ITO, CHENNAI vs. RETTANAI GOVINDAN MUNUSWAMY, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The appeal filed by the Revenue is directed against order of

the Commissioner of Income-tax (Appeals)-9, Chennai in ITA

No.43/CIT(A)-9/2014-15, dt 15.02.2016 for the assessment year 2011-

2012 passed u/s.143(3) r.w.s. 147 and 250 of the Income Tax Act, 1961

(herein after referred to as ‘the Act’).

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‘’2.2. The CIT(A) erred in not appreciating the fact that the assessee had neither Invested the capital gain arising out of the transfer of the long term capital asset for construction/ purchase of new residential property, within the stipulated time nor deposited the unutilized amount in any bank account framed in accordance with the Capital Gain Account Scheme, 1988 on or before the due date for filing the return of income u/s. 139(1). 2.3. The CIT(A) failed to take note that sec. 54(2) is very specific that deposit of unutilized capital gain in specified bank accounts should be made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139. 2.4. The CIT(A) erred in giving direction to grant deduction u/s.54F when the construction agreement produced by the assessee is an unregistered one and hence the genuineness of the claim is not verifiable by the AO. 2.5. Having regard to the Hon'ble ITAT Cochin in the case of of ITO Ward-I, Kannur vs.Dr.K.T.Biju vide ITA NO.768/Coch/ 2013 dt.21.11.2012 similarly held that to claim deduction under section 54 of the Act, the assessee has to make investment within the due date of filing the return uls, 139(1) of the I.T. Act which the assessee has failed to do so. Thus, the assessee is not entitled for deduction u/s. 54 of the I.T. Act, the CIT(A) ought to have upheld the action of the AO in making disallowance on the claim of exemption u/s.54F’’.

and deriving income from other sources and filed Return of income for

the assessment year 2011-12 on 26.07.2011 Disclosing total income of

�3,52,577/-. Subsequently, the ld. Assessing Officer having Reasons to

believe that the assessee has not disclosed to income tax sale of property

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transaction held in the financial year 2010-2011 �70,00,000/- and no

income from capital gains was offered taxation were income has escaped

assessment and issued notice u/s.148 of the Act. In response to notice,

the ld. Authorised Representative of assessee appeared from time to time

and submitted details. The ld. Authorised Representative explained that

since the assessee has purchased a residential plot through sale

consideration and investment being more than the actual sale

consideration received Hence claimed exemption u/s.54F of the Act and

supported with copy of sale deed and purchase deed. The assessee has

sold the vacant land on 23.09.2010 and started constructing residential

property on a vacant land owned by the assessee after obtaining

permission from the Municipal Corporation. The ld. Assessing Officer on

verification of the details forwarded that the assessee has not utilized the

net sale consideration for purchase of new asset nor deposited in capital

gains account scheme before due date of filing of return of income

u/s.139(1) of the Act and relied on the provisions of Sec. 54F of the Act

and conclude that since the assessee has not invested in capital gains

accounts scheme before due date therefore not eligible for exemption

u/s.54F of the Act and Assessed Long term capital gains to tax and

passed the order u/s.143(3) r.w.s. 147 dated 26.06.2014. Aggrieved by

the order, the assessee filed an appeal before Commissioner of Income

Tax (Appeals).

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argued the grounds on validity of re-assessment proceedings and the

action of the ld. Assessing Officer in denying the claim of exemption

u/s.54F of the Act on investment in residential property. The ld.

Commissioner of Income Tax (Appeals) considered the submissions,

judicial decisions and the findings of the ld. Assessing Officer on re-

assessment proceedings and upheld the order of ld. Assessing Officer on

validity of re-assessment proceedings. Further, the ld. Commissioner of

Income Tax (Appeals) on the disputed issue relied on the substantive

evidence that the property was constructed within the stipulated time

limit. The ld. Authorised Representative submitted Agreement of

construction and relied on judicial decisions alongwith submissions, the ld.

Commissioner of Income Tax (Appeals) considered the documents as fresh

evidence and called for the Remand report of Assessing Officer and the

same was filed by the Assessing Authority by report dated 07.01.2016.

Considering the submissions and the findings of the ld. Assessing Officer,

the ld. Commissioner of Income Tax (Appeals) is of the opinion that the

assessee subsequent to sale of land has invested the sale consideration

by entering into Agreement with Builder M/s. Vishnu Sai Enterprises for

construction of residential House at the cost of �64,77,382/-. The ld.

Commissioner of Income Tax (Appeals) found the date of agreement is

15.02.2011 and the construction was completed before 16.09.2012 and

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House property was assessed to compute property tax on 30.07.2012. The

assessee has complied the condition u/s.54F of the Act by entering into

construction agreement for residential property on 15.02.2011 based on

approved plan after sale of land on 23.09.2010 irrespective of the time

limit for investment of net sale consideration in new residential property

being 22.09.2013. The ld. Commissioner of Income Tax (Appeals) found

that the construction agreement is unregistered and the assessee has not

invested in capital gains account scheme but complied the stipulated

condition u/s.54F on construction of residential property and relied on

jurisdictional Tribunal decision in the case of K.S. Narasimhan (HUF) in ITA

No.166/Mad/2010 and passed the order that the assessee is eligible for

exemption u/s.54F of the Act and allowed the assessee appeal.

Aggrieved by the order of Commissioner of Income Tax (Appeals), the

Revenue has assailed an appeal before Tribunal.

grounds and relied on the findings of the ld. Assessing Officer that

assessee has entered into unregistered construction agreement with the

builder and also violated the provisions of Sec. 54F of the Act by not

investing the net consideration in the capital gains account scheme before

due date of return u/s.139(1) of the Act. The ld. Commissioner of Income

Tax (Appeals) has erred in allowing the assessee appeal inspite of non

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compliance of condition of capital gain accounts scheme and prayed for

set aside the order of Commissioner of Income Tax (Appeals) and restore

the order of the ld. Assessing Officer.

Commissioner of Income Tax (Appeals) and Documentary evidence and

judicial decisions of Co-ordinate Bench and High Courts and opposed to

the grounds of the Revenue.

and judicial decisions cited. The only crux of the disputed issue dealt, as

the assessee has constructed Residential property but not complied the

conditions of investment of net consideration in the capital gains account

scheme before due date u/s. 139(1) of the act. We perused the detailed

facts of sale and construction of residential property as per the

assessment records. The detailed history of the property are illustrated

hereunder:-

Date of sale of the property 23.09.2010

Assessment year chargeability of capital 2011-12 gains

The net consideration to be deposited 31.07.2011 into the capital gains account scheme- before due date of filing the return of income u/s.139(1) of the Act.

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Due date of filing the return of income 31.03.2013 u/s.139(4) of the Act

Date of construction agreement 15.02.2011

Date of payment of licence fee to the 07.03.2011 Corporation

Date of approval/permission of the plan 06.04.2011 for the construction of a new house by Chennai Corporation

Date of water supply and sewerage 16.08.2012 connection

Property tax assessment by Corporation 30.07.2012

considering the events and provisions of law, we are of the opinion that

the assessee has complied the provisions of Sec. 54F of the act by

entering into construction agreement of house property and completed the

construction within three years from date of sale of original property.

Further, the Co-ordinate Bench of the Tribunal in the case of A.C. Shyam

Sundar vs. JCIT in ITA No.2279/Mds/2015, dated 06.05.2016 has held as

‘’7. We heard the rival submissions, perused the material on record and judicial decisions cited. The ld. Authorised Representative contention that the assessee is an employee and due date of filing of return applicable for the assessment year 2011-12 is 31.07.2011. The assessee has sold the property and invested in purchase of residential flat as per builder agreement entered on 03.02.2011. The assessee has paid �30,00,000/- before 31.07.2011 as per the evidence produced by builder in letter dated 18.02.2014 and remaining amount paid in three instalments before 31.03.2012 which is not disputed by the Assessing authority. The crux of the disputed issue arise before Assessing Officer that the assessee should have deposited the amount in the capital gain accounts scheme before 139(1) of the

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Act, therefore the ld. Assessing Officer has restricted exemption u/sec. 54F and denied the balance. On perusal of the Sec. 54F(1) of the act the exemption is allowed to the assessee 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,— (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

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(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”.]

Considering the date of investments and provisions of laws as under:- (i) Date of transfer of vacant land : 02.10.2010. (ii) The date of filing of return by Assessee : 03.11.2011. (iii) Due date of filing return for the Assessment year 2011-12 : 31.07.2011. (iv) Date of builder agreement for Construction of house property : 03.02.2011.

(v) Due date of filing of Belated return : 31.03.2013. u/sec. 139(4) of the Act

Considering the above facts and provisions of law, the assessee has invested total consideration of �66,64,457/- before due date u/sec. 139(4) of the Act being 31.03.2013. The investment in residential property has to be within three years from the date of transfer of vacant land on 02.10.2010. The assessee has not deposited in capital gain accounts scheme �36,00,000/- before 139(1) of the Act but complied with the conditions u/s.54F(1) of the Act on purchasing and construction of residential flat within three years from the transfer of original asset which is not disputed by the Revenue. The provisions of Sec. 54F of the Act are beneficial and are to be considered liberally for reasonable bonafide cause but investment in residential property is mandatory which the assessee has proved with substantial evidence before the lower authorities. Prime facie the construction of the property has been complied though investment was made subsequently but before extended due date u/s.139(4) of the Act. The assessee has direct investment in house property and therefore not opted capital gain account scheme. The ld. Authorised Representative further substantiated arguments with judicial decision of Delhi High Court in the case of CIT vs. R.L. Sood 245 ITR 727 (Del) were the date of agreement to purchase should be taken as the date of purchase. On applying the ratio to current circumstances, the assessee entered into agreement with builder for undivided share of land and construction agreement on 03.02.2011 which is very much before provisions of Sec. 139(4) of the Act. In the case of Jagtar Singh Chawla of Punjab and Haryana High Court in ITA No.71 of 2012, dated 20.03.2013 the assessee has paid

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substantial amount for purchase of residential property before the extended due date of filing of return and the assessee was eligible for exemption and not liable to pay any capital gain tax. Considering the factual aspects, genuiness of transactions and beneficial and liberal aspects of the provisions and the judicial decisions relied by the assessee. We are of the opinion that assessee complied the conditions and is eligible for exemption u/s.54F of the Act. We set aside the order of Commissioner of Income Tax (Appeals) and direct the Assessing Officer to grant exemption u/s.54F of the Act on the remaining construction cost which was invested in the residential property before due date u/s.139(4) of the Act and allow the grounds of the assessee.

We respectfully following the Co-ordinate Bench decision, dismiss the

grounds of the Revenue.

Order pronounced on Friday, the 15th day of July, 2016 at Chennai.

Sd/- Sd/- (ए. मोहन अलंकामणी) (जी. पवन कुमार) (A. MOHAN ALANKAMONY) (G. PAVAN KUMAR) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated:15thJuly, 2016. kv आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF