SRI BASUDEB SENGUPTA,BURDWAN vs. A.C.I.T CIR - 3,ASANSOL, ASANSOL

The solitary common issue involved in these appeals relates to the assessee’s claim for deduction under section 54F and the same is raised by the assessee by way of the following grounds:- (1) on the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that “continued expenditure out of proceeds of the part of commercial venture comprising several residential units built as stock-in- trade in the remaining part of the commercial venture

The assessee in the present case is an individual, who is engaged in the business as a developer under the name and style of his proprietary concern M/s. Dayal & Co. The assessee had inherited a piece of land admeasuring 29 Kathas and the same was converted into stock-in-trade in the financial year 2003-04 at a total price of Rs.43,50,000/-. The fair market value of the said land as of 1981 was taken at Rs.33,333/- and the long-term capital gain arising on conversion as computed at Rs.41,95,667/- in the return of income for A.Y. 2004-05 was deferred to the subsequent years by taking the benefit of section 45(2) and 54. During the years under consideration, the assessee sold three shops of the building constructed on the land for a consideration of Rs.10,80,500/- in A.Y. 2006-07 and 46 flats and 3 shops in A.Y. 2007-08. In the returns of income filed for A.Ys. 2006-07 and 2007-08, the proportionate long-term capital gain arising from the portion of land attributable to the flats and shops sold in the relevant years was declared by the assessee at Rs.85,927/- and Rs.51,96,678/- as per the provisions of section 45(2) and the same was claimed to be exempt under section 54F on the ground that the assessee continued to invest the sale proceeds of the portion of land in the construction of flats in the same building. In the assessments completed under section 143(3) for both the years under consideration i.e. A.Y. 2006-07 and 2007-08, the claim of the assessee for exemption under section 54F was denied by the Assessing Officer on the ground that the assessee was already the owner of more than one residential house property as appeared in the balance-sheet.

Against the orders passed by the Assessing Officer under section 143(3) for both the years under consideration, appeals were preferred by the assessee before the ld. CIT(Appeals) challenging the action of the Assessing Officer in disallowing his claim for exemption under section 54F. During the course of appellate proceedings before the ld. CIT(Appeals), it was submitted by the assessee that his first house was not complete at the relevant time and since it was not fit for occupation/habitation, the Assessing Officer was not justified in disallowing the claim of the assessee for exemption under section 54F on the ground that the assessee was the owner of more than one residential house. In view of the submission made by the assessee, the ld. CIT(Appeals) directed the Assessing Officer to make suitable verification in order to find out that the first house was not complete and the same in any case was not residential as claimed by the assessee and to decide accordingly as to whether the conditions stipulated in section 54F(1)(a)(i) was satisfied or not. The ld. CIT(Appeals) also proceeded further to verify as to whether the other conditions stipulated in section 54(1)(a)(ii) & (iii) are satisfied by the assessee or not in order to claim exemption under section 54F. As per the said conditions, the assessee was required, within a period of one year before or two years after the date on which the transfer took place, to purchase or within a period of three years after that date, construct a residential house. In this regard, he held that the continued expenditure claimed to be incurred by the assessee out of the proceeds in the commercial venture comprising several residential units built as stock-in-trade in the remaining part of that venture could not be construed as investment in a new asset within a period of one year before or two years after the date on which the transfer took place. He accordingly held that the relevant conditions stipulated in section 54F(1) were not satisfied by the assessee and, therefore, the claim of the assessee for exemption under section 54F was not allowable. Aggrieved by the orders of the ld. CIT(Appeals), the assessee has preferred these appeals before the Tribunal.

We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. counsel for the assessee, there is no dispute about the computation of long-term capital gain arising from the conversion of land owned by the assessee into stock-in-trade in A.Y. 2004-05 as offered in the years under consideration, i.e. A.Ys. 2006-07 and 2007-08 as per the provisions of section 45(2). The dispute is only relating to the assessee’s claim for exemption under section 54F on account of the said capital gain, which was denied by the Assessing Officer on the ground that the assessee was the owner of more than one residential house at the relevant time. By his impugned orders, the ld. CIT(Appeals) has directed the Assessing Officer to consider this aspect afresh after verifying the claim of the assessee that the first house was not complete at the relevant time and the same in any case was a commercial unit and not a residential house and the Department has not challenged the decision of the ld. CIT(Appeals) on this aspect of the matter by filing appeals before the Tribunals. The ld. CIT(Appeals), however, proceeded further to verify as to whether the other conditions as stipulated in section 54F(1)(a)(ii) & (iii) were satisfied by the assessee or not and held in this regard that the continued expenditure incurred by the assessee on construction of part of the commercial venture could not be construed as investment made by the assessee in a new asset within the period prescribed in the relevant provision. He accordingly denied the claim of the assessee for exemption under section 54F.

At the time of hearing before us, the ld. counsel for the assessee has submitted that the entire building constructed by the assessee as a commercial venture was sold except one residential flat, which was retained by the assessee. He has contended that since the construction of the said flat was completed within the time limits specified in the relevant provision and the proceeds of sale of land were utilized for such construction, the conditions stipulated in section 54F(1)(a)(ii) & (iii) were duly satisfied by the assessee. As rightly contended by the ld.

In the result, both the appeals of the assessee are treated as allowed for statistical purposes. Order pronounced in the open Court on July 20, 2016.