Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri S.S.Godara, JM & Hon’ble Shri M.Balaganesh, AM]
Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Principal Commissioner of Income Tax-2, Kolkata [in short the ld CIT] in Appeal No. 2503/CIT(A)-2/15-16 dated 23.12.2016 against the order passed by ITO, Ward-4(4), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 18.01.2016 for the Assessment Year 2013-14.
At the outset, we find that there is a delay of one day in filing of appeal by the assessee. The reasons adduced by the assessee for the same are convincing and accordingly we hereby condone the delay and admit the appeal of the assessee for adjudication.
2 ITA No.502/Kol/2017 Shri Vijay Mahipal A.Yr.2013-14 3. The only effective issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the rejection of exemption claimed by the assessee u/s 54F of the Act, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee filed its return of income for assessment year 2013-14 on 25.03.2014 declaring total income of Rs. 23,05,590/-. The assessee entered into an agreement with Wagholi Properties Pvt. Ltd. for purchase of flat of total carpet area of 227.60 sq. meters in the building known as Panchshil Towers together with two car parking space for Rs. 2,37,46,500/-. The ld. AO sought to verify the said fact and accordingly issued notice u/s 133(6) of the Act to Wagholi Properties Pvt. Ltd. on 06.11.2015. Reply was filed by the said party on 26.11.2015 directly before the ld. AO wherein the flat cost was confirmed at Rs. 2,37,47,500/- + other charges of Rs. 22,73,575/- .
The assessee sold shares of K.B. Industrial Alloys Pvt. Ltd. on 11.07.2012 for Rs. 1,46,92,300/-. These shares were purchased by the assessee in financial year 1988-89 and 2008-09. The assessee derived long term capital gain of Rs. 1,45,42,091/-. The assessee claimed exemption u/s 54F of the Act in the return of income in the said amount in view of his new investment in purchase of flat. The ld. AO observed that out of sale proceeds received on sale of shares, the assessee had advanced a sum of Rs. 1,21,00,000/- for providing unsecured loan to M/s Kay Bee Functionary Services Pvt. Ltd. in which he is one of the directors and holding majority of the shares thereon. The ld. AO also observed that further a sum of Rs. 20,00,000/- was invested in Kotak Bond and Rs. 2,00,000/- for other purposes by the assessee. The ld. AO observed that the assessee failed to deposit the monies in the capital gain account scheme before the due date of filing of return of income u/s 139(1) of the Act. Accordingly, he upheld that the assessee is not entitled for claim of exemption u/s 54F of the Act and hence denied the claim in the assessment in the sum of Rs. 1,45,42,091/-. The assessee pleaded that the entire long term capital gain and net sale 2
3 ITA No.502/Kol/2017 Shri Vijay Mahipal A.Yr.2013-14 consideration had been duly invested by the assessee in purchase of new residential flat before the due date specified u/s 139(4) of the Act. The assessee placed reliance on the decision of Hon’ble Supreme Court in the case of Xavier J Pulickal vs. DCIT reported in 379 ITR 534 in support of his contentions. It was also pleaded that even though the assessee had not made any deposit in capital gains account scheme, ultimate purpose of reinvestment in any residential property had been duly complied with by the assessee in the instant case. Accordingly, it was pleaded that the claim of exemption u/s 54F of the Act should have been granted to the assessee. The Ld. CIT(A) however did not agree to the contention and reiterated the finding of the ld. AO and dismissed the contention of the assessee. Aggrieved, the assessee is in appeal before us.
We have heard the rival submissions. It is not in dispute that the assessee in the instant case had invested net sale consideration for purchase of new residential flat before the date specified u/s 139(4) of the Act. We find that issue under dispute is squarely covered in favour of the assessee by the Co-ordinate Bench decision of this Tribunal in the case of Sunayana Devi vs. ITO reported in 86 taxmann.com 72 dated 13.09.2017 wherein it was ordered as under: 7. It can be seen from the computation of long term capital gain by the assessee that the assessee had claimed exemption u/s 54F of the Act. Under section 54F (1) of the act if the long term capital gain derived on transfer of a capital assets is, within a period of one year or two years before the date on which the transfer took place purchased or has within a period of three years after the date constructed a residential house, the capital gain would be allowed as a deduction. Sub section 4 of section 54F of the Act impose another condition for claiming deduction u/s.54F(1) of the Act. provides as follows :- " Section 54F (4): The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be 3
4 ITA No.502/Kol/2017 Shri Vijay Mahipal A.Yr.2013-14 accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset "
It can be seen from the provision of sub-section 4 of section 54F of the Act that where the net consideration received on transfer of a capital asset is not invested in purchase of construction of a new asset before the date for filing the return of income u/s 139 of the Act, it has to be deposited in a specified bank account within the due date for filing the return of income for the relevant assessment years as is prescribed u/s 139(1) of the Act. It is not in dispute that the assessee purchased land for construction of a residential house. The date of the purchase is 29.07.2004. The consideration paid by the assessee for purchase of the property was Rs.3,50,000/-. The assessee had paid stamp duty and registration charges of Rs.31,839/-. The CIT(A) treated the investment in purchase of the land as eligible for deduction u/s 54F of the Act and there is no dispute before the Tribunal on this aspect. The CIT(A) had not allowed the stamp duty and registration charges of Rs.31,839/-. In our view this sum should be considered as utilisation by the assessee in purchase or construction of a new asset. To this extent order of the AO and CIT(A) is not correct and they are directed to allow the deduction to the extent of Rs.31,839/- u/s 54F of the Act.
The remaining unutilised net consideration with the assessee was a sum of Rs.16,50,000/-. As per the provision of section 54F(4) of the Act the assessee if he wants to claim exemption u/s 54F of the Act, the net consideration received on transfer of the capital asset, to the extent it is not utilised for the purpose of purchase of a new asset, had to be deposited in a specified bank account on or before the due date of filing the return of income u/s 139(1) of the Act. The cut off date for such deposit for A.Y.2004-05 is 31.07.2004.
The AO with a view verify the date by which the unutilized net consideration on transfer of the property which gave rise to long term capital gain was invested in a specified bank account, called upon the assessee to file the required details. The assessee did not file the required details. In such situation the AO proceeded to compute long term capital gain at a sum of Rs.38,94,750/-, which we have set out in paragraph 6 of this order .
Aggrieved by the order of AO the assessee preferred appeal before CIT(A).
We have observed that CIT(A) considered purchase of land as to the extent of Rs.3,50,000/- as eligible for deduction u/s 54F of the Act. We have already held that stamp duty and registration charges of Rs.31,839/- should also be eligible for deduction u/s 54F of the Act. With regard to the remaining unutilised net consideration of Rs.16,50,000/- the assessee filed details of the deposit of the said sum in specific bank account as is required u/s 54F(4) of the Act. The details of the various dates of deposits as furnished by the assessee before CIT(A) reveal the following decision :- 4
5 ITA No.502/Kol/2017 Shri Vijay Mahipal A.Yr.2013-14
1 3. It can be seen that the assessee had deposited on or before 31.07.2004 which was the due date of filing the return of income u/s 139(1) of the Act. Rs. 2,60,000/- to this extent the CIT(A) held that the assessee was entitled to deduction u/s 54F of the Act. With regard to the remaining sum of Rs.13,90,000 (16,50,000-2,60,000) since the deposit was made after 31.07.2004 (after due date u/s 139(1) of the Act) the CIT(A) held that the assessee will not be entitled to the benefit of deduction u/s 54F of the Act.
At the time of hearing the ld. Counsel for the assessee pointed out that the admitted factual position as it emanates from the various documents filed by the assessee before CIT(A) and the remand report of the AO is that the assessee had utilised the unutilized net sale consideration of Rs.16,50,000/- in construction of a residential house. This would be clear from the annexure to the remand report dated 02.06.2009 viz., the spot inquiry conducted by the Inspector of the Income Tax. In the inquiry report dated 30.03.2009 of the Inspector of the Income Tax it has been stated as follows :-
"As per your direction, I visited the locality in which the building property of the assessee stands which is found located at the bye-lane of Sister Nivedita Road at Gurung Busty, Pradhan Nagar, Siliguri and which is also found can be viewed opposite of the location of the office premises of West Bengal State Electricity Board, Pradhan Nagar, Siliguri. The structure of the building is found with building plan for Ground plus three storied residential purposes. Therein, I met Smt Sunayana Devi, who assisted me throughout my enquiry. As per my spot enquiry Smt Sunayana Devi told and also showed me documentary proof like application made to the Chief Executive Officer, Siliguri Municipal Corporation and also certificate from the Ward Councillor certifying the completion of building. As per the documents and also of the replies of the query regarding the construction and completion period of the building, it was told by the assessee that she had started constructing the residential house building during the period 2005 and completed during the period 2006. To ascertain the same, further discreet enquiries were made with the locals of the locality and the consequence of all 5
6 ITA No.502/Kol/2017 Shri Vijay Mahipal A.Yr.2013-14 reply were found in the affirmative. During my spot enquiry of each floor, it was found that the building is totally used by the assessee for her family residential purposes only and were not found to have been let-out or sold to any third party or parties."
The CIT(A) however was of the view that in the present AY what is relevant is only the deposit of unutilized net consideration received on transfer of the capital gain in a specified account as is required u/s.54F(4) of the Act and the question regarding completion of the construction will have to be examined only in the AY in which the time limit for constructing a new house expires. The following were the relevant observations of CIT(A): " As per the remand reports submitted by the Ld AO it was not conclusively proved that the residential house was completed within 3 years from the date of sale of land. But the fact remains that the assessee has constructed a residential house on the land purchased by her which has not been disputed by the Ld AO. The Courts have held that exemption U/S 54F cannot be denied on the ground that the construction was not completed within the stipulated period. As the assessee has purchased land and thereafter constructed residential house thereon although Completion Certificate has not been issued by the municipal authorities the assessee is eligible for exemption U/S 54F to the extent of investment of Rs. 3,50,000/- made for purchase of land for the purpose of construction of residential house thereon. For this assessment year the Assessing Officer, while examining the claim of exemption under section 54F, is required to restrict himself to see whether the assessee has fulfilled the basic requirements as per the provisions of law for availing such exemption. Only after expiry of the stipulated period from the date of transfer of asset as per the provisions of section 54F the Assessing Officer should examine whether the assessee has fully complied with the requirement of purchase of new house or construction of new house. If the assessee has failed to comply with the requirement of purchasing new house or constructing new house within the stipulated timeframe from the date of transfer of asset as per the provisions of section 54F, the Assessing Officer is justified in withdrawing the exemption granted. In such circumstances the withdrawal of exemption under section 54F is justified in the year the stipulated time period for purchase of new house or construction of new house expires. Considering the above facts I hold that the assessee is entitled to exemption U/S 54F to the extent of investment of Rs. 3,50,000/- made for purchase of land for the purpose of construction of residential house thereon and deposit of Rs. 2,60,000/- made in the Capital Gains Account Scheme by the assessee by the due date of filing of return U/S 139(1) of the Act. Thus the assessee is allowed exemption of Rs. 6,10,000/- U/S 54F of the Act. The disallowance of exemption U/S 54F of the Act of the entire Capital Gain by the Ld AO was not justified as the claim of exemption U/S 54F to the extent ofRs. 6,10,000/- to the assessee is held to be justified."
After considering the remand report and the Inspectors report it is clear that the construction of a residential house was completed by the assessee within the period of three years from the date of transfer as is required u/s 54F(1) of the Act. The absence of completion certificate cannot be a ground to deny the benefit of deduction u/s 54F of the Act. The ld.counsel for the assessee in this regard has placed reliance on the 6
7 ITA No.502/Kol/2017 Shri Vijay Mahipal A.Yr.2013-14 decision of the Hon'ble Madras High Court in the case of CIT vs Sardarmal Kothari 302 ITR 286 (Mad). The Hon'ble Madras High Court in the aforesaid decision in the context of deduction u/s 54F of the Act came to the conclusion that it would be enough if the assessee establishes that he has invested the entire net consideration within the stipulated period. The Chennai Bench of ITAT in the case of Mrs. Seetha Subramanian vs ACIT 59 ITD 94 (Mad) also took a view that investment of the net consideration for construction of the house has alone to be seen for allowing deduction u/s 54F of the Act.
Having come to the conclusion that the assessee had utilised the net consideration in construction of a house within the period of three years from the date of transfer, the question would be whether the absence of deposit of unutilised net consideration in a specific bank account as is required u/s 54F(4) of the Act, should the Assessee be denied the benefit of deduction u/s 54F of the Act. On this issue the ld. Counsel for the assessee brought to our notice the decision of the Hon'ble Karnataka High Court in the case of CIT, Bangalore vs K.Ramachandra Rao (2015) 56 Taxmann.com 163 (Karn). In the aforesaid decision the assessee had not deposited the unutilised net consideration in a specific bank account as is required u/s 54F of the Act. The assessee had however invested the net consideration in construction of a residential house within the period contemplated u/s 54F (1) of the Act. The Hon'ble Karnataka High Court had to decide whether the assessee could be given a deduction of benefit u/s 54F (1) of the Act. The Hon'ble Karnataka High Court held that if the assessee invests the entire consideration in construction of the residential house within three years from the date of transfer he cannot be denied deduction u/s 54F of the Act on the ground that he did not deposit the said amount in capital gain account scheme before the due date prescribed u/s 139(1) of the Act. In the light of the aforesaid decision of the Hon'ble Karnataka High Court and in the light of the admitted factual position that the assessee invested the sale consideration in construction of a residential house within three years from the date of transfer, we are of the view that the assessee should be given the benefit of deduction u/s 54F of the Act on the sum of Rs.16,50,000/- also and cannot be denied the benefit the said benefit for the reason that he had not complied with the requirements of Sec.54F(4) of the Act. Thus in effect the assessee would be entitled to deduction u/s.54F of the Act of Rs.20,31,839/- viz., for the investment of Rs.3,50,000/- in purchase of the land, Rs.31,839/- stamp duty and registration charges and Rs.16,50,000/- utilised for construction of a residential house within this period specified in section 54F(1) of the Act. The AO is accordingly directed to allow deduction u/s 54F of the Act a sum of Rs.20,31,839/-. The appeal of the assessee is thus partly allowed.
In the result the appeal of the assessee is partly allowed.”
8 ITA No.502/Kol/2017 Shri Vijay Mahipal A.Yr.2013-14 Respectfully following the said decision we held that the assessee is entitled for claim of exemption u/s 54F of the Act in the facts of the instant case. Accordingly, grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 20.11.2018
Sd/- Sd/- [S.S. Godara] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 20.11.2018
SB, Sr. PS
Copy of the order forwarded to: 1. Shri Vijay Mahipal, 8, Taher Mansion, Bentick Street, Room No. 2, Hare Street, Kolkata-700001. 2. ITO, Ward-4(4), Kolkata, P-7, Chowringhee Square, Kolkata-700069. 3..C.I.T.(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.