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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM &DR. A.L.SAINI, AM
PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the Revenue pertaining to the assessment year 2009-10, is directed against the order passed by the Learned Commissioner of Income Tax(Appeals)-1,Surat [‘CIT(A)’ for short], dated 12.07.2019, which in turn arises out of an assessment order passed by the Assessing Officer (‘assessing officer’ for short) u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), vide order dated 28.03.2015. 2. Grounds of appeal raised by the Revenue are as follows:- “(i) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition made by the assessing officer of Rs.22,55,830/- on account of disallowance of deduction u/s 54F of the Act. (ii) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has failed to appreciate the fact that the assessee had not fulfilled conditions of Section 54F of the Act. (iii) On the facts and circumstances of the case and in Law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of
ITA No.447/SRT/2019 A.Y. 2009-10 Gemalsinh M Solanki (HUF) the Ld. CIT(A)-1, Surat may be set-aside and that of the Assessing Officer’s order may be restored.”
Facts of the case which can be stated quite shortly are as follows: The assessee before us is an individual and engaged in the business of developing and construction. The assessee filed return of income on 30.09.2009, declaring total income of Rs.1,46,937/- including capital gains. The assessee had claimed exemption to the tune of Rs.22,55,830/- u/s 54F of the Act on account of construction of residential house out of the capital gains so arisen. The assessment u/s 143(3) was completed on 07.12.2011 by assessing officer determining total income at Rs.1,46,940/-.
6.Thereafter, the case of the assessee was reopened u/s 147 of the Act after recording reasons that assessee had claimed and allowed deduction u/s 54F of the Act for which the assessee is not eligible for such deduction as he was not fulfilled the conditions laid down under the Act. Thereafter, notice u/s 148 was issued on 26.03.2014. In response to the same, the assessee vide his letter dated 16.06.2014 has stated that original return filed u/s 139 of the Act, be treated as return filed in response to notice u/s 148 and also requested for reason for issuing notice u/s 147 for re-opening of assessment. The assessee was provided the reason for re-opening of assessment on 23.06.2014. A show cause notice was also issued to the assessee by the assessing officer, asking the assessee to show cause as to why the claim of deduction u/s 54F for Rs.22,55,830/- should not be disallowed. On perusal of the computation of income and other relevant material available on record, it was noticed that assessee had claimed deduction u/s 54F amounting to Rs.22,55,830/- in the year under consideration on the LTCG of Rs.23,23,238/- computed from sales consideration of Rs.25,72,800/-. The assessee has also claimed deduction u/s 54F amounting to Rs.17,75,393/- and investment of Rs.1,80,000/- u/s 54EC in the subsequent AY 2010-11 for the same property. Therefore, a show cause notice was issued to the assessee asking as to why the claim of deduction u/s 54F for Rs.22,55,830/- should not be disallowed.
ITA No.447/SRT/2019 A.Y. 2009-10 Gemalsinh M Solanki (HUF) 7. In response, the assessee submitted written submissions before the assessing officer, stating that land was converted into stock -in-trade and constructed residential project on the said land, and made investment in the construction of residential house property in both the years and construction was also completed within the statutory time limit, hence the assessee has satisfied the conditions of section 54F of the Act. However, the assessing officer has rejected the contention of the assessee and held that assessee has failed to substantiate his claim with supporting evidence to prove that both the properties are same on which the construction of residential house was carried out. Also assessee has failed to prove that he does not have any other residential property. Therefore, the claim of deduction u/s 54F of the Act to the tune of Rs.22,55,830/- was disallowed.
Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before Ld. CIT(A), who has deleted the addition made by the Assessing Officer. Aggrieved, the Revenue is in appeal before us.
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. Learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, ld Counsel for the assessee defended the order passed by the assessing officer. We note that assessee has converted his capital asset into stock- in-trade and accrued capital gains which he invested in construction of residential unit and claimed exemption under section 54F of the Act. Next year i.e. A.Y 2010- 11, the assessee again converted another capital asset into stock in trade and accrued capital gains. This capital gains was also claimed to be invested in the construction of the same residential unit and deduction under section 54F was claimed. The case was subjected to scrutiny assessment u/s 143(3) for both A.Y. 2009-10 & 2010-11 and the deductions u/s 54F as claimed was allowed as under:
ITA No.447/SRT/2019 A.Y. 2009-10 Gemalsinh M Solanki (HUF) Capital Investment in deduction u/s 54F gains residential unit allowed in 143(3) AY 2009-10 23,23,238/- 24,98,151/- 22,55,830/- AY 2010-11 27,52,692/- 19,43,507/- 17,75,393/-
Subsequent to this, there was a Audit Objection regarding allowing the deduction u/s 54F in two years. The Ld. assessing officer has accepted the audit objection and after taking required approval, has re-opened the assessment for A.Y. 2009-10. The reason were recorded by assessing officer. It is clear from the reasons recorded that the sole reason for reopening is that the assessee has claimed deduction u/s 54F on same residential property in AY 2009-10 & 2010-11. However, it is not mentioned whether deduction was claimed on same amount twice, or the total deduction claimed in 2 years is more than amount invested in residential unit. From the above, it is clear that the only dispute or issue of contention is “whether the assessee can claim deduction u/s 54F in more than one year when he invests sale considerations received from sale of different capital assets in construction of one residential unit over the years when all other conditions are satisfied?” We note that deduction u/s 54F of the Act, is allowable when the assessee invests sale proceeds of original asset in residential unit during the specified time period, provided the assessee doesn’t own more than one residence at the time. In the assessee`s case assessing officer accepted that all the conditions are met. The assessee has explained this in detail before assessing officer vide letter dated 18.02.2015 and the assessing officer has not rebutted it. We note that ld. Counsel relied on the judgment of the Coordinate Bench of ITAT Ahmedabad in the case of DCIT vs Pankaj Chimanlal Patel ITA No.3179/Ahd/2016 dated 12.12.2018 and argued that, the facts are identical and hence the decision of Hon'ble ITAT may be followed. The findings of the Coordinate Bench are as follows:
“9. We have carefully considered the rival submissions. The essential controversy in the instant case is whether deduction under section 54F of the Act is available in respect of capital gains arising from sale of more than one long term capital assets, not being residential house (original Page | 4
ITA No.447/SRT/2019 A.Y. 2009-10 Gemalsinh M Solanki (HUF) asset) against the construction or purchase of one residential house (new asset). The incidental issue that arises is whether capital gains of multiple years can be claimed against purchase/construction of same new residential house i.e. new asset subject to fulfillment of other conditions. The Revenue seeks to deny the deduction on two grounds (i) the expression used in Section 54F(1) is ‘transfer of any long term asset’, which connotes singularity and (ii) the action of ‘purchase’ can happen only once. It will be apt to refer to Section 54F(1) of the Act with which we are presently concerned: ‘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 *************** [underline is ours] 10. We find at the outset that the identical issue of allowability of Section 54F of the Act on sale of multiple assets came up for consideration before the co-ordinate bench in the past. Useful reference can be made to Anagha Ajit Panekar (supra); Krishnadevi Kejriwal (supra) and ACIT vs. Mahindrakumar Jain (2017) 84 taxmann.com 141 (Del) as quoted in the appellate order of CIT(A). In the light of the aforesaid decisions, the order of the CIT(A), in our view, cannot be faulted. 11. However, to address the concern of Revenue for strict construction of beneficial provisions in the light of Dilip Kumar &Co. (supra), we notice that the deduction under section 54F of the Act essentially depends upon the extent of utilization of the sale proceeds in the new asset. The benefits of Section 54F of the Act also stands denied where the assessee owns more than one residential house other than new asset on the date of transfer of the original asset. The object of Section 54F is to encourage an assessee to convert any of his long term assets into a residential house subject to the condition that assessee does not own more than one residential house other than the new residential house on the date of transfer of long term asset. The Section, thus, in essence, offers some incentives to a taxpayer to change its unproductive assets into a residential house. The action of the assessee is thus in conformity with the object and purpose of Section 54F of the Act. To say that the assessee is entitled for deduction in respect of capital gains arising from sale of only one long term capital asset and conversion thereof in residential property would in effect seriously limit the object and purpose of Section 54F of the Act. 12. To delineate further, an incidental situation may also crop up whether capital gains deduction with reference to Section 54F of the Act would apply with respect to a solitary transaction and not on whole of several different transaction of capital assets in the form of equity, mutual fund and so on. If the interpretation of ‘any long term asset’ as suggested by Revenue is read to mean deduction in respect of only one transaction of transfer is endorsed, it will seriously curtail the application of Section 54F of the Act. Such interpretation would lead to absurd results and requires to be shunned. Significantly, we also notice the use of broader expression ‘any’ long term asset in distinction to expression ‘a’ long term asset as used in Section 10(38) of the Act. Thus, the legislative intent when gathered from the distinct language used, it is clear that a narrower interpretation would fail to achieve manifest purpose of the Page | 5
ITA No.447/SRT/2019 A.Y. 2009-10 Gemalsinh M Solanki (HUF) deduction provision. We thus, prefer to avoid a construction which would reduce the legislation to futility and grant broader construction to bring effective result on availability of such deduction. 13. As a corollary, the decision of the co-ordinate bench in favour of the assessee is, in effect, harmonious interpretation of Section 54F of the Act and not necessarily a liberal interpretation of the deduction provision. We are thus of the view that the decision of the Hon'ble Supreme Court in Dilip Kumar & Co. (supra) does not hinder the claim of assessee.”
From the above decision, it is abundantly clear that deduction under section 54F of the Act is available in respect of capital gains arising from sale of more than one long term capital assets, not being residential house, against the construction or purchase of one residential house. We note that jurisdictional Bench of ITAT, Ahmedabad has held that deduction u/s 54F is allowable on identical facts. Thus, the deduction u/s 54F of the Act claimed by assessee is allowable and therefore, we do not find any infirmity in the order passed passed by ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. 12. In the result, appeal of the Revenue is dismissed.
Order pronounced on 12/04/2022 by placing the result on the notice board.
Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat/िदनांक/ Date: 12/04/2022 Dkp Outsourcing Sr.P.S. Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File
By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat