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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
PER RAMIT KOCHAR, Accountant Member This appeal, filed by the Assessee, being ITA No. 1131/Mum/2014, is directed against the appellate order dated 30.12.2013 passed by learned Commissioner of Income Tax (Appeals)-32, Mumbai (hereinafter called “the CIT(A)”), for assessment year 2009-10, appellate proceedings had arisen before learned CIT(A) from the assessment order dated 03.12.2011 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”).
The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-
“1. On facts and in circumstances of the case and in law, learned Assessing Officer erred in disallowing expenses in connection with transfer viz. transfer fees of Rs. 25,000/- and brokerage of Rs. 30,000/- incurred in connection with sale of residential flat. Ld. CIT-A erred in confirming the disallowance.
On facts and in circumstances of the case and in law, learned A.O. erred in disallowing exemption u/s. 54 and consequently adding Long Term Capital Gains of Rs. 22,42,887/- to the total income of the appellant. Ld. CIT-A erred in confirming the disallowance.
Against confirmation of above additions, the appellant is in appeal before the Hon'ble Tribunal with a prayer to delete such additions.”
The brief facts of the case are that the assessee is an individual engaged in the business of estate agency.
2 During the previous year under consideration, the assessee has sold immovable property being residential flat at Sahyadri Apartment, Pimpri Pada on 17.02.2009 for a consideration of Rs.30,35,000/- and while computing long term capital gains on sale of the aforesaid flat , the assessee had claimed expenses of Rs.25,000/- as transfer fee of Rs.30,000/- as brokerage , which was disallowed by the AO as the assessee neither submitted any explanation nor any proof of payment was submitted. The AO observed that the said flat was acquired by the assessee on 18-11-2003 i.e. in the financial year 2003-04 and was sold on 17-02-2009 i.e. in the financial year 2008-09 . The AO observed that the said flat was acquired by the assessee for Rs. 6,30,152/- whose indexed cost of acquisition worked out to be Rs. 7,92,113/- as against the indexed cost wrongly taken by the assessee at Rs. 15,03,067/- . The A.O worked out long term capital gains chargeable to tax on sale of aforesaid residential flat as under:-
Sale proceeds Rs. 30,35,000/- (N0 expenses are allowed in view of Discussion made in para-5 of AO order) -------------- Rs. 30,35,000/- Less : Indexed cost of acquisition 630152 x 582/463 Rs.7,92,113/- Taxable capital gain Rs. 22,42,887/-
3 The assessee also claimed deduction u/s. 54 from long term capital gains earned on sale of aforesaid residential flat. The assessee was asked to submit proof in support of deduction claimed u/s.
The assessee submitted payment receipt dated 29.07.2009 and allotment letter dated 28.07.2009 issued by the Builder-Neeta Developer. The assessee did not filed registered purchase agreement w.r.t. new residential flat in support of his claim for deduction u/s 54 and since the assessee was not able to produce registered purchase agreement , the assessee was show caused by the AO vide order sheet entry dated 08-11-2011 as to why deduction claimed u/s. 54 should not be disallowed . The assessee in reply to SCN submitted as under:-
“As assessee has invested Rs. 26,00,000/ - to purchase a fiat at 203-B Wing, 2nd Floor, Gulraj Building, Nehni Naqar, Kurla (E), Mumbai – 400024 vide letter of allotment dated 28.07.2009 and receipt no. 180 dated 29.07.2009 for payment received by builder against purchase of Flat No. 203. By virtue of letter of allotment and receipt for purchase of fiat, assessee has entitle to right, title and interest in the Flat No. 203-B Wing, 2nd Floor, Gulraj Building, Nehru Nagar, Kurla (E), Mumbai – 400024. As the assessee has entitle to right, title and interest in the Flat 203-B Wing, 2nd Floor, Gulraj Building, Nehru Naqar, Kurla (E), Mumbai- 400024, by virtue of letter of allotment and receipt for purchase of flat dated 29.07.2009 by investing Rs. 26,00,000/- which amount to purchase of new property, then assessee is liable to get capital gain tax exemption u/ s. 54 as laid down in income tax act. Further as assessee is out of town we will get further information regarding any agreement or MOU for the new property in next week. We request you to give adjournment date 16.11.2011 to produce further evidence."
The assessee also submitted letter from M/s. Neeta Developers that they have received payment of Rs.26,00,000/- as earnest money towards purchase of Flat no. 203-B Wing, 2nd Floor, Gulraj Building, Nehru Nagar, Kurla East, Mumbai-24. I.T.A. No. 1131/Mum/2014
4 The AO rejected contentions of the assessee . As per A.O., the assessee is required to purchase the residential unit within two years from date of sale transaction i.e. on or before 17th February, 2011 or the assessee has to construct the flat within three years from the date of said transfer, for which the AO observed that the assessee has not submitted conclusive documentary evidences. The A.O disbelieved that after lapse of 28 months of payment to the builder of Rs. 26,00,000/- out of total cost of Rs. 30,37,500/- , the assessee has not executed registered purchase agreement with builder and as per A.O the assessee may have provided finance or loan to the builder against security of the flat and it was also possible for the assessee to have cancelled the flat and got back refund of booking amount. It was held by the AO that as per provisions of Stamp Act , transaction in immovable property is not valid unless proper stamp duty is paid and property is registered. It was held that mere issue of allotment letter and payment receipt is not conclusive and sufficient evidence for allowing deduction u/s. 54 and hence the AO held that the assessee has not purchased new residential unit within the stipulated time and deduction u/s 54 was disallowed by the AO and long term capital gain on sale of the aforesaid property was computed at Rs. 22,42,887/- by the AO , vide assessment order dated 03-12-2011 passed by the AO u/s 143(3).
being aggrieved by the assessment order dated 03-12-2011 passed by AO u/s 143(3), the assessee filed first appeal before learned CIT(A) .
2 During appellate proceedings, the learned CIT(A) asked for remand report from the A.O in which elaborate findings were given by the A.O which are reproduced here under:-
“ i. During the remand proceedings, the AO issued letter to the assessee requesting him to produce purchase agreement, possession certificate, details of payment and registration details. The AO has mentioned that till the date of his report no one attended or submitted such details. ii. The AO issued notice u/s. 133(6) of the Act to M/s. Neeta Developers asking for the similar details. In response thereof it was submitted that sale agreement for the flat no. H-104 was not yet registered and also the possession of the flat was yet to be handed over. It was further intimated that flat no. B-203 was booked on 30.07.2009 which booking was shifted to H-104 on 03.03.2011. However, payment of Rs.26 lacs was made vide cheque dated 29.07.2011(sic29-07-2009).
iii. The AO further mentioned that as per the provisions of section 54 of the Act, the assessee has to purchase new residential unit within 2 years from the date of sale of the transaction of old property which in the case of the assessee should be on or before 17.02.2011. The AO further mentioned that the assessee had booked the original flat no. B-203 as per the allotment letter dated 28.07.2009 which was subsequently cancelled on 30.07.2009 as per the cancellation letter dated 30.07.2009, copy of which was available on record. The booking of the flat no. H-104 was done on 03.03.2011, nearly 19 months after the cancellation of flat no. B- 203 and after 2 years from the date of sale of transaction of property at Sahyadri Apartment on 17.02.2009. Therefore the assessee was not entitled for deduction as per the provision of section 54 of the Act.
iv. He further observed that the assessee had made payment of Rs.26 lacs on 29.07.2009 booking of flat no. H-I04 and that money was lying with the developer for more than 17 months. He further observed that even during the course of assessment proceedings, the AR of the assessee vide letter dated 24.11.2011 submitted details in respect of the flat no. B-203 which was reported to have been cancelled on 30.07.2009. I.T.A. No. 1131/Mum/2014
v. The.AO further mentioned that the assessee has yet not submitted copy of purchase agreement of new flat H-104 even if it was unregistered. This itself belies the claim of the assessee that he intended to purchase of property. Copy of receipt of payment of service tax was not conclusive proof especially since no agreement seems to have been executed between the assessee and the developer. Accordingly the AO submitted that the denial of claim u/s.54 was justified in the facts of the case.”
3 The copy of the Remand Report was given by learned CIT(A) to the assessee for his comments and the assessee replied as under in response to remand report:- “ i. It was submitted that the AO has erred in. equating the construction of residential house with the purchases, without referring to the CBDT Circular no. 471 and 672 as per which the allotment of flat should be treated at par with the construction of house and accordingly the claim u/s. 54 should be allowed. ii. It was submitted that the investment for the construction was originally made in time i.e. on 28.07.2009 and later on when the same was shifted on 03.03.2011 was also well within the time allowed u/s.54 for the construction of residential house i.e. 3 years from the sale of original assets. iii. It was submitted that the appellant has paid almost 90% of the consideration to the builder and accordingly invested more than the capital gain realized on the sale of original residential house and the AO has failed to take cognizance of the same. The assessee further relied on the following decisions in support of his claim:- CIT Vs. Mrs. Hilla J.B. Wadia 1993 (069)TAXMAN-0114- BOM 792 (2010) 122 ITD 212 : (2008) 24 SOT 312: (2009) 18 DTR 71 Kishore H. Galaiya v. ITO (2012) 79 DTR 201/150 TTJ 444 (Mum)(Trib) Kishore H. Galaiya v. ITO , ITAT 'A' Bench, Mumbai in ITA No. 7326/Mum/2010 dated 13.06.2012 CIT Vs. Sri Sambandam Udaykumar 2012-(206)-TAXMAN- 0150-KAR
iv. In view of the aforesaid reliance placed the appellant submitted that the total amount of capital gain was invested in the construction of new residential house through developer and builders vide receipt no. 180 dated 29.07.2009 against allotment letter dated 28.07.2009 which may please be considered for claim u/ s.54 of the Act.”
The learned CIT(A) after considering the material on record , dismissed the appeal of the assessee by holding as under:-
“i. It is the fact of the case that the assessee has sold his flat at Sahyadri Apartment on 17.02.2009. ii. It is further the fact of the case that assessee booked a flat no. B-203, 2nd floor, Gulraj Building, Nehru Nagar, Kurla(E), Mumbai on 28.07.2009. It is also the fact that towards this booking the assessee made payment of Rs.26 lacs vide his cheque dated 29.07.2009. Subsequently the appellant vide his letter dated 30.07.2009 requested the builder to cancel allotment of the flat and for the purposes, the appellant surrendered original receipt and allotment letter to the builder / developer. Copy of this letter addressed to the builder M/s. Neeta Developers was enclosed by the AO alongwith his remand report. It is further seen that in this letter dated 30.07.2009 of the assessee, there is nothing mentioned in respect of the request for change of flat etc. It is letter for cancellation of the booking of flat No. B-203 in the said scheme. iii. The aforesaid chronology of the facts makes it is clear that within the span of 3 days of booking done on 28.07.2009, payment was made on 27.09.2009(sic.29-07-2009) and on the next very day payment made i.e. on 30.07.2009, the assessee requested for cancellation of the allotment of the flat no. B-203 in the said scheme, together with surrender of allotment letter and original receipt of payment.
iv. It is to be noted here that the assessment year under consideration is A.Y. 2009-10 and the Return of Income was filed by the assessee for this Assessment Year on 18.02.2010. Accordingly as on date of filing of the return by the assessee i.e.18.02.2010, the assessee had no valid booking of flat leave aside any purchase of the flat in respect which the assessee could have made a claim of deduction u/s.54 of the Act against the capital gain earned towards the sale of its flat in Sahyadri Apartments. Accordingly such claim of deduction under section 54 of the Act in the appellant’s return is factually incorrect and inadmissible as such.
v. It is further the fact of the case that the AO during the course of assessment proceedings had asked for copy of the purchase agreement in respect of the flat. The assessee did not submit the same. In the facts of the case when the assessee requested for cancellation of flat No. B-203 on 30.07.2009, there could not have been any agreement for purchase of this flat and therefore the same could not have been submitted.
vi. Accordingly the claim of the assessee u/s.54 of the Act in respect of the flat B-203 definitely is not allowable as the subject booking was cancelled within the span of 2 days of booking such flat and eventually such flat has never been purchased by the assessee.
vii. It is further the fact that subsequently the assessee booked a flat H-104 on 03.03.2011. In the intervening time between 30.07.2009 to 03.03.2011, the assessee did not have any valid booking of the flat leave aside any allotment or purchase of the flat. It is further the fact of the case that after the said booking of the flat No. H 104, the assessee has not filed any revised return to make claim u/s 54 of the in respect of this flat and therefore there cannot be any claim under section 54 of the Act could be allowed in respect of 'purchase' of this flat to the assessee. It is also stated that the appellant never claimed any deduction under section 54 of the Act in respect of this flat before the AO. It is further stated that even on merits such claim of the assessee is not found to be allowable, which has been .discussed subsequently.
viii. In respect of the flat no. H-104 it is the fact that such flat was booked on 03.03.2011 and till date such flat has neither been registered in the name of the assessee nor has been handed over to the assessee as completed. It is further the fact of the case that the assessee sold his flat in Sahyadri Appts. on 17.02.2009 and the flat no. H-104 was booked by him on 03.03.2011, and as such the event of booking of this flat is beyond the period of two years from the sale of original flat in Sahyadri Appts. Accordingly it cannot be said that the flat No. H-104 was ‘purchased ‘within the period of two years from the date of sale of the original flat no.17.02.2009. Therefore deduction under section 54 of the Act is not available to the assessee even toward the flat no. H 104. ix. The assessee has claimed that the payment made to the builder for acquisition of flat should be considered towards the construction of flat through the developer and therefore the time limit of 3 years from the date of sale of original property as provided in the section 54 should be applied and deduction should be allowed. In support of such contention of the assessee, the assessee has relied upon the CBDT Circular no. 471 and 672. In this respect it is stated that such circulars are in respect of self financing scheme of DDA and of such Co-operative societies and other institutions whose schemes of allotment and construction are similar those of DDA. Therefore such circulars are not applicable in the facts of the assessee's case where the flat is being developed by a developer who on commercial basis undertakes the construction and sale of flats. x. The assessee in support of the application of CBDT circular no. 471 and 672 has relied upon many decisions, citations of which have been given hereinabove. In respect of such decisions it is stated that in none of the decisions apply to the peculiar facts of the case of the assessee's case wherein the booking of the flat against which the claim is how being made has not been made in the return of income. It is the fact of the case that the booking of the flat H-104 was made on 03.03.2011 and prior to that the assessee did not had any valid booking in respect of the any flat. Simply the payment which was made to the builder on 29.07.2009 of Rs.26 lacs cannot be considered to have been made for the purposes of acquisition of any flat especially under the facts when the flat no. B-203 which was booked on 28.07.2009 was cancelled by the assessee and subject allotment letter and the original receipt for the payment was surrendered to the builder on 30.07.2009. xi. In respect of the appellant’s arguments that the Flat H- 104 which was first book on 03.03.2011 being within 3 years of the sale of original assets, should be considered as construction for the entitlement of deduction u/s. 54, it is stated that as per the provisions of 54 such construction should be completed within the period of 3 years from date of sale of the original assets. It is undisputed fact in this case that leave aside completion of construction within the period of 3 years time from the date of sale of original asset, the concerned flat no. H-104 is yet not constructed completely and as such has neither been handed over to the assessee nor registration has been done in favour of the assessee. Accordingly under such facts of the case it even cannot be said that subject flat no. H-104 has been constructed within 3 years from the date of sale of original flat on 17.02.2009. xii. The assessee has contended that he has paid service tax in respect of such. flat no. H-104. In this regard it is stated that the service tax payment in respect of such flat could be construction linked and payment linked but the payment of service tax in respect of H-104 does not tantamount to the completion of construction of flat. It has been hereinabove mentioned that the flat no. H-104 has not been completed and has not handed over to the assessee till date and further the subject flat has been registered in the name of the assessee till date.
xiii. In view of the aforesaid facts and circumstances of the case it is clear that the first flat viz. Flat no B-203 against which the assessee has claimed deduction u/s.54 in his return of income actually was cancelled by the assessee within 2 days of booking i.e. on 30.07.2009 and therefore the appellant should not have been made any claim of deduction u/s.. 54 of the Act in respect of this flat in his return of income filed on 18.02.2010. The facts in respect of the other flat viz. H-104 have been discussed hereinabove. Such flat was booked on 03.03.2011 and till date it neither has been handed over to the assessee nor has been registered in his name. Further there is no claim of deduction in respect of this flat in the return of income of the assessee and further there was no such claim which was made by the appellant in respect of this flat before the AO. Simply because there was a payment of Rs. 26 lacs to the builder on 29.7.2009 which either remained with the builder, or otherwise would not amount to either purchase or construction of flat within the time allowed u/s. 54 of the Act. Accordingly the action of the AO in denying deduction u/s. 54 is found to be justifiable and is accordingly upheld.”
Based upon the above findings , the learned CIT(A) dismissed the appeal of the assessee , vide appellate order dated 30-12-2013 passed by learned CIT(A).
5 . Aggrieved by the appellate order dated 30-12-2013 passed by learned CIT(A) , the assessee has filed an second appeal before the tribunal.
2 The ld. Counsel for the assessee submitted that the assessee has earned long term capital gains on sale of a residential flat at Sahyadri Apartment, Pimpri Pada on 17.02.2009 . It was submitted that investment has been made in new residential flat and the deduction u/s. 54 was claimed which was disallowed by the authorities below . It was submitted that the allotment letter for new residential flat has been issued in favour of the assessee in the month of July 2009 and payment of Rs. 26,00,000/- were made in July 2009 for purchase of new residential flat . Our attention was drawn to page no 75 of the paper book wherein letter of allotment issued by Neeta Developers dated 28/07/2009 with respect to Residential Flat No. 203/B Wing 2nd Floor, Gulraj Building, Nehru Nagar, Kurla East, Mumbai- 24 wherein payment of Rs. 26,00,000/- was made by the assessee to the Builder towards earnest money for the said flat is placed . Our attention was also drawn to page no. 76 wherein receipt is being placed for Rs. 26,00,000/- issued by Neeta Developers with respect to the above flat. Our attention was also drawn to page no. 77 wherein the letter dated 30-07-2009 requesting for cancellation of the said flat at ‘B’Wing has bee placed. Our attention was also drawn to page no. 78 where in letter of allotment dated 3rd March, 2011 issued by Neeta Developer in favour of the assessee is placed with respect to allotment of Flat no. 104/H Wing, First floor on plot bearing number CTS No. 6(Pts.) , Nehru Nagar, Kurla East, Mumbai-24 , wherein it is mentioned that the assessee has made payment of 26,00,000/- to the Builder-Neeta Developer towards EMD for the said flat . Further letter of allotment dated 15.10.2011 issued by Neeta Developer is also placed in paper book/page 79 wherein the said payment of Rs.26,00,000/- is converted into part consideration for purchase of the said residential flat bearing number CTS No. 6(Pts.) , Nehru Nagar, Kurla (East), Mumbai-24 by the Builder-Neeta Developer. The assessee placed reliance on the decision of the ITAT , Mumbai in the case of Mukesh G Desai (HUF) v. ITO (2009) 120 TTJ 792 (Mumbai). It was submitted that there was no mala fide by the assessee and the said amount of payment of Rs.26,00,000/- continued with the Neeta Developers since July 2009 although initially flat was cancelled and later new residential flat being constructed by the said builder was purchased within three years from the date of sale in lieu of earlier cancelled flat. It was submitted that strict law of evidence is not applicable to income- tax proceedings. It was submitted that payment of Rs.26,00,000/- was made to the Builder on 29.07.2009 itself which flat was cancelled on 30-07-2009 and money was shifted from one flat to the another and builder has given another flat to the assessee within three years from the date of sale of original flat . It was submitted that fault is on the part of the builder and section 54 is benevolent provision which should be liberally construed. It was submitted that there is no mala fide on the part of the assessee rather it is the fault of the Builder and the assessee should not be penalised for the same. It was submitted that allotment of the flat by the Builder shall be deemed to be construction of flat and period of three years will be applicable for construing limit for availing the benefit of Section 54. 5.3 The ld. D.R on the other hand submitted that construction should have been completed within three year while in the instant case the construction has not been completed within three years. He relied upon the appellate order of the learned CIT(A). It was submitted that no document for registration of the flat in favour of the assessee by the Builder-Neeta Developer has been executed in favour of the assessee . It was submitted that no registered documents for purchase of new residential flat has been produced before A.O or before learned CIT(A) . The learned DR relied upon the appellate order of learned CIT(A).
We have considered rival contention and perused the materials on record including case laws relied upon.
2 We have observed that ground no. 1 raised by the assessee before us is concerning transfer fees of Rs. 25,000/- and brokerage expenses of Rs. 30000/- claimed to have been paid by the assessee in connection with sale/transfer of residential flat at Sahyadri Apartment, Pimpri Pada on 17.02.2009 which was claimed as deduction while computing long term capital gains on sale of said residential flat. The assessee did not offer any explanation before the AO nor provided any evidences before the AO with respect to said expenses which led to the disallowances of said expenses in the hands of the assessee by the AO while computing income from long term capital gains on sale of flat at Sahyadari Apartments. The assessee produced additional evidences before learned CIT(A)to substantiate said expenses to have been genuinely incurred but learned CIT(A) refused to admit such additional evidences as the assessee did not produce such evidences before the AO. The assessee claimed before learned CIT(A) that his AR did not communicated to him that these documents were called by the AO and hence the same were not furnished by the assessee to his counsel for onward submissions to the AO. It is well settled proposition of law that when technicalities are pitted against substantial justice, the courts will always lean towards promoting the cause of substantial justice unless malafide is writ large from the conduct of litigating party seeking admission of additional evidences at the appellate stage. The litigating party is not likely to gain any benefit from non production of such evidences which support and promotes its contentions and cause to seek relief rather non production of said evidences can lead Court to draw presumption against the said litigating party. The explanation offered by the assessee that he was not informed by his AR about requirement of furnishing these documents before the AO and hence he did not furnish said evidences at the assessment stage is an plausible explanation which cannot be rejected at threshold to be not a reasonable or bonafide reasonable explanation more-so on perusal of invoices for both these expenses which are placed in paper book/page 72-74 the payments were made by the assessee through cheque/banking channel. The powers of learned CIT(A) is co-terminus with the powers of the AO and while deciding the appeal the learned CIT(A) should have caused enquiry of its own or directed AO to make an enquiry to verify bonafide and genuineness of the claim of the assessee instead of rejecting the claim of the assessee at threshold . We are of the considered view and direct that these additional evidences be and are hereby admitted in the interest of justice and matter be restored to the file of the AO for necessary verification / enquiry with respect to these additional evidences as to the bonafide and genuineness of the assessee’s claim on merits to be conducted by the AO and issue be decided on merits by the AO in denovo proceedings in accordance with law. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law This ground of appeal no. 1 raised by the assessee is allowed for statistical purposes. We order accordingly.
3 With respect to the ground no.2 raised by the assessee , we have observed that assessee has sold residential flat at Sahyadri Apartment, Pimpri Pada on 17.02.2009 which was purchased on 18.11.2003 . The long term capital gains before computing deduction u/s. 54 was worked out by AO as under:-
Sale proceeds 30,35,000/- (No expenses are allowed in view of Discussion made in para-5/AO order) -------------- 30,35,000/- Less : Indexed cost of acquisition 630152 x 582/463 7,92,113/- Taxable capital gain Rs. 22,42,887/-
The assessee claimed deduction u/s. 54 of the Act from long term capital gains earned on sale of residential flat at Sahyadri Apartment, Pimpri Pada as the assessee booked flat no. 203/B Wing , 2nd Floor, Gulraj Building, Plot No. CTS No. 6(Pt) and 4(Pt.) , Nehru Nagar, Kurla East, Mumbai-400024 wherein payment of Rs. 26,00,000/- was made by the assessee as EMD for booking of said residential flat as against total cost of Rs. 30,37,500/- and the Builder Neeta Developer issued allotment letter dated 28.07.2009 along with receipt dated 29.07.2009 acknowledging receipt of Rs. 26 lacs ( page no. 75-76/paper book) . The assessee cancelled the said booking of residential flat no. 203/B Wing , 2nd Floor, Gulraj Building, Plot No. CTS No. 6(Pt) and 4(Pt.), Nehru Nagar, Kurla East, Mumbai-400024 on 30.07.2009 on personal reasons (page 77/pb) . The said amount of Rs. 26 lacs paid by the assessee as EMD for booking aforesaid flat continued to be retained with the builder as is emerging from records. The assessee made fresh booking of fresh residential flat with Builder Neeta Developers bearing flat no. 104 in Wing H(A) on the 1st Floor having area of 455 sq. Ft in the proposed building at plot no. 6(pt.) situated at Nehru Nagar, Kurla East, Mumbai-400024. The builder –Neeta Developer allotted said new residential flat to the assessee on 3rd March, 2011 and acknowledged receipt of Rs. 26.00 lacs as EMD towards the said residential flat (page 78/pb). The Builder Neeta Developer issued allotment letter dated 15-10-2011 and appropriated Rs. 26 lacs as part consideration towards said new residential flat as against total consideration of Rs. 32.76 lacs (page 79/pb). The said builder also issued one receipt dated 25-07-2012 of Rs. 66,950/- towards service tax w.r.t. above flat which was paid by the assessee vide cheque issued from his Allahabad bank (page 80/pb). The assessee has also produced approval letters from Slum Rehabilitation Authority issued in favour of Neeta Developers dated 17-07-2007 and 27-07-2011 for approval for development permission and grant of commencement certificate which , inter-alia, included ‘B’ Wing as also ‘H’ of the Building being developed by the Builder-Neeta Developr . The assessee has also produced letter dated 20- 08-2013 issued by Neeta Developer to the ITO, Ward 21(3)(2), Mumbai confirming all the aforesaid facts in reply to enquiry made u/s 250(4). The authorities below denied deduction to the assessee u/s. 54 of the Act on the ground that assessee has not purchased the residential flat within two years from the date of transfer /sale of residential flat on 17-02-2009 . The assessee booked the flat in ‘B’ Wing which was allotted by the builder on 28- 07-2009 and later the same was cancelled by the assessee on 30-07-2009 on personal reasons and in the intervening period from 30.07.2009 till 03.03.2011 , the booking amount of Rs. 26 lacs for ‘B’ Wing cancelled residential flat was lying with the builder while no residential flat was being held by the assessee in the intervening period from 30-07-2009 till 03-03- 2011, while it is only on 03-03-2011 the builder Neeta Developer allotted new residential flat at ‘H’ Wing(page 78/pb) which is beyond 2 years from the date of sale of residential flat on 17-02-2009 but is within three years from the date of sale of flat at Sahaydri Apartments. The builder continue to hold the payment of Rs 26 lacs made by the assessee from July 2009 till March 2011 which was appropriated by Builder towards ‘H’ Wing residential flat on 3-3-2011 as EMD by allotting flat in ‘H’ wing vide allotment letter dated 3-3- 2011. The said EMD was later converted by the Builder into part consideration towards ‘H’ wing flat on 15-10-2011 vide letter of allotment dated 15-10-2011. Section 54 is a beneficial provision which was legislated in order to encourage people to invest in housing sector and granted deduction from long term capital gains earned on sale of residential property provided the same is re-invested in new residential property within specified time limits as provided u/s 54. Till recently, in big cities like Mumbai there was a huge shortage of housing and concept of builder flat is very popular due to acute shortage of land and skyrocketing prices of land in the large cities like Mumbai. The owning and possessing of a residential flat was a distant dream to large section of middle income and lower income group people who have to depend on builders/societies for satisfying their housing need in city of Mumbai . These middle income and lower income group people did not have much bargaining power vis-a-vis builders while buying residential houses , while builders hold a dominating position keeping in view financial resources of builder as well as acute shortage of housing in Mumbai. No doubt presently the real estate demand and supply position has changed which is tilted in favour of buyers and there is also an advent of stringent laws like establishment of Real Estate Regulatory Authorities to protect buyers from unscrupulous builders. Under these circumstances buyers in that era wherein regulation over builders were not stringent had to accept standard conditions imposed by the builders , wherein flat buyers has to sign on the standard documentation, agreements , contracts as prepared by the builder and the timing of registration was also decided by the builders due to their strong dominating positions vis-a-vis middle income and low income group buyers , wherein it was not uncommon that builders used to delay delivery of homes to the buyers. Thus to read Section 54 which is a beneficial provision in an absolutely strictest terms will lead to denial of benefits u/s. 54 to many of the legitimate and genuine buyers of residential flats and its strict interpretation will lead to the defeat of the very purpose for which Section 54 was legislated. No doubt that exemption provisions at the initial stages is to be construed strictly and onus is on the tax-payer to establish its entitlement to exemption but once the tax payers establish its entitlement to the exemption provision, full benefit is to be given to the exemption provision to achieve the intended purposes for which the said provisions are legislated which in the case of Section 54 was to encourage housing but to interpret Section 54 in a very strictest , narrower and restricted terms will defeat the basic purpose for which the said provision was legislated to encourage people to invest in housing to satisfy their need for housing and even genuine and bonafide buyers will be denied the benefit as they are otherwise entitled to u/s 54. Reference can be drawn to the following observations of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188/62 Taxman 480 : "The provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; since the provision for promoting economic growth has to be interpreted liberally , restrictions on it too has to be construed so as to advance the objective of the provisions and not to frustrate it." We have observed that the assessee invested 26,00,000/- with Neeta Developers in July 2009 itself to buy a residential flat in B wing which due to personal reasons the assessee cancelled the said flat but allowed builder- Neeta Developer to continue to hold the said booking amount of Rs. 26 lacs till 2011 when a new flat in ‘H’ Wing was allotted by the Builder-Neeta Developer to the assessee and the same amount which was held by the Builder was duly appropriated towards new residential flat allotted to the assessee in ‘H’ wing on 03-03-2011 as EMD which was later treated as part consideration on 15-10-2011 by the Builder. The assessee has made substantial portion of the payment to the tune of Rs. 26 lacs as against total cost of Rs. 32.76 lacs of the flat in ‘H’Wing on 03-03-2011 and has acquired right , title and interest over said flat within 3 years from the sale of flat. Circular no. 471 dated 15-10-1986 and circular no 672 dated 16-12-1993 issued by the CBDT supports the contention of the assessee . The circular no 471 dated 15-10-1986 issued by CBDT is reproduced hereunder :
“CIRCULAR : NO. 471 [F. NO. 207/27/85-IT(A-II)], DATED 15-10-1986
Sections 54 and 54F provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer.
The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-Financing Scheme (SFS) of the D.D.A. amounts to purchase or is construction by the D.D.A. on behalf of the allottee. Under the SFS of the D.D.A., the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow- up action and taking the delivery of possession is only a formality. If there is a failure on the part of the D.D.A. to deliver the possession of the flat after completing the construction, the remedy for the allottee is to file a suit for recovery of possession.
The Board have been advised that under the above circumstances, the inference that can be drawn is that the, D.D.A. takes up the construction work on behalf of the allottee and that the transaction involved is not a sale. Under the scheme the tentative cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore,for the purpose of capital gains tax the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-Financing Scheme of the D.D.A. shall be treated as cases of construction for the purpose of capital gains.”
The circular no 672, dated 16-12-1993 issued by CBDT is reproduced hereunder:
“CIRCULAR NO.672, DATED 16-12-1993
Attention is invited to Board's Circular No. 471, dated 15-10- 1986. It was clarified therein that cases of allotment of flats under the Self-Financing Scheme of the Delhi Development Authority (DDA) should be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act. The Board has since received representations that even in respect of allotment of flats/houses by co-operative societies and other institutions, whose schemes of allotment and construction are similar to those of Delhi Development Authority, a similar view should be taken.
The Board has considered the matter and has decided that if the terms of the schemes of allotment and construction of flats/houses by the co-operative societies or other institutions are similar to those mentioned in para 2 of Board's Circular No. 471, dated 15-10-1986, such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act.”
The allotment of flat by the Builder under self financing scheme has to treated as construction and period of three years window will be available for availing deduction u/s 54. The assessee has invested Rs. 26 lacs in new residential flat at ‘H’wing on 03-03-2011 i.e. within three years from the date of sale/transfer of flat on 17-02-2009 wherein substantial cost of the said flat was paid by the assessee as total cost was Rs 32.76 lacs . The Builder later issued fresh letter of allotment on 15-10-2011 wherein the builder treated Rs. 26 lacs as part consideration towards said residential flat at ‘H’ Wing , which is again within three years from the date of sale of flat at Sahayadri Apartments by the assessee on 17-02-2009 on which income from long term capital gain arose. The assessee also paid through the builder service tax on the said payment of Rs. 26 lacs to the government which is duly acknowledged by the Builder. The Revenue also made direct enquiry with the builder and it could not be shown that these transactions are not genuine or are colourable device adopted by the assessee in collusion with the Builder to defraud revenue. The assessee has also brought on record government approvals for construction of ‘H’Wing on the plot developed by Builder. The assessee , thus got right , title and interest in the said flat within three years from the sale of flat on which the long term capital gain arose and the assessee will be entitled for deduction u/s 54. The decision of the Mumbai tribunal in Mukesh G Desai vs. ITO (supra) and also decision of Hon’ble High Court of Bombay in the case of CITv. Mrs Hilla J.B.Wadia(1993) 69 taxman 114(Bom) also supports the contention of the assessee. The assessee has also relied upon large number of other case laws which are placed in the file to support its claims and contentions. In our considered view, keeping in view factual matrix of the case as is emerging from records, the assessee is entitled for deduction u/s. 54 of the Act and we order for grant of deduction u/s 54 of the Act on the said payment of Rs. 26 lacs made towards acquiring a new residential apartment in ‘H’ wing by the assessee from the Builder-Neeta Developer. The assessee succeeds on this ground. We order accordingly.
In the result, appeal of the Assessee in ITA No. 1131/Mum/2014 for assessment year 2009-10 is allowed as indicated above.
Order pronounced in the open court on 17.10.2017
आदेश क" घोषणा खुले "यायालय म" "दनांकः 17.10.2017 को क" गई। (SAKTIJIT DEY) ACCOUNTANT MEMBER Mumbai, dated: 17.10.2017
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