herein below: A. The computation of long term capital gain u/s 50C of I. T. Act 1961 is as under: That the assessee sale of immovable property (residential House No. 63, 64) on 30/04/2008, Smart Place Colony, Garh Road, Meerut. Smart Place Colony, Garh Road, Meerut Rs.3500000/- That the purchase of Plot on 27/03/1987 of Rs. 67500/- Thus the index cost as per chart enclosed(-) Rs. 1609907/- Rs. 1890093/- That the assessee purchased Flat No. 303, Super Tech, Avant Garde, Vaishali as on Rs.2128200/- 23/06/2007 of Assessee purchased of capital gain Bonds of

6 ITA No. 2626/Del/2018 Anurag Tyagi National High ways Authority of India Dated 30/09/2008 Rs. 650000/- Rs. NIL That the assessee purchased Flat on 23/06/2007 is the purchase period of one year since the purchase has been made more than one year before as stipulated in section 54F, capital gain exemption is allowable from a bare reading of section 54F. We find that sub- section (1) should be read with sub-section (4), it can be read in isolation because the benefits of section 54F are to be allowed only subject to the provisions of sub-section (4) of the said section. This section allows the benefit of exemption to the individual or an HUF, in which case the capital gain arises from the transfer of any long term capital asset not being a residential house and 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 3 years after the date with in accordance with provisions laid down in this section sub-section (4) further states that the amount of net consideration which is not appropriated by the assessee towards the purchase of the new asset made within 1 year before the date of which transfer of the original asset took place or which is not utilized by him for purchase or construction of the new asset before the date of the filing of the return of income u/s 139 shall be deposited by him before furnish such return in an account in any bank or institution as may be specified by the Central Government if both these sub-section are read in a conjunction only one inference is drawn that to avail the benefit of 54F, the assessee is required either to purchase a residential house out of the sale proceeds or long term capital asset within a period of 3 years after that date, construct a residential house in that case, gain shall be computed as per clause (a) and (b) of sub-section (1). The object of introduction of these sections are that, assessee should make more investments in residential house, on sale of its old residential house or long term capital asset it is not necessary that the same funds must be used in purchasing of the new residential house, but the fund should be available with the assessee for its investment in residential house since the law permits utilization of capital gain within the specified time the assessee may use such funds for other purpose and may find resource from other source for investment in time the law does not expect that the sale amount should be kept in the locker and the same should be utilized in purchase of residential house neither the law nor does any circular require the identity of the amount received on sale and utilization for purpose of section 54F

7 ITA No. 2626/Del/2018 Anurag Tyagi and other relevant provisions. It is quite likely that the assessee may use the money for his business and draw amount for investment from his past savings. Conversely he may place sale proceeds in long term investment other than what is permitted u/s 54F but all the same find money from the business or other source for approved investment within the time since law itself permits investment in a law property even before sale of property covered by sub-section 54 and 54F the law does not contemplate the identity of the funds on sale for its investment. Since money has no color all that is required is compliance with the condition of investment. PERIOD OF ONE YEAR average length or 366 days in a leap year the Act does not lay down number of days, nor does it stipulate financial year/calendar year but period of one year before. It is undisputed that the period of one year in respect of financial year means from 1st April to 31st March. So is the case with calendar year i.e. from 1st Jan to 31st December. First and last date are inclusive in the instant case your honour sale and purchase respectively took place 30/04/2008 and 23/06/2007 any day between the two dates inclusive of first and last date is well within the period of one year. ; B. As per computation of income, the assessee has shown long term capital gain at Rs. 1890093/- (arising from the sale of house A63-64, Samrat Palace Colony, Garh Road, Meerut for sale consideration of Rs. 3500000/- as per sale deed dated 30/04/2008) which has been claimed as exempt u/s 54F of the Income Tax Act, 1961 by making investment of Rs. 2128200/- in the purchase of Flat No. 303, Supertech, Avant Garde, Vaishali, Ghaziabad as per registered sale deed dated 23/06/2007:and u/s 54EC by making investment in the purchase of NHAI Bonds for Rs. 650000/-30/09/2008. As per above sale deed for the purchase of flat the assessee has made payment in advance as per section 54(1) of the Income Tax Act, 1961 and the assessee has, within a period of 1 year before or two years after the date on which the transfer took place, purchased a residential house in this case the transfer has taken place on 23/06/2007for the purchase of flat i.e. the date when the ownership was transferred to the assessee which is within one year before the sale/transfer of above house. In this case it is not necessary that the same amount was to be utilized for the purchase of house. Thus, the assessee has made payment in advance but the transfer took place on 23/06/2007.

8 ITA No. 2626/Del/2018 Anurag Tyagi That the Ld. A.O. also ignored various judicial pronouncements relied upon by the assessee during the course of assessment proceedings as under: a. Sanjiv Lal v. CIT(2014) 105 DTR 305(SC) b. Chandra Peaksh Jain v. ACIT (2014) 46 Taxman 268(AB) c. CIT v. Rasik Lal (H.U.F) (1989) 177ITR 198 (SC) d. Kasturi v. CIT (2010) 42 DTR 288 (Mad) e. Zabarchand Bhandari v. ACIT (2013) 58 SOT347 (Mum) (Trib) Besides the above judicial pronouncements, jurisdictional Flon'ble High Court Allahabad has held as under: "Capital Gains-exemption-assessee, owner of house property- sale of house property- that construction of new building was started before sale of old building is immaterial- assessee entitled to exemption- income tax act, 1961, s. 54". (Commissioner or Income Tax v. H.K. Kapoor (DECD.) 234 ITR 753 (All)). Similar question came up for consideration before Karnataka High Court the date of sale of old building was February 09, 1997, although the commencement of construction started in 1976 on these facts the Hon'ble Karnataka High Court held as under: "That it was immaterial that the construction of the new building was started before the sale of old building". (CIT v. J. R. Subramanya Bhat (1987) 165 ITR 571 (Kar.). That despite conceding the fact that the registry of the Flat had been done on 23-06-2017 i.e. within one year before, the Ld. A.O. he has disallowed the claim on the mere ground that the payment had been made 4 years ago, i.e. in F.Y. 2004-05. That at this stage I would like to assert that mode of payment of Rs. 1775000 depicted in the sale deed dated 23- 06-2007 had escaped the kind attention of Ld. A. O. throughout the period of assessment proceedings for reasons unknown to the appellant. For facility of reference, the same is reproduced herein below: Rs. 50000 - Cash dated 20-02-2005. Rs. 225000 - By Cheque No. 413608 dated 12-04-2005. Rs. 1450000 - By ChequeNo.291780dated09-03-2005 drawn on ICICI Bank Ltd. as housing loan. Rs. 50000 - By Cheque No. 291756 dated 09-03-2015 drawn on ICICI Bank Ltd. as housing loan.

9 ITA No. 2626/Del/2018 Anurag Tyagi That it is widely prevalent practice in reality business. The builder, on getting booking amount and advance installment, get loan sanctioned through their sponsored bank. The bank makes payment directly to builder and thereafter repayment of loan interest-EMI is made by the purchaser for long time to come. That in the instant case, sanctioned amount of loan of Rs. 1500000 had been credited in builder's account directly by the bank, as shown in sale deed. That the re-payment had been made in the shape of EMI by the purchaser i.e. appellant. A statement showing the re-payment of loan through following EMI obtained from the ICICI Home Finance Co Ltd. is enclosed for kind perusal. Thus, your Honour will feel convinced that the capital gain arising from the transfer of long term capital asset (Supra) has been invested in the purchase of residential flat (Supra) in the shape of various EMI within the period stipulated in section 54 of I.T. Act. Thus, it is requested that keeping of literal interpretation, the exemption prayed for in the interest of equity and justice. Now reverting to concept of nexus to sale proceeds, it had been held as under that: "There need not be a direct or live link between the capital gain and investment. For the purpose of claiming exemption u/s 54/54F, the assessee may utilize the sale proceeds for some other purpose and requirement for exemption is satisfied if yet another property is acquired within the prescribed time and subject to prescribed condition." Ajit Vaswani v. DCIT (2001) 117 Taxman 123 (Delhi Tribunal) That in ACIT v. Dr. P.S. Pasricha (2008) 20 SOT 468 (Mumbai Tribunal), the assessee transferred a residential property for Rs. 1.40 crore. The sale consideration was utilized for acquiring a commercial property though, the assessee acquired two adjacent residential flats in one building within the stipulated time and claimed exemption u/s 54. The A.O. held that the sale consideration must be used for re-investment in residential house where, as the assessee had acquired commercial property out of sale proceeds, the exemption u/s 54 could not be allowed. However tribunal held that: "There is no necessity that same funds must be used for acquiring the residential house and accordingly the objection of the A.O. was overruled. However, the claim for exemption u/s 54 was limited to one residential house."

10 ITA No. 2626/Del/2018 Anurag Tyagi Furthermore, the word "purchase' in section 54 of I.T. Act must be interpreted to its ordinary meaning. The word 'purchase' is not defined under the Act and therefore resort to the ordinary meaning, as understood by a layman has to be made. The context demands not a literal interpretation but a liberal and wider interpretation. The word 'purchase' in section 54 of I. T. Act clearly connote the domain and control of property being given into the hands of appellant. Besides the above, "date of agreement to sell cannot be treated as date of transfer of immovable property, it should be the date on which delivery of possession is given and all sale consideration is received." [Smt. Shail Mod Lai v. CIT (2013) Taxman.com 46/28 Taxman 298 (H&P)]. That in the instant appeal under consideration, though the payment in installment had been made in earlier year, the possession was delivered only on execution of sale deed i.e. 23-06-2007. Apart from the above, the Ld. A.O., has made assessment on the total income of Rs. 1778630/- including taxable long term capital gain. As in the notice of demand u/s 156 of I. T. Act, calculation have not been made, it is not clear whether entire income of Rs. 1778630/- has been computed @ 20% or only capital gain only. CONCLUSION That on facts, in law and in surrounding circumstances, your honour will feel convinced that exemption u/s 54 has been denied, merely on literal interpretation of section 51 read with section 54 and 54F of I. T. Act and the same is liable for deletion in the interest of equity and natural justice based on liberal and wider interpretation as per law. PRAYER That is humbly requested that the impugned assessment order may kindly be quashed and impugned addition may kindly be deleted in the interest of equity and natural justice."

11 ITA No. 2626/Del/2018 Anurag Tyagi submitted that he had purchased flat no. 303, Supertech Vaishali on 23.06.2007 and claimed as exemption u/s 54F against the sale of houses on 30.04.2008. Examination of facts reveals that appellant made all the payment during FY 2004-05 for a sum of Rs. 17,75,000/- whereas registry has only done on 23.06.2007. Thus appellant had invested in the property claimed u/s 54F, beyond the time limit prescribed u/s 54F and also not in accordance with the provisions of section 54F. In view of these undisputed facts, the claim of exemption u/s 54F is not maintainable accordingly, the addition made by the AO is upheld and these grounds of appeal are dismissed.” 8. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the assessee purchased the residential house one year before the sale of the residential house. Therefore, the Long Term Capital Gain was exempt as per the provision of Section 54 of the Act. It was pointed out that the assessee sold the house on 30.04.2008 and purchased the flat on 23.06.2007 which was falling within one year prior to the sale of the house. Therefore, the addition made by the AO and sustained by the ld. CIT(A) was not justified.

12 ITA No. 2626/Del/2018 Anurag Tyagi was Rs.35,00,000/-. It is also not in dispute that the assessee purchased a flat at Ghaziabad on 23.03.2007 for Rs.17,75,000/- and claimed exemption u/s 54F of the Act. However, the AO did not allow the claim of the assessee for the reasons that the payments were made much prior to 23.06.2007. On the contrary, the claim of the assessee was that the payments were made in advance but the sale deed was executed only on 23.06.2007. We have noticed from the sale deed dated 23.06.2007 that the assessee made the payment in advance but the sale deed was executed vide resolution passed in the meeting of Board of Directors of the vendor company M/s Surya Merchants Ltd. held on 19.06.2007, prior to that there was no sale deed and ownership vested with the vendor. The assessee although made the payment in advance but he became the owner after executing the sale deed on 23.06.2007 when both the vendor and the vendee signed and executed the sale deed. Therefore, it is clear that the assessee purchased the house only on 23.06.2007 which was falling in the period one year before the sale of the residential property on 30.04.2008. The provisions contained in section 54 of the Act as under: “54. [(1)] [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 the 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, one residential house in India], 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

13 ITA No. 2626/Del/2018 Anurag Tyagi accordance with the following provisions of this section, that is to say,— (i) if the amount of the 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 the 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) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; 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 reduced by the amount of the capital gain. [***] [(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—

14 ITA No. 2626/Del/2018 Anurag Tyagi (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.” 11. From the above provisions, it is clear that the Long Term Capital Gain is exempted if the residential house property is purchased one year before or two years after the date on which the transfer took place. In this case, the transfer i.e. the sale took place on 30.04.2008 and the residential house was purchased on 23.06.2007 which was falling in the period of one year from the date of sale. Therefore, the assessee was entitled for exemption u/s 54 of the Act. In that view of the matter, we delete the addition made buy the AO and sustained by the ld. CIT(A).

Sd/- Sd/- (Suchitra Kamble) (N. K. Saini) JUDICIAL MEMBER VICE PRESIDENT Dated: 27/11/2018 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR