K.K.SRINIVASAN,SALEM vs. ITO, SALEM

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ITA 1263/CHNY/2017Status: DisposedITAT Chennai04 January 2018AY 2007-088 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had completed the construction of the new residential house within the time limits prescribed by Section 139(4) of the Act. Therefore, the assessee was eligible for exemption under Section 54F.

What were the facts?

The assessee claimed exemption under Section 54F for investment in a new residential house after selling a property. The Assessing Officer denied the exemption, stating the conditions for investment and filing of return were not met. The CIT(A) upheld this decision.

What were the issues?

Whether the investment in a new residential house was made within the stipulated time for claiming exemption under Section 54F, considering the provisions of Section 139(4).

Which sections of the Income-tax Act were involved?

Section 54F,Section 139(4),Section 148

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘A’ (SMC

Before: SHRI ABRAHAM P. GEORGE]

For Respondent: Shri. B. Sagadevan, IRS, JCIT

आदेश / O R D E R

1.

In this appeal filed by the assessee, it is aggrieved that its claim for exemption u/s.54F of the Income Tax Act, 1961 (herein after referred to as ‘the Act’) for investment made in a residential house was not allowed while computing capital gains.

2.

Assessee had sold a property on 25.10.2006 for a consideration of �41,56,800/-. Assessee had computed long term capital gains of �30,29,272/- arising from this above transaction, after

ITA No.1263 /Mds/2017 :- 2 -: reducing indexed cost of acquisition of �11,27,578/-. Assessee had claimed exemption u/s.54F of the Act for the entire capital gains, based on an investment of �35,76,800/- made by him in a new residential house. As per the assessee, he had constructed a residential house 314-1A/200A, in Plot No.20, Alaguvinayagar Street, Reddiyur Village, Salem. Assessee also filed a valuation report dated 10.07.2014 which inter alia mentioned that the construction had started in January, 2007 and was completed in March, 2008. However, ld. Assessing Officer was of the opinion that assessee ought have invested the net consideration from sale in a residential house within one year from the date of transfer of property or ought have constructed a residential house within three years from such date of transfer. As per the ld. Assessing Officer, assessee was also obliged to deposit the sums not used for such acquisition/construction in the special capital gains scheme account. According to the ld. Assessing Officer these conditions were not satisfied. Further, according to him, the return for the impugned assessment year was filed by the assessee only on 11.07.2014, after the issue of notice u/s.148 of the Act.

Hence, he held that assessee was not entitled for exemption u/s.54F of the Act. Such claim for exemption was denied.

ITA No.1263 /Mds/2017 :- 3 -:

3.

Assessee’s appeal before ld. Commissioner of Income Tax (Appeals) did not meet with any success. What was held by the ld. Commissioner of Income Tax (Appeals), at para 5.1 of his order is reproduced hereunder:- ‘’5.1. Section 54F stipulates that the assessee should either utilize the sale proceeds to acquire a residential property or to construct a residential property within the stipulated time therein. Alternately, the assessee should deposit the sale proceeds in the Capital Gain Scheme duly notified by the Central Government. During the course of appellate proceedings, the assessee has filed several case laws, where in it has been held that if the assessee wants the benefit of section 54F, the assessee should either acquire or construct or deposit the said capital gain amount in an account which is duly notified by the Central Government. In the instant case, the assessee neither deposited the amount of net consideration in any Capital Gain Scheme specified by the Central Government nor utilized. Further, the assessee has not filed return of income for the A.Y.2007-08 within the due date for furnishing return u/s.139(1) or u/s. 139(4). The assessee has filed the return of income in response to notice u/s.148 only on 11.07.2014. Therefore, the assessee is not entitled to claim exemption u/s.54F of the Income Tax Act, 1961. Hence, I do not find any reason to interfere with the assessment order and the grounds of appeal are dismissed’’.

When the case was called up for hearing, nobody appeared 4. on behalf of the assessee.

Ld. Departmental Representative strongly supporting the 5. orders of the lower authorities submitted that assessee had failed to ITA No.1263 /Mds/2017 :- 4 -: prove the completion of construction of the new residential house before the end of three years from the date of the transfer of the asset giving rise to capital gains. Lower authorities, according to him were therefore justified in denying exemption claimed u/s.54F of the Act. As per the ld. Departmental Representative, assessee could not even produce any electricity bills to substantiate its claim for completion of the new house within the stipulated time limit.

I have perused the orders and heard the ld. Departmental 6.

Representative. It is not disputed that as evidence for construction of new residence, assessee had produced a valuation report dated 10.07.2014. Assessee had filed a letter dated 16.03.2017 before the ld. Commissioner of Income Tax (Appeals) during the course of the hearing before him and what was stated by him with regard to construction of new residential house is reproduced hereunder:-

II. Substantial construction made and livable house brought into extence (v) Copies of Electricity Bills dated 04-10-2007 and 07-1-2-2007 are enclosed.

(vi) Copy of Property Tax Receipt dated 24-12-2007 pertaining to half-year ended 30-09-2007 is enclosed. Even on facts, thus, net sale consideration was invested in cost of construction as required by the Section.

ITA No.1263 /Mds/2017 :- 5 -:

It is therefore not correct to deny benefit, as appellant invested net consideration is new asset, though without depositing it under the Scheme.

(vii) Construction was commenced in January, 2007 and major work completed prior to 31-07-2007 bringing into existence a livable house. Work on Compound Wall, Wood work, Cement pavement surrounding the house, gate, some of the electrical fittings etc were done after 31- 07-2007.

(viii) The registered valuer's report states the construction's completion as March, 2008, only because rates which prevailed during years ended 31-03-2007 and 31-03-2008 were adopted. Ill. Construction made prior to 31-03-2008, time allowed by Section 139(4) satisfies:

(a) Assessee has proved incurring substantial amount for acquisition . of residential property prior to due date under section 139(4). Contention of Revenue that deposit in Capital Gain Scheme should have been made prior to due date under section 139(1) is untenable (259 CTR 388 P&H) - Copy enclosed. (b) Investment under section 54 B can be made within the period prescribed by Section 139(4) - 172 TTJ 412 Jp, 173 TTJ 634 Chd, 125 DTR 314 Chd.

Assessee had specifically relied on the judgment of Hon’ble Gauhati High Court in the case of CIT vs. Rajesh Kumar Jalan 286 ITR 282 and that of Hon’ble Punjab and Haryana High Court in the case of CIT vs. Ms. Nagriti Agarwal, 339 ITR 610. Hon’ble Punjab and Haryana High Court in the latter case had clearly held that Sub Section (4) to Sec.

ITA No.1263 /Mds/2017 :- 6 -:

139 of the Act was in fact a proviso to sub section (1) to Section 139 of the Act. What was held by their lordships at para 9 to 11 of its judgment are reproduced hereunder:-

‘’9. On the other hand, learned counsel for the respondent relies upon a Division Bench judgment of the Karnataka High Court reported as Fatima Bai v. ITO [2009] 32 DTR 243, where in somewhat similar circumstances, it has been held that the time limit for deposit under the scheme or utilisation can be made before the due date for filing of return under section 139(4) of the Act. Learned counsel for the respondent also relies upon a Division Bench judgment of the Gauhati High Court reported as CIT v. Rajesh Kumar Jalan [2006] 286 ITR 274 (Gauhati).

10.

Having heard learned counsel for the parties, we are of the opinion that sub-section (4) of section 139 of the Act is, in fact, a proviso to sub-section (1) of section 139 of the Act. Section 139 of the Act fixes the different dates for filing the returns for different assessees. In the case of the assessee as the respondent, it is the 31st day of July of the assessment year in terms of clause (c) of Explanation 2 to sub-section (1) of section 139 of the Act, whereas sub-section (4) of section 139 provides for extension in period of due date in certain circumstances. It reads as under : "(4) Any person who has not furnished a return within the time allowed to him under sub-section (1), or within the time allowed under a notice issued under sub-section (1) of section 142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier : Provided that where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April,

ITA No.1263 /Mds/2017 :- 7 -:

1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year."

11.

A reading of the aforesaid sub-section would show that if a person has not furnished the return of the previous year within the time allowed under sub- section (1), i.e., before the 31st day of July of the assessment year, the assessee can file return before the expiry of one year from the end of the relevant assessment year. In the case before me, the valuation report filed by the assessee clearly show that he had completed the construction of the new residential house by March, 2008. That apart, assessee had also furnished before the ld. Commissioner of Income Tax (Appeals) electricity bills, dated 04.10.2007 and 07.12.2007. Assessee having completed the construction before 31.03.2008, in my opinion judgment of Hon’ble Punjab and Haryana High Court in the case of Ms. Nagriti Agarwal (supra) will come to its aid. The question is whether the construction was carried out within the time limit available u/s.139 of the Act. The date of actual filing of return by the assessee is irrelevant for construing the time limits within which the investments have to be made for availing exemption u/s.54F of the Act. Since the assessee had invested in the new residential house within the time limits specified under the Act, the question of depositing the consideration received on the sale of the property in an account under the Capital Gains Account Scheme also does not arise. I am therefore of the ITA No.1263 /Mds/2017 :- 8 -:

opinion that assessee was eligible for claiming exemption u/s.54F of the Act. Ld. Assessing Officer is directed to give such exemption. Orders of the lower authorities are set aside.

7.

In the result, appeal of the assessee is allowed.

Order pronounced on Thursday, the 4th day of January, 2018, at Chennai.

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