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Income Tax Appellate Tribunal, DELHI BENCHES : “F” NEW DELHI
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the Revenue and is directed against the order of Ld.CIT(A), Rohtak dated 08.07.2011 pertaining to the AY 2008-09.
Facts of the case:- The assessee is an individual and has income from business, house property, interest, capital gains and agricultural income. He is proprietor of two firms namely M/s New Haryana Grih Udyog and M/s New Haryana Stone Crushing Co. Both the firms are running stone crushing units. He filed return of income for the A.Y. 2008-09 on 30.9.2008 declaring total income of Rs.8,51,320/-. The solitary issue involved in the instant appeal is regarding, disallowance of Rs.98,13,725/-, by restricting the claim of exemption u/s 54F of the Income Tax Act, 1961 (the Act) from
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon Rs.2,87,20,000/- to Rs.1,87,86,275/-. The assessee had sold 2 lakhs shares of M/s Alps Ltd. on 17.3.2008 @ Rs.153/- per share for an aggregate consideration of Rs.3,06,00,000/-. However, after deduction of cost of acquisition of Rs.20,00,000/-, long term capital gain was computed at Rs.2,86,00,000/-, which was claimed to be eligible for deduction u/s 54F of the Act in the following manner.
Sl.No. Particulars Amount (Rs.) 1. Amount invested on 29.9.2008 in 86,20,000/- purchase of residential plot no.282, Sector 1, IMT Manewar 2. Amount deposited on 29.9.2008 in 2,01,00,000/- Capital Gain account with SBI, Sector 15, Gurgaon Total 2,86,20,000/-
The A.O. has not accepted the claim of investment in purchase of residential plot at Rs.86,20,000/- and, computed the amount eligible for deduction u/s 54F of the Act at Rs.1,87,86,275/- in the following manner.
Long term capital gain on sale of shares: Sale proceed (as disclosed) Rs.3,06,00,000/- Less: Cost of acquisition as claimed Rs. 20,00,000/- Capital Gain Rs.2,86,00,000/- Less: Deduction u/s 54F of the Act against deposit of Rs.2.01 cr. In capital gain account Rs. 1,87,86,275/- 2,86,00,000 x 2,01,00,000 ---------------------------------- 3,06,00,000 Taxable Capital Gain Rs. 98,13,725/-
The A.O. had not accepted the investment made by the assessee in the residential plot of land of Rs.86,20,000/- for the following reasons:-
That agreement for purchase of plot situated at Sector - 1, a)
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon Manesar, Haryana was executed by the assessee on 29.09.2008 with his brother Mr.Ram Niwas Yadav; That towards payment of the purchase consideration assessee b) issued cheque no. 291081 drawn on State Bank of India, Sector - 15, Gurgaon, Haryana of SB Account No. 56414003767 and, on verification of the account it has been observed that on 29.09.2008, the said bank account of the assessee shows the credit balance of Rs. 1,939/- only, however, the cheque has been issued to the tune of RS. 86.20 Lac; c) That alleged purchase of the plot was not culminated into the registration of the said plot in the name of the assessee even till the date of this order; That inspite of his repeated arguments and submissions that he is d) going to construct a residential house according to the provisions of the section 54F of the Act on the plot purchased by him from his brother, and he has also made some payments to the contractor towards the construction of the house, he has failed to file any sort of evidences in support of his own claims; That the said cheque has been encashed from assessee's bank e) account on 27.10.2008 and arrangement of the fund was done by the assessee between 20.10.2008 to 27.10.2008, which is clearly mentioned in the bank statement of account no. 56414003767, of State Bank of India, Sector -15, Gurgaon, Haryana, which is reproduced here under:- Date Narration Deposit(Rs.) Withdrawal Balance (Rs.) (Rs.) 29.9.2008 Tr. Capital 2,01,00,000 1,939 Gain A/c (FDR) 01.10.2008 Opening 1,939 Balance 13.10.2008 To FDR 15,12,499 matured + Interest
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon 20.10.2008 To New 15,00,000 Everest Stone Crushing Co. 22.10.2008 To Cash 8,00,000 23.10.2008 To Cash 3,50,000 To New 9,62,000 Everest Hot Mix To M/s New 5,00,000 Haryana Stone Crushing Co. 24.10.2008 To New 2,00,000 Haryana Grih Udyog 25.10.2008 To Seema 9,00,000 Yadav 27.10.2008 To Cash 50,000 To Veena 5,00,000 Yadav To Veena 95,000 Yadav To Gift 2,00,000 Ramkaur To Cash 9,90,000 86,61,438 By 86,20,000 Residential Plot in Manesar
f) That assessee's brother Mr. Ram Niwas Yadav, seems to have not shown capital gain on sale of the subject plot in his return of income of A. Y.2009-20 1 0, relevant to financial year 2008-2009.
On appeal the First Appellate Authority granted relief.
Aggrieved the Revenue is in appeal before us on the following grounds. “1. On the facts and in circumstances of the case, Ld.CIT(A) has erred in deleting the additions made by the AO amounting to Rs.98,13,725/- on account of rejection of claim of exemption u/s 54F of the Act. 2. On the facts and in circumstances of the case, Ld.CIT(A) has erred in deleting the additions made by the AO on account of non-deduction of TDS on an amount of Rs.3,66,093/- paid for loading expenses and repair of JCB and addition of
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon Rs.76,584/- made by the A.O. on account of provision made for electricity for want of evidence. 3. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal.”
The Ld.Sr.D.R. Mr.Vikram Sahay made elaborate submissions. He also filed written submissions before the Bench. The sum and substance of his arguments are that :
(a) S.54S Sub-section (iv) uses the wording “ which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return u/s 139 of the Act.” Hence the issue whether the assessee got the possession of the property or when the purchase agreement was affected, has no relevance and the only test is, whether net consideration has been utilized for the purchase or construction of the new asset, or if not, whether the unutilized amount has been deposited in the capital gains account, before the due date specified u/s 139 of the Act.
(b) There is no dispute that the amount of Rs.2,01,00,000/- has been deposited in the capital gains account, before the due date specified u/s 139 of the Act.
(c ) The only issue is whether the asseee has utilized, the balance amount of Rs.86,20,000/- towards purchase of new asset, before furnishing the return of income u/s 139 of the Act.
(d) The assessee issued a cheque in favour of his brother for Rs.86,20,000/- on 29.9.2008, for purchase of a plot of land, when the balance in the account was only Rs.1,939/-.
(e) The realization had taken place only on 27.10.2010, when the cheque was realized. When the balance was only Rs.1939/- in the bank account, the
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon issual of a cheque for Rs.86.20 lakhs does not tantamount to utilization as contemplated under the Act.
(f) The submissions of the assessee that the law does not require that sufficiency funds should be available on the date of issual of cheque, is wrong as, unless there is sufficient balance in the bank account, the amount mentioned in the cheque cannot be encashed and hence cannot be said to have been utilized.
(g) He admitted that as long as substantial payments are made, for purchase of an asset, within one year of the sale of the old asset, the assessee would be entitled to claim the deduction under this section. However, he pointed out that in this case the assessee has not paid any amount and hence there is no utilization within the stipulated period under the Act.
hi) On the submission of the assessee that the due date of furnishing the return of income u/s 139, would include the due date specified under S.139(4), by relying on various case laws, the Ld.Sr.D.R. submitted that, the date of filing of the return by the assessee is relevant. He submitted that once the return has been filed, the claim of deductions gets finalized. He pointed out that the assessee has not filed a revised return of income before the time allowed u/s 139(4) and hence the issue does not arise.
On the other hand, the Ld.Counsel for the assessee submitted that: (i) the AO’s finding that the money raised for investments in the plot of land, is not relatable to the proceeds arising out of the sale of the asset and hence deduction cannot be granted, is against the propositions of law laid down by various High Courts. The Courts have held that the requirement of law is that the assessee should purchase a residential house within the period and source of funds is quite irrelevant.
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon 6.1. He relied on the following case law. 107 Taxman 591 (Ker.) KC Gopalan; and (b) 20 SOT 468 (Mum.) ACIT vs. Dr.P.S.Pasricha in ITA 1825/2009 vide judgement dt. 7th October,2009 by Hon’ble Bombay High Court.
6.2. On the issue of utilization of net consideration he submitted that there is no requirement in law, that there should be sufficient balance in the bank account, on the date when the cheque is issued. The undisputed fact is that the cheque was presented and got encashed. Once payment is made and possession of the property is received, there is transfer. He relied on the following case laws.
i. CIT vs. RL Sood reported in 245 ITR 127 (Del.) ii. Balraj vs. CIT reported in 254 ITR 22 (Del.) iii. Once the plot has been purchased on or before the due date of filing of the return of income, the investment so made is eligible for deduction u/s 54F of the Act. iv. That the section is a beneficial provision to encourage assesses to invest in house properties and keeping in view the object, the technical objections of the Ld.Sr.D.R. are devoid of merit. v. Incentive granting provisions have to be liberally interpreted.
6.3. He relied on the order and finding of the First Appellate Authority on the other grounds cited by the A.O. for disallowance of the claim.
On ground no.2 regarding disallowance of Rs.2,06,733/- out of loading expenses of Rs.1,59,360/- in respect of repair of JCB by invoking S.40A(ia) he relied on the order of the Ld.CIT(A) and the jdugement of Hon’ble Allahabad High Court in the case of CIT vs. Vectir /shipping Services (P) Ltd. reported in 357 ITR 642(Allahabad). He pointed out that the A.O. failed to appreciate the real nature of the business of the assessee.
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon 7.1. Regarding provision of a sum of Rs.76,584/-,he submits that this was actually liability.
7.2. Ld.Sr.D.R. relied on the orders of the A.O. on the second and third issues. He distinguished the case law relied upon by the assessee.
After hearing rival contentions, perusing the material placed on record, orders of the lower authorities and case laws cited, we hold as follows.
The entire objections of the Ld.Sr.D.R. are on the fact that, the assessee had no balance in his bank account, when a cheque of Rs.86.20 lakhs was issued for purchase of plot of land from the brother of the assessee on 29.9.2008. This cheque was presented on 27.10.2008 and got encashed. In other words the cheque was never dishonoured. After issuing the cheque, the assessee ensured that the amount required for honouring the cheque, is transferred to his bank account. The sources of funds is not in dispute.
9.1. In our view the claim of deduction u/s 54F cannot be denied for the sole reason that the assessee did not have sufficient balance in his bank account as on the date of issue of cheque for purchase of a plot of land for the reason that the cheque was honoured as and when it was presented; this is a beneficial provision and has to be liberally construed; factually it cannot be stated that the assessee has not invested the said amount in the purchase of a plot, before the filing of the return of income on 30.9.2008. The Tribunals and Courts have in a number of decisions held that, there is no requirement in law, that the same funds, which were obtained on the sale of a asset, should be utilized for the purchase of a plot.
9.2. The moment a cheque has been issued by a person, in pursuance of a contract of purchase, in our view, it is utilization of funds, as there is a legal commitment by the assessee. When the transaction materialized it relates
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon back to the date of agreement and the date of encashment is of no relevance. In coming to this conclusion we rely on the following case law.
9.3. The Hon’ble Supreme Court in the case of Sanjeev Lal vs. CIT and another reported in 365 ITR 389 had held as under : “S.54 : Capital gains- Transfer-Profit on sale of property used for residence-If an agreement to sell is entered into within the prescribed period, there is a transfer of some rights in favour of the vendee. Fact that sale deed could not be executed within the time limit owing to supervening problem is not a bar for s. 54 exemption-Entitled exemption. [S.2(47), 45] Consequences of execution of the agreement to sell are very clear and they are to the effect that the appellants could not have sold the property to someone else. In practical life, there are events when a person, even after executing an agreement to sell an immoveable property in favour of one person, tries to sell the property to another. In our opinion, such an act would not be in accordance with law because once an agreement to sell is executed in favour of one person, the said person gets a right to get the property transferred in his favour by filing a suit for specific performance and therefore, without hesitation we can say that some right, in respect of the said property, belonging to the appellants had been extinguished and some right had been created in favour of the vendee/transferee, when the agreement to sell had been executed. A right in respect of the capital asset, viz. the property in question had been transferred by the appellants in favour of the vendee/transferee on 27.12.2002. The sale deed could not be executed for the reason that the appellants had been prevented from dealing with the residential house by an order of a competent court, which they could not have violated. As held in Oxford University Press vs. CIT [(2001) 3 SCC 359] a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax and one can very well interpret the provisions of Section 54 read with Section 2(47) of the Act, i.e. definition of “transfer”, which would enable the appellants to get the benefit under Section 54 of the Act.(AY.2005-06).”
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon
9.4. Further in the case of CIT vs. M/s Ogale Glass Works Ltd. (1954) reported in 25 ITR 529 (S.C.) the Hon’ble Supreme Court observed as under.
“In the case before us none of the cheques has been dishonoured on presentation and payment cannot, therefore, be said to have been defeated by the happening of the condition subsequent, namely, dishonour by non payment and that being so there can be no question, therefore, that the assessee did not receive payment by the receipt of the cheques. The position, therefore, is that in one view of the matter there was, in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment and on another view, even if the cheques were taken conditionally, the cheques not having been dishonoured but having been cashed, the payment related back to the dates of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques.”
9.5. Applying the propositions laid down in the above case laws to the facts of the case on hand we have to uphold the contentions of the assessee. Regarding other grounds cited by the A.O. for rejecting the claim, we uphold the finding of the Ld.CIT(A) as no infirmity could be pointed out by the Ld.D.R. in the order of the Ld.CIT(A).
9.6. Thus we uphold the finding of the First Appellate Authority and dismiss ground no.1 of the Revenue.
On ground no.2 the First Appellate Authority at para 7.2 had held as follows. “7.2. I have considered the issue and the submissions made by the A.R. The A.O. could not bring any material on record to show that the above mentioned payments made by the appellant is on account of a contractual obligation. In the
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon absence of any such relationship, the provisions of section 194 C are not attracted and therefore the question of disallowing u/s 40(a)(ia) does not arise. In view of the above, the disallowance made by the AO under this head is deleted and the ground of appeal is allowed.”
10.1. Further, at para 8.1 he held as follows.
“8.1. I have considered the issue and the submissions made by the A.R. The provision made for the electricity charges is apparently for the period 14.3.2008 to 31.3.2008. This being the case, the provision for this period of Rs.76,584/- is allowable as deduction therefore the disallowance made is deleted and the ground of appeal is allowed.”
10.2. Both these factual findings could not be controverted by the Ld.Sr.D.R. Thus, we uphold the same and dismiss ground no.2 of the Revenue.
In the result the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 07th October, 2015.
Sd/- Sd/- [I.C.SUDHIR] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER Dt. the 07th October, 2015
* Manga
ITA No. 4169/Del/2011 A.Y. 2008-09 Sh. Rajender Singh Yadav, Gurgaeon