ITO vs. SMT. MONICA PATRAO, MANGALORE

The revenue has raised as many as 14 identical grounds in these two appeals but the only effective grievance of the revenue is regarding the deletion of the disallowance made by the AO in respect of the assessee’s claim for deduction u/s 54F.

Learned DR of the revenue supported the assessment order. Learned AR of the assessee supported the order of CIT (A). She also submitted that as per the assessment order, the objection of the AO as per page 7 is this that since the construction of the new asset was not completed within 3 years from the date of transfer, deduction u/s 54F is not allowable. She submitted that on this aspect, the issue is covered in favour of the assessee by the judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. Sri C. Gopalaswamy in dated 15.02.2016 copy available on pages 1 to 4 of the paper book. She pointed out that the substantial question of law in that case was this that in a case where the time available for construction of house is up to 01.08.2010 and as per the construction agreement, completion time was 31.12.2011, whether the tribunal was justified in holding that deduction u/s 54F is allowable? She submitted that under these facts, Hon’ble Karnataka High Court approved that tribunal order by observing that the tribunal order in that case is covered by the judgment of the same High Court rendered in the case of CIT vs. Sambandhan Udaykumar as reported in 345 ITR 389. At this juncture, the bench raised a query that in the present case, the assessee was supposed to get both commercial area as well as residential area as per the JDA. Hence, it has to be seen that what is the value of residential area to be received by the assessee. The bench observed that this is also to be seen that in respect of residential area to be received by the assessee also, it has to be seen that whether it can be accepted as investment in “a residential house’ because such residential area may be in different towers. In reply, she submitted that this is not an objection of the AO as per the assessment order and relevant facts are not readily available. However, she placed reliance on a tribunal order rendered in the case of ITO vs. Shri Ravi Narayan Deshpande in ITA No. 306/bang/2017 dated 13.09.2017 copy on pages 59 to 66 of the paper book.

We have considered the rival submissions. We find that as per the JDA dated 15.03.2006 available on pages 45 to 58 of the paper book, the builder has to complete the construction within 30 months starting from the date of issue of license by the Mangalore City Corporation. A grace period of 6 months is also provided to the builder as per page 5 of JDA. As per letter dated 01.01.2009 from the builder to the assessee, the license was granted by Mangalore City Corporation on 10.06.2008 and therefore, the time available to the builder for construction is 36 months from this date, which is beyond the period of 3 years available u/s 54F but still, for this reason, the claim of the assessee for deduction u/s 54F cannot be rejected as was held by the tribunal in the case of ITO vs. Shri Ravi Narayan Deshpande (Supra) and by Hon’ble Karnataka High Court rendered in the case of CIT vs. Sri C. Gopalaswamy (Supra). Respectfully following these judgments, we hold that deduction is allowable to the assessee u/s 54F. But about the quantum of deduction so allowable, the matter has to go back to CIT (A) for a fresh decision because the necessary facts are not available on record and there is no finding on the factual aspect in the order of AO or CIT (A) because the AO has rejected the claim for deduction on this basis that the construction is not completed within time and he had no occasion to examine the quantification. As per Para 5.8 of the order of the learned CIT (A), it is said by him that the assesseec will get 10,000sq. ft. of constructed residential area and this is an admitted fact but we find that as per Para 15 of JDA, Party No. 2 amongst the first party shall be eligible for 10,000sq. ft. of commercial and residential of saleable area in the project. Hence, it is seen that this basis of the order of CIT (A) is incorrect. As per the JDA, the assesseec will get total 10,000 sq. ft including both commercial and residential area. It is also not known whether the residential area to be received by the assessee will be in one tower only or in different towers and therefore, whether it can be said that the residential area to be received by the assessee is acceptable as ‘a residential house’. Hence, we feel it proper to restore the matter back to CIT (A) for deciding by way of a speaking and reasoned order about the quantum of deduction allowable to the assessee u/s 54F. He should & 968/Bang/2014 Page 4 of 4 pass necessary order as per law in the light of above discussion after providing adequate opportunity of being heard to both sides.

In the result, both these appeals filed by the revenue are partly allowed for statistical purposes.