ACIT, NEW DELHI vs. SH. RAMINDER SINGH NARANG, NEW DELHI

ACIT V Raminder Singh Narang ITA No 4461/Del/2012 A Y 2009-10

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F”: NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 4461/Del/2012 (Assessment Year: 2009-10) ACIT, Vs. Raminder Singh Narang, Circle-38(1), C/o. Romana Herbal Care Pvt. New Delhi Ltd, E-43, Flatted Factory Complex, Jhandewalan, New Delhi PAN:AACPN5607L (Appellant) (Respondent)

Revenue by : Shri Atiq Ahmed, Sr. DR Assessee by: Shri GS Kholi, CA Date of Hearing 26/07/2017 Date of pronouncement 29/09/2017

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the Revenue against the order of the ld CIT (A)-XXVIII, New Delhi dated 28.06.2012 for the Assessment Year 2009-10. 2. The Revenue has raised the following grounds of appeal:- 01 “The Ld. CIT(A) grossly erred in deleting the addition made by the AO on disallowance of deduction u/s 54 claimed by the assessee completely in utter disregard to provision of section 54 of Income Tax Act, 1961, ignoring the fact that the very basic conditions for claiming the above deduction on long term capital gain on sale of residential property were not fulfilled. 02 The Ld. CIT(A) grossly erred in deleting the addition made by the AO on disallowance of deduction u/s 54 claimed by the assessee ignoring the fact that for claiming deduction u/s 54, both the conditions that (i) the asset which is sold in respect of which capital gain is earned must be residential house and (ii) the income of the same must have been chargeable under the head Income from House Property should be fulfilled. 03 The Ld. CIT(A) grossly erred in deleting the addition made by the AO on disallowance of deduction u/s 54 claiming by the assessee ignoring the fact that the house on basis of which exemption is claimed must be bought either within one year before or within two years after the sale of the property in respect of which exemption is claimed. 1

ACIT V Raminder Singh Narang ITA No 4461/Del/2012 A Y 2009-10 04 The Ld. CIT(A) grossly erred in deleting the addition made by the AO of assessing income from House Property from one property as the assessee has claimed two residential properties as self occupied properties. 05 The Ld. CIT(A) grossly erred is deleting the addition made by the AO on assessing income from House Property from one property as the assessee himself has agreed to the above addition during the course of assessment proceedings. 5. That the grounds of appeal are without prejudice to each other. 6. The appellant can craves to add, amend or modify the grounds of appeal at any time.”

Facts of the case:- 3. Assessee is an individual who filed his return of income on 31/03/2000 declaring income of Rs. 12227200/-. Sources of income of assessee is income from salary, house property, business of profession other sources or with some agricultural income. During the year assessee has claimed exemption under section 54 of the income tax act amounting to Rs. 7073580/– on account of capital gain arising on sale consideration of property at K – 701, Ambience lagoon Island, Gurgaon, Haryana for Rs. 2.10 crores on 15/05/2008 which was purchased on 28/02/2003 and whose indexed cost of acquisition was computed at Rs. 13926420/- resulting into long-term capital gain of Rs. 7073580/-. The assessee purchased a new residential house at J – 7/8, DLF phase 2, Gurgaon on 11/05/2007 for Rs. 22065000/-and claimed exemption under section 54 of the income tax act, 1961. 4. During the assessment proceedings, the Ld. assessing officer examined the claim of the assessee for deduction under section 54 of the income tax act wherein assessee explained the claim. The Ld. assessing officer was of the opinion that on the perusal of the relevant purchase deed submitted by the assessee of both properties, assessee has acquired property on 11/05/2007 and capital gain arising on the property sold on 15/05/2008 is not eligible for exemption for the reason that the new property is purchased beyond time limit of more than one year before the sale of the property. According to the ld assessing officer, capital gain exemption claimed against the purchase of the property for which sale deed was executed on 11/05/2007 and possession is taken on 18/05/2007 and therefore claim of the assessee is not eligible. Therefore ld AO rejected the claim of the assessee that in the case of new property which is though purchased on 11/5/2007 but possession is

ACIT V Raminder Singh Narang ITA No 4461/Del/2012 A Y 2009-10 taken on 18/5/2007, if the „date of possession of the property‟ instead of „date of purchase deed of property‟ is considered, the claim of the assessee falls within the time limit prescribed. Consequently, assessment under section 143(3) of the act was passed on 29/11/2011 denying the exemption/deduction under section 54 of the income tax act of Rs. 7073580/–. A further addition of Rs. 168,000/- was also made to the total income of the assessee considering the annual value of the property as assessee was owning two house properties at a particular time, the assessee estimated annual value of the property at Rs. 240,000/- p.a., grated standard deduction there from at the rate of 30% of Rs. 72,000 and determined the net annual value of Rs. 168,000/-. Thereby total income was assessed at Rs. 19468780/– against the returned income of the assessee of Rs. 12227200/-. 5. Assessee being aggrieved with the order of the Ld. assessing officer preferred an appeal before the Ld. CIT (A) who vide order dated 28/06/2012 allowed the claim of the assessee under section 54 of the income tax act and as well as deleted the addition of Rs. 1 68000 on account of income from house property. 6. The Ld. CIT (A) relied on the board circular No. 538 dated 13/07/1989 wherein it has been stated that exemption under section 54 is available in respect of self occupied property even if income from such house may be computed at nil or at a negative figure by the virtue of section 23 (2) (a)of the act . He further held that the appellant entered into an agreement by executing an „agreement to sell cum proposed sale deed‟ on 10/04/2008 wherein amount of Rs. 50 Lacs was paid, therefore the date of the sale of original property is to be considered as 10/4/2008 instead of the executing of the sale deed on 15/05/2008. He further looked at the various terms and condition of the agreement to sale and held that the „domain and control‟ of the asset came into the hands of the purchaser only o possession of the property and therefore the appellant is eligible to claim deduction under section 54 F of the income tax act, 1961. The Ld. CIT appeal followed the decision of the Hon‟ble Bombay High Court in case of CIT versus Dr Luxmi Chand Nagda 211 ITR 804 for reaching at this conclusion. 7. Regarding the income of Rs. 168000/- added under the income from house property, he held that proviso to section 23 (1) ( C ) provides that if the house property is vacant then annual value of the same cannot be charged to tax. He further held that as the assessee was holding the house property, but same was not occupied as it 3

ACIT V Raminder Singh Narang ITA No 4461/Del/2012 A Y 2009-10 was lying for sale. Therefore, it was not let out to anyone. Therefore according to him if the property is vacant for the whole year then annual value of such property is required to be taken at rupees Nil. Accordingly, he held that the above property remained vacant for the whole year and it was not let out at all, ALV should be computed at nil. 8. Aggrieved by the order of the Ld. CIT (A) revenue is in appeal before us. Submission of Revenue:- 9. Ld. departmental representative vehemently contested that according to the provisions of section 54F of the income tax ac assessee is required to purchase the house property within a specified time and if the time limits are not adhered to then exemption cannot be allowed. He submitted that the assessee has purchased the house on 11/05/2007, whereas the date of sale is 15/05/2008. Therefore, if the property is not purchased after 16/05/2007, claim of deduction under section 54F cannot be allowed. In the present case assessee has purchased such property on 11/5/2007, which is beyond a period of more than one year before the date of sale and therefore, deduction has rightly been denied. He further submitted that the Ld. CIT (A) has erred in granting the above deduction. With respect to the income from house property. He relied on the order of the Ld assessing officer.

Submission of the assessee:- 10. The Ld. authorized representative submitted synopsis of his argument along with the copy of the paper book. His main argument was that agreement to sell entered into by the assessee for sale of the original assets proves sale was in April 2008, therefore the date of acquisition of new property on 11/5/2008 is within time limit and thus the appellant is eligible to claim the exemption under section 54 of the income tax act, 1961. He submitted that agreement to „sell sum proposed sale deed‟ was entered on 10/4/ 2008 between the assessee and the buyer r and a sum of Rs. 50 Lacs was received on 10/04/2008. With respect to purchase of new assets he referred to page No. 10 of the paper book to show that the property was handed over to the assessee only on 16/05/2007. He further referred to the „sale of property, change of ownership letter‟ issued by the builder which shows that assessee was handed over the possession on 18/05/2007. He further submitted that the property which was sold by the assessee was a self occupied property. Therefore, it was 4

ACIT V Raminder Singh Narang ITA No 4461/Del/2012 A Y 2009-10 chargeable to income tax under the head income from house property. To support his contention he referred to the computation of total income filed by him along with the return of income. Therefore, it was submitted that the assessee is entitled for exemption under section 54F of the act. In view of this he submitted that the Ld. CIT appeal has correctly allowed the claim of deduction to the assessee. 11. With respect to the addition of income from house property, he submitted that the assessee has already offered the income from the impugned property by claiming interest expenditure on the loan. He submitted that if the house property is vacant for the year then no annual value can be considered for that. In view of this he submitted that the Ld. CIT appeal has correctly deleted the addition. Reasons and Decisions:- 12. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The main issue involved in this appeal is with respect to claim of the exemption under section 54F of the income tax act. a. Assessee had one property k-701/ Ambience Lagoon, Island Gurgaon which was purchased on 28/02/2003 and sold on 15/05/2008, for which agreement to sell was entered into on 10/04/2008. Assessee submits that the „agreement to sale‟ shall be considered as the date of the transfer so that the date of purchase of new property falls within the specified time limit. Ld CIT (A) agreed to this. We reject the contention of the assessee for the reason that the agreement to sale produced before us is an unregistered deed. Further the total sales consideration was of Rs 2.10 Crs receivable to the assessee out of which only 25 % consideration is received and possession of the same was also not coupled with the agreement to sale date, Therefore according to us the actual date of transfer of the property for capital gain purposes shall be of 15/5/2008 on which the assessee executed the sale deed. b. The assessee purchased another property at j/7/8 DLF Phase –II Gurgaon on 11/5 /2007 and claimed deduction u/s 54 F for purchases consideration invested in new property for deduction of capital gain arising on property sold. . The claim of the assessee for such deduction from the long-term capital gain on sale of the above property was denied by the Ld. assessing officer for the reason that such property should have been purchased within a period of one year before the date of the transfer. Therefore, in the impugned 5

ACIT V Raminder Singh Narang ITA No 4461/Del/2012 A Y 2009-10 case, the original property was sold on 15/05/2008 and the assessee should have purchase the property within one year before 15/05/2008 i.e. up to 16/05/2007. In the impugned case as the assessee has purchased property on 11/05/2007 therefore claim of the assessee was denied. The above date of purchase of the property was mentioned by the assessee in its computation of total income filed along with the return of income as mentioned in para No. 3.1 of the assessment order. The claim of the assessee before the AO was that sale of the original assets took place on 10/4/2008 as the agreement to sale cum proposed sale deed was executed on that date and not on 15/5/2008. Therefore claim of assessee is that the period of one year prior to the date of sales needs to be reckoned from 10/4/2008 and not 15/5/2008. The date of purchase of the property is taken from the letter dated 16th may 2007 written by DLF building India to Indo Java exports private limited from whom the assessee has purchased the above property. According to that letter, it is mentioned that for property number J/7/8 in Phase –II DLF city Gurgaon, M/s Indo Java Exports private Ltd, has informed submitting documents on 14/05/2007 by the assessee that assessee has purchased the above property by way of sale deed dated 11/05/2007. Therefore, it was assumed by the assessing officer, undoubtedly also mentioned by the assessee in the computation of total income that above property was acquired on 11/5/2007 and therefore Ld. assessing officer was of the opinion that assessee has purchased this property not within the specified period. However, the claim of the assessee was that that though the property was purchased through sale deed on 11/05/2007 but unless the name of the assessee is entered in to the Register of ownership with the society, the assessee does not get the possession of the property. According to assessee the possession was taken on 18/05/2007. Therefore actual property was purchased only on 18/5/2007, i.e. the date on which the assessee was entered in to the register of ownership and possession was given to the assessee. The Honorable Bombay high court in case of CIT V Mrs. Beena K Jain [ 217 ITR 363] has held that :-

" Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing exemption of Rs. 11,04,423 under section 54F of the Income-tax Act, 1961, considering the date of 6

ACIT V Raminder Singh Narang ITA No 4461/Del/2012 A Y 2009-10 possession of the new residential premises instead of the date of sale agreement and the date of registration ? " Under section 54F of the Income-tax Act, in the case of an assessee if any capital gain arises from the transfer of any long- term capital asset, not being a residential house, and the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased a residential house, the capital gain shall be dealt with as provided in that section. As per the section certain exemption has to be allowed in respect of the capital gains to be calculated as set out therein. The Department contends that the assessee did not purchase the residential house either one year prior to or two years after the sale of the capital asset which resulted in the long-term capital gains. According to the Department, Page No : 0365 the agreement for purchase of the new flat was entered into more than one year prior to the sale. Hence, the petitioner is not entitled to the benefit under section 54F. In our view, the Tribunal has rightly negatived this contention and has held that the new residential house had been purchased by the assessee within two years after the sale of the capital asset which resulted in long- term capital gains. The Tribunal has held that the relevant date in this connection is July 29, 1988, when the petitioner paid the full consideration amount on the flat becoming ready for occupation and obtained possession of the flat. This has been taken by the Tribunal as the date of purchase. The Tribunal has looked at the substance of the transaction and come to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by payment of full consideration on July 29, 1988, and handing over of possession of the flat on the next day.”

Above view is also supported by the recent decision of the coordinate bench [Mumbai] in case of ITA No 4535 Mum 2014 In case of Ramita Mahendra Mehta (D Bench) dated 13/9/2017. In view of this we find no infirmity in the order of the ld CIT (A) in holding that the date of purchase of new house property for the purposes of deduction u/s 54 F of the act shall be considered as the date of possession. Accordingly we direct the ld AO to allow the claim of the assessee of deduction u/s 54 F of the act. Ground no 1-4 of the appeal of the revenue is dismissed. 13. Regarding ground no 5 of the appeal we do not find any infirmity in the order of the ld CIT (A) as assessee has shown the income from house property as NIL and also claimed deduction of interest thereon which is evident from the computation of total income filed. Hence ground No 5 of the appeal is dismissed. 7

ACIT V Raminder Singh Narang ITA No 4461/Del/2012 A Y 2009-10 14. In the result appeal of revenue is dismissed. Order pronounced in the open court on 29/09/2017. -Sd/- -Sd/- (SUDHANSHU SRIVASTAVA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:29/09/2017 A K Keot Copy forwarded to