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Income Tax Appellate Tribunal, “D” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI G. PAVAN KUMAR
आदेश /O R D E R
PER G. PAVAN KUMAR, JUDICIAL MEMBER:
The assessee has filed appeal against the order of the Commissioner of Income Tax (Appeals) - 13, CIT(A) -13/2014-15 dated 30.03.2016 passed u/s. 143(3) and 250 of the Income Tax Act.
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The Assessee has raised the following grounds:
2.1 The CIT(A) erred in confirming the order passed by the Assessing Officer, relating to the computation of Long Term Capital Gains arising on the sale of property of the appellant, and situate at No. 137, Sundar Nagar, New Delhi.
2.2 The CIT(A) erred in merely following the order passed by the Assessing
Officer without adducing any reasons of his own, about the computation of the Long Term Capital Gains arising to the appellant.
2.3 The CIT(A) should have held that the order was only a repetition of the Assessing Officer's order and that there was no reasoning of his own to confirm such computation.
2.4 The CIT(A) should have held that the stress, in section 54(1) of the Income
Tax Act, 1961, and the Circular No. 667 dated 18.10.1993 issued by the Central Board of Direct Taxes, was only on the word "Completed" and this can have relevance only to the construction of the building.
2.5 The CIT(A) should have, therefore, held that such stress, being on the word
"Completed", would only refer to the construction of a building and cannot refer to the purchase of a plot of land.
2.6 The CIT(A) should have, therefore, held that, even if the land had been purchased at a much earlier date, as long as the construction the building thereon is COMPLETED within a period of three years from the date of sale of the old building, the appellate will be entitled to a deduction under the provisions of section 54 of the Act.
:-3-: I.T.A. No.1208/Mds/2015 2.7 The CIT(A) erred in confusing himself with any transfer that took place on May 14, 2007, while what did take place on May 14,2007, in the appellant's case, was the purchase of the land on which the building was constructed.
2.8 The CIT(A) should have further appreciated fact that the intention of the Legislative was to allow the exemption from Capital Gains if the construction of the new property was completed within a period of 3 years from the date of sale of the old property, no matter when the land was purchased.
2.9 The CIT(A) should have, therefore, appreciated the fact that the Legislative intended to grant the exemption under section 54 of the Act if the construction was completed within three years from the date of sale of the old property 2.10 The CIT(A) should have held that there was nothing in section 54 of the Act, to bifurcate the cost of construction of the new building, between the period prior to the date of sale of the old building and the period subsequent thereto.
2.11 The CIT(A) erred in omitting to notice from the decision of the Delhi High
Court in the case of Commissioner of Income Tax Vs. Ashok Kumar Ralhan, reported in 360 ITR page 575, that the important aspect to be considered for granting exemption of capital gains was the construction of the building and, since, in the appellant's case, the construction was completed within a period of three years from date of sale of the old building, the appellant was entitled to the exemption in respect of the entire cost of construction of the new property.
:-4-: I.T.A. No.1208/Mds/2015 2.12 The CIT(A) similarly, erred in omitting to notice, in the case of the Commissioner of Income Tax Vs. J.R. Subramanya Bhat, reported in 165 ITR page 561, that irrespective of when the land was purchased, as long as the construction of the new building was COMPLETED within the stipulated time, the exemption u/s. 54 of the Act should be granted.
2.13 The CIT(A) erred in holding that the facts involved in this case were not applicable to the facts of the appellant's case, while as a matter of fact, the facts in the two cases were similar.
2.14 The CIT(A) should have held that the appellant was entitled to a deduction, from the computation of Long Term Capital Gains, of the entire cost of construction of the new building, especially since that will be the only manner in which the provisions of section 54 of the Act could be given effect to.
The Brief facts that the assessee is an individual and filed Return of income for the said assessment year on 20.06.2010 declaring total income of Rs. 12,20,97,560/- and the Return of income was processed u/s. 143(1) of the Act.
Subsequently, the case was selected for scrutiny and notice u/s. 143(2) of the Act was issued and in compliance Ld. AR appeared from time to time and the case was discussed. The Assessing Officer on perusal of the financial statements and submissions of the assessee found that the assessee has sold Residential House Property at New Delhi on 15.01.2010 for Rs. 12,50,00,000/- and worked out the Long Term Capital gains to Rs. 10,47,95,925/- and the assessee claimed exemption u/s. 54 of the Act in respect of purchase of land and construction of the residential property at JorBagh, New Delhi, whereas, the residential property house was :-5-: I.T.A. No.1208/Mds/2015 purchased on 14.04.2007 for a total consideration of Rs. 13,00,00,000/- including registration and stamp duty. The property was obtained with loan from HDFC Bank and assessee paid financial charges for the period of 2005-06 to 2010-11, aggregating to Rs. 2,96,46,446/-, it was explained that the assessee has demolished the House and constructed new residential property with total cost of Rs. 2,77,39,045/- and filed details. The Ld. AO find that the assessee has not complied the conditions and provisions of section 54 of the Act as the land was purchased on 14.05.2007 and New House Property was constructed after demolishing the superstructure of old building. The Ld. AO has perused of the provisions of section 54 of the Act.
"
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 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, 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 nill, or (ii) If the amount of the capital gains 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 :-6-: I.T.A. No.1208/Mds/2015
case may be, the cost shall be reduced by the amount of the capital gain." and CBDT Circular No. 667 dated 18.10.1993. The Assessing Officer in applying the provisions and CBDT Circular, the assessee should have purchased the residential property one year prior to date of sale of the property or two years after the sale of old property or within 3 years constructed a residential property. The Ld. AR has submitted that the construction was made as per the provisions of law and exemption u/s. 54 of the Act should be allowed. The Assessing Officer elaborately discussed on facts and law in the Assessment Order and found that the assessee after purchase of property has demolished and constructed new residential house and the total cost of construction worked out to Rs. 2,77,39,045/-. Where, the Ld. AR arguments that land purchased on 14.05.2007 should be part of exemption allowed u/s. 54 of the Act. The Ld. AO is of the opinion that the entire capital gain was not invested in the property before due date u/s. 139(1) of the Act nor assessee has invested in capital gain account scheme and relied on the Mumbai High Court and Tribunal decision, has excluded the purchase of land in 2007 at Jorbarg as it does not fall within the construction provisions of section 54 of the Act and made addition to the Returned income and passed Assessment Order under 143(3) dated 27.03.2013.
Aggrieved by the order, the assessee filed an appeal before the CIT(A). In the appellate proceedings, the Ld. AR argued the grounds and held submissions made before the Assessing Officer. The Ld. CIT(A) considered the findings of the Assessing Officer and judicial decisions and introduction of the provisions of Act and :-7-: I.T.A. No.1208/Mds/2015 CBDT Circular and discussed exhaustively at Page 11 to 21 of his order and confirmed the order of the Assessing Officer restricting the exemption to Rs. 1,14,81,067/-. Aggrieved by the order, the assessee has filed appeal with the Tribunal.
The Ld. AR argued the grounds and reiterated the submissions of assessment and appellate proceedings along with the detailed submissions. The main contention of the Ld. AR that the assessee is eligible for exemption u/s. 54(1) of the Act on land and relied on the CBDT circular No. 667 dated 18.09.1993 where definition of "Completed" is emphasized and exemption has to be allowed even if land purchased in earlier date and construction has been completed within 3 years from the date of sale of the property and that the legislative intention is to allow exemption from capital gains, if the construction of the new property was completed within a period of 3 years from the date of sale of old property, no matter when land was purchased and relied on judicial decision and prayed for exemption u/s. 54 of the Act in respect of entire cost of building including the land. The assessee has filed the written submission substantiating the facts and legal provisions for allowing the appeal.
Contra, the Ld. DR vehemently opposed the grounds raised by the assessee and argued that the Ld. CIT(A) and the Assessing Officer has dealt exhaustively and found that there is no provision in the section in respect of land purchased in such circumstances and relied on the findings of the Assessing Officer and the CIT(A) and prayed for dismissing the appeal.
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We heard the rival submissions, perused the material on record and judicial decisions. The Ld. AR contention is that the assessee has purchased land in the year May 2007 and constructed new residential house property on said land in Jan, 2010 and claimed entire cost of property including land as the exemption u/s. 54 of the Act. The assessee has purchased the land in the year 2007 and the provisions u/s. 54 allow exemption in respect of purchase of property one year before the date of transfer of original asset. We have gone through the written submissions filed by the assessee. The fact remains that there is no dispute on the sale of the property and construction to the residential property under the provisions of section 54 of the Act. The assessee has to complied condition of construction of property within 3 years from the date of sale of property. The Ld. AR relied on the decision of Bangalore Tribunal in the case of Sri R.M.M. Athreya Vs. Income Tax Officer, in where the Tribunal considered the facts in respect of flat and allotment letter in respect of booking of flat with Delhi Development Authority and whereas, in the present case the assessee has purchased the land in the year 2007 and claim of exemption is practically not viable and does not satisfy the condition envisaged in provisions of section 54(1) of the Act. Further, we found the Assessing Officer has restricted the claim of investment in construction of residential house property made before the due date of filing the return of income under 139(1) of the Act. Whereas, the assessee has spent total cost of construction being Rs. 2,77,39,045/-. The Assessing Officer contention that the assessee should have deposited the amount in the capital gain account scheme before due date u/s. 139(1) and restricted exemption u/s. 54 of the Act to the amount of Rs. 1,14,84,067/-.
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We are of the opinion, that there is no dispute on construction of the property and though the assessee has not deposited in capital gain account scheme, the provisions of section 54 of the Act are beneficiary provisions and have to be construed liberally on complying the conditions. We relying on decision of co- ordinate bench of this Tribunal in & CO. No. 43/Mds/2015 ACIT Vs Smt. Umayal Annamalai at Page 8, Para 8 read as under:
"
We heard the rival submissions, perused the material on record and judicial decisions cited. The ld. Departmental Representative contention being the assessee though constructed the property by investing, the net sale consideration but not before the due date of return u/s.139(1) of the Act nor said amount was deposited in Capital Gain Account Scheme. The argument of ld. Departmental Representative was in respect of the period of construction and there is no dispute on investment of the net consideration in residential property and provision of Sec. 54F(1) of the Act are as under:-
’54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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] (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: [Provided that nothing contained in this sub-section shall apply where— (a) the assessee,—
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(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.] The assessee has complied the provisions considering the dates as under:- (i) Date of transfer of original asset : 14.02.2005. (ii) The date of filing of return : 17.03.2006. (iii) Due date of return for the Assessment year 2005-06 : 31.07.2005. (iv) Due date of filing belated return : 31.03.2007. (v) Possession of the property : 15.12.2007. On considering the provisions of law and facts of the case, the assessee has invested H68,00,000/- before due date of filing belated return i.e. 31.03.2007 and took the possession as per the findings of the Commissioner of Income Tax (Appeals) on 15.12.2007, being within three years from the date of transfer/sale of original asset being 14.02.2005. The assessee has not invested in Capital Gain Account Scheme before 139(1) of the Act but complied with the conditions u/s.54F(1) of the Act by purchasing and construction of residential property within three years from the date of transfer of original asset which is not disputed in the assessment proceedings or in appellate proceedings. The provisions of Sec. 54F are beneficial provisions and are to be considered liberally in the aspect of limitation period. But the investment in residential property is must which the assessee has proved with evidence and complied before the lower authorities. The ld. Commissioner of Income Tax (Appeals) relied on the legal provision and submissions of the assessee exhaustively with judicial decisions. Considering the factual aspects, genuiness of the transactions and beneficial aspects of the provisions, we are of the opinion that the Commissioner of Income Tax (Appeals) has rightly construed the findings and the explanation of the assessee with observation in his order and allowed the deduction u/s.54F of the Act. Therefore, we are not inclined to interfere with the order of Commissioner of Income Tax (Appeals) and dismiss the ground of the Revenue."
:-11-: I.T.A. No.1208/Mds/2015 Where the assessee has not deposited capital gains in the capital gains account scheme and was utilised for construction of the property within the three years after the date of transfer of original asset and satisfied the provisions of section 54F of the Act.
8. In the present case, considering the Apparent facts, material on record and judicial decisions and the written submission, we are of the opinion that the assessee is entitled for cost of construction in respect of Residential property, even though the assessee has not invested in capital gain accounts scheme but complied the main condition, of the provisions of the section 54(i) of the Act. Accordingly, we remit the disputed issue to the file of the Assessing Officer to consider the deduction u/s. 54 of the Act for construction cost incurred by the assessee as above and Assessing Officer should provide adequate opportunity to the assessee to substantiate their cost of construction before passing the order on merits. Accordingly, the appeal is allowed for statistical purpose.
In the result, the appeal filed by the assessee is allowed for statistical purpose.
Order pronounced on Tuesday, the 27th day of December, 2016 at Chennai.