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Facts
The assessee claimed deduction under Section 54F for the purchase of a new house property after selling an old landed property. The Assessing Officer denied the deduction, citing non-compliance with the Capital Gains Account Scheme requirements and the assessee owning multiple residential properties. The CIT(A) confirmed this disallowance.
Held
The Tribunal partially allowed the assessee's appeal. It remanded the issue concerning brought-forward credits for verification by the AO and also remanded the issue regarding payments made to tenants for vacating the new property for examination of evidence and source of payment. The Tribunal noted that the assessee's claim regarding brought-forward credits appeared prima facie correct.
Key Issues
Whether the non-deposit of sale proceeds in the Capital Gains Account Scheme before the due date for filing the return u/s 139(1) vitiates the Section 54F deduction, and whether payments made to tenants to vacate a newly purchased property constitute a cost of acquisition eligible for Section 54F deduction.
Sections Cited
54F, 139(1), 139(4), 250, 143(3), 68
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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: SHRI SONJOY SARMA & SHRI RAKESH MISHRA
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act') for AY 2016-17 dated 14.05.2024. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. For that on the facts and circumstances & legal position of the case, the order u/s 250 passed by the Ld. CIT(A) is against the principle of natural justice.
For that on the facts and circumstances & legal position of the case, the Ld. CIT (A) was not justified in denying the deduction u/s 54F of the Act on the ground that the appellant did not deposit the sale proceeds of his old property in Capital Gain Account Scheme before the due date prescribed u/s 139(1) of the Act, but had kept the same in his savings bank account and fixed deposits.
For that on the facts and circumstances & legal position of the case, the Ld. CIT (A) failed to appreciate the fact that the appellant was not aware about the Capital Gains Account Scheme 1988 and had kept the sale proceeds of his old property in his savings bank account and fixed deposits with an intention to purchase a new residential house property in order to claim deduction u/s 54F.
For that on the facts and circumstances & legal position of the case, the Ld. CIT (A) failed to appreciate the fact that the appellant had purchased a residential house property within two years from the date of transfer of his old landed property, and he was eligible to claim deduction u/s 54F of the Income Tax Act, 1961. The Ld. CIT (A) ought not to have denied the deduction u/s 54F of the Act on mere technicality for the sake of justice.
For that on the facts and circumstances & legal position of the case, the Ld. CIT (A) was not also justified in denying the deduction u/s 54F on wrong consideration of the fact and on the allegation that the appellant was already having two residential house properties on the date of sale of his old property, which was not correct.
For that on the facts and circumstances & legal position of the case, the Ld. CIT (A) failed to appreciate the fact that the expenses of Rs.55,71,982/- incurred by the appellant to settle the disputes in connection with his sold land with third parties before its sale for paving way for easy transfer of the same was an allowable deduction either as expenditure incurred in connection with the transfer or as cost of improvement. The Ld. CIT (A) was not justified in denying the deduction on the plea that the same was not within the scope of cost of improvement.
For that on the facts and circumstances & legal position of the case, the Ld. CIT (A) ought to have allowed the deduction as expenditure of Rs.55,71,982/- incurred by the appellant in connection with the transfer of his capital asset, if not as improvement cost of the capital asset, in view of CBDT circular No. 14(XL) 35 of 1955, dated 11.4.1955. 8. For that on the facts and circumstances & legal position of the case, the Ld. CIT (A) ought not to have confirmed the addition of Rs.99, 10,000/-, being security deposit from tenant and advances against sale of lands, coming brought forward from earlier years in the hand of the appellant in current year.
That the appellant craves permission to add, amend, alter or vary all or any of the ground of appeal on or before the date of hearing of the appeal.”
1 The assessee has also raised an additional ground of appeal which is as under: “For that on the facts and circumstances and legal position of the case, the Ld. Assessing Officer has erred in law and also on fact in not accepting the amount of Rs.98,00,000/-, paid to the tenants before the date of registration of the new property and before the date taking possession thereof as cost of acquisition incurred by the assessee in acquiring his new property, eligible for deduction u/s 54F of the Act. The Ld. CIT(A) ought not to have confirmed the said disallowance made by the Ld. AO in disposing the appeal of the assessee."
Brief facts of the case are that the assessee is an individual and had filed his return of income for AY 2016-17 showing total income of 19,89,163/-. The case was selected for scrutiny under Computer Assisted Scrutiny Selection (in short 'CASS'). Notices u/s 143(2) and 142(1) of the Act were issued. The Assessing Officer (hereinafter referred to as Ld. 'AO') noted that the assessee had sold his landed properties measuring 3.55 acres for ₹4,17,50,000/- on which Long Term Capital Gain of ₹3,06,35,864/- had accrued to him. The assessee had purchased a new house property for ₹3,13,62,500/- and had also claimed exemption u/s 54F of the Act for ₹2,30,13,588/-. The Ld. AO denied the exemption on the ground that the assessee did not keep the amount of Long Term Capital Gain in Capital Gain Account Scheme, 1988, before the date of filing of return u/s 139(1) of the Act. The Ld. AO was also of the view that the amount paid to the occupants of the new house property for vacating the same did not constitute the cost of acquisition and was not allowable u/s 54F of the Act, apart from the fact that the new house property purchased was in ruins and decaying conditions. The Ld. AO had also not allowed the amount paid to the persons who had filed suits against the assessee in respect of his sold land. The Ld. AO was of the view that the said payments did not constitute cost of improvement of the sold land and had also added back a sum of ₹1,10,10,000/- being security deposits received from tenants, advance received from the buyers of the other lands and fees payable to the lawyer. The Ld. AO assessed the total income of the assessee at ₹5,32,60,170/- u/s 143(3) of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who, vide order dated 14.05.2024 dismissed the appeal of the assessee.
Aggrieved with the order of the Ld. CIT(A), the assessee has filed
the appeal before the Tribunal.
Rival contentions were heard and the submissions made have been examined.
Ground Nos. 1 and 9 are general in nature and do not require any separate adjudication.
1 Ground Nos. 2, 3 and 4 relate to the Ld. CIT (A) erring in denying the deduction u/s 54F of the Act on the ground that the assessee did not deposit the sale proceeds of his old property in Capital Gains Account Scheme, 1988 and had kept the sale proceeds of his old property in his savings bank account and fixed deposits with an intention to purchase a new residential house property in order to claim deduction u/s 54F of the Act.
2 The Ld. CIT(A) considered the order of the Ld. AO, has reproduced the provisions of section 54F of the Act and held that in order to claim the deduction, the assessee must adhere to all the conditions as per provisions of the Act and since the assessee failed to satisfy the conditions enshrined in the Section 54F of the Act, hence, the Ld. AO correctly disallowed the deduction claimed by the assessee u/s 54F of the Act. The Ld. CIT(A) held that a plain reading of section 54F makes it clear that the sale consideration not utilised by the assessee for purchasing or construction of residential house property shall be deposited in the Capital Gain Accounts in accordance with the provisions of Capital Gain Accounts Scheme, 1988. Also the assessee shall not have more than one residential house other than the new residential house property in order to be eligible to claim deduction u/s 54F of the Act. Both these conditions were not fulfilled by the assessee. The assessee did not deny the fact that he was the owner of two residential house properties at Kanpur at the time of purchasing a new residential house property at Bareilly. Also, the assessee stated the reason of unawareness for failure to deposit the unutilised sale consideration in Capital Gain Accounts Scheme. The unawareness or lack of knowledge cannot be considered as reasons given to claim any deduction according to him, hence, in view of the facts discussed, the Ld. CIT(A) rejected the contention of the assessee and the addition made by the Ld. AO on account of disallowance of deduction claimed by the assessee u/s 54F of the Act was confirmed.
3 The assessee, regarding these grounds of appeal has submitted as under: “The appellant had sold his old landed properties measuring 3.55 Acres in between June, 2015 and October, 2015 (para 7 of assessment order and page 13 of P/B) for a total sum of Rs.4,17,50,000/- and had purchased a new house property on 29.3.2017 for a total cost of Rs.3,13,62,500/- as per details furnished herein below. The assessee had offered a long term capital gains of Rs.76,22,276/- in his return of income instead of his actual liability of Rs.44,63,518/- only as per provisions of section 54F of the Income Tax Act, 1961 and had claimed before the Hon'ble CIT(A) in writing during the first appellate proceedings that his taxable capital gains was for Rs.44,63,518 only. Sale proceeds of 3.55 Acres of land Rs.4,17,00,000/- Less: Cost of acquisition of 2.81 Acres of land in the hand of the brother as on 25.5.1990, from whom the land had been received as gift on 1.2.2006 by the appellant Rs. 12,000/- Less: Cost of 0.34 Acre of land purchased on 11.9.2012 Rs. 1,70,000/- Less: Cost of 0.40 Acre of land purchased on 14.7.2011 Rs. 1,70,000/- Less: Cost of improvement Rs. 55,71,982/- (Cost of settlement of disputes incurred before sale of lands) NET SALE PROCEEDS Rs.3,58,26,018/- Less: Exemption u/s 54F (Cost of new house property)** Rs.3,13,62,500/- LONG TERM CAPITAL GAIN Rs. 44,63,518/- ** Details of cost of new house property are given Cost of new house property Cost of stamp duty, registration cost etc. Rs.1,90,20,000/- Rs. 15,42,500/- Amount paid to occupant tenants Rs. 98,00,000/- Lawyer's fees and other expenses for all deeds and agreements TOTAL Rs. 10,00,000/- Rs.3,13,62,500/- regardless of whether the over assessment is as a result of assesse's mistake or otherwise, the CIT has the power to correct such an assessment. Your Honors, the Ld. AO had not allowed any deduction u/s 54F of the Act on the ground that although the appellant had purchased a new house property on 29.4.2017, within the due date of filing of return u/s 139(4), but the appellant had failed to deposit his net sale proceeds in Capital Gains Account Scheme within the due date of furnishing of return u/s 139(1) of the Act, and also on the allegation that the appellant was already having two house properties at Kanpur on the date of transfer of his old assets as above. The appellant had clarified at serial No. 4 (four) of his written submission dated 26.11.2028 before the Ld. AO that he was having only one house property in Kanpur. The copy of the electricity bill of that house property was furnished before the Ld. AO along with his reply (Page 235 of P/B). But, the Ld. AO did not notice the reply of the appellant at serial No. 4 that he was having only one house property at Kanpur and not two separate house properties. There is no mention of such rebuttal made by the appellant in the assessment order of the Ld. A.O. A copy of written submission of the appellant dated 26.11.2018 in response to show cause notice of the Ld. AO dated 22.11.2018 is enclosed herewith (page 232 to 236 of P/B). Before the Ld. CIT(A), the appellant had submitted that the Ld. AO had wrongly observed that the appellant was having two separate house properties at Kanpur by misreading the balance-sheet of the appellant as at 31.3.2016. It was clearly appearing in the balance-sheet that the appellant had invested a sum of Rs.57,73,778/- in a house property at Kanpur in earlier year and there was a further investment of Rs.20,15,000/- during the current assessment year in the same house property, coming brought forward from last year. Copies of balance-sheets as at 31.3.2015 and 31.3.2016 were furnished, both before the Ld. AO and Ld. CIT(A). (Copy of balance sheets as at 31.3.2015 may please be found at page 5 & 6 of P/B and balance sheet as at 31.3.2016 may please be found at page 3 & 4 of P/B). The Ld. AO was also of the opinion that the appellant was not entitled for deduction u/s 54F of the Act as the appellant had purchased a building which was in ruins and in decaying condition (para 8 of assessment order and page 14 of P/B). But, to deny the deduction u/s 54F on this ground, the Ld. AO had not served any show-cause notice on the appellant. relief u/s 54F cannot be denied. which case it has been observed - "Evidence on record showing that on the date there did exist a residential structure which the vendor was using as residence, exemption u/s 54F could not be denied on the ground that property was not suitable for residence of assessee. It was submitted before the Ld. CIT(A) that the house property, purchased by the appellant, was occupied by tenants who had vacated the property only on the date of purchase of the same by the appellant. Your Honors, in response to the Show-cause notice of the Ld. AO, dated 22.11.2018 (page 3 of assessment order and page 9 of P/B), the appellant had submitted in writing that he was in bona fide belief that he was required to keep the money in his bank account only. He had also submitted that all the payments for purchase of his new property had been made from his savings bank accounts and he requested the Ld. AO to allow the deduction u/s 54F (page 6 of assessment order, 2nd para, and page 12 of P/B). In ITO vs. Smt. Aarti Kumaria, ITA No. 97/Lkw/2017, dated 14.3.2018, sale proceeds were kept in savings account and not deposited in Capital Gains Account due to ignorance. The assessee invested in new house property and claimed exemption u/s 54 - The AO had disallowed the claim, but the ld. CIT(A) had allowed the claim of the appellant against which the department filed appeal before ITAT The Hon'ble ITAT allowed the claim of the appellant relying on the decision of Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh & Ors, (1979) 118 ITR 326 (SC). The Hon'ble Supreme Court of India in its unique judgment in the case of Motilal Padampat Sugar Mills Co. vs. State of Uttar Pradesh & Ors., (1979) 118 ITR 326 (SC) had observed