ACIT, CHENNAI vs. HARIPRIAY JAGDISH, CHENNAI

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

ITA No.1532/Mds./2016 :- 2 -:

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

ITA No.1532/Mds./2016 :- 3 -: 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.

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 ITA No.1532/Mds./2016 :- 4 -: 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

ITA No.1532/Mds./2016 :- 5 -:

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

ITA No.1532/Mds./2016 :- 6 -: 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 ITA No.1532/Mds./2016 :- 7 -: 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.