I.T.O. 1(3), BHILAI(CG) vs. SHRI ARUN KUMAR TELANG, BHILAI(CG)

IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.39/RPR/2015 Assessment Year : 2011-12 Arun Kumar Telang, ITO, Ward- 4, H.No. A-127, Phase- II, Bhilai (CG). Junwani, Surya Vihar, Vs. Nehru Nagar, Bhilai, Durg (CG).

PAN : ABKPT8378B (Appellant) (Respondent)

ITA No.44/RPR/2015 Assessment Year : 2011-12 ITO, 1(3), Arun Kumar Telang, Bhilai (CG). H.No. A-127, Phase- II, Junwani, Surya Vihar, Vs. Nehru Nagar, Bhilai, Durg (CG).

PAN : ABKPT8378B (Appellant) (Respondent)

Assessee by : Shri Sunil Kr. Agrawal, CA Ms. Laxmi Sharma, CA Department by : Shri Rituparan Namdeo, DR Date of hearing : 08-08-2018 Date of pronouncement : 17-08-2018

O R D E R PER R. K. PANDA, AM : These are cross appeals. First one filed by the assessee and second one filed by the Revenue and are directed against the order dated 24.12.2014 of

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CIT(A)- II, Raipur (CG) relating to assessment year 2011-12. For the sake of

convenience, these were heard together and are being disposed of by this

common order.

his return of income on 09.08.2011 declaring total income of Rs.3,20,800/-

which included long term capital gain amounting to Rs.1,47,458/-. The assessee

has derived income by way of consultancy fee receipts from CECON

Consultants Pvt. Ltd. and income from other sources which includes income by

way of interest receipts on S.B. account and TDRs with State Bank of India.

During the course of assessment proceedings, the Assessing Officer observed

that as per the information available on record by way of AIR, the assessee had

sold an immovable property for Rs.1,32,52,500/- on 30.12.2010. Perusal of the

computation of income appended to the return filed for the assessment year

revealed that the assessee had declared long term capital gain on sale of

residential house property at Rs.63,89,382/-. After claiming the deduction

amounting to Rs.62,41,924/- u/s 54, the assessee has offered long term capital

gain amounting to Rs.1,47,458/- for taxation. The Assessing Officer further

noted that the assessee has taken the sale consideration of residential house

property for computing the long term capital gain at Rs.95,00,000/- and

therefrom he has deducted indexed cost of acquisition and indexed cost of

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improvements totaling to Rs.31,10,618/-. On the basis of letter issued by the

Assessing Officer to the Sub-Registrar, Durg calling for a copy of the sale deed

in respect of the property transaction undertaken by the assessee, it was replied

that the stamp duty valuation authority had adopted the market value of the

property at Rs.1,32,52,500/-. The Assessing Officer brought to the notice of the

assessee the provisions of section 50C and asked him why the said provisions

should not be applied to the assessee for computation of the long term capital

gain. Rejecting the various explanation given by the assessee, the Assessing

Officer adopted the value of Rs.1,32,52,500/- as adopted by the stamp valuation

authority for the purpose of computing the capital gain as per the provisions of

section 50C of the Act.

assessee observed that the assessee has purchased two residential houses against

the sale of the old house and has claimed deduction u/s 54 of the Act. Referring

to the provisions of section 54, the Assessing Officer asked the assessee to

explain as to how he is entitled to claim deduction u/s 54 on account of

investment in two properties. Rejecting the various explanations given by the

assessee and relying on various decisions, the Assessing Officer held that the

assessee is entitled to claim deduction u/s 54 only in respect of one property.

He accordingly allowed such deduction at Rs.34,73,541/- in respect of

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investment in one house property. Accordingly, the Assessing Officer

determined the long term capital gain of the assessee at Rs.66,68,341/- after

allowing the deduction u/s 54 of the I.T. Act.

which ld. CIT(A) restricted the fair market value of the property at

Rs.1,07,00,000/- for the purpose of calculating the long term capital gain on the

basis of the report of the DVO. He further allowed the enhanced claim of

deduction u/s 54 at Rs.29,03,970/-. He however rejected the claim of deduction

u/s 54 in respect of the second house property.

well as the Revenue are in appeal before the Tribunal.

ITA No.44/RPR/2015 (By Revenue) :

“1. Whether in law and on facts and circumstances of the case, the Ld. CIT(A) was justified in referring the matter to District Valuation Officer for the purpose of calculation of deemed capital gains u/s 50C of the Income Tax Act, 1961 when the assessee has failed to ask the A.O. to refer the matter to the DVO during assessment proceedings. 2. Whether in law and on facts and circumstances of the case, the Ld. CIT(A) was justified in restricting fair market value of the property at Rs.1,07,00,000/- for the purpose of calculation of Long Term Capital Gain. 3. Whether in law and on facts and circumstances of the case, the Ld. CIT(A) was justified in allowing deduction u/s 54 of the Income Tax Act, 1961 for the investments of Rs.8,66,240/- and Rs.20,37,730/- totaling to Rs.29,03,970/-. 4. The order of the Ld. CIT(A) is erroneous both in law and on facts. 5. Any other ground that may be deducted at the time of hearing.”

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involved in the grounds raised by the Revenue is below Rs.20 lakhs. Therefore,

in view of the latest CBDT Circular No.03/2018 [F.No.279/Misc.142/2007-ITJ (Pt)] dated 11th July, 2018 which is applicable even to pending appeals, the

appeal filed by the Revenue is not maintainable.

in the grounds raised by the Revenue is admittedly below Rs.20 lakhs.

admitted fact that the tax effect involved in the grounds raised by the Revenue is

less than Rs.20 lakhs. Therefore, in view of the latest CBDT Circular cited

(supra) raising the monetary limits for filing of the appeals before the Tribunal

which is applicable even to pending appeals, the appeal filed by the Revenue is

dismissed.

ITA No.39/RPR/2015 (By Assessee) :

“1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in applying the DVO report as it is (i.e., only accepted the typographical error in the report), while it is not binding on the appellate authority. It has to be decided on merits after considering the objections raised by the appellant and by giving proper opportunity for hearing. 2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in not considering the objection pointed out by the appellant against the valuation report as in respect to the depreciation worked out (i.e., depreciation taken for 35 years instead of 50 years). 3. On the facts and in the circumstances of the case as well as in law, the ld. CIT(A) has erred in invoking sec.50C(2), unless there is evidence for understatement

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of the consideration, in respect of the transfer, and the burden of showing that there is such understatement, is on the revenue, which is not the case of the assessee. 4. On the facts and in the circumstances of the case as well as in law, the ld. CIT(A) has erred in confirming the method of computing capital gain u/s 48 by applying FMV taken by the DVO, as expression ‘full value of consideration’ mentioned in the sec.48, does not have any reference to the ‘market value’, but only to the ‘consideration referred to in the sale deed’ as the sale price of the assets, which have been transferred. 5. On the facts and in the circumstances of the case as well as in law, the ld. CIT(A) has erred in not giving exemption u/s 54 for the 2nd residential house (i.e., LIG-164, Junwani, Durg) purchased by the appellant, stating that, appellant is entitled to claim exemption u/s 54 on ‘one house’ only. 6. The assessee craves leave to add, urge, alter, modify and withdraw any ground/grounds before or at the time of hearing of appeal.”

for which ld. DR has no objection. Accordingly, these grounds are dismissed as

not pressed.

the assessee submitted that the actual sale consideration received at

Rs.95,00,000/- should be considered as full value of consideration as required

u/s 54 and be applied for computing capital gain u/s 48 and the fair market value

considered by the ld. CIT(A) as estimated by the DVO of Rs.1,07,00,000/- u/s

50C(2) may be ignored. According to him, the provisions of section 50C(2)

cannot be invoked by the Revenue unless there is understatement of the

consideration in respect of the transfer of alleged asset and the burden showing

that there is understatement is on Revenue. Since the Revenue in the instant

case has not discharged that burden, therefore, the addition sustained by the ld.

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CIT(A) should be deleted. He submitted that the exemption u/s 54 of

Rs.62,41,924/- and Rs.4,05,855/- for investment in two residential houses was

claimed by the assessee as per language of the provisions of section 54 of the

I.T. Act. He submitted that for computing the capital gain u/s 48, there is no

provision in the Income Tax Act to apply FMV of the asset transferred and the

full value of sale consideration received or accrued to the assessee as per the

sale deed has to be applied in absence of finding by the Revenue that assessee

has received more than the amount mentioned in the sale deed. Referring to the

provisions of section 48, he submitted that the said section provides that

amounts taxable as capital gain is the full value of the consideration received

and it does not refer to the consideration as deemed u/s 50C or fair market

value. Referring to the various decisions, he submitted that for the purpose of

working out exemption u/s 54 capital gain is to be determined by referring to

section 48 by actual sale consideration and not deemed consideration. For the

above proposition, he relied on the decision of the Jaipur Bench of the Tribunal

in the case of Nand Lal Sharma vs. ITO reported in (2015) 61 taxmann.com

271, decision of the Hon’ble Delhi High Court in the case of CIT vs. Smt.

Nilofer I. Singh reported in 309 ITR 233 and the decision of the Jaipur Bench of

the Tribunal in the case of Gyan Chand Batra vs. ITO reported in (2010) 8

taxmann.com 22. Relying on various other decisions, he submitted that for the

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purpose of computing the deduction u/s 54, the capital gain that has to be

considered is the actual sale value and not the deemed sale consideration u/s

50C of the Act.

and submitted that the ld. CIT(A) has rightly taken the value determined by the

DVO as the actual consideration received for the purpose of computation of

capital gain u/s 48 and thereby the deduction u/s 54 of the Act.

perused the material available on cored. The issue that has to be decided in the

impugned ground of appeal is that while computing the exemption u/s 54,

whether actual sale consideration has to be taken into consideration or the stamp

duty valuation adopted by the stamp valuation authorities as per the provisions

of section 50C of the Act. We find the Jaipur Bench of the Tribunal in the case

of Nand Lal Sharma (supra) while adjudicating the identical issue has held that

while computing exemption u/s 54, actual sale consideration is to be taken into

consideration and not the stamp duty valuation u/s 50C of the Act. The

Tribunal while deciding the above issue has relied on the decision of the

Hon’ble Delhi High Court in the case of Smt. Nilofer I. Singh (supra) and the

decision of the Jaipur Bench of the Tribunal in the case of Gyan Chand Batra

(supra) has observed as under :-

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“13. Apropos ground No. 2(b), the hon'ble Delhi High Court in the case of Smt. Nilofer I. Singh (supra) has categorically held that mode of computation of capital gain is statutorily defined under section 48 of the Act which uses the words actual cost of "consideration" and not the deemed cost of consideration under section 50C. We find merit in the arguments of the learned authorised representative that section 50C is a deeming fiction by which stamp duty value of the asset sold is to be substituted for actual consideration. This being purely a fiction, its scope is limited to section 50C only and cannot be enlarged without a specific reference. In the absence of any enabling statutory provision, a fiction cannot be imported in other section. This view has been squarely adopted by the hon'ble Delhi High Court in the case of Smt. Nilofer I. Singh(supra) and followed it by this Income-tax Appellate Tribunal Bench in the case of Gyan Chand Batra (supra). Respectfully following the same, we hold that while computing exemption under section 54, the actual sale consideration is to be taken into consideration and not the stamp duty valuation under section 50C. Thus, the assessee's claim of exemption as made in the return of income as raised in ground No. 2 of the assessee is allowed.”

therefore deem it proper to restore the issue to the file of the Assessing Officer

with a direction to decide the issue afresh and in accordance with law after

giving due opportunity of being heard to the assessee. The Assessing Officer

while deciding the issue shall keep in mind the decision cited above. The

grounds are accordingly allowed for statistical purposes.

exemption u/s 54 in respect of two house properties.

54 in respect of investment in two house properties i.e. one house property at

Rs.62,41,924/- and the other house property at Rs.4,05,855/-. The Assessing

Officer while computing the deduction u/s 54 rejected the claim of deduction

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u/s 54 in respect of the second house property at Rs.4,05,855/- which was

upheld by the ld. CIT(A) by observing as under :-

“The appellant purchased House No.A-27, Phase-II, Junwani, Surya Vihar out of sale consideration received from sale of land and building located at Plot No.1, Old Motilal Nehru Nagar, Bhilai. He has invested Rs.4,05,855/- out of the sale consideration for purchase of House No.LIG-164, Junwani, Durg. The house at A-27, Surya Vihar has been used by the appellant for his residential purpose and the other house was rented out and subsequently sold as per the information gathered by the A.O. The two houses are independent house and are located in separate locality. In the given facts are circumstances of the case, placing reliance in the case of Shri Pawan Arya vs. CIT 2011-TIOL-o1-HC-P&H-IT, it is held that the appellant is entitled to claim exemption u/s 54 on one house only. The facts of the case relied on by Ld. AR are different and exemption was claimed on two houses located in same. Apartment and which could be made one house after making some modification in the flats. Likewise, since the 2nd house was sold within 3 years from the purchase, placing reliance in case of CIT vs. P.K. Raghavan Nair 224 ITR 404 (Ker), it is held that the appellant is not entitled for claiming deduction u/s 54 of the Act on investment in 2nd house. Accordingly, the ground of appeal is rejected.”

Courts have observed that a residential house as appearing in section 54/54F

cannot be construed to mean a single residential house. Referring to the

decision of the Hon’ble Supreme Court in the case of CIT vs. Gita Duggal

reported in (2014) 15 taxmann.com 46, he submitted that the Hon’ble Supreme

Court in the said decision has dismissed the SLP filed against the order of the

Delhi High Court where it was held that merely because a residential house is

considered of several independent residential units, deduction u/s 54/54F could

not be disallowed. He submitted that Finance (No.2), 2014 has made

substantive amendment to the provisions of section 54/54F w.e.f. 01.04.2015

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where words construed “one residential house” in India shall by substituted for

constructed “a residential house”. Therefore, from 01.04.2015 only, the

exemption u/s 54 will not be allowed for more than one independent residential

unit. However, this amendment has to be applied only from assessment year

2015-16 being prospective in nature and will not be applicable in the case of the

assessee which is for assessment year 2011-12. Relying on various other

decisions, he submitted that the assessee is entitled to claim of deduction u/s

54F in respect of the second residential unit.

the assessee by the decisions of the Hon’ble Delhi High Court in the case of

Smt. Gita Duggal (supra) where the Hon’ble High Court has held that merely

because a residential house is consists of several independent residential units,

deduction u/s 54/54F could not be disallowed. The SLP filed by the Revenue

has been dismissed by the Hon’ble Supreme Court. Further, the provisions of

section 54/54F have been amended by the Finance (No.2) Act, 2014 w.e.f.

01.04.2015 according to which no exemption u/s 54 will be allowed for more

than on independent residential unit. This amendment, in our opinion, is

prospective in nature. In this view of the matter, we are of the considered

opinion that denial of exemption u/s 54F in respect of the second residential unit

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by the ld. CIT(A) is not justified. Accordingly, the same is set-aside and the

ground raised by the assessee is allowed.

filed by the assessee is partly allowed. Order pronounced in the open Court on this 17th August, 2018.

Sd/- Sd/- (SUCHITRA KAMBLE) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 17-08-2018. Sujeet Copy of order to: - 1) The Appellant 2) The Respondent 3) The CIT 4) The CIT(A) 5) The DR, I.T.A.T., Raipur. By Order //True Copy// Sr. Private Secretary ITAT, Raipur