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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of Commissioner of Income Tax (Appeals)-4, Chennai in 13/CIT(A)-4 dated 30.08.2016 for assessment year 2012-13.
:-2-: ITA No. 3103/Chny/2017
Thulasi Narayanamurthy, the assessee, along with her three sisters received a property consisting of land , the entire super structure thereon with compound wall in Kanathur Reddy, kuppam Village, Kancheepuram District admeasuring 2 acres through a Deed of Settlement dated 24.12.2007. Thereafter, the assessee with her three sisters entered into an agreement of sale on 19.03.2012 with M/s. Bhoomi and Buildings Pvt. Ltd. for a consideration of Rs.7,00,00,000/-. Out of the which, the assessee's 1/4th share works out to Rs.1,75,00,000/-.
2.1 On the same day, i.e. on 19.03.2012, the assessee made a Capital Gains Deposit of Rs.1,00,00,000/- and a Fixed Deposit - Kalpataruvu Deposit of Rs.1,50,00,000 jointly with her sister Ms. N. Jinapriya with Andhra Bank, Mowbrays Road branch (A/c. No.025520100046902). On 01.06.2012, the assessee along with her another sister, Ms. Jyothi Lakshmi Rebala entered into an unregistered Agreement of sale with Smt. Geetha Thachil for purchase of land to the extent of 2 grounds and 2160 Sq. ft. bearing Plot No.345, Sri Kapaleeswarar Nagar, 1st Main Road, Neelangarai for a consideration of Rs.3,19,20,000, which was paid through Banker's Cheque using the sources of funds as under:
01.06.2012 Rs.1,19,00,000 Paid by Ms. Jyothi Lakhsmi 01.06.2012 Rs.1,00,00,000 Paid by Ms. Jyothi Lakshmi 01.06.2012 Rs.1,00,00,000 paid by the assesseeby closing her capital Gains SB Account Scheme . Total Rs.3,19,00,000
:-3-: ITA No. 3103/Chny/2017 2.2 On the same day, i.e. on 01.06.2012, Ms. Geetha Thachil, gave Power of Attorney to the assessee's father, Shri M.G. Narayana Moorthy, to deal with the property at Plot No.345, Sri Kapaleeswaror Nagar, 1st Main Road, Neelangarai . After more than seven months, i.e on 18.01.2013, Shri M.G.
Narayana Moorthy, as Power agent of Smt. Geetha Thachil, transferred the property at Plot No.345 through a sale deed for a consideration of Rs.3,19,00,000/- to one Mr. Ramesh Kymal. The sale consideration was paid to Shri M.G. Narayanamoorthy, who in turn paid to the assessee, her share of proceeds of Rs.1,59,50,000/- on 23.01.2013. On the same day i.e. 23.01.2013, the assessee purchased 923 Sq. ft. of undivided share of land at Old No. 11, New No.6, Karpagambal Nagar Main Road, Karpagambal Nagar, Mylapore for a sale consideration of Rs.1,15,37,500/-. In the statement of total income, she claimed exemption from the Long Term Capital Gains on this investment of Rs.1,15,37,500/- and the balance amount payable of Rs.1,00,62,500/- towards cost of construction.
2.3 Subsequently, when the AO raised queries regarding the details of construction agreement , completion certificate pertaining to the construction claimed to have been carried out by the appellant etc , the assessee submitted that the proceeds of the capital gains were invested in two properties one at Muttukadu to be used for residence and the other one at Mylapore. She pleaded that on 12.06.2013,she has purchased another plot
:-4-: ITA No. 3103/Chny/2017 of vacant land to the extent of Rs.4,800 Sq.ft. bearing Plot No.5C, Tropical Tides at Muttukadu for a sale consideration of Rs.81,60,000/-. She incurred Rs.5,69,700 towards stamp duty, Rs.81,700 towards registration charges, Rs.90,600 towards brokerage and advocate fee, Rs.18,00,000 towards land development , compound wall construction and earth filling, Rs. 4,80,000 towards construction of the house, Rs. 6,27,00 towards further construction and Rs. 55,000 towards other expenses. Thus, she claimed in her revised workings that she has invested totally Rs.1,18,64,000/- at Muttukadu property and claimed exemption u/s 54 of this sum from the capital gains.
2.4 After examining the assessee’s claim , the AO held , inter alia, that since the assessee had invested in the Capital Gains Fixed Deposit on 19.03.2012 of Rs.1 Crore before the due date of filing of the return u/s.139(1) and the balance sale consideration of Rs.75,00,000/- was made in a non- Capital gain scheme Fixed Deposit on 19.03.2012, she would be firstly eligible for deduction u/s.54 only to the extent of Rs.1 Crore invested in Capital Gains Fixed Deposit and not on Rs.75,00,000/- deposited in a non-Capital Gains Scheme Fixed Deposit. However, she has neither purchased nor constructed a residential house before the due date u/s 139(1) and hence not eligible for deduction u/s.54 and determined the total income . The AO also held that , even if the assessee is eligible for exemption u/s 54, in that case the likely computation of the capital gains would be in the following manner :
:-5-: ITA No. 3103/Chny/2017
Since the house property was firstly held by the assessee only on 24.12.2007 by receiving the same through the settlement deed of even date, falling in the Financial Year 2007-08, he adopted the corresponding Cost Inflation Index as 551, instead of 480 adopted by the assessee. Similarly, he has worked out indexed cost of improvement of the property also by adopting the Cost Inflation
Index for the Financial Year 2007-08 (i.e. 551) instead for the Financial Year. 2006-07 (i.e. 519) adopted by the assessee. With regard to the claim towards brokerage expenses, land development & compound wall construction & earth filling, cost of construction of house, payment towards further construction and other expenses totalling to Rs.30,52,600/-, the AO has restricted such claims to Rs.16,95,000/- only. Thus, he arrived the LTCG at Rs.20,77,961. However, as stated earlier, the AO computed the total income without granting deduction u/s 54.
2.5 Aggrieved, the assessee filed an appeal before the CIT(A). The CIT(A) held, inter alia, that the assessee has failed to comply with the requirements of the provisions of section 54 and hence the AO has rightly disallowed the claim of exemption u/s 54 . With regard to the issues in adopting the cost inflation index and working out the cost of Improvement of the property, the CIT(A) relying on the decision of the Bombay High Court In CIT v Manjula
:-6-: ITA No. 3103/Chny/2017 Shah (2012) 204 Taxman 691 (Born), held that the indexation for cost of acquisition and improvement should be adopted with reference to the previous year in which the previous owner of the property had acquired and constructed and improved the property and rejected the method adopted by the Assessing Officer. With regard to the claims of brokerage expenses, land development & compound wall construction & earth filling, cost of construction of house, payment towards further construction and other expenses , the CIT(A) held that they were rightly rejected by the AO and restricted it to Rs.16,95,000/- only. The appellant had failed to substantiate the above expenses with cogent material evidences and hence the CIT(A) upheld the action of the AO . The CIT(A) has rejected the assessee’s claim u/s 54F also stating that it is clear that the property sold was building and land appurtenant thereto. The assessee has failed to furnish any evidence before the AO or during the course of the appellate proceeding as well to substantiate that the property sold was only a piece of land.
2.6 Aggrieved against the order of the CIT(A), the assessee filed this appeal primarily pleading that the main objective of the assessee was to invest in a residential house and the same was satisfied by the assessee within the time allowed under the provisions of section 54 , the assessee has satisfied all the conditions prescribed u/s54 and hence sought the benefit of deduction u/s 54 and allow the expenses incurred for brokerage and advocate fee , construction of compound wall and other expenses.
:-7-: ITA No. 3103/Chny/2017
The AR submitted inviting our attention to the sequence of events as under :
DATE EVENT 24.12.2007 Family property (2 acres of land with superstructure at Kanathur Reddykuppam) settled by assessee’s mother vide deed of settlement dated 24.12.2007 in favour of assessee and her three sisters 19.03.2012 ‘Assessee and sisters entered into Joint agreement of sale with M/s.Bhoomi & Buildings Pvt Ltd and sold the family property. (Assessee’s 1/4th share in sale consideration — Rs. 1,7500000/.) 19.03.2012 Made capital gains deposit of Rs.1 ,00,00,000/- and FD deposit (jointly with sister Ms.Jinapriya) for Rs.1 ,50,00,000/- 01.06.2012 Closed capital gains deposit scheme and credited proceeds to savings account 01.06.2012 Assessee along-with sister Ms.Jyothi, entered into an unregistered agreement of sale with Ms.Geetha Thachil (seller) for purchase of land admeasuring 2 grounds and 2160 sq ft at Kapaleeswarar Nagar, Neelankarai for a total consideration of Rs3,19,00,000/- (sums paid on 01.06.2012 by cheque — para 2.1 at page 2 of Assmt order) 01.06.2012 Ms.Geetha Thachil gave POA to M.G.Narayana Murthy ( assessee’s father) Purchase of land at Neelankarai from Ms.Geetha did not go through.. 18.01.2013 M.G.Narayana Murthy, power agent transferred the property vide sale deed to Mr.Ramesh Kymal 23.01.2013 M.G.Narayana murthy repaid assessee’s share of purchase consideration of Rs.1 ,59,50,000/- out of total consideration of \. Rs.3,19,00,000/- (reflected in assesee’s bank account) 23.01.2013 Assessee purchased 923 sq ft of UDS of land at Karpagambal Nagar, Mylapore for Rs. 1,15,37,500/- (This sale did not go through) 12.06.2013 Assessee invested in a land at Mutukadu and commenced construction immediately — Refer Page 11 of assessment order 06.03.2014 Date of filing ROI 31.03.2014 Due date of filing return u/s.139(4) and submitted that the assessee deposited her share on the same day of sale on 19.2.2012 in the capital gains account scheme and FD deposit which was withdrawn and immediately paid for purchase of property on 01.06.2012. On peculiar facts and circumstances , certain transactions did not go through as indicate ,supra, and ultimately the assessee bought the land at Mutukadu on 12.6.2013 and constructed the house within the time permitted u/s 139(4) .
:-8-: ITA No. 3103/Chny/2017 Relying on various high court and tribunal decisions, viz., Fathima Bai vs ITO, 32 DTR 0243 KarHC, CIT vs Rajesh Kumar Jalan, 286 ITR 0274 Gauhati, Nipun Mehrotra vs ACIT, ITAT Bang, 110 ITD 0520, Shri A.C. Shyam Sundar vs JCIT- Range XIV, Chennai in for ay 2011-12 dated 06.05.2016, Y. Malarvizhi vs ITO, ITAT Chennai in ITA No. 1958/Mds/2013 for ay 2006-07 dated 10.11.2014 etc., the AR pleaded that the investment made in the construction of residential property within the extended due date u/s 139(4) is eligible for deduction u/s 54 and accordingly pleaded to allow this claim. With regard to the action of the Assessing Officer in disallowing a portion of the construction expenditure incurred by the appellant through M/s.
V Gayathri Associates, the AR submitted that the assessee had paid Rs 18,00,000/- to M/s. V Gayathri Associates which fact has been confirmed in paragraph 3. 2 (g) of assessment order. The reasons for which the Assessing Officer has disallowed a portion of this expenditure to the extent of Rs 5,85,000/- are as under: a. That the entire expenditure is said to be incurred within five days of acquisition of the plot which is not acceptable. b. That later, the assessee incurred another sum of Rs 6,27,000/- on construction of compound wall through M/s. P R Foundations for which payment was made after 31. 03. 2014.
As per the bill submitted by M/s. V Gayathri Associates to the Assessing Officer, it is clearly stated that out of total sum of Rs 18,00,000/- billed, Rs
:-9-: ITA No. 3103/Chny/2017 5,85,000/- was towards construction of random rubble compound wall for 290 running feet. In this connection, the Assessing Officer failed to note one crucial fact which is available in the sale deed for Muttukadu land already filed with him. That sale deed itself was executed by Ms V Gayathri as the power agent of the vendor. This is because M/s. V Gayathri Associates only acquired the larger extent of land from the owner and developed it into a layout by sub dividing into smaller plots by levelling the land, providing layout road and construction of compound wall up to a certain height. Thereafter, for further safety, the appellant increased the height of the compound wall through M/s P R Foundations. Hence, the Assessing Officer erred on facts in making this disallowance of Rs 5,85,000/- from out of Rs 18,00,000/- paid to M/s. V Gayathri Associates. Similarly, he pleaded the other disallowances made by the AO are also not warranted. The AR further submitted that unfortunately, the CIT(A) without examining the issue on merit in detail, primarily supported the action of the AO, since the claim of the assessee under section 54 has been disallowed in its entirety, as mentioned in detail at para 3.1 of the assessment order and upheld it. Further, the CIT(A)held that the findings of the AO given at para 3.2. and 3.3., though found to be in order barring the issue of the indexation, the other issues in the assessment order are irrelevant at this stage. In view of the AR prayed that the said disallowances be deleted.
:-10-: ITA No. 3103/Chny/2017
Per contra, the DR with regard to the claim u/s 54 drawn support from the orders of the AO /CIT(A) . With regard to the expenses incurred for brokerage and advocate fee and other expenses , the DR submitted that the assessee has not laid any material in support either before the AO or before the appellate authority and hence these claims stand unsupported. With regard to the claims of construction of house and the compound wall , the DR invited our attention to the assessment order and submitted that the AO obtained information u/s 133(6) from concerned persons , found that the cost of construction of the house was just at Rs. 4,80,000 only that too on a 240 sq ft of a flat of 4800 sq ft .Thus, the house claimed is in 5% of the total area of the land .The assessee has neither given plan approval nor completion certificate . The DR submitted that from the descriptions in the assessment order it can not be a house. Further, he submitted that from the proportion of land to the constructed area, whether the land to the constructed area can be called as land appurtenant there too. With regard to the claim on the construction of the compound wall etc , the DR invited our attention to the assessment order and submitted that the AO obtained information u/s 133(6) from concerned persons and disallowed expenses claimed to have been incurred after 31.3.2014, found that M/s Gayathri Associates claimed to have completed the work within 5 days of acquisition of the land and hence disallowed the corresponding expenditure holding that the compound wall construction was not completed by M/s. Gayathri Associates
:-11-: ITA No. 3103/Chny/2017 and from the particulars of M/s. PR Foundations, the AO found that they have raised the compound wall from the existing ground level. Since, the assessee has not produced anything to show that she has demolished the old compound wall and constructed a new wall in its place etc.,
We heard the rival submission and gone through the relevant materials.
It is clear that the AO and CIT(A), prima facie, decided the case based upon the interpretation that the investment has to be made within the due date specified u/s. 139(1) and concluded substantially against the assessee u/s. 54.
It is now settled law that the assessee can comply with the provisions of section 54, if the substantial compliance is made before the extended due date for filing the return u/s. 139(4). Hence, if the assessee has purchased land and constructed a residential house before the extended due date u/s. 139(4), the assessee is eligible for exemption u/s.
In this case, though the assessee has purchased the property at Muthukadu for Rs. 81,60,000/- on 12.06.2013 i.e., well ahead of the extended due date of filing return u/s. 139(4), the issues, whether she has constructed a house within the extended due date, whether the building constructed at 240 sq.ft. is a house or not, whether the land appurtenant thereto is justified for the building claimed to be a house, whether the expenditures claimed by the assessee are genuine or not and whether they have been incurred within the extended due date or not have not been examined properly and hence, we deem it fit to set aside these
:-12-: issues back to the AO for a fresh verification. The assessee shall place all the materials in its support before the AO and comply to the AO’s requirements as per law. The A O is free to conduct appropriate enquiry as deemed fit, but he shall furnish adequate opportunity to the assesssee on the material etc to be used against it and decide the matter in accordance with law . The assessee’s appeal is treated as allowed for statistical purposes.
In the result, the assessee’s appeal is treated as allowed for statistical purposes.
Order pronounced on Thursday, the 12th day of April, 2018 at Chennai.