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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: ARUN KHODPIA & ARUN KHODPIA & ARUN KHODPIA
Per Bench
This is an appeal filed by the assessee ag This is an appeal filed by the assessee against the order of the ld Pr. ainst the order of the ld Pr. CIT, Sambalpur u/s.263 of the CIT, Sambalpur u/s.263 of the Act dated 17.3.2021 17.3.2021 in Appeal No. ITBA/Rev/F/Rev5/2020 ITBA/Rev/F/Rev5/2020-21/1031564652(1) for the assessment year for the assessment year 2016- 17.
Shri P.C.Sethi, ld AR appeared for the assessee and Shri Shri P.C.Sethi, ld AR appeared for the assessee and Shri Shri P.C.Sethi, ld AR appeared for the assessee and Shri M.K.,Gautam, ld CIT DR appeared for the revenue. M.K.,Gautam, ld CIT DR appeared for the revenue.
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The appeal is barred by limitation by 113 days. The assessee has filed condonation petition dated 7.9.2021, stating therein that due to Corona Pandemic, the assessee could not file the appeal within the period of limitation. It was prayed to condone the delay in filing the appeal. Ld A.R. reiterated the submissions made in the petition and prayed for condoning the delay. Ld CIT DR opposed the condonation petition.
Having perused the condonation petition, we are satisfied with the reason given by the assessee that due to Covid-19 period, the appeal was not filed within the stipulated period. Therefore, condone the delay of 113 days and admit the appeal for hearing.
It was submitted by ld AR that the assessee, an HUF had filed its return of income by disclosing the long term capital gains claiming the benefit of deduction u/s.54F of the Act in respect of development agreement entered into by the assessee with builder M/s. Odyssa Homes Commercial Pvt Ltd. It was the submission that the return filed by the assessee came to be processed on ‘limited scrutiny’ and assessment was completed u/s.143(3) of the Act on 27.11.2018. It was the submission that the assessee’s case was selected for ‘limited scrutiny’ on account of “large deduction/exemption from capital gains”. Ld AR drew our attention to the paper book, which contains the copy of the notice u/s.142(1) of the Act, wherein, the AO has asked the assessee to furnish the details of the capital gains as disclosed in the return of income and explanation regarding P a g e 2 | 7
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deduction/exemption from capital gain u/s.54F of the Act and the details of investment with regard to the exemption u/s.54F of the Act. It was the submission that the assessee had complied with all the requirements as required by the AO and the assessment had been completed accepting the return filed by the assessee. Subsequently, the proceedings u/s.263 of the Act had been initiated by the Pr. CIT on the ground that the assessee was entitled to 37425 sq.ft and the same could not be treated as one residential house. It was the submission that the assessee had responded to the show cause notice, wherein, attention was brought to the notice of Pr. CIT that the agreement was entered into on 14.4.2015 and till date, the project has not been completed and in fact, it is still in the foundation stage alone only. It was submitted by ld AR that the builder is in jail and the possibility of the project going through is very bleak and as all the conditions of the agreement had been violated, same is liable to be cancelled once the builder comes out from the jail. It was the submission that further the Pr. CIT has taken a stand that the ownership of the land vested in M/s. Kella Appalaswamy Sons, Jeypore, Koraput, whereas the assessee as an HUF has offered to capital gains. It was the submission that if the Ld. Pr. CIT was of the opinion that the property belonged to Kella Appalaswamy Sons, then obviously, he cannot pass the order u/s.263 of the Act revising the assessment in the case of HUF. It was the further submission that the issue in respect of capital gains has already been examined by the AO
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threadbare. The order passed u/s.263 of the Act is nothing but a change of opinion and an attempt by the Pr. CIT to impose his opinion over that of the Assessing Officer. It was the submission that the Pr. CIT has categorically mentioned in his order in para 3.2 that “the Assessing Officer has accepted the submissions of the assessee without making any further enquiry or verification and without applying law to the facts of the case”. It was the submission that when the assessment itself was “limited scrutiny” and details have been called for by the Assessing Officer to say that the Assessing Officer has not considered all the facts is itself erroneous. It was the submission that the order of the Pr. CIT is liable to be cancelled.
In reply, ld CIT DR submitted that there was change in law by the Finance (No.2) Act, 2014 by which the provisions of section 54F had been amended to replace the word “a” with word “one”. It was the submission that the assessee was entitled to deduction u/s.54F only in respect of one residential house whereas the assessee has claimed exemption u/s.54F in respect of entire 37425 sq.ft. It was the submission that the Assessing Officer by not applying the correct law has granted the benefit and in view of the decision of the Hon’ble Supreme Court in the case of Malabar Industries Co. Ltd., 243 ITR 83 (SC), as the Assessing Officer has incorrectly applied the law, the order passed by him was erroneous and is liable to revision u/s.263 of the Act. He vehemently supported the order of the Pr. CIT.
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We have considered the rival submissions. At the outset, a perusal of the agreement entered into by the assessee with the builder shows that the building was to be completed within three years i.e. 36 months. The reply to the show cause notice by the assessee shows that the construction is not complete even on today and the structure is in foundation stage. Thus, clearly, the assessee has not completed the construction of the residential house within three years. On this ground, it can be said that the assessee is not entitled to deduction u/s.54F of the Act. However, the alternate position would be that as the land has been provided to the developer and the fund is beyond the control of the assessee, the benefit of deduction u/s.54F would be available to the assessee. Therefore, it cannot be said that the assessee is not entitled to deduction u/s.54F of the Act. There is an agreement between the assessee and the developer for construction of the project.
The next issue comes up for consideration is as to whether the whole 37425 sq.ft is one residential house or multiple houses. The building itself is in foundation stage and the agreement having been violated, it is not possible to hold that whether it is one residential house or multiple houses. True, there is a building plan approved, however, the life of the plan has also expired. Therefore, even for the purpose of proceeding further, fresh plan is required. This itself raises the primary question as to whether the capital gains is leviable in the relevant assessment year insofar as the
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possession of the land has not been transferred to the developer. A perusal of the agreement shows that in clause 10 of the agreement it is mentioned that “ in case of non-delivery of the project by the Developer to the land owner within the stipulated period of 36 (thirty six) months, the Developer is to compensate the delay by paying Rs.5/- per sq.ft of the eligible/entitled built up area of the 1st party per month. The builder, as mentioned by ld AR, is in jail, therefore, it cannot be said that the developer is in possession of the property as the possession has not been handed over by the land owner to the Developer. Therefore, the possession of the property remains with the land owner. In these circumstances, whether capital gains itself is leviable during the relevant assessment year is questionable. This being so, as also on the fact that the Pr. CIT has taken a stand that the property does not belong to the assessee, the order u/s.263 is unsustainable on facts and consequently, we quash the same.
In the result, appeal of the assessee is allowed.
Order dictated and pronounced in the open court on 15/11/2022.
Sd/- sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 1511/2022 B.K.Parida, SPS (OS)
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Copy of the Order forwarded to : 1. The Appellant : Kella Trading Company (HUF), Kella Street, Jeypore, Koraput- 764001 2. The Respondent: Pr. CIT, Sambalpur 3. The CIT(A)-, Sambalpur 4. DR, ITAT, Cuttack 5. Guard file. //True Copy//
By order
Sr.Pvt.secretary ITAT, Cuttack
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