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आदेश/Order
PER VIKRAM SINGH YADAV, A.M. :
This is an appeal filed by the Assessee against the order of Learned Principal Commissioner of Income Tax, Ludhiana-1 [in short the ‘Ld. PCIT(A)’] passed u/s 263 of the Income Tax Act, 1961 (in short ‘the Act’) dated 31/03/2021 pertaining to assessment year 2016-17, wherein the Assessee has taken the following grounds of appeal:
“1. On the facts and under the circumstances of the case and in law, the learned Principal Commissioner of Income-tax - 1, Ludhiana erred in initiating proceedings under section 263 of the Act against the Appellant. 2. On the facts and under the circumstances of the case and in law, the learned Principal Commissioner of Income-tax - 1. Ludhiana grossly erred in assuming jurisdiction to pass the order u/s 263 without conducting any minimal enquiry being a revisionary authority.
On the facts and under the circumstances of the case and in law, the learned Principal Commissioner of Income-tax - 1, Ludhiana has erred in directing the learned Assessing Officer to pass a de novo assessment without pointing out any error in order u/s 143(3) or pointing out any prejudice to the revenue under order u/s 143(3) of the Act.
That the Ld. Principal Commissioner of Income-tax - 1, Ludhiana erred in law and facts in holding supporting documents were not filed before the A.O. and that various aspects remain unverified. Thus, this finding given by the Pr. CIT-1, Ludhiana is factually incorrect.
On the facts and under the circumstances of the case and in law, the learned Principal Commissioner of Income-tax - 1, Ludhiana erred in holding that due verification was not undertaken by the learned Assessing Officer.
On the facts and under the circumstances of the case and in law the learned Principal Commissioner of Income-tax - 1, Ludhiana erred in exercising jurisdiction under section 263 of the Act by holding that the assessment order was prejudicial to the interest of the Revenue without appreciating the factual position.
6.1 That the Ld. Principal Commissioner of Income-tax - 1, Ludhiana erred in law and facts in holding that the order is erroneous without appreciating that there is no contravention of provision of Section 54 of the Income Tax Act, 1961.
That the Appellant craves, leave to vary, alter or add any grounds of appeal before the appeal is finally heard or disposed off.”
Briefly the facts of the case are that the assessee filed its return of income declaring total income of Rs. 1,51,83,600/-. Subsequently the case of the assessee was selected for limited scrutiny and the notices under section 143(2) and 142(1) were issued and necessary information/documents were called for and examined by the AO and as against the returned income of Rs. 1,51,83,600/-, the assessed income was determined by the AO at Rs. 1,52,39,586/-, disallowing the claim of deduction under Section 54 to the extent of Rs. 5,40,364/-. Thereafter the assessment records were called for and examined by the Ld. PCIT and a show cause dt. 08/03/2021 was issued and after calling for the information / submissions from the assessee, the assessment order was held to be erroneous and prejudicial to the interest of the Revenue and same was set aside and restored to the file of the AO.
Against the said findings and the order of the Ld. PCIT, the assesee is in appeal before us. 4. During the course of hearing the Ld. AR submitted that during the year under consideration, the assessee had sold a flat for Rs. 4.00 crore and has claimed deduction under Section 54 amounting to Rs. 2,01,09,761/- which was subsequently revised to Rs. 2,05,93,405/- during the course of assessment proceedings and remaining long term capital gains of Rs 1,26,45,941/- were offered for taxation after reducing indexed cost of acquisition. It was submitted that the case was selected for limited scrutiny for examining the value of consideration for computation of capital gains and secondly, whether the deduction from capital gains has been claimed correctly by the assessee.
4.1 It was submitted by the ld AR that both the issues were examined in detail by the AO and the assessee has made available all the necessary information/documents before the AO and our reference was drawn to the following sequence of events as well as information/documents so furnished before the AO: S.No. Particulars Date of Notice Paper Remarks Book Page 1. Notice u/s 143(2) of the 06.07.2017 7-10 Statutory notice regarding Income Tax Act, 1961 fixation of case 4. Notice u/s 142(1) of the 25.05.2018 11-12 Details regarding ITR, Note of Income Tax Act, 1961 business activity, Sale/ Purchase documents, Bank Statement, All documents related to Capital Gain were demanded 5. Notice u/s 143(2) of the 19.11.2018 13-16 Statutory notice issued after Income Tax Act, 1961 change in jurisdiction 6. Notice u/s 142(1) of the 20.11.2018 17-18 Detail of Computation of Capital Income Tax Act, 1961 Gain and documentary evidence to support computation and deduction claimed u/s 54 was demanded 7. Notice u/s 142(1) of the 29.11.2018 19-20 Details regarding area of Income Tax Act, 1961 construction, documentary evidence for ownership of land
and justification regarding claim of expenditure of Racks, Generator, Sofa Set, Sofa Set Chair, Elevator, Kitchen Material, Recliner, AC, Architect, Paradise Landscape consultant and developers, Watchman as deduction u/s 54 of the Act was demanded. 8. Notice u/s 142(1) of the 06.12.2018 21-22 Copies of all the bill in support of Income Tax Act, 1961 deduction claimed was demanded and a justification as to how movable items are eligible for deduction claim was also demanded
Detailed submission in support of above was filled by the assesse:- Letter dated 20.11.2018:- Copy of ITR, Computation, Tax Audit and 1) Balance Sheet was filed. Letter dated 21.11.2018:-The assesse in a detailed letter explained that 2) entire sales consideration of Rs. 4.00 crore was shown in computation of income. Reconciliation of sales consideration with Form 26QB to the satisfaction of A.O. was done. Particulars of selling expenses to the tune of Rs. 1,88,300/- were furnished. It was explained that the said payment was made to the Society for issuance of NOC for transfer of ownership. (Documentary evidence regarding the same is explained in succeeding paras). Letter dated 22.11.2018:- Detailed submission regarding the cost of 3) acquisition and cost of improvement were furnished. Further detailed submission regarding investment of Rs. 2.05 lac in capital gain account scheme FDR was furnished alongwith documentary evidence. It was further explained in this letter that total expenditure of Rs. 2,05,93,405/- was incurred u/s 54. Letter dated 30.11.2018:- Details of total covered area and site plan were 4) enclosed. Copy of Transfer Deed regarding ownership of said property were also furnished. Letter dated 10.12.2018:- Detail and photocopy of 317 bills of expenditure 5) were furnished regarding the claim of deduction u/s 54. Letter dated 05.12.2018:- Detailed justification for claiming each item of bill 6) namely of Racks, Generator, Sofa Set, Sofa Set Chair, Elevator, Kitchen Material, Recliner, AC, Architect, Paradise Landscape consultant and developers, Watchman as deduction u/s 54 of the Act was furnished.
Apart from above detailed submission further documentary evidences were filed namely a) Sale Deed of Flat No. A/1201/A in Mumbai (Paper Book Page 62-89)
b) Purchase Deed of the House situated at Aggar Nagar, Ludhiana dated 15.11.2011 (Paper Book Page 90-92) c) Copies of FDR regarding Investment made in capital gain account scheme (Paper Book Page 93-105) d) Detailed working of the expenses claimed u/s 54 of the Act (Paper Book Page 106-109) e) Justification report of Regd. Valuer regarding expenses claimed on construction of residential building (Paper Book Page 110-116) f) Actual MAP of the constructed house of the assesse (Paper Book Page 117- 120) g) various bills of expenses filed before the A.O. regarding claim of exemption u/s 54 (Total 317 pages in a separate Paper Book) h) Bills submitted by the assessee with respect to justification of certain Items claimed as cost. (Paper Book Page 122-133) Copy of Pass Book of the assessee (Paper Book Page 134-147” i)
4.2 It was submitted that as evident from the above, detailed information/documents and related submissions were made before the AO and after detailed scrutiny thereof, the AO has allowed the claim under section 54 except for a sum of Rs. 5,40,364/-. It was accordingly submitted that since proper enquiry has been done by the AO, the present proceeding under section 263 for re-enquiring the same matter cannot be permitted in the eyes of law. In support, the reliance was placed on the decision of Coordinate Chandigarh Benches in case of Leeford Healthcare Limited Vs. Pr. CIT(Central), Ludhiana (ITA Nos. 343 to 353/Chd/2022 dt. 29/07/2022).
4.3 It was further submitted that even if it is assumed that the AO has not conducted some enquiry in the matter, it was incumbent on the part of the Ld. PCIT to do certain minimal enquiry especially in the light of the facts that the assessee has filed detailed submission and paper book containing over 300 pages before the Ld PCIT. It was submitted that inspite of the voluminous documentation submitted before the Ld. PCIT, no verification or enquiry was done by him other than remanding the matter back to the file of AO under the guise of re-verification. It was submitted that the said action on the part of the Ld. PCIT cannot be sustained in the eyes of law and in support, reliance was
placed on the decision of Coordinate Chandigarh Benches in cases of Shri Hakam Singh Vs. PCIT, Patiala (ITA No. 597/Chd/2019) and Shri Abhimanyu Gupta Vs. Pr. CIT (ITA No. 771/Chd/2017).
4.4 Regarding various issues pointed out by the Ld. PCIT in the show cause notice, it was submitted that one of the issue relates to the time limit for completion of construction under Section 54 of the Act. In this regard, it was submitted that the assessee has purchased single story residential house at 276A measuring 225 sq. yrds at Aggar Nagar, Ludhiana on 15/11/2011 for a sum of Rs. 54,00,000/-. It was submitted that the said residential house consisting of single story and two rooms was demolished in May 2014 and as far as the claim of deduction under section 54 is concerned, the assessee has not claimed the cost of acquisition of the said property for working out the deduction under section 54 of the Act. It was submitted that thereafter, on the said plot of land, the assessee has constructed a new residential house with covered area of 6500 sq. yrds in August 2017. It was accordingly submitted that since the assessee has sold his flat at Mumbai on 01/06/2015 and constructed a new residential house in August 2017, the construction has been completed within a period of three years from the date of sale.
4.5 It was submitted that in the interim, the amount of the sale consideration was deposited in the Capital Gain Account Scheme and out of the amount so deposited, the money was spent on the construction of the new residential house. It was submitted that the assessee has sold the property on 01/06/2015 thereafter on 13/07/2015, the assessee has purchased FDR for Rs. 1.25 crore under Capital Gain Account Scheme and thereafter, on 12/10/2016, the assessee has purchased another FDR for Rs. 80 lacs under Capital Gain Account Scheme.
4.6 It was further submitted that even where it is assumed that the assessee has not carried out the construction within time limit, the fact that the assessee has deposited the amount in the Capital Gain Account Scheme, the assessee continue to be eligible for exemption under section 54 of the Act. It was submitted that where there is a failure on the part of the assessee to construct the house within the specified period, the amount can be taxed only on the expiry of three years and not in the year under consideration. It was accordingly submitted that even on the basis of investment made in the Capital Gain Account Scheme to the tune of Rs. 2.05 crore, no amount can be brought to tax in the current assessment year. In support, reliance was placed on the decision of Coordinate Delhi Benches in case of Deepak Bhardwaj Vs. ITO, W-1(3), Noida [2020] 116 taxmann.com 891.
4.7 It was further submitted that on 10/06/2014 the assessee applied to Municipal Corporation Ludhiana for approval of building plan for new residential house and deposited a sum of Rs. 35,318/- and the necessary documentation were submitted before the AO as well as before the Ld. PCIT and thereafter the approval was granted on 16/06/2014. It was submitted that the assessee has been paying property tax on its residential house at Aggar Nagar, Ludhiana from F.Y. 2013-14 onwards. It was submitted that total covered area of the old residential house which was demolished in May 2014 was 416 sq. ft whereas total covered area of new residential house completed during the F.Y. 2017-18 is 6500 sq. ft. which further demonstrates the construction of the new house from scratch where there is substantial increase in amount of annual property tax with corresponding increase of covered area of the property. It was accordingly submitted that a new construction of house has been done from scratch. Without prejudice, it was submitted that even if it is assumed that the new construction has not been done, it is a case of renovation therein also the assessee is entitled to exemption under section 54 of the Act. In support, the
reliance was placed on the decision of Coordinate Mumbai Benches in case of Mrs. Sonia Gulati Vs. ITO [2001] 115 Taxman 232.
4.8 Regarding the issue of investment of Rs. 2.5 crore where the Ld. Pr. CIT has stated that the assessee has supplied the detail of investment made without mentioning the date of construction material, it was submitted that the said findings/observation of Ld. PCIT is factually incorrect. It was submitted that firstly, the investment amount is Rs. 2.05 crore and not Rs. 2.5 Crore and reference is drawn to pages no. 106 to 109 of the paper book. It was submitted that Rs. 1.84 crore was invested by means of cheque. The copy of passbook is enclosed at page no 134 to 147 of the paperbook. It is again coupled with the fact that bills and voucher of each and every expenditure / bill is uploaded and were furnished again before AO as well as before the ld PCIT in a separate paper book. It was submitted that the date of investment was also explained in letter dated 22.11.2018 (refer paper book page 54/55) wherein the assessee had stated that the construction of the property was started in January 2015 and the assessee had spent Rs. 1.03 Crore on construction of the residential house prior to due date of filing return u/s 139(1). The remaining amount was invested in the capital gain account scheme and this aspect was also verified by the Ld. A.O. It is coupled with the fact that investment of Rs18.96 Lacs was made in cash. The Ld. AO has categorically the verified the availability of cash (Refer paper book page 107). It was accordingly submitted that the entire investment was made within the time limit specified u/s 54 of the Act, calling for no adverse view.
4.9 Further regarding the vouchers, the Ld. PCIT in show cause has stated that some vouchers were uploaded on the E-filling Portal, it was submitted that this finding/observation of the ld PCIT is also factually incorrect. It was submitted that the Assessee has annexed a separate paper book of more than 300 vouchers before AO and PCIT. It was submitted that out of the total investment of Rs.2.05
crore, Rs. 1.84 Crore i.e. 90% of the payments were made by account payee cheque and is supported by voucher forming part of record, calling for no adverse view. It was submitted that Assessing officer has scrutinized each and every item of expenditure and made disallowance of ineligible expenditure to the tune of Rs. 5,40,364/-.
4.10 Regarding the issue of disallowance of Rs. 1,88,300 claimed as expenses, it was submitted that the assessee has paid the said sum to Lake Castle Co-op Housing Society Limited for issue of NOC for sale of flat which was sold by the assessee. It was submitted that the amount has been paid through cheque during the period under review and has been correctly accepted by the AO after due application of mind. Therefore there is no justification in disallowing the said amount so paid by the assessee to the society for issuing the NOC for sale of flat.
4.11 Regarding additional documentation filed during the revisionary proceedings, it was submitted that even where there were certain additional document filed by the assessee, it was incumbent on the part of the Ld. PCIT to do some minimal inquiry. It was submitted that these documents were filed to support the case of the assessee wherein the verification / conclusion drawn by the AO is completed and can be reached de-hors any reference to these documents as it demonstrated by the following documents which have no bearing on conclusion drawn by the AO:
a) Property tax receipt and old map of house:- The said evidence were given to CIT to demonstrate that the construction is completely new. Without prejudice to it as submitted earlier the assesse is entitled to benefit of deduction u/s 54 even in case of renovation. b) Date of passing of cheque (party wise):- This information was in response to demonstrate the time period of investment for claiming exemption u/s 54. It is demonstrated that issue was specifically examined by AO(refer paper book page 55). Also these dates are already borne out of record because passbook is already on record at page 134 to 147.
c) Affidavits of neighbours etc:- The said affidavit are supplementary in nature and not substantive.
4.12 It was submitted that the assessee has filed detailed submission before the Ld. PCIT and Ld. PCIT has failed to point out any error in the assessment order which render the order erroneous or prejudicial to the interest of the revenue. It was accordingly submitted that the assessee has constructed a new residential house within the time frame of three years from the date of transfer and amount invested in new residential house amounting to Rs. 2,05,93,405/- satisfy all the conditions for exemption under section 54 of the Act. Alternatively, the assessee is entitled to exemption under section 54 on the strength of investment of Rs. 2.05 crores in the FDR under the Capital Gain Account Scheme and even if there is any fault or irregularity, the amount can be brought to tax on completion of three years and not in the year under consideration. It was accordingly submitted that there is no error or prejudice in the proceedings under section 143(3) of the Act and therefore the order so passed by the Ld. Pr. CIT deserves to be set aside and in support, the reliance was placed on the decision of Hon’ble Supreme Court in case of Malabar Industrial Co. Vs. CIT [2000] 243 ITR 83 and CIT Vs. Max India Ltd. [2007] 295 ITR 282.
Per contra, the Ld. CIT DR relied on the order passed by the Ld. PCIT and our reference was drawn to the show cause notices issued by the Ld. PCIT and the contents thereof read as under:
"3.1 Examination of the assessment record revealed that the assessee has purchased one residential house in Aggar Nagar, Ludhiana on 15.11.2011 for Rs. 50,00,000/- measuring 225 square yard. On the other hand, the assessee has sold two residential flat on 01.06.2015 for Rs.4,00,00,000/- at Mumbai and claimed deduction u/s 54 of Income Tax Act, 1961 amounting to Rs.2,05,93,405/- on account of modification of residential house situated in Aggar Nagar, Ludhiana. To avail exemption u/s 54, the assessee will have to purchase or construct one residential house the new residential house property should be purchased or constructed within the time limit given below:-
Time limit For purchasing a new It should be purchased within one year residential property before, or within 2 years after, the date of transfer of the residential house property For constructing a new The construction should be completed residential property within 3 years from the date of transfer of residential house property.
In the present case, the assessee has made modification in old house and claimed exemption on it. As per time limit noted above, the assessee has not purchased new property within one year before or within two years after the date of transfer the residential house property(s) and constructed within three years. Deduction u/s 54 is allowable either for the purchase of new property or on construction within the time prescribed. Neither the property purchased from the date of transfer within a period as prescribed nor it purchased new property. Hence claim of deduction under section 54 of I.T. Act 1961 is not correct and also the AO has wrongly allowed the benefit of deduction u/s 54 of Income Tax Act, 1961 to ttie extent of Rs.2,05,93,405/- (3,32,39,346-1,26,43,941 )on account of modification in residential house bearing House No. 276-A, Aggar Nagar, Ludhiana. 4. Further, the assessee has merely supplied the details of investment made at Rs. 2.5 Crores without mentioning the date of construction material purchased. Only some vouchers found uploaded on system. AO has not made any enquiry with regard to house map passed by Municipal Corporation, Ludhiana as well as the period of construction. Deduction u/s 54 is only available if the assessee has no other residential unit the city. In this regard, the AO has also made any enquiry. 5. Further, out of sale of two flats for Rs.4,00,00,000/- the assessee had to pay Rs. 1,88.300/- to society for issue of NOC for transfer of ownership and the amount has been reduced from sale consideration. The expense claimed by the assessee has not been paid during the year under consideration. Hence, the claim of the assessee has been accepted by the AO without making the enquiry and obtaining documentary evidence."
5.1 Thereafter, our reference was drawn to the findings of the Ld. PCIT which are contained at para 3 to 3.1 of the impugned order which read as under:
In response to this, the assessee filed written submissions. Also revision proceedings have been attended by Sh. Pankaj Bhalla, C.A. and Sh. Ramesh Aggarwal, C.A. and the case has been discussed with them. The Counsels of the assessee stated that explanation with evidences was furnished before the AO who was satisfied with the reply of the assessee at the time of assessment. Also now in response to show cause notice issued on 08.03.2021, the assessee has filed reply alongwith supporting documents, which were not filed before the AO at the time of assessment. This shows that the AO has failed to conduct the enquiries and to bring, on record the relevant evidences in respect to the issues raised in
para 2 above and therefore remained unverified. These facts clearly revealed that AO had failed to apply his mind on the issue involved. Lack of enquiry is clearly established. In the considered opinion of the undersigned, the assessment completed by the AO u/s 143(3) dated 20.12.2018 is erroneous and prejudicial to the interest of the revenue within the meaning of section 263 of the I.T. Act 1961 r.w. the explanation 2 "of the Income Tax Act. 3.1 From these facts, it is held that the AO passed cryptic and routine order without application of mind rendering the assessment erroneous and pre-judicial to the interest of revenue.
5.2 It was accordingly submitted that it is a case where there is failure on the part of the AO to conduct the necessary and appropriate enquiry and to bring on record the relevant evidences and accordingly the order so passed by the Ld. PCIT should be sustained and the appeal filed by the assessee be dismissed.
We have heard the rival contentions and purused the material available on record. The case of the Revenue is that it is a case of lack of enquiry on part of the AO to verify the claim of deduction u/s 54 of the Act. As against the same, the case of the assessee is that the matter has been thoroughly examined by the AO and thereafter, after considering the information/documentation submitted by the assessee during the course of assessment proceedings, the claim of deduction u/s 54 has been allowed by the AO which is demonstrated by the fact that the quantum of claim of deduction has been restricted to Rs 2,00,53,041/- by the AO as against claim of Rs 2,05,93,405/- made by the assessee. We have taken note of the various notices/questionnaires issued by the AO and submissions filed by the assessee along with related information/documentation during the course of assessment proceedings which are available on record and are of the considered opinion that the matter has been thoroughly examined by the AO during the course of assessment proceedings and thereby through a speaking order, the claim of deduction u/s 54 has been allowed by the AO though with a restricted amount of Rs 2,00,53,041 disallowing a sum of Rs 5,40,364/- as evident from the assessment order and the contents thereof read as under:
During the course of assessment proceedings, it is noticed that the assessee has claimed deduction under section 54 at Rs.2,01,09,761/- for which the assessee submitted a claim of revising it to Rs.2,05,93,405/-. To verify the genuineness and correctness of the deduction claimed, the assessee was asked to furnish the detail of investment made in residential house #276A, Aggar Nagar, Ludhiana. Perusal of the list supplied with regard to investment made it is noticed that some items included in the list do not fit in the definition of residential house for the claim of deduction under section 54 which is as under:- Sr. No. Party Name tem Name Amount (in Rs.) 1 Aakriti Fumnishers Pvt. Ltd. 1 Sofa Set & 2 2,00,500 Chairs 2. High Life Furnishers Pvt.Ltd. 3 Sofa Set & 5 2,31,550 Chairs 3. Samrat Furnishers & Steel Furniture 10,002 Decorators Total 4,42,052 In addition to the above said amount, the assessee had incurred expenditure in cash amounting to Rs.19,66,293/- on purchase of bricks, sand, crusher, labour, debris clearance, freight and cartages which is not supported by bills. Therefore, disallowance of 5% of such expenditure in cash amounting to Rs.98,312/- would be fair enough to rule out any inflation of claim of deduction u/s 54 of Income-tax Act, 1961. Hence, in view of the above facts total amount of 5,4Q,364/-(Rs.4,42,052/-+ Rs.98,312/-) deserves disallowance as claim of deduction u/s 54 of the Income-tax Act, 1961
We are therefore, unable to agree with the findings of the ld PCIT that it is a case of lack of enquiry on part of the AO to verify the claim of deduction u/s 54 made by the assessee.
Now, coming to the specific findings of the ld PCIT in the impugned order as to how the order passed by the AO has been held as erroneous in so far as prejudicial to the interest of the Revenue, we find that the ld PCIT has merely referred to the show-cause notice and summarily recorded his findings stating that the AO has failed to conduct the enquiries and to bring on record the relevant evidences in respect to the issues raised in the show-cause notice and it has been held that it is a case where the AO had failed to apply his mind.
On perusal of the show-cause notice, it is noted that the ld PCIT has stated that the assessee has made modification in an old house purchased on 15.11.2011 and has claimed deduction u/s 54 of the Act. It has been further stated that the assessee has not purchased the new property or constructed a new property within the time limit as prescribed u/s 54 of the Act. Thereafter, the ld PCIT has stated that the assessee has merely supplied the details of investment made at Rs. 2.5 Crores without mentioning the date of construction material purchased. Only some vouchers found uploaded on system. The AO has not made any enquiry with regard to house map passed by Municipal Corporation, Ludhiana as well as the period of construction. Deduction u/s 54 is only available if the assessee has no other residential unit in the city and in this regard, the AO has also made no enquiry.
We therefore find that in first part of the show-cause notice, the emphasis of the ld PCIT is on purchase or construction of new property as against modification of an old house beyond the stipulated time frame and thereafter, in the latter part of the show-cause, in the same breath, the emphasis has been on lack of enquiry on part of the AO relating to period of construction/modification of the old house and related examination of construction documentation.
Firstly, regarding the purchase or construction of new property as against modification of an old house beyond the stipulated time frame, we refer to the provisions of subsection (1) of section 54 of the Act which provides for purchase or construction of one residential house in India within stipulated time period and the appropriation of the capital gains for such purposes arising out of transfer of the original asset and the emphasis therefore is on purchase or construction of a residential house and which has been referred to a new asset in the context of transfer of a residential house in respect of which capital gains
has arisen and which has been referred to as the original asset. The reference to “new asset” therefore has to be understood and appreciated in the context of and relative to term of “original asset” which has been used. In the instant case, it is an admitted fact that the assessee has purchased a residential house measuring 225 sq. yards at Aggar Nagar, Ludhiana on 15.11.2011. As per evidences placed on record and are part of the assessment records and available at the time of examination before the ld PCIT, in terms of building plan of the said residential house, demolition of the residential structure thereon in May 2014 on the said plot of land, request for approval of the new building plan to Municipal Corporation on 10/06/2014, approval granted thereafter on 16/06/2014, subsequent construction of new structure measuring 6500 sq. feet in financial year 2017-18 as evident from the property tax receipts, we find that it is a case of construction of new house after demolition of old structure and well within the framework and having the necessary attributes and specification of a residential house eligible for deduction u/s 54 of the Act. The preliminary findings of the ld PCIT in the show-cause notice that it is a case of modification of an old house and which has been summarily turned into conclusive findings in the impugned order is therefore not borne out of records and is without appreciating the material and evidence on record and is hereby set-aside.
In terms of time period specified for construction of a residential house, it is provided that the construction should be completed within a period of three years after the date of transfer of original asset. In the instant case, the flat in Mumbai has been transferred on 01/06/2015 and the new residential house in Ludhiana has been constructed during the financial year 2017-18, well within the period of three years as so specified and the condition so specified has been duly complied with. The fact that the old house has been purchased on 15.11.2011 well before the transfer of the original asset on 01/06/2015 will not act as a disabiling factor for claim of deduction as the emphasis has been on
completion of construction of new house within the stipulated time period and the time period of three years for completion of construction of new house has to be considered from the date of transfer of the original asset and which has been complied in the instant case. We therefore donot find any infirmity in the order so passed by the AO where he has examined and taken on record all the evidences and documentation and has allowed the claim of deduction u/s 54 of the Act.
Now, coming to the examination of cost of construction and related documentation, we find that the AO has raised queries from time to time to examine the same and the assessee has in turn responded to these queries and filed necessary information/documentation in support of nature and cost of construction and the mode of discharge of such cost by way of cheque and cash payment and on detailed examination and due application of mind, the AO has allowed the claim of deduction u/s 54 though with a restricted amount of Rs 2,00,53,041/- and disallowing a sum of Rs 5,40,364/- as evident from the assessment order. Here, it is relevant to note that the assessee has not claimed cost of purchase of the old house of Rs 50 lacs and cost relating to demolition of the old structure and has only claimed the cost towards construction of the new house for the purposes of claiming deduction under section 54 of the Act, a fact which is not disputed by the ld PCIT. It is also not the case of the PCIT that these costs of construction of new house have not been met out of sale proceeds of the original asset. We therefore do not find any infirmity in the order so passed by the AO where he has examined and taken on record all the evidences and documentation and has allowed the claim of deduction u/s 54 of the Act at Rs 2,00,53,041/- as against Rs 2,05,93,405/- as claimed by the assessee.
In light of aforesaid discussions and in the entirety of facts and circumstances of the case, we are of the considered view that the matter
relating to claim of deduction u/s 54 has been thoroughly examined by the AO during the course of assessment proceedings as evident from material available on record and the findings of the ld PCIT that it is a case of lack of enquiry on part of the AO and the impugned order passed u/s 263 is hereby set-aside and the order of the AO is sustained.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 30/11/2022 Sd/- Sd/- संजय गग� �व�म �संह यादव (SANJAY GARG) ( VIKRAM SINGH YADAV) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य/ ACCOUNTANT MEMBER AG Date: 30/11/2022 आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File
आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar 1 Draft dictated 28/10/2022 Sr. P.S 2 Draft first placed before author 28/10/2022 Sr. P.S 3 Approved draft comes to Sr. PS/PS 4 Final draft placed before author 5 Order signed and pronounced on 6 File sent to the Bench Clerk 7 Date on which file goes to the AR 8 Date on which file goes to the Head Clerk 9 Date of dispatch of order