SHRI.BIJUKUMAR SADASIVAN,BANGALORE vs. INCOME TAX OFFICER, BANGALORE

Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.12.8.2016 of

Commissioner of Income Tax (Appeals) for the Assessment Year 2011-12.

2 ITA No.2188/Bang/2016

Representative and considered the relevant material on record. The issue in

this appeal is regarding restricting the claim of the assessee under Section 54 to

Rs.13,22,700 as against the claim of Rs.34,10,574. During the year under

consideration the assessee had sold the residential property at S.No.288/78

situated in Vazhoor Village, Changanacherry Taluk, Kottayar Dist., Kerala for a

consideration of Rs.34,50,000. The assessee purchased new residential property being a flat bearing No. A 210, 2nd Floor, Block A in Chitrakut Environs,

Vibhuthipura Village, K.R. Puram Hobli, Bangalore. The assessee claimed that

the cost of new property was Rs.35,50,000 however the Assessing Officer did

not accept the claim of the assessee and found that as per the value fixed by

3 ITA No.2188/Bang/2016 the stamp duty authority, the new property was purchased for a consideration

of Rs.13,22,700. Hence the Assessing Officer has restricted the claim of

deduction under Section 54F to Rs.13,17,358 and disallowed the balance

amount of Rs.20,93,216 which was added to the total income of the assessee.

The assessee challenged the action of the Assessing Officer before the CIT

(Appeals) but could not succeed.

purchased this new flat vide agreement dt.19.7.2010 from one Mr. Suresh Rao

who was the original allottee of flat from the developers i.e. M/s. Chitrakoot

Developers. Therefore the original allottee of the flat become the confirming

party in the transaction of purchase and sale of the said flat. The assessee

paid a sum of Rs.30,50,000 to the confirming party and balance amount of

Rs.13,22,700 to the developer. He has further pointed out that the entire

payment of Rs.35,50,000 was paid through cheques. Thus the assessee has

contended that when the assessee has invested total amount of Rs.35,50,000

in the new residential house then the claim of the assessee cannot be restricted

to Rs.13,17,358. He has relied upon the decision of the co-ordinate bench

dt.26.8.2015 in the case of Sri S. Tejraj Ranka Vs. ITO in ITA No.82/Bang/2014.

4 ITA No.2188/Bang/2016 5. On the other hand, the learned Departmental Representative has relied

upon the order of authorities below and submitted that as per the sale deed

the sale consideration has been shown at Rs.13,22,700. It is also the value fixed

by the stamp registering authority therefore the Assessing Officer has correctly

allowed the claim of deduction under Section 54F of the Act.

on record, it is noted that in the sale document with the developer/builder, the

consideration is shown only Rs.13,22,700. Since this flat in question was earlier

allotted to one Mr. Suresh Rao who is a confirming party in the transaction of

sale and purchase of the property by the assessee from M/s. Chitrakut

Developer and a sum of Rs.30,50,000 was paid to the confirmation party

therefore the amount of investment has to be considered not only the

payment made to the builder but also the payment made to the confirming

party. The assessee had also explained before the CIT (Appeals) that the

assessee has paid this amount to the confirming party through cheques and the

details of which has been given by the CIT (Appeals) in para 5 of the impugned

order as under :

5 ITA No.2188/Bang/2016

Thus it is clear that the CIT (Appeals) has not disputed the payment made by

the assessee to the confirming party as well as further payment to the interior

designer for carrying out the work. The assessee has also produced the

agreement dt.19.07.2010 which is a tripartite agreement between the

assessee, confirming party Mr. Suresh Rao and M/s. Chitrakut Developers. All

the details of the payment in question are also mentioned in the said

agreement therefore the payment to the confirming party cannot be ignored

for the purpose of Section 54. An identical issue has been considered by the

6 ITA No.2188/Bang/2016 co-ordinate of this Tribunal in the case of Sri S. Tejraj Ranka Vs. ACIT (supra) in

paras 12 to 19 as under :

“ 12. We have given a careful consideration to the rival submissions. The relevant provisions of Sec.54F of the Act, in so far as it relevant for the present case, reads thus: “Sec.54F: Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. (1) Subject to the provisions of sub-section (4), where in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereinafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house in India] (hereinafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: ………………..” 13. The claim of the Assessee, in the present case, is that he has constructed a residential house and is therefore entitled to exemption u/s.54F of the Act. The term ‘residential house’ is not defined in the Act. Therefore the said expression should be understood in the normal sense of a house, which is habitable. There is no dispute that the Assessee in fact paid a sum of Rs.52,60,292 to the developer for acquiring a flat which was habitable with all amenities in place. The confirmation of the developer/builder is on record. In addition to the same, the Assessee also incurred stamp duty and registration charges of Rs.2,10,595. Thus the Assessee has invested a sum of Rs.54,70,887 in acquiring a residential house. The Assessee should therefore be allowed the deduction claimed u/s.54F of the Act, on a plain reading of the provisions of Sec.54F of the Act.

7 ITA No.2188/Bang/2016 14. The Agreement dated 17.5.2007 is the first document between the developer and the Assessee for purchase of the property. This Agreement refers to only undivided share of land and flat measuring about 2025 Sq.ft. together with one covered car park for a consideration of Rs. 44,55,000 + registration charges of Rs.2,00,000 as per schedule E to this Agreement. Schedule E refers only to the cost of the built up area of 2025 sq.ft. at Rs.2,200 per sq.ft. Par-II of Schedule-E and Article IV of the Agreement gives a list of other charges to be paid by the Assessee. 15. The next document is the registered sale deed dated 25.6.2008 which is for a sum of Rs.22,05,000 which is towards undivided share of land and flat together with 2 covered car parks. 16. The third document is the letter dated 18.6.2008 by the developer which refers to a sum of Rs.52,60,292 as the total cost of the property paid by the Assessee. This letter refers to the basic cost of the property as Rs.22,05,000. 2 Car Parks have been valued at Rs.3,00,000. To this extent, there appears to be a contradiction between the registered sale deed and this letter of the builder. The other charges mentioned in this letter, in our view, cannot be regarded as immovable property to be included in the registered sale deed as value of property. These are all provided by the builder in his capacity as developer and building contractor for the Assessee. Therefore, in our view, there can be no adverse inference drawn against the Assessee. 17. The fact remains that the Assessee has parted with a sum of Rs.54,70,887 to acquire a “ residential house”, in the sense, a house which is habitable. Therefore as far as proceedings under the Act are concerned, the Assessee cannot be denied the benefit of deduction u/s.54F of the Act. The fact that there was undervaluation of the value of the property for the purpose of stamp duty, is an issue which is alien to the question of allowing deduction u/s.54F of the Act, when the evidence on record clearly shows investment in construction of “residential house” to the extent of Rs.54,70,887. 18. The AO and the CIT(A) have ignored the fact that the Assessee has in fact made investment to the extent of Rs.54,70,887 and therefore the deduction claimed u/s.54F of the Act ought to be allowed. The fact that there was discrepancy between the amount set out in the registered document and the agreement with the builder has already been noticed by the State Registration Authorities and the Assessee is contesting those proceedings. Those proceedings will not have any bearing with regard to the claim of the Assessee for deduction u/s.54F of the Act, as the factum of investment in acquiring a residential house and payment of Rs.54,70,887 has been established and not disputed by the Revenue. 19. We are therefore of the view that the claim of the Assessee for deduction u/s.54F of the Act ought to be allowed as claimed by the Assessee. We hold and direct accordingly. The appeal of the Assessee is accordingly allowed.”

8 ITA No.2188/Bang/2016 7. Having regard to the facts and circumstances of the case, where the total

payment made by the assessee for purchase of new residential house in

question is not in dispute then the action of the Assessing Officer in restricting

the claim under Section 54/54F only to the extent of payment to the developer

is not justified. Accordingly, the orders of the authorities below is set aside and

the claim of the assessee is allowed.

Sd/- (VIJAY PAL RAO) JUDICIAL MEMBER Bangalore, Dt.28.02.2017.

*Reddy gp

Copy to : 1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File. Assistant Registrar Income Tax Appellate Tribunal Bangalore.