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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 18.01.2016 passed by the Commissioner of Income Tax (Appeals) (for short ‘the CIT (A)’)-4, Mumbai, for the assessment year 2011-12, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee engaged in the business of printing and publishing, e-filed his return of income for the assessment year under consideration declaring the total income of Rs. 6,95,850/-. The return of income was processed u/s 143 (1). Subsequently, the case was selected for scrutiny and notice u/s 143 (2) and 142 (1) were issued to the assessee. In response to the said notices, the authorized representative (AR) appeared before the AO and furnished details as called for and also discussed the case. As per the AIR information, the assessee had sold immovable property other than the residential property for Rs. 88,61,000/- on 13.04.2010 and claimed exemption u/s 54F of the Act against the said long term capital gain. Since, the 2 Assessment Year: 2011-12 assessee had booked the flat on 16.09.2011 by making initial payment of Rs. 5,00,000/- and purchased claimed the exemption u/s 54F, the assessee was asked to explain as to why the exemption should not be disallowed. The assessee contended that the provisions of section 54F stipulate that the amount should be utilized before the date of filing of return and if not utilized the same should be deposited in capital gain account scheme before the due date of filing return u/s 139 (1) . The assessee further contended that he had booked the flat on 16.09.2011. However, could not register the same on the same day due to some technical and unforeseen reasons. Since, the residential property was purchased within two years from the date of transfer of shops, the assessee is entitled for claiming exemption u/s 54F of the Act for the whole amount. The AO rejected the contention of the assessee and determined the income of the assessee at Rs. 1,39,90,560/- after including the income from capital gains. In the first appeal, the Ld. CIT (A) partly allowed the appeal of the assessee, however, held that the assessee was entitled for claim u/s 54F of the Act. 3. Aggrieved by the order of Ld. CIT (Appeals), the revenue has preferred this appeal before the Tribunal on the following effective ground:-
On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing the exemption u/s 54F even though the assessee has not complied with the condition so laid out for allowing exemption u/s 54F r.w.s. 139(1) of the I.T. Act, 1961.
Delay of two days in filing the present appeal by the revenue condoned in the interest of justice after hearing the Ld. Departmental Representative (DR) and the Ld. counsel for the assessee. On merits, the Ld. (DR) relying on the assessment order passed by the AO submitted that the assessee had sold four shops on 09.04.2010, 10.04.2010 and 12.04.2010 and earned long term capital gain. The assessee finalized a deal for purchase of residential flat for a 3 Assessment Year: 2011-12 sum of Rs. 1,85,00,000/- and paid initial amount of Rs. 5,00,000/- to seller on 16.09.2011 and further paid stamp duty of Rs. 5,23,000/- on 30.09.2011. The balance amount was paid in installment after the said date and on 03.11.2011 the flat was registered in the name of the assessee. Since, the agreement was executed on 03.11.2011, the assessee was required to explain as to whether the consideration received was utilized before the date of filing of return u/s 139 (1) and if not, whether the same was deposited in capital gain scheme account before the date of filing of return as per the provision of section 139 (1) of the Act. Since, the assessee has not utilized the net consideration before the due date of filing return and not deposited the net consideration in the capital gain account scheme, the assessee is not eligible for exemption u/s 54F of the Act. Hence, the order passed by the Ld. CIT (A) is contrary to the expressed provisions of law, therefore liable to be set aside.
On the other hand, the Ld. counsel for the assessee submitted that since, the assessee has invested the net consideration in purchase of a new residential house within a period of two years, the assessee was entitled for exemption u/s 54F of the Act. Hence, there is no infirmity in the order passed by the Ld. CIT (A). The Ld. counsel further submitted that since the findings of the Ld. CIT (A) are based on the evidence on record and in accordance with the judgment of the Hon’ble Karnataka High Court in the case of CIT & Ors. V.K. Ramachandra Rao, [2015] 230 Taxman 334, there is no merit in the appeal of the revenue and the same is liable to be dismissed. 6. We have heard the rival submissions and also gone through the entire material relevant to adjudicate the issue involved in this appeal including the cases relied upon by the authorities below. The only grievance of the revenue is that the Ld. CIT (A) has wrongly allowed the exemption u/s 54F of the Act despite the fact that the assessee had not complied with the condition laid down for allowing exemption under section 54F read with section 139(1) of the 4 Assessment Year: 2011-12 Act. The Ld. CIT (A) has decided the issue in favour of the assessee holding as under:-
“3.2 I have considered the findings of the Assessing Officer and rival submission of the appellant, carefully and find that basic condition for claiming exemption u/s 54F is that the capital gain arising from transfer of a long term capital asset not being a residential house is eligible for exemption u/s 54F in case the assessee has invested the entire amount of the net consideration in purchase of a new residential house within a period of one year before or two years after the date of transfer or has constructed a new residential house within a period of three years from the date of transfer. In case the investment in the new residential house is less than the net consideration, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration shall not be charged under section 45. Obviously, three conditions are to be fulfilled for claiming exemption u/s 54F:-
1. 1. The Long Term Capital Asset sold is that one other than Residential Property (Original property).
2. The Property to be purchased/constructed is a Residential Property (New Property).
3. The said new property is to be either: a. Purchased one year or two years after the date of transfer of original property, or b. Constructed within 3 years from date of transfer of original property. Thus the basic condition for claiming exemption u/s 54F is that the net consideration should have been invested in the purchase of new residential house within a period of two years from the date of transfer or for construction of new residential house within a period of three years from the date of transfer. The purpose of section 54F is to allow exemption to the assessee of long term capital gain arising from sale of Asset not being a residential house if the net consideration is invested in purchase of new residential house within a period of two years from the date of transfer and, therefore, in case, the assessee 5 Assessment Year: 2011-12 had invested the net consideration in purchase of a new residential house within a period of two years, this should be treated as sufficient compliance of the provisions. Thus, I find that Appellant is entitled for such claim. The arguments of the Ld. A.R. is supported by the judgement of Hon’ble Karnataka High Court in the case of CIT & Ors. V.K. Ramachandra Rao where following question was raised before the Hon’ble High Court:- “….(2) When the assessee invest the entire sale consideration construction of a residential house within three years from the date of transfer can be denied exemption under section 54F on the ground that he did no deposit the said amount in capital gains account scheme before the due date prescribed under section 139 (1) of the IT Act?” In reply to the said question, the Hon’ble High Court held as follows:- “….4.1 Re. Question No. 2 : ‘As is clear from Sub-section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in section 54F(1),, if the assessee wasnts the enefit of section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words if he want of claim exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then section 54F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct. 5 For the aforesaid reason both the substantial questions of law are answered in favour of the assessee and against the Revenue. Therefore, we do not see merit in any of the appeals. Accordingly, all the four appeals are dismissed.
6 Assessment Year: 2011-12 Thus the first ground of appeal is decided in the favour of the assessee since the Assessee has fulfilled the basic condition of making investment of more than the net consideration of Sale of Shops in purchasing a residential flat within a period of 2 years after the date of transfer as specified in the Section 54F for claiming the exemption. The Assessee made whole payment of the flat and got registration done on03.11.2011 i.e. within the period of 2 years from Transfer ending on 09.04.2012.”
7. We notice that the Ld. CIT (A) has decided the issue involved in this appeal relying on the decision of the Hon’bel Karnataka High Court in the case of CIT and others vs. K. Ramachandra Rao (supra) in which the Hon’ble High Court has decided the identical issue in favour of the assessee and against the revenue holding that if the intention of the assessee is not to retain cash but to invest in construction or purchase of any property and if such investment is made within the stipulated period in that event section 54F (4) does not apply. Since, the findings of the Ld. CIT (A) are based on the ratio laid down by the Hon’ble Karnata High Court, we do not find any infirmity in the order of the Ld. CIT (A) to interfere with. We therefore uphold the order passed by the Ld. CIT