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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A.MOHAN ALANKAMONY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
This appeal by the Revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-4, Chennai, dated 21.07.2017 in ITA No.180/2016-17/A.Y.2014- 15/CIT(A)-4 for the assessment year 2014-15 passed U/s.250(6) r.w.s. 143(3) of the Act.
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The Revenue has raised five grounds in its appeal
however the crux of the issue is that the Ld.CIT(A) has erred in deleting the disallowance made by the Ld.AO to the tune of Rs.1,72,35,484/- with respect to the disallowance of deduction
U/s.54(2) of the Act for not depositing the residue sale proceeds in capital gain scheme account within the stipulated period U/s.139(1) of the Act.
The brief facts of the case are that the assessee is an individual filed his return of income for the assessment year 2014-
15 electronically on 05.02.2016 declaring total income of Rs.65,66,850/-. Initially the return was processed U/s.143(1) of the Act and subsequently selected for scrutiny under CASS. Finally assessment order was passed U/s.143(3) of the Act on
29.12.2016 wherein the Ld.AO withdrew the benefit of deduction U/s.54F of the Act because the assessee had not deposited the residue sale proceeds of Rs.1,72,35,494/- in the capital gains
scheme account in accordance with section 54(2) of the Act.
During the course of assessment proceedings, it was
observed by the Ld.AO that the assessee had sold his house
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property on 15.04.2013 for total sale consideration of
Rs.7,50,00,000/-. The assessee in his return of income had computed his long term capital gain after claiming indexed cost of acquisition at Rs.7,01,35,980/-. Thereafter he claimed deduction
U/s.54 of the Act, an amount of Rs.6,72,35,494/-. It was observed by the Ld.AO that the assessee had utilized Rs.5,00,00,000/- out of the total sale proceeds for purchase of land on 19.08.2013
leaving the balance amount of Rs.1,72,35,494/- to be invested in the construction of residential property within 3 years from the date of sale of the original asset for enjoying the benefit of
deduction U/s.54 of the Act. However it was further observed by the Ld.AO that though the assessee had constructed the house within the period of 3 years from the date of sale of the original asset, had failed to deposit the amount of Rs.1,72,35,494/- in the
capital gain scheme account with in the time limit provided U/s.54(2) of the Act. Therefore the Ld.AO withdrew the benefit of Section 54 of the Act to the assessee and added to the Long
Term Capital Gain the amount of Rs.1,72,35,494/-.
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On appeal, the Ld.CIT(A) citing various decisions of higher
judiciary allowed the appeal of the assessee in his favour by observing as under:- “10.1 have gone through the facts of the case and have also considered the rival submissions. In view of that, the case is discussed as under.
The only question that needs to be answered in the present case of the appellant is that whether the unutilised amount of capital gains at Rs.1,72,35,494/- which was not appropriated towards construction of new house property before the due date for filing of the return of income as envisaged u/s 139(1) or which was not deposited in the notified Capital Gains Account Scheme before the due date for filing of the return of income as envisaged u/s 139 (1) of the Act, can be claimed as deduction u/s 54 of the Act. In the instant case, the Long Term Capital Gain was at Rs.7,01,35, 980/- out of which the appellant had invested Rs.5,55,24,882/-( wrongly taken Rs, 5,00,00,000/- by the A.O.) towards purchase of land for construction of residential house thereon. The remaining amount of Long Term Capital Gain at Rs.1,72,35,494/-was not utilised towards construction of new house property or towards deposit in the notified capital gains account scheme before the due date for filing of return of income under section 139 (1) of the Act. It was contended by the AO that since the appellant had failed to comply with the requirements of section 54, the appellant was not eligible to claim the deduction u/s 54 in respect of the amount which was not invested in the construction or deposited in the Capital Gains Account Scheme prior to the date of filing of the return of income u/s 139 (1) of the Act. Accordingly, the AO allowed deduction of Rs. 5,55,24,882/-(wrongly taken by the AO at Rs.5,00,00,000/-) u/s 54 as against the total claim of Rs. 6,72,35,494/-.
During the course of the appellate proceeding and also before the AO, it was contended by the appellant that since the
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entire remaining amount of capital gains at Rs.1,72,35,494/- was invested in the construction of the residential house within three years from the date of sale of the original asset, as envisaged u/s 54(1), the appellant was eligible for deduction u/s 54 even if the unappropriated capital gains was not deposited in the capital gains account scheme before the date of filing of return of income u/s 139(1) of the Act. In this regard, the appellant has furnished copy of the Agreement for Construction of Residential Building, the approved map of the building and the relevant bank account statements to reflect the amount withdrawn for construction of the residential house. I have perused the same and it is found from the documents that the construction of the residential house was carried out by the appellant and got completed within the stipulated time as envisaged in section 54 of the Act.
I have also perused the case laws relied on by the appellant to substantiate his claim that he was eligible for deduction of the entire amount of capital gain which was invested in the purchase of land and construction of the residential house as well. In the referred case of CIT vs Sararmal Kothari & Shanthilal Kothari, TCA Nos. 354 and 355 of 2008, the Hon'ble jurisdictional High Court has held as under:
" The requirement of the provision is that the assessee, within a period of three years after the date of transfer, has to construct a residential house in order to become eligible for exemption…….. In order to get the benefit u/s 54 F, the assessee needed not complete the construction of the house and occupy the same. It is enough if the assessee establishes that the assessee had invested the entire net consideration within the stipulated period.”
From the above decision of the Hon'ble High Court, it IS noticed that the requirement for claiming deduction u/s 54F/54 is to invest the capital gains in the construction of the residential house within three years from the date of transfer of the original asset.
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The Hon'ble High Court of Karnataka in the case of CIT vs. K.Ramachandra Rao(2015) 277 CTR 522, has held, "as is clear from sub-section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in section 54F (1), if the assessee wants the benefit of section 54 F, then he should deposit the said capital gain in an account which is duly notified by the Central Government. In other words, if he wants the claim of exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein; then section 54 F (4) is not at all attracted and, therefore, the contention that the assessee has not deposited the amount in the bank account as stipulated and, therefore, he is not entitled to the benefit even though he has invested the money in construction, is also not correct.”
In the impugned assessment order, the Assessing Officer has taken a plea that since there is no ambiguity in the section 54, the ratio of judgement of the Hon’ble Bombay High Court in the case of Suleman Merchant vs. CIT was squarely applicable to the present case of the appellant. To counter this observation the AO, the appellant has relied on the decision of the Hon'ble Apex Court in the case of CIT vs. Vegetables Products Ltd (1973) 88 ITR 192 wherein it has been held that if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted unless there is decision by the jurisdictional high court on the issue. According to the appellant, the decision of the jurisdictional High Court in the case of a CIT vs Sararmal Kothari & Shanthilal Kothari, favours the assessee on the Issue.
Therefore, keeping III view the facts of the case and the judicial pronouncements, as discussed above, I am of the firm
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opinion that the appellant was eligible for deduction u/s 54 of the Act in respect of the remaining amount as well which he had not deposited in the capital gains account scheme but had invested in the construction of new residential house within three years from the date of transfer of the original asset.”
Before us the Ld.DR argued in support of the order of the Ld.AO while as the Ld. AR relied on the decision of the Ld.CIT(A).
The Ld.AR further clarified that though the amount of Rs.1,72,35,494/- was not transferred to the scheme account it was held in nationalized bank until it was utilized for construction
of the building and therefore it was only a technical breach. The Ld.DR could not controvert to the submission of the Ld.AR that the amount remained as deposit in the nationalized bank until it
was utilized for the construction of the residential house.
We have heard the rival submissions and carefully perused the material on record. At the outset we find this issue squarely
covered by the decision of the Chennai Bench of the Tribunal in ITA No.1167/Mds/2016 vide order dated 15.09.2016 wherein on the identical situation it was held that such small technical breach
will not disentitle the assessee the benefit of Section 54 of the Act. The gist of the decision is reproduced herein below for reference:-
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“8. We have heard the rival submissions and carefully perused the materials available on record. In the decision of Shri Madhuvan Prasad Vs. ITO, supra the Chennai Bench of the Tribunal has allowed the benefit of section 54 of the Act because the assessee had fulfilled all the conditions prescribed under section 54 of the Act barring the deposit of the sale proceeds in the “capital gain scheme account” as prescribed under section 54(2) of the Act. In that decision reliance was also placed in the decision of Hon’ble Apex Court in the case of Motilal Padampat Sugarmill Co.Ltd. Vs. State of Uttar Pradesh & Ors wherein it was held, that ‘thus there is no presumption that every person knows the law. It is often said that everyone is presumed to know the law, but that is not a correct statement there is no such Maxim known to the law. In the given case before us also, it is not disputed that the assessee had not fulfilled the conditions prescribed under section 54 of the Act barring the deposit of the sale proceeds in the “capital gain scheme account”. Moreover, the facts reveal that the assessee had deposited the entire sale proceeds in his savings bank account maintained with nationalized bank out of which he has constructed his house. The only small lacuna assessee had made is that the assessee though had placed the entire sale proceeds in the nationalized bank he has not transferred the same in the “Capital gain scheme account”. Considering these facts of the case and the decisions of the Tribunal and the Hon’ble Apex Court cited above, we are of the considered view that for this small technical lapse of the assessee, the benefit of section 54 should not be denied. Section 54 of the Act is a beneficial provision and a beneficial interpretation has to be made as far as possible for giving benefit to the assessee. The assessee had proceeded to comply with the provisions of section 54 of the Act but has only made a small technical breach which we are of the considered view should not disentitle the assessee for the benefit of section 54 of the Act. Therefore, we hereby direct the learned Assessing Officer to grant the benefit of section 54 of the Act to the assessee and accordingly delete the addition
9 ITA No. 2455/Mds/2017 made by him which was further sustained by the learned Commissioner of Income Tax (Appeals).”
7.1 Further the Ld.CIT(A) has also followed the decisions of various higher Judiciary wherein the issued is held in favour of the assessee in similar circumstances. Therefore we do not find it necessary to interfere with the order of the Ld.CIT(A) on this issue.
In the result the appeal of the Revenue is dismissed.
Order pronounced on the 30th January, 2018 at Chennai.
Sd/- Sd/- (एन.आर.एस. गणेशन) (ए. मोहन अलंकामणी) (N.R.S. Ganesan) (A. Mohan Alankamony) लेखा सद�य/Accountant Member �याियक सद�य/Judicial Member
चे�नई/Chennai, �दनांक/Dated 30th January, 2018 RSR आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. �नधा�रती/Assessee 2. राज�व /Revenue 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF