SHRI RAJESH DAYARAMANI,,NAGPUR vs. ACIT, CIR-8,, NAGPUR

PER AMARJIT SINGH, J.M.

The present appeal filed by the assessee is directed against the

impugned order dated 13th September 2013, passed by the learned

Commissioner (Appeals)–II, Nagpur, for assessment year 2009–10.

(1) The learned CIT(A) erred in confirming the disallowance of claim of ` 42,44,840 u/s 54F of the Act; and

The learned CIT(A) erred in confirming the additions of ` (2) 48,000 and ` 30,000 as the annual letting out value of 2 residential flats.

2 Shri Rajesh Moolchand Dayaramani

` 67,76,981. The return of income was processed under section

143(1) of the Act. Thereafter, the case was selected for scrutiny under CASS. Notice under section 143(2) of the Act was issued on 20th

August 2010. Thereafter, notice under section 142(1) of the Act was

also issued and served upon the assessee. The assessee is engaged in

the business of contractorship and executes construction of roads for

various State Government Authorities such as Public Works

Department, Madhya Pradesh Rural Road Development Authority and

local authorities such as Nagpur Improvement Trust and Nagpur

Municipal Corporation. The books of account were maintained and

were audited in view of the provisions of section 44AB of the Act. A

copy of audited report along with Balance Sheet and Profit & Loss

account and other details were filed. At the time of assessment, it was

noticed that the assessee raised the claim of deduction under section

54F of the Act amounting to ` 42,44,846. The assessee sold the

property located at Bhandara Road in financial year 2008–09, which

was purchased on financial year 2005–06. A part of the said sale

consideration was claimed to be invested in residential flat and claimed

exemption under section 54F of the Act. The remaining part of the

consideration was offered to tax as capital gain. According to the

provisions of section 54F, the assessee should purchase the property

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earlier to one year and to complete the construction within the three

years of the sale of the property. In the instant case, the assessee purchased the property on 29th May 2006, earlier to two years,

therefore, the claim was declined. Alternatively, the assessee was

claiming a godown bearing Corporation no.706, Survey no.451, Plot

no.29, Jaripatka Colony, Nagpur. However, the said godown was found

as “residence” in the record, therefore, the claim of the assessee was

declined. The assessee was having seven properties. By leaving the

property of business, the annual letting value (ALV) of four properties

was assessed to the extent of ` 1,55,400, after the deduction of 30%

and income of the assessee was assessed to the tune of `

1,21,94,027. The assessee was not satisfied, therefore, filed an appeal

before the learned Commissioner (Appeals) who dismissed the appeal

of the assessee. Being aggrieved, the assessee has filed the present

appeal before us.

ISSUE NO.1

This issue relates to disallowance of claim of ` 42,44,840 under 3.

section 54F of the Act.

surplus arising on sale was shown as long term capital gain. The

assessee has constructed the residential house and claimed exemption

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in respect of long term capital gain under section 54F of the Act. The assessee sold the property on 9th June 2008, and the construction of the residential house was constructed on 29th December 2008. The

claim of the assessee was declined on the ground that the assessee

has to purchase a residential house within a period of one year before

two years after the date on which the transfer took place or

constructing the house within a period of three years after the date of transfer. The assessee purchased a house on 29th May 2006 earlier to

two years. Therefore, the claim of the assessee was declined.

available on record. The assessee has offered the long term capital

gain in the return of income at ` 38,06,834 for sale of house property located at Kamptee Road on 9th June 2008. The assessee has constructed residential house which has been completed on 29th

December 2008. The investment in construction of residential house is

to the tune of ` 62,73,423. The assessee has claimed exemption under

section 54F of the Act, in respect to investment in residential house.

The aforesaid factual position is evident from the working of capital

gain declared in the return as reproduced at Page–2 of assessment

order. The Assessing Officer has held that the construction of

residential house was commenced prior to transfer of property on

which capital gain has arisen and, therefore, no benefit can be granted

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to assessee in respect to investment in construction of house property

claimed in the return at ` 62,73,423. The Assessing Officer has further

observed that another residential house property has been purchased by assessee on 12th September 2008 and, therefore, capital gain

exemption cannot be granted considering the proviso to section 54F(1)

of the Act reproduced at Para–3.3 of assessment order, the Assessing

Officer has, accordingly, denied the deduction claimed under section

54F of the Act in assessment framed. Before us, it is submitted that the construction of residential house is competed on 29th December

2008 and thus the construction of residential house was completed

within 3 years of transfer of capital asset. The construction is

completed within the prescribed limit and thus assessee is eligible for

claim of exemption under section 54F of the Act. The date of

commencement of construction prior to transfer of assets is no

impediment for allowing exemption under section 54F of the Act. For

this proposition, the learned Counsel placed reliance on the following

decisions:–

i) Shri Subhash Sevaram Bhavnani, ITA no.928/Ahd./2012, order dated 29.06.2012.

ii) CIT v/s H.K. Kapoor (Decd.) through L/H, 234 ITR 0753 (All.)

iii) CIT v/s J.R. Subramanya Bhat, 165 ITR 0571 (Kar.)

iv) Shri Sandeep Khosla, ITA No.509/Bang./2013 order dated 08.08.2014.

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in Jayshree Plaza on 29th May 2006 at a cost of ` 22,19,561 and has

made investment in construction of house at ` 40,53,862. The detailed

ledger account in respect to investment made is placed on record. The

Co–ordinate Bench of the Tribunal, Ahmedabad Bench, in the case of

ACIT v/s Shri Shubhash Sevaram Bhavnaniin, ITA no.928/Ahd./2012

order dated 29th June 2012, has held as under:–

“The residential plot was purchased by the assessee for a consideration of Rs.9,23,687/- on 29/10/2005. This is 23 months before the date of transfer of capital assets. The assessee had also started construction of residential house before the transfer of the capital asset. It was noticed by the A.O. that the assessee had invested a sum of Rs.16,96,008/- in the construction of house property before the transfer of the capital asset and Rs.4,25,000/- in the construction of residential house after the transfer of capital assets. The A.O. was of the view that the deduction u/s 54 is available to the assessee against construction of house property, if the same is constructed after the transfer of capital asset and the same should be completed within three years from the date of transfer of the capital assets. “5. After hearing both the parties and perusing the record we find that there is no dispute above the fact that assessee sold his residential house on consideration of sum of Rs.35,00,000/- on 03/11/2007 and has spent a sum of Rs.30,44,695/- on purchase of plot and on construction of a residential house thereon. The construction of this residential house was completed in the month of March, 2008. Since the construction was completed within three years of transfer of capital asset, the ratio as laid down in the case of SubramaniyaBhat (supra) is applicable to the facts of this case as it has been clearly held in that case that for claiming deduction u/s 54, the construction of the house should be completed within the prescribed time limit and date of commencement of construction is not material for claiming deduction.”

the facts in case of assessee and respectfully following the same we

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hold that the commencement of construction of residential house prior

to transfer of property will be no impediment for granting exemption

u/s 54F of the Act.

proviso to section 54F(1) of the Act, the assessee has purchased

residential house within one year after the date of transfer of original

asset other than the new asset and hence exemption under section

54F cannot be given in the case of assessee. The learned Counsel

inviting our attention to the financial statement submitted along with the return of income submitted that property purchased on 12th

September 2008 is not residential house but it is purchase of godown

for the purpose of business. The financial statement clearly depict that

property purchased by assessee is shown in the financial statement as

godown. The aforesaid godown shown in the balance sheet was sold

by assessee in the assessment year 2011-12 and surplus arising from

sale of such godown has been shown as gain on sale of godown at

Jaripatka in Profit & Loss account of the financial statement submitted

along with return of income. The income as shown in the assessment

year 2011-12 under the head income from business has been accepted

as shown. The financial statement for the assessment year 2011-12

clearly indicates that the property sold is sale of godown at Jaripatka.

The Co–ordinate Bench of the Tribunal, Delhi Bench, in the case of Shri

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Sanjeev Puri, in ITA no.5474/Del./2014 vide order dated 11th July

2016, while considering the provision of section 54F of the Act, had

concluded that the nature of property depends upon the actual use of

the property and not on mere description in the property documents.

It was concluded that description in property documents as to

residential house is not determinate to deny exemption. In the facts of

said case the residential flat was found to have been used as office

and, therefore, it was concluded that it is not residential house in order

to disentitle the assessee as regard to claim of exemption u/s 54F the

Act. In the case of assessee subsequent verification by the Assessing

Officer after the sale of property by assessee in the year 2010 and use

by successive owner as residential house at the time of verification in

the year 2011, cannot be viewed adversely to deny the claim of

deduction u/s 54F of the Act. The financial statement clearly depicts

that the property purchased by assessee on 12the September 2008, and sold on 23rd August 2010 was in the nature of godown used for

purpose of business by assessee. The submission made by assessee

stands corroborated from the financial statement on record.

Respectfully following the decision of the Co–ordinate Bench of the in

the case of Shri Sanjeev Puri (supra), it is held that the property purchased on 12th September 2008 being purchase of godown and not

the residential house proviso to section 54F(1) of the Act cannot be

applied to the facts in case of assessee. The assessee has purchased

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semi constructed property and expenditure has been incurred for

making house habitable. The Co–ordinate Bench of the Tribunal,

Mumbai Bench, in the case of Mehar R. Surti, 27 ITR 340 (Mum.) has

held that “The residential house for the purpose of sections 54 and 54F

means a habitable house and investment made upto the stage of

making house as habitable should be considered as investment in

purchase of house.” The ratio laid by the aforesaid decision squarely

applies to the facts in the case of assessee and respectfully following

the same we hold that expenditure incurred by assessee is eligible for

claim of deduction u/s 54F of the Act.

borrowed money from bank and assessee has not invested sale

proceeds from the sale of original assets. It is seen that assessee has

constructed the house within prescribed limit and source of fund is not

relevant for claiming exemption u/s 54F of the Act. The Co–ordinate

Bench of the Tribunal, Mumbai Bench, in the case of Dr. P.S. Pasricha,

20 SOT 468 (Mum.) has held that it is not necessary that same funds

must be utilized for the purchase of the another residential house.

The decision of Tribunal has been upheld by the Hon’ble Jurisdictional High Court in ITA no.1825 of 2009 vide judgment dated 7th October

2009. The ratio laid by Hon’ble Jurisdictional High Court squarely

applies to the facts in the case of assessee and respectfully following

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the same we hold that even if borrowed funds have utilized for making

investment in residential house assessee is eligible for claim of

deduction under section 54F of the Act. The reasons for disallowance

of exemption under section 54F of the Act are held to be not justified.

Considering the totality of facts and circumstances in case of assessee

claim of exemption under section 54F of the Act as made in the return

is allowable deduction at the hands of assessee. The disallowance of

same in assessment framed is held to be unjustified. The addition

made by the Assessing Officer at ` 42,44,846 is hereby directed to be

deleted. The ground of appeal of assessee is allowed.

ISSUE NO.2

properties of the assessee:–

and perused the evidence on record. The Assessing Officer has not

accepted the submission of assessee that the property at Jaripatka and

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K.T. Nagar were being used for the purpose of business. The Assessing

Officer has accordingly assessed ALV in respect to said properties at `

48,000 for property at K.T. Nagar and ` 30,000 for house at

Jaripatkaafter granting 30% statutory deduction under section 23 of

the Act. The Assessing Officer has thus made addition of ` 54,600 to

the income returned. The aforesaid properties are reflected in the

balance sheet as godown at Jaripatka and godown at K.T. Nagar. The

aforesaid properties are explained to have been used for the purpose

of business and are reflected in balance sheet of subsequent year as

business assets. The aforesaid property has been used as godown at

Jaripatka and K.T. Nagar. The financial statement has been accepted

by the Assessing Officer in the assessment framed. The Assessing

Officer has not brought any evidence on record to show that the

aforesaid properties used by assessee as godown were being used for

anything else than for the purpose of business. The provisions of

section 22 of the Act, provides that ALV is assessable at the hands of

assessee in respect to properties other than portion of such property

as made to occupy for the purpose of business and profession carried

out by him profit of which is chargeable to Income Tax under the head

income from business. The investment is made from the business fund

and property is also reflected in the business books as business asset.

The property having been used for the purpose of business considering

the provisions of section 22 of the Act, no ALV of such property can be

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assessed to tax under the head income from house property. The

addition made by the Assessing Officer at ` 54,600 is held to be

unjustified and same is therefore directed to be deleted. The ground of

appeal of appellant is allowed.

Order pronounced in the open Court on 29.06.2017

Sd/- Sd/- P.K. BANSAL AMARJIT SINGH VICE PRESIDENT JUDICIAL MEMBER

NAGPUR, DATED: 29.06.2017

Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

(Dy./Asstt. Registrar) ITAT, Nagpur