YASHODHAR KUMAR JAIN,NEW DELHI vs. ACIT, NEW DELHI

Date of Hearing : 16-05-2016 Date of Order : 03-06-2016

ORDER PER H.S. SIDHU, J.M.

These are the cross appeals filed by the Assessee and the Revenue against the common order of the Ld. CIT(A)-XXIII, New Delhi dated 01.12.2011 pertaining to assessment year 2008-09. Since the issue are inter-connected, hence, these appeals were heard together and are being disposed of by this common order for the sake of convenience, by dealing with Revenue’s Appeal.

“1. Because the Ld C.I.T (A) erred in law as well as on facts while confirming the following disallowances

Allowed By Ld CIT Exemption Disallowance Claimed U/Sec 54 Confirmed byCIT(Appeals) Rs. 17,50,6747- Rs.29,41,330/- Rs. 46,92,000

2. Because the following observations of the Ld CIT (A) in the order are against the provisions of Sec 54 of the Income Tax Act. Assessee sold house property for Rs. 2,28,97,6757- & there was long term Capital Gain of Rs. 1,33,01,553/-. ' That out of Capita] Gain of Rs. 1,33,01,553/- "A" has invested Rs. 50,00,000/- in NHIA Bonds & also claimed deduction of Rs. 46,92,004/- as the "A" has purchased a residential plot on 21/05/2007 which is one year before the sale. That of exemption of Rs. 46,92,004/- Ld C.I.T (A) has allowed exemption to the time of Rs. 17,50,674/- which was paid after 18/05/2007 and balance Rs. 29,41,330 has been reduced as the same amount was paid before one year.

Details of Purchase of Residential Plot -Rs. 46,92,004/- at Plot No.70 Cassia Nodosa Estate CHI-03, Greater Noida. U.P S.no. DD/Ch. No. Date Re marks Amount 1 DO NO. 264708 31.03.2006 1900000/- Anuradha Singh (Purchase of ownership) 2 2 DD NO. 488245 28.03.2006 136000/- Bank Transfer Charges to G Noida DD NO. 488247 3 28.03.2006 285000/- January 2006 Installment 4 DD NO. 973306 21.04.2006 1000007- Purchase of ownership 5 DDNO. 489411 21.06.2006 260165/- July 2006 Installment 6 28.12.2006 DD NO. 007881 260165/- Jan 2007 Installment 7 DDNO. 154069 18.05.2007 34085G/- Miscellaneous Charges for registration 8 DDNO. 154755 29.06.2007 260165/- June 2007 Installment 9 DD NO. 569097 01.01.2008 2601 65/- Jan 2008 Insallment 10 DD NO. 455955 17.06.2008 260 165/- June 2008 Installment 11 612300/- Stamp Papers Charges for registration 12 17023/- Gnoida Misc. & BanK Charges

4692004/- Total Expenses Till Date of Return For Financial Year 2007- 08

3. Because, the Ld C.I.T (A) has erred in overlooking the fact that "A" was issued possession letter by GNIDA on 18/05/2007 which is within one year of sale of Residential house on 01.03.2008 and "A" is entitle to total deduction of Rs. 46,92,004 under the nature & circumstances of the case.

Any other relief as this court may deem fit & proper be granted in favour of the Assessee.

“(i) On the facts and on the circumstances of the case the ld. CIT(A) has erred in restricted the disallowance to Rs.

21,28,866/- as against Rs. 46,92,004/- made by the AO on account of disallowance of exemption claimed u/s. 54 of the I.T. Act.

(ii) On the facts and on the circumstances of the case the Ld. CIT(A) has erred in deleting the addition made by the AO on account of disallowance u/s. 40(a)(ia) of the Income Tax

Act, 1961.

(iii) The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of the hearing of the appeal.”

4. The brief facts of the case are that the assessee filed his return of income at Rs. 1,01,53,098/- electronically transmitted on 20.9.2008 followed by ITR-V on 25.9.2008. The return was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred the Act) on the same income. On selection of case for scrutiny, notice u/s. 143(2) of the Act was issued on 14.9.2009. Subsequently, notice u/s. 142(1) of the Act was also issued. In compliance thereto, the Authorised Representatives of the Assessee appeared before the AO from time to time and furnished written submissions and required details. Books of accounts and bills/vouchers etc. were also produced and put to test. Thereafter, the assessed the income of the assessee at Rs. 1,49,51,300/- and made various additions vide his order dated 14.12.2010 passed u/s. 143(3) of the Act.

5. Against the aforesaid assessment order, the Assessee preferred appeal before the Ld. CIT(A), who vide his impugned order dated 1.12.2011 has partly allowed the appeal of the Assessee.

6. Against the order of the Ld. CIT(A), both Assessee as well as Revenue are in Cross Appeals before us.

6.1 In this case, Notice of hearing to the assessee was sent by the Registered AD post, in spite of the same, assessee, nor his authorized representative appeared to prosecute the matter in dispute, nor filed any application for adjournment. Keeping in view the facts and circumstances of the present case and the issue involved in the present Appeal, we are of the view that no useful purpose would be served to issue notice again and again to the assessee, therefore, we are deciding the present appeal exparte qua assessee, after hearing the Ld. DR and perusing the records.

7.1 Apropos ground no. 1 which is a common ground raised in both the cross appeals filed by the Assessee and the Revenue relating to restriction of disallowance to Rs. 21,28,866/- as against Rs. 46,92,004/- made by the AO on account of disallowance of exemption claimed u/s. 54 of the Act.

7.2 On this issue, the Assessing Officer examined the details of long term capital gains disclosed of Rs. 36,09,549/- on sale of a house on 01.03.2008, in Sun City Heights, Sector - 54, Gurgaon. The Assessing Officer found that as against sale consideration of Rs. 2,25,27,750/-, the appellant had claimed exemption under section 54EC of Rs. 50,00,000/- for purchase of capital gains bonds, and exemption under section 54 of Rs. 46,92,004/- for purchase of a residential plot. The Assessing Officer required the assessee to show cause why the exemption under section 54 should not be disallowed, as the exemption was allowable only in respect of investment in a residential house, and moreover the plot had been purchased on 21.05.2007, well before the date of sale of capital asset.

The assessee explained that he had constructed a house on the plot, which was completed on 29.04.2009, and as per provisions of section 54/54F, the capital gains were not taxable if invested in construction of a new residential house within a period of one year before or three years after the date of transfer. The Assessing Officer held that the period of 'one year before' in section 54 applied only to purchase of a new property, whereas the period of 'three years after' applied to construction of a new house. He held that the assessee’s claim would amount providing him with a window of four years for meeting the conditions of section 54, which was not the intention of the provision. The deduction claimed under section 54 of Rs. 46,92,004/- was rejected and the long term capital gains recomputed at Rs. 1,30,80,481/-.

7.3. We find that Ld. First Appellate Authority has elaborately discussed the issue in dispute by considering the submissions of the Ld. Counsel of the assessee and adjudicated the same vide para no. 3 to 4.2 at pages 3 to 7 of his impugned order. For the sake of convenience, we are reproducing the relevant portion of the impugned order i.e. para no. 3 to 4.2 as under:-

“(3). During the appellate proceedings, the counsels for the appellant filed written submissions, wherein it was explained that the first list submitted of TDS on professional fees had not been correctly compiled. It was submitted that the discrepancy of Rs. 81,200/- had arisen on account of the following entries:-

S.No. Old List Correct TDS Difference list 1 Bela 2,50,000 2,55,000 26,675 5,000 Mathur Integral Design 2 Jag 5,000 15,000 1,040 10,000 Mohan 3 Mohd. Arif ----- 43,200 400/- 43,200 (Salary) 4 Satish 21,854 38,854 2,250 13,000 Singh 5 HVS 6,000 16,000 ----- 10,000 Design House 81,200/-

(3.1) On the issue of long term capital gains, it was submitted that the residential property at Sun City Heights, Gurgaon, was sold on 01.03.2008, and the investment in the residential plot was made on 21.05.2007, i.e. within the prescribed period of one year before the date of sale. It was reiterated that the construction of the house was completed by 21.04.2009, within the period of two years from the date of sale. The appellant relied on the CBDT circular No. 667 dated

18.10.1993, wherein it was clarified that for the purposes of sections 54 and 54F, the cost of a residential house included the cost of the plot, being an integral part of the cost of the house, whether purchased or built. The appellant filed a copy of the receipt issued by the Greater Noida Industrial

Development Authority (GNIDA) dated 21.04.2009, and a certificate from GNIDA dated 05.05,2011 clarifying that the receipt of 'building plan and documents for occupancy certificate' dated 21.04,2009, comprised the completion certificate.

(4) The above submissions have been carefully considered. Vide order sheet entry dated 19.10.2011, the counsels for the appellant were asked to furnish further supporting evidence of construction and completion of the residential house at 70, Cassia Nodasa Estate, Sector

CHI-3, Noida. The appellant submitted the following documents:- (i) Application for sanction of building plans submitted on 23.01.2009; (ii) Details of payments to contractor M/s. Malik & Construction between 05.02.2009 and 19.06.2009 of Rs. 2,07,134/-; (iii) Temporary power connection obtained in February, 2009; (iv) Payment of water charges of Rs. 3,500/- to GNIDA on 16.04.2009; (v) Payment to contractor M/s Raus Infras Ltd. of Rs. 4,17,086/- for plumbing work; (vi) Permanent electricity connection obtained in May, 2010 with first bill received for the month of June, 2010.

(4.1) The above documents are considered to be adequate evidence of completion of construction of the house within the period of two years from the date of sale, which works out to March, 2010.

However, where the purchase of the plot is concerned, the appellant has relied on the ‘Possession Certificate’ issued by GNIDA on 21.5.2007, which is admittedly within the period of one year before the date of sale of the capital asset (9.3.2008), but on verification, the appellant submitted the following dates of payments for purchase of the residential plot as under:-

S.no. DD/Ch. No. Date Re marks Amount 1 DO NO. 264708 31.03.2006 1900000/- Anuradha Singh (Purchase of ownership) 2 DD NO. 488245 28.03.2006 136000/- Bank Transfer Charges to G Noida 3 DD NO. 488247 28.03.2006 285000/- January 2006 Installment 4 DD NO. 973306 21.04.2006 1000007- Purchase of ownership 5 DDNO. 489411 21.06.2006 260165/- July 2006 Installment 6 DD NO. 007881 28.12.2006 260165/- Jan 2007 Installment 7 DDNO. 154069 18.05.2007 34085G/- Miscellaneous Charges for registration 8 DDNO. 154755 29.06.2007 260165/- June 2007 Installment 9 DD NO. 569097 01.01.2008 2601 65/- Jan 2008 Insallment 10 DD NO. 455955 17.06.2008 260 165/- June 2008 Installment 11 Stamp Papers 612300/- 10 12 Gnoida Misc. & BanK Charges 17023/-

4692004/- "* • "* Total Expenses Till Date of Return For Financial Year 2007- 08

This clearly shows that the appellant purchased the ‘allotment’ on 31.3.2006, and made the bulk of payments prior to the period of one year before the date of sale. Out of the total consideration of Rs. 46,92,004/- for purchase of the plot, Rs. 29,41,330/- was paid between 31.3.2006 and 28.12.2006 and Rs. 17,50,674/- was paid after 18.5.2007. It can be seen that registration has taken place later than 17.6.2008. Hence, the appellant’s claim, so far as the plot is concerned, spans a period of two years before the date of sale. It is the contention of the Assessing Officer that the property should either have been purchased within the period of one year before and two years after the date of transfer, or been constructed within the period of three years after the date of transfer. The Assessing

Officer has relied on the judgement of the Gujarat High Court in the case of Smt. Shantaben P. Gandhi vs. CIT [1981] 129 ITR 218, wherein it was held that the exemption under section 54 is not available where the new construction is made before the transfer of the existing house, The appellant on the other hand, has relied on the judgement of the Allahabad High Court in the case of CIT vs.

H.K. Kapoor [1998] 150 CTR 128, wherein it was held that exemption on capita' gains could not be refused simply on the 11 ground that the construction had begun before the sale of the old house. Reliance was also placed on the Karnataka High Court order in the case of CIT vs. J.R. Subramanya Bhat [1987] 165 ITR 561, wherein the court held that to get the benefit of section 54,(The assessee must have constructed the new house witter the prescribed period from the date of sale of the old house, but the date o" commencement of construction was not material. ,

(4.2) I have also taken note of the judgement of the Jurisdictional

High Court in the case of CIT vs. Smt. Brinda Kumari [2001] 114

Taxman 266, in which it was held that in the case of allotment of flats under the self financing scheme of the Delhi Development

Authority, payment of the first instalment of the price of the flat within 2 years of sale of original property would entitle the assessee to claim exemption even if construction of the flat was not complete in two years. The Delhi High Court in the case of Balraj vs. CIT

[2002] 123 Taxman 290, and in the case of CIT vs R. L Sood [2000]

108 Taxman 227, has held that there is no requirement that a new house must be registered in the assessee's name within the prescribed period, and only the date of agreement to purchase is relevant. The language of section 54 comprehends that the asset transferred should be a residential building, and the asset invested in should also be a residential building, and the investment should be made within the time specified therein. The time specified in this case, within one year before and two years after, is the period between 9.3.2007 and 9.3.2010. The investment which is eligible for deduction would therefore, be restricted to Rs. 17,50,674/- on account of plot, and Rs. 8,12,464/- on account of construction. After careful consideration of the letter and spirit of section 54, it is held that the appellant is entitled to the exemption under section 54 of Rs. 25,63,138. Hence, the appellant partially succeeds in this ground of appeal.”

7.4 On going through the aforesaid finding of the Ld. CIT(A) on the issue in dispute, we are of the view that CIT(A) has restricted the addition in dispute by placing the reliance of the Hon’ble Jurisdictional High Court in the case of CIT vs. Smt. Brinda Kumari (2001) 114 Taxman 266, wherein it was held that in the case of allotment of flats under the self financing scheme of Delhi Development Authority, payment of first instalment of the price of the flat within 2 years of sale of original property would entitle the assessee to claim exemption even if construction of the flat was not complete in two years. We further find that the Ld. CIT(A) has relied upon the decisions of the Delhi High Court in the case of Balraj vs. CIT [2002] 123 Taxman 290, and in the case of CIT vs R. L Sood [2000] 108 Taxman 227, in which the Hon’ble Court has held that there is no requirement that a new house must be registered in the assessee's name within the prescribed period, and only the date of agreement to purchase is relevant. The language of section 54 comprehends that the asset transferred should be a residential building, and the asset invested it should also be a residential building, and the investment should be made within the time specified therein. The time specified in this case, within one year before and two years after, is the period between 9.3.2007 and 9.3.2010. The investment which is eligible for deduction would therefore, be restricted to Rs. 17,50,674/- on account of plot, and Rs. 8,12,464/- on account of construction. After careful consideration of the letter and spirit of section 54, it was rightly held that the assessee is entitled to the exemption under section 54 of Rs. 25,63,138. Hence, the ld. CIT(A) gave the partial relief on this issue on the right footing. Therefore, we do not find any infirmity in the well reasoned order passed by the Ld. CIT(A) on the restriction of addition in dispute, hence, we uphold the finding of the ld. CIT(A) on this issue. As a result, this ground raised by the Revenue as well as Assessee stand dismissed.

8.1 On this issue, the Assessing Officer observed that assessee had claimed deduction of professional fees paid of Rs. 7,09,054/-, but had failed to deduct tax at source from professional fees paid of an amount of Rs. 81,200/- for which details of recipients were not provided, and on Rs. 25,000/- paid to one Ms. Divya Saluja. The assessee was asked to explain why disallowance of these amounts should not be made under section 40(a)(ia) of the Income Tax Act, 1961. The assessee submitted a fresh list of professional fees paid of a total amount of Rs. 6,40,854/- and explained that the salary paid to Ms. Divya Saluja of Rs. 25,000/-, and salary paid to Shri Mohd. Arif of Rs. 43,200/-, were wrongly included in professional fees. The Assessing Officer considered the explanation filed to be an afterthought and not supported by evidence, and he added the amount of Rs. 1,06,200/- (81,200 + 25,000) to the total income under section 40(a)(ia).

8.2. We find that Ld. First Appellate Authority has elaborately discussed the issue in dispute raised by considering the submissions of the Ld. Counsel of the assessee and adjudicated the same vide para no. 5 at page 7 of his impugned order. For the sake of convenience, we are reproducing the relevant portion of the impugned order i.e. para no. 5 as under:-

“(5) On the issue of disallowance under section 40(a)(ia), it is verified from the details of professional fees paid by the appellant and from the details of tax deducted at source, that the appellant has deducted tax in all liable cases. The appellant had, however, submitted an incorrect list of details of TDS during the assessment proceedings. Though the appellant re-submitted the details in a fresh list before the Assessing Officer, however, the same was not accepted and treated as an afterthought. In my opinion, the Assessing Officer should have verified the payments of fees and salary as well as the TDS return, before summarily rejecting the explanation. The appellant is seen to have deducted tax in all cases where the fees for professional services exceeded Rs. 20,000/-. In the case of Ms. Divya Saluja, the salary paid of Rs. 25,000/- was far below the taxable limits. It is held accordingly that there was no case for making the disallowance u/s.40(a)(ia). The addition made on this account of Rs. 1,06,200/- is deleted.” 8.3 On going through the aforesaid finding of the Ld. CIT(A) on the issue in dispute, we are of the view that CIT(A) has deleted the addition of Rs. 1,06,200/- made by the AO u/s. 40(a)(ia) of the Act on the ground that assesse has deducted tax in all cases where the fees for professional services exceeded Rs. 20,000/-. Therefore, we do not find any infirmity in the well reasoned order passed by the Ld. CIT(A) on the addition in dispute and hence, we uphold the finding of the ld. CIT(A) on this issue.

Therefore, this ground raised by the Revenue stands dismissed.

Order pronounced in the Open Court on 03/06/2016.