ACIT, CHENNAI vs. HARIPRIAY JAGDISH, CHENNAI

आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER

This appeal of the Revenue is directed against the order of

the Commissioner of Income-tax (Appeals)-15, dated 03.02.2016

pertaining to assessment year 2012-13.

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with delay of 05 days. The learned AO has submitted a Petition dated

27.05.2016 seeking condonation of delay and the AO stated in this

petition that the delay of 5 days in filing the appeal before this Tribunal

is on account of mixing up of files in his office and the file was not

traceable and as soon as he traced the file, he filed the appeal on

27.05.2016. In our opinion, the reasons explained by the AO for filing

the appeal belatedly is bonafide. Accordingly, the delay is condoned.

adjudication.

1.1 The CIT(A) has erred in setting aside the issue with reference to cost of indexation to the Assessing Officer without taking a decision. This action on part of the CIT(A) is illegal.

1.2.The CIT(A) failed to appreciate that the assessee constructed/purchased a flat 15 months before the date of sale of original asset which is outside the time limits of 1 year stipulated as per the income tax act.

1.3 The Ld CIT(A) failed to appreciate that the assessee invested major portion of the sale made before 15 months before the transfer of original asset which contravenes to the provision of section 54F of the I.T Act—1961.

1.4 The Ld CIT(A) failed to appreciate that assessee has utilized an amount of `50,00,000/- out of sale proceeds of `54,41,165/- to repay

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the housing loan taken for the purpose of purchase of the flat on (19/05/2010) for claiming exemption u/s 54F. Thus the amount of sale proceeds has not been invested in the acquired/constructed property. Hence, there is a violation of section 54 of the I.T Act.

09.09.2011 for a consideration of `11,88,000/- which was purchased by her

on 20.01.2006, and the assessee sold another property on 31.12.2011 for a

consideration of `48,00,000/- which was gifted to her by her husband on

June, 2002 and calculated long term capital gain of `52,66,382/-. She had

entered into construction agreement with M/s Land Mark Constructions on

02.06.2010 for `1,76,05,360/-. The assessee purchased UDS vide sale deed

dated 04.06.2010. Total cost of construction of property was `2,33,70,360/-.

The assessee took possession of flat on 12.03.2012. Out of sale

consideration received, `50,00,000/- was utilized to repay housing loan on

19.05.2012. The AO held that she had purchased property before one year

prior to the date of sale of her first asset and disallowed the claim made by

the assessee u/s 54F only on the basis that property was purchased before

one year prior to date of sale of first asset. Aggrieved by the order of ld.

Assessing Officer, the assessee carried the appeal before the Ld.CIT(A).

4.1 Before the Ld.CIT(A), the assessee submitted that she had got

possession of flat on 12.03.2012. She had entered into construction

agreement on 02.06.2010 which was an ongoing process and the

construction was completed within three years from the date of sale. The

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assessee has relied upon the judgement of Hon’ble Madras High Court in

the case CIT vs. R.Srinivasan (2010) 235 CTR 588. The Ld.CIT(A) observed

that the AD stated in the assessment order that `50,00,000/- was used to

repay housing loan out of total sale consideration received. According to

Ld.CIT(A), the AO is not right in rejecting claim of the assessee for

exemption u/s 54F only on this ground. Further, Ld.CIT(A) observed that the

assessee had taken possession of the new property on 12.03.2012 which is

covered by the other pre-condition of Sec.54F, i.e. purchased within two

years or constructed within three years from the date of transfer of old asset

a residential house. Hence, the Ld.CIT(A) allowed the exemption claimed by

the assessee in terms of Sec.54F of the Act. Against the order of Ld.CIT(A),

now the Revenue/Assessee is in appeal before us.

In this case, the main contention of ld.D.R is that the Ld.CIT(A) granted

deduction u/s.54F of the Act in respect of expenditure incurred by the

assessee before one year on the sale of the property, which resulted in

capital gains. The ld.A.R brought the details of investments made by the

assessee.

Sl. Date Source Amount No. (`) 1 20.05.2010 Own source 40,00,000 2 04.06.2010 Own source 17,65,000 3 09.06.2010 Home loan from ICICI Bank 1,23,00,000 4 30.07.2010 Home loan from ICICI Bank 13,00,000 5 21.12.2010 Home loan from ICICI Bank 24,50,000 6 Total 2,18,15,000

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5.1 According to ld.A.R, even though new building is not completed within

the prescribed time limit u/s.54F of the Act, still the investments are made in

the new residential house to be considered for granting deduction u/s.54F of

the Act. In our opinion, the Act does not prescribe any condition as to the

date of commencement of construction of new house property, only the

condition is that construction of house property should be completed within

3 years from the date of transfer of original capital asset. The date of

commencement for construction is irrelevant and construction should be

commenced even before the transfer of capital asset as held by the Delhi

High Court in the case of CIT Vs. Bharti Mishra reported in [2014] 41

Taxmann.com 50(Delhi). Further, High Court of Karnataka in the case of

CIT Vs.J.R.Subramanya Bhat in [1986] 28 Taxman 578 (Kar.) has taken a

similar view, which was in turn followed by Allahabad High Court in the case

of CIT Vs. H.K.Kapoor in [1998] 234 ITR 753 (Allahabad). Further, the

Andhra Pradesh High Court and Telangana in the case of Learned

Commissioner of Income Tax Vs. Smt. V.Venkata Laxmi in [2015] 59

Taxmann.com 216 held that where investment in construction of a new

building is made within 3 years of sale of the property, the benefit of Sec.54

is to be given.

5.2 In the present case, the assessee sold two properties, one on

09.09.2011 and another property on 31.12.2011 and the assessee made

investments in construction of a new residential house before one year of

these two dates. Accordingly, the assessee sought relief u/s.54F of the Act

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for the investments made in a construction of new residential house before

one year prior to date of sale of firs asset. In other words, the claim of

deduction u/s.54F of the Act in respect of first property to be made one year

before 09.09.2011, and in respect of second property, one year before

31.12.2011 to be considered the investments and prior to these two days

cannot be considered for deduction u/s.54F of the Act. Furhter, we make it

clear that the law does not contemplate the identity of the funds for

investments in construction of new house of residential property. If the

assessee started the construction before one year of the transfer of property

by borrowing the funds or his own funds, the assessee cannot be precluded

from claim of deduction u/s.54 or u/s.54F of the Act. However, our view is

fortified by the decision of Co-ordinate Bench of Tribunal in the case of

Muneer Khan Vs. ITO in [2010] 41 SOT 504 (ITAT) [Hyd]) and also recent

decision of Chennai Tribunal in the case of Smt.Usha Vs. ACIT in ITA

No.2033/Mds./2016 vide order dated 26.04.2017. Further, the repayment

made by the assessee towards housing loan which cannot be construed as

part of construction cost met by the assessee. If it is to be excluded and the

argument of the counsel of assessee as in-appropriate, it cannot be

considered as a cost of construction. Accordingly, we remit the isuse to the

file of AO to re-work the deduction u/s.54F of the Act, which is incurred

before the one year of the sale of property and three years from the date of

the transfer of property. Accordingly, we reverse the order of the Ld.CIT(A)

and restore the issue to

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the file of ld. Assessing Officer for re-determination of deduction u/s.54F of the Act. 6. In the result, the appeal of the Revenue is partly allowed for statistical purposes.

Order pronounced on 26th July, 2017, at Chennai. Sd/- Sd/- (धु�वु� आर.एल रे�डी) (चं� पूजार�) (DUVVURU RL REDDY)) (CHANDRA POOJARI) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated: 26th July, 2017. K S Sundaram

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF