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Income Tax Appellate Tribunal, CHENNAI ‘’B’’ BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI DUVVURU R.L. REDDY
आदेश /O R D E R
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
The appeal filed by the assessee is directed against order of the Commissioner of Income-tax (Appeals)-3, Chennai in 16/CIT(A)-3, dated 31.01.2017 for the assessment year 2012-2013.
The brief facts of the case are that assessee transferred his property vide agreement dated 07.02.2012 to M/s. Rajkham Builders Pvt Ltd by agreement of sale for a consideration of �1,45,80,000/-. The company allotted fully paid up shares in their board meeting dated 30.01.2012 to the tune of �1,80,00,000/-. Ld. Assessing Officer considered this amount as sale consideration and from that he deducted cost of acquisition of �21,51,078/- and paid long term capital gains on transfer of capital assets on �1,58,48,922/-. The assessee claimed deduction u/s. 54 of the Income Tax Act, 1961 (in short ‘’the Act’’) towards purchase of property at Madhurapakkam Village, Tambaram Taluk for a consideration of �68,01,600/- which was denied by the ld. Assessing Officer.
Aggrieved, assessee filed an appeal before ld. Commissioner of Income Tax (Appeals). Before ld. Commissioner of Income Tax (Appeals) assessee claimed deduction u/s. 54 of the Act. After perusing the records, the ld. Commissioner of Income Tax (Appeals) denied deduction u/s. 54 of the Act by observing as under:-
(1) ‘’Appellant had failed to purchase a new house one year prior to the date of transfer of original asset. (2) Appellant had failed to purchase a new house within two years; after the date of transfer of original asset.
(3) Appellant had failed to construct a new house within. three years from the date of transfer of the date of transfer of original asset. (4) Appellant had failed to deposit the sale proceeds, arising out of sale of original asset, in the specified Capital Gains Account Scheme before filing the return of income u/s. 139(1) of the Act. (5) Appellant stated to have purchased a plot on 17.10.2013 for a consideration of Rs.68 lakhs which is not eligible u/s.54 as the appellant has failed to purchase a flat or house. (6) Appellant had invested in the piece of land stated to have, been registered for Rs. 68,01,600/ - out of borrowed money but not money received from the sale consideration of original asset’’.
3.1 Further, he enhanced the assessment by an amount of �1,61,00,000/- on the reason that an amount of �25,00,000/- each vide Cheque Nos.155952 & 155953, of Indian Overseas Bank dated 27.03.2013 has been paid to one Mr. T.K. Mohan Raj. Therefore, the facts clearly establish that an amount of �50 lakhs has been paid to Mr. T.K. Mohan Raj but not Mr. T. Sivakumar. It is further stated that an amount of �11,00,000/- paid on different dates from 25.01.2012 to 19.06.2012 vide Cheque Nos.123576, 123577, 123580 123581 could not be verified from the copy of the bank account as assessee filed bank statements for the period from 08.02.2013 to 31.03.2013 as the said payments were stated to have been paid prior to this period. Coming to the major amount of Rs.1 crore, stated to have been paid, to Shri T. Sivakumar on 27.03.2013 vide Cheque Nos.848322 to 848325 is also found incorrect. Copy of the bank account of Indian Overseas Bank filed before him which was in the same of Mr. Arumugam M. On perusal of his bank account, it was observed that an amount of �50 lakhs vide Cheque No.848322 and 848324 was paid to Mr. K.
Shanrmugam on 28.03.2013. Further, it was noticed that an amount of �50 lakhs vide Cheque Nos.848325 and 848324 was raid to Mr. T. Sivakumar on 28.03.2013. These facts clearly establish that assessee has not made payment to Mr. T.
Sivakumar through the banking channels. On the other hand, assessee has got the property registered in his name for an amount of �68,01,600/- which fact has not been disputed. It was also stated that over and above the registered price, assessee has further invested an amount of �92,98,400/-, The registered price of �68,01,600/- and the additional investment of �92,98,400/- comes to �1,61,00,000/ - for which the source has not been explained: Against this, assessee is in appeal before us.
We have heard both the parties and perused the material on record and various case laws cited by both the parties. In our opinion, if the assessee purchases new house within two years from the date of transfer of capital asset or if it is a construction within three years from the date of transfer, assessee is entitled for deduction u/s.54 of the Act.
If the assessee intent to construct a residential house within a period of three years from the date of transfer of capital asset u/s. 54(2) of the Act, the amount has to be deposited in a bank under capital gains scheme as notified by the Central Government within a time limit available to file return of income u/s. 139(4) of the Act has held by the Hon’ble Punjab and Haryana High Court in the case of CIT vs. Jagriti Aggarwal 339 ITR 610. If the assessee completes the construction of a new residential house within three years from the date of sale of capital asset, assessee is entitled for deduction u/s. 54 of the Act. Now the contention of the ld. Departmental Representative is that assessee has not appropriated towards construction of new residential house as it was not completed. In our opinion as held by Hon’ble Karnataka High Court in the case of CIT vs Smt. V.S. Shantha Kumari 126 DTR 436 completion of construction within three years was not mandatory and it was necessary that construction should be commenced, it should be proved by the assessee that construction is for residential house. The Hyderabad Bench of the Tribunal in the case of Muneer Khan vs. ITO, 41 SOT 504, had held that assessee may use borrowed funds for construction of new residential property and deduction u/s.54 of the Act denied on the reason that assessee used some fund other than consideration received on transfer of capital asset. Being so, on that reason deduction u/s.54 of the Act cannot be denied. Hence, we remit the entire issue in dispute with regard to Sec. 54 of the Act to the file of the ld. Assessing Officer with a direction to the ld. Assessing Officer to verify whether assessee has actually made investments in construction of new residential property, though it was not completed and decide thereupon.
Regarding enhancement of assessment, ld. Commissioner of Income Tax (Appeals) observed that the payments was not made with reference to the construction of residential house. Hence, he treated the amount as unexplained investments.
Before us, ld. Authorised Representative explained that the payments considered by ld. CIT (Appeals) for enhancement where not related to assessment year under consideration. These payments relates to different assessment years. If these payments were not relate to assessment year under consideration, it cannot be added in this assessment year towards the said payment and the appropriate action to be taken in the relevant assessment year only, if so advised. Further, there was an argument by the ld. Authorised Representative that these payments were made to other parties as per instruction of assessee’s contractor. Whether payments made towards construction to other parties on the instruction of assessee’s contractor, it is to be examined by enquiring those parties and it should be seen that it is properly reflected in their books of accounts as per law. Without examining them, it is not possible for us to sustain the addition on this count.
Considering the facts and circumstances of the case, we are inclined to remit this issue also back to the file of the ld. Assessing Officer for further enquiry. This ground is also remitted to the file of the ld. Assessing Officer for fresh consideration.
In the result, the appeal of the assessee is partly allowed.