ITO, TRICHY vs. N.CHANDRAN, TRICHY

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)-2, Tiruchirapalli, in ITA No.127/2014-15/CIT(A)/TRY dt 20.05.2015 for the assessment year 2011-

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

after referred to as ‘the Act’).

2.‘’ The ld. CIT(A) has erred in deleting the addition of �51,76,378/- made by the Assessing Officer by disallowing the claim towards deduction u/s.54F made by the assessee.

income from business and income from capital gains filed return of

income on 28.09.2011 admitting total income of �3,74,680/- and was

processed u/s.143(1) of the Act on 08.02.2012. The case was selected for

scrutiny and notice u/s.143(2) of the Act was issued. Further notice

u/s.142(1) was issued calling for the books of account and bank

statements. In compliance to above notices, the ld. Authorised

Representative of assessee appeared and filed details for verification. The

Assessing Officer found that assessee has sold agricultural lands and

holding Chitta and Adangal and has not undertaken any agricultural

operation and sold the agricultural land. Further invested long term

capital gains in construction of residential house at Kodaikanal and filed

evidences. The assessee incurred cost of construction of house including

land and supported with vouchers and bills aggregating to �46,30,000/-.

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The Assessing Officer verified construction agreement and to confirm

whether the aggregate amount was utilized for the construction of

residential property and issued summons u/s.131 of the Act to Contractor.

The contractor appeared and produced approved plan and confirmed

�46,30,000/- received from the assessee by cash and cheques. The

assessee has purchased residential plot on 24.11.2010 and undertook

construction of the residential property. The ld. Assessing Officer on

verifying the municipal tax receipt found it at higher rate and also

mismatch of address on comparison with the approval plan. The ld.

Assessing Officer for clarification on construction has issued summons

u/s.131 of the Act to the assessee on 25.02.2014. In compliance to

proceedings assessee appeared and explained the issues at page 3 of

Assessing Officer order as under:-

‘’I have purchased a property at Kodaikanal on 24.11.2010 at Kodai Clouds N Garden in Plot No.33 Eastern side. I have entered construction agreement with Ramakrishnan, Contractor on 17th October, 2010 payments for construction has been released before and after construction agreement. I confirm that I have only one property at Kodaikanal. I have let out that property ground floor only for my friends only and I have received rent for the period ending 31.03.2013 of �6,67,500/- during the financial year (2012-13). It is a seasonal income’’.

The Assessing Officer based on the statement recorded u/sec. 131 of the

Act of the contractor and assessee found that the assessee has offered

�16,67,500/- income from said property in the assessment year 2013-14,

as income from business and not under income from house property.

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The Assessing Officer under surmises based on the subsequent years

return of assessment year 2013-14 presumed the property constructed is

in nature of Business Asset and not a residential house and denied the

claim of exemption u/s.54F of the Act for the said assessment year 2011-

2012. The only grievance of the Assessing Officer being the exemption

u/s.54F of the Act is eligible for residential house but not for residential

house used for commercial purpose. The ld. Assessing Officer with above

findings has calculated long term capital gains of �51,76,378/- and made

addition with other disallowances including unexplained investments

u/s.69 on deposits in the bank account and loans obtained during the

said financial year. In the assessment proceedings, the ld. Assessing

Officer to strengthen the disallowance relied on the report of Inspector on

his visit to place of property and advertisement issued by the assessee for

usage on internet. The ld. Assessing Officer found that assessee has

constructed in the nature of Bungalow and residential house and not

complied the requisite conditions of Sec. 54F and denied the claim and

assessed total income �62,39,315/- and raised demand. Aggrieved by the

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

(Appeals).

substantiated the arguments and findings of the Assessing Officer in the

assessment proceedings and argued on the grounds raised against

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disallowance and supported with written submissions at relevant page 2 of

Commissioner of Income Tax (Appeals) order as under:-

‘’The Authorised Representative further told that the Appellant purchased a residential house property constructed out of the land purchased by the Appellant which was let out by the appellant @ 2,000/- per day seasonally. The same fact was confirmed from the cash books of his business. It was ascertained by ₹6,67,000/- as the "Income from Business" in the P&L account for the year ended on 31.03.2013 as seasonal income -Kodaikanal House as furnished in the Return of Income for the A.Y.2013-14. It is noted that the Appellant has not mentioned it as Income from the House Property and so the Assessing Officer construed it not as a Residential house and decided that it did not entitle for the claim of exemption u/s.54F as per the IT Act, 1961. But the Appellant's Authorized Representative presents that firstly, the appellant has built a residential house out of the sale proceeds(Capital Gains) obtained by him due to transfer of his property. Secondly, the Authorized Representative submits that Section 54F does not postulate the subsequent user of the asset as a criterion for determination of allowance, i.e. it does not want such a residential property must be used only and solely for the residential purpose. The Authorised Representative cited the decisions of the Hyderabad Tribunal in K. Prathiba Vs. Income Tax Officer 7(3), 44 taxman.com 282 and Shri. Shyamlal Tandon vs. Income Tax Officer 7(4) ITA No.1774/Hyd/12 which supports the view of the appellant’’.

The ld. Commissioner of Income Tax (Appeals) based on the submissions

and grounds of the assessee and supporting materials has applied the

rational thinking on disputed issue and gave a categorical finding in his

order and directed the Assessing Officer to allow the deduction observed

at page 5 of his order as under:-

‘’Further on this issue the appellant submits that the subsequent user of the asset is not the criterion for determination of allowance u/s 54F. The appellant placed his reliance on the decision in the case of K.Prathiba vs ITO 44 Taxman.com 282 by the Hyderabad Tribunal and also in

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the case of Shri Shyamlal Tandon vs ITO ITA No. 1774/Hyd112. The ratios laid down in these two cases are similar to the facts of the instant case under consideration. The Tribunal had categorically held that the fact of determining the eligibility is only to be examined at the time of construction of the property and the subsequent user is not a ground for denial. In the case of the appellant he had built a house at Kodaikanal and he had been using the same for himself and during the seasons he had let it out for temporary occupation. These persons also had used the property for their residence only. There is no commercial activity had been carried on like using the property as a shop or godown. Disallowance uls 54F cannot be denied on the subsequent change in the usage of property for non residential use or commercial use. Once it is recognized as residential property constructed or obtained within the stipulated period as required u/s 54F, merely because of change in the use of such property for non residential purposes, it cannot be said that what was acquired by the assessee was not a residential property. Subsequent change in the user of the property does not disentitle the assessee to relief U/S 54F of the Act. Mere non residential use subsequently could not render the property ineligible for benefit u/s 54F if it is otherwise a residential property. This view has been held also by the Delhi Bench of the Tribunal in the case of Mahavir Prasad Gupta vs JCIT (5 SOT 353). Respectfully following the said decisions mentioned supra the Assessing Officer is directed to allow the deduction U/S 54F in the case of the appellant. The appellant succeeds on this ground of appeal’’.

Further on the issue of unexplained cash credit the ld. Commissioner of

Income Tax (Appeals) elaborately dealt based on the submissions of the

assessee and the findings of the Assessing Officer and deleted the addition

to the extent of �83,303/- and partly allowed the ground of the assessee.

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

Revenue has assailed an appeal before the Tribunal.

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the arguments based on the findings of the Assessing Officer were the

property was used for commercial purpose and in the nature of bunglow

and let out for seasonal occupation for tourists at Kodaikanal and not

eligible for exemption u/s.54F of the Act. The ld. Commissioner of

Income Tax (Appeals) has erred in deleting the addition without

considering the facts that the assessee utilized the property for non

residential purpose and the action of the Commissioner of Income Tax

(Appeals) is bad in law and violation of conditions u/s.54F of the Act. The

action of Commissioner of Income Tax (Appeals) in deleting the addition

of �83,303/- is without any evidence and prayed for setting aside the

Commissioner of Income Tax (Appeals) order.

and order of the Commissioner of Income Tax (Appeals) and supported

the arguments with judicial decisions for allowability of exemption u/s54F

of the Act.

record and judicial decisions cited. The ld. Departmental Representative

contention that Commissioner of Income Tax (Appeals) has erred in

allowing the exemption u/s.54F of the Act though the assessee has used

the property for commercial purpose and the assessee is using the

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property for seasonal occupation for tourists and has given advertisement

for usage on media. The ld. Authorised Representative substantiated his

arguments that the property constructed is a residential house and due to

change in nature of subsequent usage cannot be a ground for denial of

exemption u/sec.54F of the Act. The house property constructed is purely

residential and let out on temporary occupation and used for the residence

by the assessee. We perused the assessment order were the Assessing

Officer has summoned the contractor and has recorded statement on

construction cost based on construction agreement and approved plan

was produced in the proceedings. The ld. Assessing Officer has verified

the copy of approved plan and construction of the property which is not

disputed by the ld. Assessing Officer. The assessee relied on sanctioned

plan issued by the City Corporation and constructed the residential house.

The ld. Assessing Officer having accepted the approved plan cannot know

agitate that the property is a commercial property due to usage by the

occupants. The ld. Assessing Officer relied on the income tax return filed

for the assessment year 2013-14 were the assessee has offered income

from property as business income as it was let out on daily basis. The fact

that the assessee has constructed the property and complied with the

provisions Sec. 54F of the Act 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),

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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

(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 observation of the ld. Assessing Officer that the residential property

means a house property should be used for residential purpose and not

for commercial purpose cannot be accepted. The assessee has purchased

a plot and constructed the residential property within time limit allowed as

per the provisions of Sec. 54F of the Act which is not disputed by the

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Assessing Officer. The ld. Commissioner of Income Tax (Appeals) has

dealt exhaustively on the submissions of the assessee on the construction

and usage supported the facts with judicial decision for claim of exemption

u/s.54F of the Act. Considering the apparent facts, provisions of law,

judicial decisions and findings in appellate proceedings, we are not

inclined to interfere with the order of Commissioner of Income Tax

(Appeals) who has explained elaboratively viz-a-viz the explanations of the

assessee and we uphold the same and dismiss the ground of the

Revenue.

Departmental Representative erred that Commissioner of Income Tax

(Appeals) has deleted the amount without considering the facts and

evidence on record.

Commissioner of Income Tax (Appeals).

record. The ld. Departmental Representative contention that the evidence

available with them and the Commissioner of Income Tax (Appeals) has

confirmed the partial addition excluding �83,303/-. We are of the

opinion that if the Department is having any authentic evidence the same

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has to be relied in the assessment proceedings or appellate proceedings. The Commissioner of Income Tax (Appeals) gave a realistic findings on this disputed issue at page 7 of his order confirming the partial addition and deleting �83,303/-. Therefore, we are not inclined to interfere with the order of Commissioner of Income Tax (Appeals) on this ground and confirm the same.

Order pronounced on Wednesday, the 11th day of May, 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:11th May, 2016. venu 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