SHRI SUSHIL KUMAR BAFNA,UJJAIN vs. THE ITO 1(1), UJJAIN

आदेश /O R D E R

PER O.P. MEENA, ACCOUTANT MEMEBR. 1. This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-Ujjain; [in short “the CIT (A)”] dated 18.07.2014. This appeal pertains to Assessment Year 2010-11. This appeal has arisen from the order passed under section 143 (3) of Income Tax Act, 1961 (in short

Shri Sushil Kumar Bafna, Ujjain v. ITO-1(1) /I.T.A. No. 637/Ind/2014/A.Y.:10-11 Page 2 of 24

‘the Act’) by the Income Tax Officer 1 (1) Ujjain dated 25.03.2013.

The assessee has taken following grounds of appeal:- 1. That the learned CIT(A) erred in holding the action of the AO of disallowing the claim of deduction made under section 54F amounting to Rs. 99,40,150/- and in making addition of the said amount to income under the head Long Term Capital Gain. That on the facts and circumstances of the case, the disallowance/addition made is wrong and bad in law and it is prayed that the said deduction may very kindly be allowed. 2.1 That the learned CIT(A) erred in not deciding the appropriate year of taxability of the Long Term Capital Gain as the construction period of three years envisaged u/s. 54F elapsed on 22.03.2013 making the Long Term Capital Gain taxable in A.Y. 20013-14 and not in A.Y. 2010-11. That on the facts and circumstances of the case, the year of taxability of Long Term Capital Gain being wrong, it is prayed that suitable directions be issued to the AO to tax the Long Term Capital Gain in A.Y. 2013-14. 2.2. That the learned CIT(A) erred in completely ignoring the fact that the appellant has suo-moto offered the impugned capital gain u/s. 45 as income of the previous year 2012-13 relevant to A.Y. 2013-14 in the return filed under section 139(1) as the prescribed time limit of three years expired in F.Y. 2012-13. The action of the Ld. CIT (A) of confirming the said addition in the year under appeal has in fact resulted in double taxation of the same income.

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appeal but in substance same relates to confirming the

addition offer 99,40,150 by denying exemption under section

54F of the Act in A.Y. 2010-11 and not taxing the long term

capital gain in A.Y. 2013-14 and if it be taxed in A.Y. 2010-

11 then corresponding deduction be directed for A.Y. 2013-

disposed-of by common manner.

authorities are that the assessee is individual and derives income

from catering business. The assessee has filed return of income

on 28.02.2011, declaring total income of Rs. 3,92,330/-. The

assessee along with his wife and son have sold a piece of land

admeasuring 3.607 hectares situated at R.G. Survey No. 1634,

Ujjain on 22.03.2010 for a sale consideration of Rs.2,25,00,000

in which assessee`s share of consideration was at

Rs.1,12,50,000. The assessee has claimed cost of indexation at

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Rs. 9,62,1010 and after deducting the same, long term capital

gains was computed at Rs. 1,02,87,899/-. Out of this net long

term capital gains of Rs. 3,47,749/- was offered to tax and

balance of Rs. 99,40,150/- was claimed as exemption under

section 54F of the Act being purchase of three plots of land for

Rs. 87,90,150/- and Rs. 11,50,000/- were kept towards

construction on said plots of land. The investment of Rs.

87,88,135/- was made in purchase of three plots of land being

Plot No. 381 on 15.03.2010 for Rs. 28,89,910/- [PB31] Plot No.

382 on 15.023.2010 for Rs. 30,59,235/- [PB37] and Plot No. 383

on 15.03.2010 for Rs. 28,38,990/- [ PB 47]. The investment of

Rs. 11,50,000/- was claimed towards construction of residential

house on these three plots. The assessee was asked to furnish: -

a) copy of Map/plan approved by the Municipal Corporation,

Indore b) Letter of approval from Town and Country Planning,

Indore, c) complete details of expenses along with bill/vouchers

with regard to construction claimed at Rs. 11,50,000/- , d) date

of commencement of construction and name of Architect /

builder engaged to this effect. However, the assessee did not reply

to said letter and has expressed his inability to furnish details

called for. In view of these circumstances, the AO along with his

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Inspector, Shri Subhash Maheshwari , Advocate, (the ld. A.R. of

the assessee), and Shri Pawan Bafana (son of the assessee),

inspected the site at Indore on 19.11.2012 and found that no

construction was done till the date of inspection i.e. 19.11.2012.

In response to summon dtd. 19.11.2012, the assessee has

attended the office of the AO, and his statement was recorded

wherein he has stated that he has planned to construct a house

but due to some reasons the construction could not be done.

Since the conditions laid down under section 54F were not

fulfilled. The AO, therefore, issued a show cause dtd. 20.12.2012

asking the assessee to show-cause as to why deduction claimed

at Rs. 99,40,150/- should not be disallowed and added to

income. The assessee vide letter dated 05.01.2013, replied that

Town and Country Planning Department, Indore is not giving

approval for construction of one big house on three plots. Unless

and until, the Town and Country Planning, Indore, the Municipal

Corporation approve the map, Indore did not permit construction

of house. For these reasons, the construction on three plots

could not be undertaken. The AO observed that three years’ time

from sale of original assets was expired on 22.03.2013. Therefore,

the AO again along with Shri Subhash Maheshwari advocate

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(counsel of the assessee), and Shri Pawan Bafna,(son of the

assessee), inspected the site on 24.03.2013 and found that no

construction was done within three years after the date in which

transfer took place which is also evident from photograph

enclosed as annexure 1 to assessment order. Therefore, the AO

held that conditions as per provisions of section 54F were not

fulfilled by the assessee. Neither he had purchased a residential

house, within a period of one year before the date on which

transfer took place or constructed a house within a period of

three years after the date on which the transfer took place nor

deposited the amount of net sale consideration in an account in

any such bank or institution as may be specified in, and utilized

in accordance with, any scheme which the Central Government

may, by notification in the Official Gazette, frame and, for the

purposes of sub-section (1) of Section 54F. Mere purchase of plot

does not suffice the conditions laid down in the section 54F of

Income Tax Act, 1961. In the light of above facts, the AO

disallowed the long term capital gains of Rs. 99,40,150 and

added to the income of the assessee.

CIT (A). The Ld. CIT (A) observed that the assessee has sold the

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land on 22.03.2010 and as per the requirement of law; he has to

invest in the construction of house on or before 23.03.2013. The

AO along with Shri Subhash Maheshwari, Advocate (counsel for

the appellant) and Shri Pawan Bafna (son of the assessee)

inspected the site and found that no construction was done

within a period of 3 years after the date on which the transfer

took place. The appellant has also not deposited the amount of

net sale consideration in an account in any such bank or

institution as may be specified in , and utilized in accordance

with, any scheme which the Central Government may, by

notification in the Official Gazette, frame and, for the purposes of

sub-section (1) of Section 54F of the Act. The Ld. CIT (A) also

supported his view by placing reliance in the case of Usha Gupta

v. CIT [2006] 204 CTR (Raj) 399, wherein it was held that when

no document was annexed in support of claim of deduction, mere

claim of deduction under section 54F could not be allowed. It

cannot be the intention of the legislature to accept whatever

assessee says without proper evidence in support of that claim.

Accordingly, the action of the AO was confirmed.

Tribunal. The Ld. A.R. submitted that the assessee has sold the

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plot of land on 22.03.2010 with co-owners for Rs.2,25,00,000

against which an amount of Rs. 1,46,00,000 was received by

cheque and balance Rs. 79,00,000/- was received in cash. The

assessee `s share being 50% was at Rs. 1,12,50,000/-. The

assessee has received cheque amount of Rs. 41,00,000/- i.e. [

11,00,000 on 19.8.2010+ 25,00,000 on 8.9.2010+ 5,00,000 on

17.2.2010] and Rs. 25,00,000/- on 10.4.2010 and balance

amount of Rs. 46,50,000 was received in cash. The assessee

utilized Rs. 33,00,000/- for purchase of plot, which were received

by Smt. Pukhraj Bafana, wife of assessee who had received the

same from the purchaser of land. Thus, the amount of Rs. 74

Lakhs [Rs. 41 Lakh +Rs. 33 Lakhs ] were available with the

assessee, before 17.03.2010 for the payment of purchase price of

three plot of lands and balance amount was invested out of fund

available with him. Thus, investment of Rs. 87,90,150/- was

made in purchase of new assets before the sale of original asset,

with an intention to construct a residential house and an amount

of Rs. 11.50 Lakh was claimed on account of construction of

property. It was explained that the said amount of Rs. 33 lakhs

were returned back to Smt. Pukhraj on 22.03.2010 when the

amount of Rs. 46.50 Lakh was received in cash (PB8) Therefore,

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it was claimed that the assessee has invested 87.90 Lakh before

sale of original asset. In support of the claim that investment can

be made out of borrowed money in acquisition of new asset, the

AR has relied in the case of Bombay Housing Corporation v. ACIT

(2002) 76 TTJ (Mum) 25: 81 ITD 545(Mum) wherein the AO has

held that sale consideration was not invested in specified assets

and the assessee had diverted sale consideration of Rs. 3.55

crores to various partners and investment had been made in

specified assets by borrowing an amount of Rs. 1.42 crores. The

ITAT held that what the section requires is that it is necessary for

the assessee only to invest an amount, which is arithmetically

equal to the net consideration in the specified assets. It cannot be

the intention of the section that other normal transaction or

activities of an assessee should be curtailed or that the sale price

should be immobilized. There may be various reasons like the

buyer does not discharge the sale consideration, money is

blocked somewhere else etc. Therefore, even if borrowed money is

invested in new asset, exemption shall be allowed.

Subhash Sevaram Bhavnani [2012] 23 taxmann.com 94

(Ahmedabad –Trib) where the assessee has started construction

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of residential house before the date of transfer of capital asset,

however, same was completed within prescribed time limit of

three years from the date of transfer, assessee`s claim for

deduction under section 54 was to be allowed.

construct the residential house within the prescribed time limit of

three years from the date of transfer. Since the assessee wanted

to join three plot of land together so that a palatable house could

be made for his family. The total area of three plots of land was

467.56 Sq. Mts. Whereas as per Gazette Notification of Madhya

Pradesh government dtd. 3.1.2012 it was notified that the merger

of plot of land having 500 Sq. Mts. could be allowed. Therefore,

the assessee has filed a merger application on 16.01.2012 (PB-

53 to 61) but the permission for merger of plot in one was denied

to vide letter dated 23.01.2012. The assessee has taken the steps

for merger of plot of land, which included the application made

on 16.01.2012 with Town and Country Planning Department

(PB61) in pursuance to Gazette Notification dtd. 03.01.2012 and

finally received a letter dtd. 07.02.2014 from Town and Country

Planning Department agreeing for merger (PB72). Until this time,

the prescribed time limit was already expired on 23.03.2103 and

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therefore, the assessee has thought it proper to pay taxes while

filing return of income for A.Y. 2013-14. Thus, under unavoidable

circumstances, the construction could not take place. The Ld.

A.R. submitted that in such circumstances long-term capital

gains in respect of Rs. 87.90 Lakh could not be disallowed. In

support of this proposition, the Ld. A.R. relied in the case of Smt.

V. A. Tharabai [2012] 19 taxmann.com 276 (Chennai) / [2012] 14

ITR (T) 15 (Chennai)/ 50 SOT 537 (Chennai) where the assessee

has earned long term capital gains from sale of property on

8.6.2008 on which net capital gains of Rs. 32,77,450/- . The

assessee has purchased land for Rs. 38.88 Lakh till September

2006. However, due to petition filed for injunction by the owners

of land, the Civil Court ordered status quo, which was prevented

the assessee for further construction of the residential house.

The matter went up to Apex Court, which was dismissed on

13.9.2011 and on 19.09.2011; all proceedings before the Civil

Court were dismissed as withdrawn. Hence, the tribunal held

that exemption u/s. 54F could not be denied where the assessee

has invested sale consideration for purchasing land.

18.10.1993 , quoted by the ld. CIT (A) also laid down that the

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cost of construction shall also include cost of land for

determining the quantum of deduction under section 54/54F

provided that the acquisition of plot and also the construction

thereon are completed within the period specified in these

sections. However, in the case of assessee, no construction has

taken place due to the circumstances beyond the control of the

assessee, as the approval of merger was received late.

that if the long-term capital gain is to be taxed in the A.Y. 2010-

11, then the AO therefore, be directed to reduce the long-term

capital gains declared by the assessee in A.Y. 2013-14. The Ld.

A.R. further relying in the case of Hon’ble High Court of Kerala in

the case of Malayalam Plantation (India) Ltd. v. CIT (1990) 53

Taxman 541 (Ker) /184 ITR 505 (Ker) submitted that the

Tribunal has got power to direct the ITO to allow deduction on

accrual basis for another year even which is not the subject

matter of appeal. The Ld. A.R. submitted that the provisions of

statute should be harmoniously interpreted as in this case, the

assessee has taken various steps for construction, but merger of

plot of land was under dispute hence, could not be constructed.

In support of this proposition, the Ld. A.R. relied in the case of

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Sri Prasad Nimmagadda v. DCIT –II [2013]32 taxmann.com 5(

Hyderabad-Trib) / [2013] 27 ITR (T) 63/ 56 SOT 473(Hyd) held

where amount of capital gains claimed as exempted under

section 54F is not utilized in construction of residential house

within period of 3 years, it will be charged to capital gains in year

in which period of 3 years expires, however, exemption already

granted shall not be denied. The Ld. A.R. further submitted that

the hardship should be avoided. The Ld. A.R. has cited a decision

in the case of CIT v. Bharti C Kothari 254 ITR 22 (Cal) to contend

that if the interpretation sought by the Department is accepted,

this will lead to hardship to the assessee for no fault of the

assessee.

Gopalan [1999] 107 Taxman 591 (Ker) where the assessee has

sold a residential house and acquired new residential house, and

claimed deduction u/s. 54. AO held that sale price was not

utilized for construction of a house, but was deposited in private

banks. The Court held that the assessee has to construct or

purchase a house property. Wordings of section 54 itself make it

clear that the law does not insist that sale consideration should

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be utilized for the purchase of property. The statutory provision is

clear and does not call for a different interpretation.

has already purchased plot of land on 15.03.2010 before the sale

of original asset on 23.03.2010, hence, it cannot be said that sale

consideration has been utilized towards purchase and

construction of residential house. Further, the assessee has not

constructed the residential house within the prescribed time limit

of 3 years from the date of transfer of original asset. The assessee

has also not utilized the balance sale consideration of Rs.

11,50,000 in construction of residential house nor has deposited

the same in capital gains scheme account as notified by the

Central Government before the expiry of due date of filing of

return of income under section 139(1) of the Act. Therefore, the

AO and CIT (A) were right in disallowing the exemption under

section 54F of the Act.

have perused the material available on record. It is observed that

the claim of the assessee for exemption under section 54F was

disallowed by the AO on the ground that when he inspected the

property it was found that the assessee has not constructed a

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residential house on plot of land purchased for on 87.50 lakh

before the expiry of 3 years prescribed time limit from date of

transfer of original asset. The AO also noted that the assessee

has not deposited the amount of Rs. 11.50 Lakh in capital gains

account as required under section 54F (4) of the Act. In order to

appreciate the provision of section it would be relevant to

produce the provision of section 54F which reads as under:

“54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section…………………………………………. (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 purpose 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

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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 Office Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit.;” 13. We find that section 54F contains two eventualities claiming

for the benefit, one, is the purchase of the residential house and

the second is construction of a residential house. The provision of

section provides that it require the assessee to purchase the

property being a residential house either before one year of the

sale of the land or after three years from date of transfer of

original asset. In the case of the assessee, we find that the

assessee has purchased three plot of lands for Rs. 87.90 Lakh

before one year from the date of transfer, but he has not

constructed the residential house thereon within the specified

period of three years from date of transfer, which expired on

23.03.2013. Therefore, the conditions laid down in section 54F

(1) are not satisfied. Hence, exemption under section 54F is not

available to the assessee. We further find that an amount of Rs.

11.50 Lakh was kept to be utilized for construction of residential

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house, but the same is neither utilized nor kept deposited in

capital gains account scheme as required under the provisions of

section 54F (4) of the Act. Therefore, this amount is taxable in

A.Y. 2010-11 only. This view is fortified from decision of Hon`ble

Bombay High Court in the case of Humayun Suleman Merchant

v. CCIT [2016] 387 ITR 421) (Bom) 2016-TIOL-1949-HC-MUM- held

as under:

“Failure to deposit the amount of consideration not utilized

towards the purchase of new flat in the specified bank

account before the due date of filing return of income u/s

139(1) is fatal to the claim for exemption. The fact that the

entire amount has been paid to the developer/builder before

the last date to file the ROI is irrelevant. Therefore, the claim

of exemption u/s. 54F was prima-facie not in accordance

with law”.

failing to deposit the amount of Rs. 11.50 in capital gains scheme

account rendered the assessee as ineligible for the claim of

exemption under section 54F of the Act. Similarly, the balance

amount has also not been utilized towards construction of

residential house; hence, the AO was right in disallowing the

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exemption of Rs. 11,50,000/- under section 54F(4) of the Act.

Thus, we find that the assessee is not entitled to exemption of Rs.

99,40,150/- on this amount of long-term capital gain u/s 54F of

the Act.

54F provides a period of three years for construction of a house

and in case if the assessee is not in a position to purchase a

house, in the first year of the transaction, or construct the

house, then the amount of capital gain can be charged to tax in

the third year, in which time limit is expired. In this case A.Y.

2013-14 in which the assessee has himself shown the long term

capital gains in the return of income filed by him. The Ld. CIT (A)

has rightly repelled this plea. We find that section 54F reads as

under :-

"54F. Capital gain on transfer of certain capital assets not to

be charged in case of investment in residential house (1)

Subject to the provisions of sub-s. (4), where, in the case of an

assessee being an individual or an HUF, the capital gain

arises from the transfer of any long-term capital asset,

not being a residential house (hereafter in this section

referred to as the original asset), and the assessee has,

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within a period of one year before or two years after the date

on which the transfer took place purchased, or has within a

period of three years after that date constructed, a residential

house (hereafter in this section referred to as the new asset),

the capital gain shall be dealt with in accordance with the

following provisions of this section,

required to appropriate the amount of net consideration

towards purchase of new residential house within one year

before the date on which transfer of the original asset took place,

then the assessee was supposed to deposit that amount in

such bank or institution as the Central Government

prescribed in the official gazette. The learned Counsel relied in

the case of Sri Prasad Nimmagadda v. DCIT-II [2013]32

taxmann.com 5 ( Hyderabad-Trib) / [2013] 27 ITR (T) 63/ 56

SOT 473(Hyd) when it was held that where amount of capital

gains claimed as exempted under section 54F is not utilized in

construction of residential house within period of 3 years , it will

be charged to capital gains in the year in which period of 3 years

expires, however, exemption already granted shall not be denied.

However, in the case of the assessee, we find that the entire

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amount of capital gains has not been used towards purchase of

plot of land and construction thereon. The unutilized amount of

Rs. 11.50 lakh was not deposited in bank account before expiry

of due date under section 139(1) as required under section 54F

(4) of the Act. Further the amount of Rs. 87.90 Lakhs also used

for purchase of plot of land and not for construction of residential

house. Therefore, the assessee cannot be allowed to take

postpone of the tax liability for three years without satisfying any

of the condition laid down u/s 54F of the Act. Therefore, the

claim of long-term capital gain is to be seen as whole and in

piecemeal amount as part can be taxed in one year and balance

can be taxed in another year. Therefore, said decision is

distinguishable on facts. Further, the CBDT Circular No. 667 dtd.

18.10.1993 will come in effect only, when the assessee makes

construction on the plot of land so purchased. In this case, the

assessee has not been able to construct the residential house on

the plot of land purchased. Hence, the assessee cannot take help

of circular also.

assessee had complied with the said requirement of sub-s. (4) of

s. 54F of the Act. The learned Counsel relied in the case of in the

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case of ITO v. K. C. Gopalan [1999] 107 Taxman 591 (Ker) in

which the assessee sold residential house and acquired new

residential house, and claimed deduction u/s. 54. AO held that

sale price was not utilized for construction of a house, but was

deposited in private banks. The Court held that the assessee has

to construct or purchase a house property. Wordings of section

54 itself make it clear that the law does not insist that sale

consideration should be utilized for the purchase of property. The

statutory provision is clear and does not call for a different

interpretation. However, this decision is not applicable to

present case as this decision was given in the context for A.Y.

1984-85 wherein provision of section 54F (4) were introduced

with effect from 01.04.1988, hence, said decision is not

applicable to the facts of the case. Apart from it, the learned

CIT(A) had noted that inspite of expiry of three years from the

date of transfer of original asset, the assessee has not

constructed any house over the plot in question and even today

the assessee had not been able to show us that construction

of residential house on the plot was completed. In view of this,

alternative plea of the assessee is not going to help the assessee.

We also find that the original asset was sold on 22.3.2010 but

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the assessee had not been able to construct the residential house

before 22.03.2013. The learned Counsel referred decision in the

case of ACIT v. Subhash Sevaram Bhavnani [2012] 23

taxmann.com 94 (Ahmedabad –Trib) where in the case of

assessee, construction of residential house started before the

date of transfer of capital asset, however, same was completed

within prescribed time limit of three years from the date of

transfer, assessee`s claim for deduction under section 54 was to

be allowed. However, this decision is not applicable, as the

assessee had only purchased three plot of land on which

construction was not started. Therefore, we are of the view that

the assessee was not entitled to claim of exemption u/s. 54F of

the Act, hence, we hold that the lower authorities are justified in

taxing the resultant long-term capital gain in A.Y. under appeal.

Thus, the cumulative effect of the discussion above is that mere

purchase of residential plot is not sufficient compliance of

provisions of section 54F. What was expected from the

assessee was to prove on record that the assessee had

purchased or constructed a house within the period specified

under section 54F, which the assessee had failed to prove on

record. The AO rightly rejected the claim of the assessee and

Shri Sushil Kumar Bafna, Ujjain v. ITO-1(1) /I.T.A. No. 637/Ind/2014/A.Y.:10-11 Page 23 of 24

order of learned CIT (A) is on the correct footings, which requires

no interference. Therefore, the above ground of appeal of the

assessee are rejected.

has been claimed that if long-term capital gain is taxed in A.Y.

2010-11, then direction may be given to the AO to reduce the

amount of long-term capital gains suo-motu offered to tax in A.Y.

2013-14 by the assessee. The AR has relied in the case of Hon’ble

Kerala High Court in the Malayalam Plantation (India) Ltd.

(supra) where in it was held that Tribunal could issue direction to

allow such deduction in another year to avoid double taxation.

We also aware of the facts that the assessee has offered long-term

capital gain in A.Y. 2013-14 and paid taxes thereon. This means

that the said amount of long-term capital gain is being taxed

twice, which cannot be intention of the Legislature. Therefore, we

direct the AO to verify the claim whether the assessee has

disclosed this long-term capital gain amount in A.Y. 2013-14,

and if found correct, the AO should reduce then the said amount

be reduced from taxable long-term capital gain of A.Y. 2013-14,

and resultant refund of tax if any would be adjusted against the

demand of assessment year under consideration i.e. A.Y. 2010-

Shri Sushil Kumar Bafna, Ujjain v. ITO-1(1) /I.T.A. No. 637/Ind/2014/A.Y.:10-11 Page 24 of 24

extent. 19. In the result, the appeal of the assessee is partly allowed. 20. The order pronounced in the open Court on 27.03.2017.

Sd/- Sd/-

(सी.एम.गग�) (ओ.पी.मीना) (C.M. GARG) (O.P.MEENA) �या�यक सद�य लेखा सद�य JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29th March, 2017