GOPAL SARAN DARBARI,NEW DELHI vs. ITO, NEW DELHI

PER H.S. SIDHU, J.M.

The Assessee has filed these two Appeals against the separate

Orders dated 22.1.2013 and 10.1.2013 of the Ld. CIT(A)-XIII, New

Delhi pertaining to assessment years 2007-08 & 2008-09

respectively. Since the issues involved in these appeals are common,

therefore, the same are being consolidated by this common order for

the sake of convenience.

2007-08):-

law, the CIT(A) erred in confirming action of the AO of

making addition of Rs. 9,01,349/- by reducing claim of

deduction / exemption u/s. 54 of the Income Tax Act,

1961.

The appellant craves leave to add, alter, modify or delete

one or more ground of appeal before or at the time of

hearing of appeal.

2008-09):-

law, the CIT(A) erred in confirming action of the AO of

making addition of Rs. 1,42,1000/- as alleged capital

gain.

law, the CIT(A) erred in deciding the appeal exparte.

The appellant craves leave to add, alter, modify or

delete one or more ground of appeal before or at the

time of hearing of appeal.

filed on 16.11.2007 declaring total income at Rs.4,81,560/-. The

return was processed uls 143(1) of the IT Act and case was selected

for scrutiny. The assessee is a Director of M/s Effectron Luminex Ltd

Holding 47.9% equity. In this case order u/s 250(6) of the IT Act was

passed by the CIT(Appeal) on 24.11.2011. The appeal of the

assessee was dismissed on the ground of late filing of appeal and on

account of non compliance. Against the said order, the assessee filed

an appeal before ITAT, the ITAT vide its order dated 27.4.2012

passed in ITA 745/DEL/2012 set aside the order of CIT(Appeal) and

restored the issue before CIT(Appeal) for re-adjudication after

providing an opportunity of being heard. Accordingly, opportunity of

being heard to the asessee has been provided on 18.12.2012 and

22.01.2013. During the course of appellate proceedings it was

noticed by the Assessing Officer that assessee has claimed deduction

U/S 54 in respect of an amount of Rs. 51,27,000/- during the year

i.e. an amount of Rs.15,27,000/- was claimed to have been paid to

the builder M/s Ajay Enterprises for booking of a Flat and Rs.

35,00,000/- was deposited in capital gain account scheme 1988. On

examination of the receipts issued by Ajay Enterprises Ltd. it was

noticed that appellant has booked two flats namely A-907 and C-408.

It was also observed that appellant has paid Rs. 5,77,0000/- for Flat

No. A-907 and Rs. 9,50,000/- for Flat No.C-408. This fact was

admitted by the assessee in its reply dated 07.12.2009 and admitted

that amount of Rs.9,50,000/- invested in C-408 was wrongly

considered u/s 54 of the IT Act. Therefore, in the assessment order

the Assessing Officer worked out the capital gain after indexation at

Rs.49,78,349/-and allowed deduction for the amount deposited of

Rs. 35,00,000/- in capital gain account scheme and investment in

Flat No. A-907 of Rs. 5,77,000/- and the balance amount of Rs.

9,01,349/- claimed u/s. 54 was added back as income of the

assessee as this amount was paid for booking of second flat C-408

and assessment was completed at Rs. 13,91,750/- vide AO’s order

dated 21.12.2009 passed u/s. 143(3) of the I.T. Act, 1961.

Ld. CIT(A), who vide impugned order dated 22.1.2013 has dismissed

the appeal of the assesseee.

Assessee is in appeal before the Tribunal.

the assessee has made payment of Rs. 15,27,000/- to the builder

namely Ajay Enterprises Pvt. Ltd. from whom the ‘new house’ was

purchased. Out of this amount of Rs. 15,27,000/- the builder has

appropriated Rs. 9,50,000/- towards another Flat No. C-408 booked

by the assessee with the builder. He stated that it should not be

reason for making disallowance. The assessee has invested a total

sum of Rs. 61,74,683/- in the eligible new house (A-907) upto

4.12.2008 i.e. well within the period specified under section 54 of the

Income Tax Act, 1961. The assessee being an old man of around 76

years could not keep track of the adjustment made by the builder.

However, the made the substantive compliance of section 54 by

making the required investment in the new house within the period

specified u/.s 54 of the I.T. Act, 1961. In support of his contention,

he filed the copies of the following decisions wherein the similar issue

has been dealt with and decided in favour of the assessee.

- ITO VS. SMT. SAPANA DIMRI (2012) 19

TAXMANN.COM 15 (DELHI)

- CIT VS. JAGRITI AGGARWAL (2011) 15

TAXMANN.COM 146 (PUNJ. & HAR.) HIGH COURT.

- KISHORE H. GALAIVA VS. ITO (2012) 24

TAXMANN.COM 11 (MUM)

- CIT VS. RAJESH KUMAR JALAN (157 TAXMAN 398)

(GAU)

- K.S. RAMACHANDARAN VS. ITO (ITA NO.

941/MDS/2011)

In view of the above, he requested that following

the above precedents, the appeal of the assessee may

be allowed.

authorities below and stated that the lower authorities have passed

well reasoned order which does not need any interference on our

part, therefore, the appeal of the assessee may be dismissed.

records available with us, especially the orders of the revenue

authorities and the case laws cited by the assessee’s counsel. We

note that the assessee is an individual aged about 76 years. During

the year under consideration, the assessee has earned long term

capital gain of Rs. 4978349/- on sale of residential flat No. A-30,

Mandakini Enclave, New Delhi. The appellant claimed deduction uls

54 for amount of Rs. 5227000/- (Rs.36 Lacs for amount deposited in

capital gain account scheme and Rs. 1527000/- for payment made

for purchase of New House prior to the due date of filing of return of

income. Since the investment new house (including the deposit in

capital gain was computed at Rs. NIL. The assessing officer has

however reduce the deduction by Rs. 901349/- on the ground that:-

a) Amount deposited in capital gain account was Rs. 35 Lacs and

not Rs.36 lacs.

b) That the amount of Rs. 1527000/- claimed as investment in

new house includes Rs. 950000/- in respect of other house other

than the "new house".

9.1 During the year the assessee has made payment of

Rs.1527000/- to the builder namely Ajay Enterprises Pvt. Ltd from

whom the "new house" was purchased. Out of this amount of Rs.

1527000/- the builder has appropriated Rs. 950000/- toward another

flat No. C-408 booked by the assessee with the builder. It should not

be reason for making disallowance/addition. The fact of the matter is

that the assessee has invested a total sum of Rs. 6174683/- in the

eligible new house (A-907) upto 04/12/2008 i.e. well within the

period specified under section 54 of Income Tax Act, 1961. The

assessee being an old man of around 76 years could not keep track

of the adjustment made by the builder. However, he made the

substantive compliance of section 54 by making the required

investment in the new house within the period specified uls 54 of

Income Tax Act, 1961. For the sake of clarity, we are reproducing

the provisions of Section 54 as under:-

(1)] [Subject to the provisions of sub-section (2), where, in the case

of an assessee being an individual or a Hindu undivided family], the

capital gain arises from the transfer of a long-term capital asset,

being buildings or lands appurtenant thereto, and being a residential

house, the income of which is chargeable under the head "Income

from house property" (hereafter 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, then], instead of the capital gain

being charged to income-tax as income of the previous year in which

the transfer took place, it shall be dealt with in accordance with the

following provisions of this section, that is to say,

(i) if the amount of the capital gain [is greater than the cost of [the

residential house] so purchased or constructed (hereafter in this

section referred to as the new asset)], the difference between the

amount of the capital gain and the cost of the new asset shall be

charged under section 45 as the income of the previous year; and for

the purpose of computing in respect of the new asset any capital gain

arising from its transfer within a period of three years of its purchase

or construction, as the case may be, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost

of the new asset, the capital gain shall not be charged under section

45; and for the purpose of computing in respect of the new asset any

capital gain arising from its transfer within a period of three years of

its purchase or construction, as the case may be, the cost shall be

reduced by the amount of the capital gain.

(2) The amount of the capital gain which is not appropriated by the

assessee towards the purchase of the new asset made within one

year before the date on which the transfer of the original asset took

place, or which is not utilised by him for the purchase or construction

of the new asset before the date of furnishing the return of income

under section 139, shall be deposited by him before furnishing such

return [such deposit being made in any case not later than the due

date applicable in the case of the assessee for furnishing the return

of income under sub-section (1) of section 139] in an account in any

such bank or institution as may be specified in, and utilised in

accordance with, any scheme which the Central Government may, by

notification in the Official Gazette, frame in this behalf and such

return shall be accompanied by proof of such deposit; and, for the

purposes of sub-section (1), the amount, if any, already utilised by

the assessee for the purchase or construction of the new asset

together with the amount so deposited shall be deemed to be the

cost of the new asset :

Provided that if the amount deposited under this sub-section is not

utilised wholly or partly for the purchase or construction of the new

asset within the period specified in sub-section (1), then,-

i) The amount not so utilized shall be charged under

section 45 as the income of the previous year in which

the period of three years from the date of the transfer of

the original asset expires; and

ii) The assessee shall be entitled to withdraw such amount

in accordance with the scheme aforesaid.

9.3 A bare reading of aforesaid provisions would reveal that for

giving exemption, the legislature has required that the cost of new

asset should be equal to or more than the capital gain. The main

sub-clause (i) providing for the exemption does not require that the

whole payment for purchase of new asset should be made. In other

words even if an assessee acquires a new house on credit i.e. the

payment for which may be made in future, the assessee cannot be

denied the benefit of deduction u/s 54 because what is required by

sub-clause (i) is that cost of new house should be equal to or more

than the amount of long term capital gain.

9.4 We find that in the case of J.V.Krishnarao vs DCIT (ITAT,

Hyderabad),the ITAT Held that all that is required to be eligible for

relief u/s 54F of the Act is compliance with the condition of

investment within the specified time and deduction u/s 54F cannot

be denied even if the deposit in capital gain account was out of

borrowed fund and not out of capital gain. It was held that money

has no color and all i.e. required is that investment be made in new

house within the specified time.

9.5 In the case of K.S. Ramachandran vs ITO (ITAT, Chennai), the

ITAT held that deduction u/s 54 was allowable even in a case where

the amount of capital gain was not deposited in capital gain account

but the amounts was utilized for the purchase of new house within

the period specified u/s 54 even though the amount was invested

after the due date of filing of return u/s 139(4) but before the period

of 2/3 years as specified in section 54.

9.6 The requirement to invest in a bank account under the capital

gain account scheme is a procedural requirement to ensure that

investment is made in a residential house as claimed in the return of

income. Merely because of technical breach / non-compliance the

benefit due to the assessee by the legislature cannot be denied

particularly when there is substantive compliance made. Section 54

is a beneficial section and as held by Hon'ble Apex Court in the case

of Bajaj Tempo Ltd. vs CIT(1992) 196 ITR 188, the provisions of a

beneficial section should be construed liberally.

9.7 The Hon'ble Supreme Court in CIT Vs Gwalior Rayon Silk

Manufacturing Co. Ltd. (1992) 196 ITR 148 observed as under:-

" The Contextual meaning has to be ascertained and given effect to A

Provision for deduction, exemption or relief should be construed

reasonable and in favour of the assessee."

9.8 We further note that assessee has not surrendered or offered

the amount of Rs. 9,50,000/- for addition. Before the AO assessee

has stated that the amount of Rs. 9.50 Lacs be not considered as

investment uls 54. Even without considering this amount of Rs.9.50

Lacs, the actual investment by the assessee in purchase of eligible

new house within the specified period of 3 years was more than the

amount of long term capital gain.

9.9. The Delhi Bench of ITAT in case of ITO V.Smt. Sapana Dimri

(2012) 19 taxmann.com 15 (Delhi) in para 10 of its order held as

under :-

Haryana High Court in the case of Ms. Jagriti Aggarwal (supra)

has held that sub-sec. (4) of sec. 139 provides the extension

period of limitation as an exception to sub-sec.(1) of sec. 139

of the Act. Sub-sec. (4) was in relation to the time allowed to

an assessee under sub-sec.( 1) to file the return. Therefore,

such provision was not an independent provision, but relates to

the time contemplated under sub-sec.(1) of sec. 139.

Therefore, subsec.(4) has to be read along with sub-sec.).

Therefore, the due date for furnishing the return of income

under sec. 139 ) of the Act was subject to extended period

provided under sec. 139(4) Of the Act. Similar view was taken

by Hon'ble Guwahati High Court in the case of Rajesh Kumar

Jalan (supra). During the course of hearing the learned Sr. DR

could not cite a contrary decision to what has been held by the

Hon'ble Guwahati High Court and Hon'ble Punjab & Haryana

High Court. Respectfully following the decision of Hon'ble

Punjab & Haryana High Court it is held that since the assessee

had invested in the new property within the time allowed under

sec. 139(4) of the Act the assessee will be entitled for

exemption under sec. 54 of the Act to the extent the amount

invested in the new property. Accordingly, we do not find any

infirmity in the order of the CIT(A) allowing relief in respect of

both the issues.

9.10 In the headnote of judgement in case of CIT v Jagriti

Aggarwal(2011) 15 taxmann.com 146 (Punj. & Har.) the Hon’ble

High Court has observed as under :-

Section 54, read with section 139, of the Income-tax Act. 1961

- Capital gains - Profits on sale of property used for residence -

Assessment year 2006-07 - Assessee sold her house property

on 13-1-2006 while filed her return on 28-3-2007 claiming

deduction under section 54 on ground that she had purchased

another property jointly on 2-1-2007 for higher sum -

Assessing Officer declined said claim -One of grounds was that

assessee had failed to purchase house property before due

date of filing return of income under section 139(1), i.e prior

to 31-7-2006 - According to assessee, due date of filing return

of income in her case was not as specified in section 13 9( 1)

but as specified in section 139(4) i.e., 31-7-2007 - Whether

due date for furnishing return of income as per section 139(1)

is subject to extended period provided under sub-section (4) of

section 139 and, if a person had not furnished return of

previous year within time allowed under sub-section (1),

assessee could file return under sub-section (4) before expiry

of one year from end of relevant assessment year -Held, yes -

Whether, therefore, section 54 deduction could not be denied

to assessee on this count - Held, yes [in favour of assessee]

9.11 .The Hon'ble Mumbai Bench of IT AT in case of Kishore

H.Galaiva v. ITO (2012) 24 taxmann. Com 11(Mum) in para6.4 of

the order held as under:-

6.4 The assessee has also made a point that the due date of

filing of the return of income uls 139(1) for the purpose of

utilization of the amount for purchase/construction of

residential house has to be construed with respect to the due

date prescribed for filing of the return uls 139(4) of the Act.

The point made by the assessee is supported by the judgment

of the Hon'ble Punj and Haryana High Court in the case

ofMsJagriti Aggarwal (supra).In this case, the Hon'ble High

Court observed that section 139(4) provides the extended

period of limitation as an exception to the period provided uls

139(1). Therefore, the Hon'ble High Court held that the

provision of section 139(4) is not an independent provision but

is related to the time contemplated under the provisions of

section 139(1) of the Act. Accordingly, the Hon'ble High Court

held that sub-section (4) to section 139 had to be read

alongwith sub-section (1) and the due date for furnishing the

return of income uls 139(1) is subject to the extended period

provided ills 139(4) and hence the extended period uls 139(4)

has to be considered for the purposes of utilization of the

capital gain amount. In that case, the assessee had sold the

old flat on 13.1.2006 and the new residential house was

purchased by the assessee on 2.1.2007 which was within the

extended time limit till 31.3.2007 uls 139(4) for assessment

year 2006-07 and therefore the claim was allowed even though

the amount had not been deposited in the capital gain account.

The said judgment has been followed by the Delhi Bench of the

Tribunal in the case of Jagtar Singh Chawla v. ACIT [IT Appeal

No.4923/Delhi/201O (AY- 2007-08), order dated 30.6.2011],

in which case the Tribunal held that since the assessee had

invested the whole amount by 23.4.2008 which was within the

extended period of filing the return of income uls 139(4) till

31.3.2009 and therefore, the assessee was entitled to claim

exemption uls 54(F). In the present case, the capital gain

earned by the assessee was Rs.9,98,411/- and the assessee

had utilized a sum of Rs. 13.50 lakhs towards the construction

of residential house by 5.7.2007 which was within the extended

period of filing of the return u/s 139(4) till 31.3.2008 for the

assessment year 2006-07. The assessee had thus utilized the

amount which was more than capital gain earned towards

construction of new residential house within extended period

u/s 139 (4) and therefore the there was no default in not

depositing the amount under the capital gain account scheme.

Therefore, the claim made by assessee cannot be denied

following the judgments cited (supra).

9.12. In the head note of judgment in the case of CIT v Raiesh

Kumar Jalan (157 taxman 398)(Gau) the Hon’ble Court has

observed as under:-

Section 54 of the Income-tax Act, 1961 - Capital gains - Profit

on sale of property used for residential purpose - Assessment

year 1996-97 - Assessee sold his residential property on 21-

12-1995 and earned capital gain - Subsequently, in May, 1996,

he purchased residential property - Assessing Officer rejected

assessee's claim of exemption under section 54 on ground that

assessee had not complied with provisions of section 54(2) by

not depositing unappropriated amount of capital gain in Capital

Gains Deposit Scheme, 1988 within stipulated time of

furnishing return of income-tax under section 139(1) -

Assessee's case was that since return for assessment year

1996-97 could be furnished before expiry of one year from end

of relevant assessment year or before completion of

assessment, whichever is earlier, under sub-section (4) of

section 139, he could fulfill requirement under section 54 for

exemption of capital gain from being charged to income-tax on

sale of property used for residence up to 30-3- 1998 - Whether

assessee was entitled to claim benefit under section 54 on

entire amount of capital gains - Held, yes

respectfully following the precedents, as aforesaid, we delete the

addition of Rs. 9,01,349/- and allow the exemption u/s. 54 of the I.T.

Act, 1961 as claimed by the assessee.

concerned. The brief facts of this case are that the return of income

was filed on 19.02.2009 declaring total income at Rs4,41,740/-. The

return was processed uls 143(1) of the IT Act. The case was

reopened u/s. 147 of the IT Act by recording reasons as per order

sheet entry dated 21.05.2010 and notice uls 148 was issued on the

same date. During the course of assessment for A.Y. 2007-08 it was

noticed by the Assessing Officer that assessee has claimed

exemption uls 54 in respect of two flats namely A-907 and C-408

with M/s Ajay Enterprises Ltd. The assessee had deposited a sum of

Rs.35,00,000/- in capital gain scheme 1988. In the order passed uls

143(3) dated 21.12.2009 for A.Y. 2007-08 exemption uls 54 was

disallowed on the amount invested in second flat C-408. During the

F.Y. 2007-08, relevant to A.Y. 2008-09, the assessee on 18.12.2007

has paid a sum of Rs.14,21,000/-from the amount lying in capital

gain scheme towards cost of Flat No. C-408. Since the assessee has

already claimed exemption uls 54 in respect of Flat No. A-907,

therefore, exemption uls 54 is not allowable in respect or. Flat No. C-

from capital gain account scheme is taxable in A.Y. 2008-09. It was

observed by the Assessing Officer that amount of Rs.14,21,000/-was

not offered by the assessee as taxable amount. Hence, the same was

accordingly taxed in the hands of the assessee. In the assessment

proceedings, the assessee has claimed that due to bonafide error the

payment for Flat No. C-408 was made from capital gain account

instead of saving account. He has also submitted that he has made

fully and required investments in Flat No. A-907 which is eligible for

deduction u/s 54 of the IT Act. He also claims that investment in A-

907 is much more than the amount required for deduction U/S 54 of

the IT Act. The Assessing Officer has discussed the modus operandi

adopted by the assessee for hiding this transaction and the appellant

did not submit the required information as required. Therefore, the

Assessing Officer had to resort to the provision of section 133(6) to

unearth the truth. Since, the assessee has willfully and deliberately

utilized the amount deposited under capital gain scheme 1988 for

acquisition of two flats, thereby he has violated the provisions of

capital gain scheme 1988. Hence, he was required to offer the

amount of Rs.14,21,000/- in the A.Y. 2008-09. The Assessing Officer

has taxed the amount of capital gain in the hands of the assessee in

A.Y. 2008-09. Accordingly, the same was confirmed on merit by the

Ld. CIT(A).

11.1 From the above, we have noted that for the Assessment year

2008-09, the AO has made the addition on the ground that the

deduction u/s. 54 was not available. Since the deduction u/s. 54 was

allowed by us in the assessment year 2007-08, as aforesaid, the

addition for the assessment year 2008-09 is not sustainable in the

eyes of law, therefore, the addition in dispute is deleted.

Order pronounced in the Open Court on 25/10/2016.

SD/- SD/-

[L.P. SAHU] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date 25/10/2016

“SRBHATNAGAR”