RAMAUTAR SARAF (HUF),KOLKATA vs. ITO, WARD 59(3),, KOLKATA

The assessee has raised following grounds of appeal:-

The facts in brief are that the assessee filed the return of income on 02.08.2016, declaring total income at ₹8,87,100/-. The case was selected for scrutiny. The notice u/s 143(2) and 142(1) of the Act along with questionnaire were issued and served upon the assessee. During the course of assessment proceedings, the ld. AO noted that the assessee has sold a house property acquired in F.Y. 2004-05, situated at 76, Cotton Street, Kolkata-700007 to M/s Vidhi Vyapaar Pvt. Ltd. for a consideration of ₹6,25,00,000/-. It was also noted by the ld. AO that the assessee computed the capital gain from sale of the property at ₹5,48,40,817/-, on which the deduction u/s 54 of the Income-tax Act, 1961 (the Act) has been claimed in the return filed in form ITR-2 and only Long-Term Capital Gain to the extent of ₹1,88,317/- was offered to tax. The ld. AO noted that the said capital gain was utilized by purchase of land amounting to ₹2,80,70,000/- for construction of residential house. The said amounts utilized out of capital gain are as under:-

In the appellate proceedings, the ld. CIT (A) also dismissed the appeal of the assessee after taking into consideration the additional evidences filed by the assessee under Rule 46A of the IT Rules, 1962. The ld. CIT (A) noted that the assessee has not constructed a residential house within a period of three years after the date of transfer. The ld. CIT (A) noted the date of transfer as on 15.06.2016, and the statutory period for consideration of the house expired on 15.06.2018. The ld. CIT (A) in Para no.9 noted that the assessee himself confirmed that the KMC building permit and structural plan, foundational legal document required for the commencement of bonafide construction in a Municipal area was only approved on 07.03.2019, which falls approximately 9 months after the statutory deadline. The ld. CIT (A) noted that it is a fundamentally legal principle that construction carried out without sanctioned plan is illegal and unauthorized. The ld. CIT (A) further noted that Act cannot be interpreted for grant of exemption for

After hearing the rival contentions and perusing the materials available on record, we find that the assessee sold a residential house to M/s M/s Vidhi Vyapaar Pvt. Ltd. for consideration of ₹6,25,00,000/- from which the assessee earned the long-term capital gain of ₹5,48,40,817/-. The assessee applied the capital gain to the extent of ₹5,46,52,500/- on payment of purchase of land, architect fee and deposit in capital gain account scheme as detailed above. The assessee was granted provisional allotment of land as per agreement with Urbana on 01.09.2015, to whom ₹2,80,70,000/- was paid. We also note that the assessee started the construction of the house on the said land. However, the construction could not be completed within three years upto 15.06.2018, since the building plan were sanctioned by the KMC not in time. Consequently, the ld. AO disallowed the payment made on account of purchase of land as well as payment of architect fee thereby making an addition of ₹2,86,42,500/-. The assessee claimed to have started the construction of the house by furnishing bill of construction of Shri Akhil Mondal dated 03.04.2018, for an amount of ₹2,55,200/- and construction bill of M/s AGS Construction dated 27.04.2018, for an amount of ₹11,05,000/-, copy of which are available at page no. 16 and 17 of the Paper Book but the construction of the house could not be completed within stipulated period of three years, since there were problems in the plans design of the property. We note that the assessee has started the construction of the house within three years and therefore, the exemption u/s 54 of the Act cannot be denied to the assessee on the ground that the “8. Section 54F of the Act is a beneficial provision which promotes for construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it is incorporated in the statute. The intention of the legislature, as could be discerned from the reading of the provision, would clearly indicate that it was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired. A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in three (3) years and/or make it habitable. The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and once it is established that consideration so received on transfer of his Long Term capital asset has invested in constructing a residential house, it would satisfy the ingredients of Section 54F. If the assessee is able to establish that he had invested the entire net consideration within the stipulated period, it would meet the requirement of Section 54F and as such, assessee would be entitled to get the benefit of Section 54F of the Act. Though such construction of building may not be complete in all respect "that by itself would not disentitle the assessee to the benefit flowing from Section 54F". In fact, appellate Commissioner has not only taken note of the judgment of the co-ordinate bench of this Court in Sambandam's Uday kumar case (supra), but had also taken note of the judgment of High Court of Madras in the case of CIT v. Sardarmal Kothari[2008] 302 ITR 286 , which was on similar facts as obtained in Sambandam Uday kumar's case (supra) and as such in the instant case, Appellate Commissioner allowed assessee's appeal noting that the appeal filed by the revenue against the order of High Court of Madras before Apex Court in CC Nos.3953-3954/2009 had been dismissed on 06.04.2009.” 6.1. Similarly, the case of the assessee is squarely covered by the decision of the Hon'ble Chandigarh High Court in case of Bhavna Cuccria Vs. ITO (2017) 82 taxmann.com 306 (Chandigarh) wherein it was held as under: - “11.5 Even otherwise we find that section 54 gives a window period of three years, from the date of transfer of original asset, for the construction of a new house and two years for purchasing a new house. Further as per the section the amount utilized for the said purpose along with the amount deposited in a specified bank account for the purpose, before the date of filing of return of income, is treated as cost of construction of the new “11. We have heard the contentions of the parties and perused the materials on record. It is not in dispute that the assessee on 29/10/2007 has sold a property and declared a capital gain of Rs. 58,90,114/-. However, the assessee claimed exemption u/s 54F by stating that he has invested an amount of Rs. 64 lakhs towards purchase of land and construction of house property by virtue of agreement entered into with M/s Dhatri Construction Pvt. Ltd. on 19/03/2008. Perusal of the agreement of sale dated 19/03/2008 between the assessee and M/s Dhatri Constructions Pvt. Ltd. reveals that the assessee has paid an amount of Rs. 52 lakhs to M/s Dhatri Constructions Pvt. Ltd. towards sale consideration of plot No. 40, in Survey No. 18/P, admeasuring 279.55 sq.yards with built up area of 2500 to 2700 sft. situated at Bandlaguda village, Rajendra Nagar Mandal and Municipality, RR Dt. Clause (1) of the agreement of sale states that the aforesaid sale consideration of Rs. 52 lakhs comprises of Rs. 7 lakhs towards plot and the balance amount of Rs. 45 lakhs towards the construction of the house. Clause (2) of the agreement reveals that the entire amount of Rs. 52 lakhs was paid by the assessee to M/s Dhatri Constructions Pvt. Ltd. through cheque bearing Nos. 118744, 118748, 118749, dated 08/01/2008, 13/03/2008, 14/03/2008 drawn on SBH, Banjara Hills, Hyderabad. On the very same day i.e. on 19/03/2008, the assessee entered into another agreement with M/s Dhatri Constructions Pvt. Ltd. for construction of a residential house over the said plot for a total consideration of Rs. 45 lakhs. However, “6. We have heard the submissions made by the representatives of both the sides. We have also perused the orders of the authorities below as well as the documents placed on record by the ld.Counsel for the assessee. It is not disputed that the assessee is not in possession of plot on which a residential building is in existence. The assessee has allegedly utilized the Long Term Capital Gain arising from the sale of shares towards the construction of a new residential house after demolition of old building on the plot-in- question. The assessee has claimed exemption u/s.54F on the ground that the assessee has invested Long Term Capital Gains arising from sale of shares towards construction of a new house within the prescribed period as mentioned in the Act. However, the contentions of the assessee has been rejected by the authorities below for the reason that the assessee has not placed on record the approved building plan from the Municipal Corporation. The assessee has admitted the fact that the new residential house has been constructed without the approval of the Municipal Corporation. Rather, in support of his contentions, the ld.Counsel for the assessee has placed on record an interim order dated 08-02-2007 from the Corporation of Salem, wherein it has been stated that the assessee has constructed a new building without the permission of the Commissioner of Salem Corporation. The assessee has also placed on record the building plan and the estimation for the construction of a new house of demolition of the existing building. Reliance cannot be placed on the building plan as it is not approved by any statutory authority. However, the fact that the assessee has constructed a new house is proved by the interim order issued by the Corporation of Salem wherein it has been stated that

We also find merit in the without prejudice the contention made by the assessee which is in any case is not relevant as we allow the appeal of the assessee on the main contention. But we would like to mention that this is not correct year in which the issue whether the construction has been completed within three years window period or not. In our opinion the issue has to be determined F.Y. 2018-19, relevant to A.Y. 2019-20.

In the result, the appeal of the assessee is allowed.