Capital gains exemption if Assessee not been able to obtain possession and got purchase deed executed within 3 years

Short Overview : It was undisputed that assessee had made payment of for purchase of flat to developer and there was a complaint filed by La Tropicana, Resident Welfare Association against the developer with National Consumer Disputes Redressal Commission. Thus, delay in obtaining possession and getting purchase deed executed was on account of the developer and was by reason beyond the control of the assessee.  In such peculiar facts and circumstances, exemption under section 54 could not be denied to assessee.

Assessee sold certain property and invested proceeds thereof in certain flat. Accordingly, assessee claimed exemption under section 54. However, AO denied exemption on the ground that assessee could not obtain possession and got purchase deed executed within the period of three years.

it is held that it was undisputed that assessee had made payment of for purchase of flat to developer and there was a complaint filed by La Tropicana, Resident Welfare Association against the developer with National Consumer Disputes Redressal Commission. Thus, delay in obtaining possession and getting purchase deed executed was on account of the developer and was by reason beyond the control of assessee. In such peculiar facts and circumstances, exemption under section 54 could not be denied to the assessee.

Decision: In assessee’s favour.

Supported: Balraj v. CIT (2002) 254 ITR 22 (Del-HC) and CIT v. R.L. Sood (2000) 245 ITR 727 (Del) : 2000 TaxPub(DT0 875 (Del-HC).

IN THE ITAT, DELHI BENCH

AMIT SHUKLA, J.M. & L.P. SAHU, A.M.

Bal Kishan Atal v. ACIT

ITA No. 2649/Del/2016

6 March, 2019

Appellant by: Ved Jain, Advocate & Ashish Goel, Surabhi Goyal, CA

Respondent by: Surender Pal, Sr. Departmental Representative

L.P. Sahu, A.M.

This is an appeal filed by the assessee against the Order, dt. 29-2-2016 of learned Commissioner (Appeals) for the assessment year 2012-13 on the following grounds :–

1. That the assessment order passed by the assessing officer is illegal, bad in law and without jurisdiction and against the principle of natural justice.

2. That the assessing officer has grossly erred in law and on facts in making disallowance of Rs. 83,41,330 in the assessment year 2012-13 when the impugned transaction could only be subject to scrutiny in assessment year 2015-16.

3. That in view of the facts and circumstances of the case the Commissioner (Appeals) has erred in law and on facts in confirming the disallowance of Rs. 62,68,311 made by an assessing officer on account of non fulfillment of conditions under section 54F of the Act (Delivery of possession and Payment of entire sale consideration) as the appellant has already made substantial payment for a residential house.

4. That the Commissioner (Appeals) has erred in law and on facts in confirming the disallowance of Rs. 19,00,000 made by an assessing officer on account of non-utilisation of amount for the new asset within the period mentioned in sub section (1) of section 54 of the Act when the same were utilised for the residential house.

5. Without prejudice, the Commissioner (Appeals) has failed to appreciate that an amount of Rs. 10,60,311 was utilised for construction of the new asset.

6. That the assessing officer and subsequently the Commissioner (Appeals) has erred in law and on facts in taking the amount of Rs. 2,00,000 as cost of acquisition for calculation of indexed cost of acquisition against the Rs. 2,20,450.

7. That the assessing officer and subsequently the Commissioner (Appeals) has erred in law and on facts in making a disallowance of Rs. 52,867 on account of cost of improvement incurred in year 2010-11.

8. That the Commissioner (Appeals) has failed to appreciate that on the facts and circumstances of the case, the various observations and findings of the learned assessing officer in the impugned assessment order are irrelevant and vitiated in the law.

9. That on the facts and circumstances of the case the interest charged under section 234B and 234C has been wrongly and illegally charged and in any case is highly excessive.

10. That the material available on record have not been properly considered and judicially interpreted and the same do not justify the addition made.

11. That the addition made is based on mere surmises and conjunctures and the same cannot be justified by any material on record and the same are highly excessive.

2. Briefly stated, the facts attending to the present case are that the assessee derives income from Salary, income from business or profession, and other sources. The assessee filed its return of income at Rs. 25,00,260, which stood revised on 24-9-2012 declaring total income of Rs. 24,80,260. The case was selected for scrutiny under CASS so as to scrutinize large deductions claimed under section 54B, 54C, 54G & 54GA. During the year under consideration, the assessee sold a property for a total consideration of Rs. 98,00,000 and claimed deduction of Rs. 81,44,608 under section 54 of the Income Tax Act after claiming indexed cost of acquisition of Rs. 16,13,187. The assessee had invested a sum of Rs. 62,68,311 in the residential flat and deposited Rs. 19,00,000 in the capital gain account. The assessing officer disallowed the deduction of Rs. 62,68,311 on the premise that assessee has not taken possession nor the purchase deed has been executed within the period of three years. Therefore, the assessing officer also disallowed the deduction of Rs. 19,00,000 deposited in the capital gain account on the ground that assessee had not utilised the same within the prescribed period. The assessing officer also reduced the indexed cost of acquisition by Rs. 1,20,152 stating that the assessee has not been able to produce evidences in respect of the expenses of Rs. 20,450 incurred at the time of the purchase and also did not allow deduction of Rs. 52,867 claimed by the assessee on account of cost of improvement in the year 2010-11 on the ground that the assessee has failed to provide documentary evidence in support thereof. The assessee carried the matter in appeal before the learned Commissioner (Appeals), who after considering the submissions of the assessee and material on record, confirmed the action of the assessing officer vide impugned order. Aggrieved, the assessee is in appeal before the Tribunal.

3. The assessee has raised as many as 12 grounds in this appeal, but the issues involved therein are only with respect to addition of Rs. 62,68,311 on account of capital gains, as the assessee did not fully comply with the conditions under section 54F of the Act, addition of Rs. 19,00,000 on account non-utilization of amount in the new asset within the statutory period, addition of Rs. 20,450 by taking the indexed cost of property at Rs. 2,00,000 instead of Rs. 2,20,450 and addition of Rs. 52,867 on account of disallowance of cost of improvement claimed to have been incurred during the year under consideration.

4. Regarding disallowance of exemption of Rs. 62,68,311 claimed under section 54F of the Act in respect of investment in the residential flat, the learned Authorised Representative of the assessee submitted that both the authorities below have erred in not allowing the exemption claimed. It was submitted that during the year under consideration, the assessee sold a property, Plot No. 116, Sharda Niketan, Pitampura, Delhi. The said property was sold for a total consideration of Rs. 98,00,000 and claimed exemption under section 54 of the Act, by investing a sum of Rs. 62,68,311 out of the sale proceeds in a residential flat bearing no. T12-801 at La Tropicana, Khyber Pass, Delhi developed by M/s. Parsvnath Landmark Developers (P) Ltd. and deposited Rs. 19,00,000 in Capital Gain account Scheme. The assessing officer during the course of assessment proceedings asked the assessee to produce evidence for the property purchased by the assessee. In response to which the assessee, vide letter dated 7-8-2014 (place at Paper book Page 6) submitted the copies of receipts of payments made to the developers and flat buyer agreement entered into by the assessee with the developers. However, possession of the property was not given to the assessee by the developer till the end of the statutory period of claiming the exemption under section 54 and therefore even the property did not get registered in the name of the assessee. The assessing officer alleged that since the possession of the property was not taken by the assessee and the property is not registered in the name of the assessee, the benefit of exemption cannot be claimed. In reply It was submitted to the learned assessing officer that La Tropicana Resident Welfare Association had filed a complaint before National Consumer Disputes Redressal Commission against the developers seeking relief and compensation for the losses suffered by the allottees on account of unfair trade practices and deficient services rendered by the developers. The delay in granting possession was due to the fact that the Commission through its Order, dt. 2-6-2014 (placed at PB Page 73-74) put stay and directed the developers to not to transfer or alienate in any manner flats allotted to the members and due to which purchase deed also did not get executed. It was also submitted before the assessing officer that substantial payments have already been made by the assessee and for claiming exemption under section 54 of the Act, it is not necessary that the possession is granted to the assessee and purchase deed is executed. However, the assessing officer ignored the submissions and evidences submitted by the assessee, and made an addition of Rs. 62,68,311 alleging that for claiming exemption under section 54 of the Act either purchase deed should have been executed or the possession should be granted to the assessee.

The action of the assessing officer is incorrect as in the present case, the assessee had paid a substantial amount of purchase consideration to the developers and had made frantic efforts for claiming possession of the said flat.

However, there was delay on part of the developers against whom La Tropicana Resident Welfare Association filed a complaint before National Consumer Disputes Redressal Commission seeking relief from the unfair trade practices of the developers. It is submitted that assessee had bona fide intentions of investing the property and claiming the exemption under section 54. But due to the complaint filed against Parsvnath Landmark Developers (P) Ltd., the developer and delay in receiving the possession was beyond the control of the assessee, and the assessee was restricted to pay further amount in the property with them. It was further contended by the learned Authorised Representative that the assessing officer has not doubted the payments made by the assessee which has been made through proper banking channels. The delay is by reason beyond the control of the assessee. Similar issue has come up before various courts where it is held that exemption under section 54 cannot be denied in case possession is not granted or purchase deed is not executed by reason beyond the control of the assessee. The learned Authorised Representative placed reliance on the judgment of Hon’ble Delhi High Court in the case of Balraj v. CIT, (2002) 254 ITR 22 (Del-HC) : 2002 TaxPub(DT) 979 (Del-HC), Order, dt. 6-12-2001. Learned Authorised Representative also placed reliance on following judgments in support of its contention.

1. CIT v. R.L. Sood, (2000) 245 ITR 727 (Del) : 2000 TaxPub(DT) 875 (Del-HC)

2. Delhi ITAT in the case of DR. Jasvir Singh Rana v. ITO, ITA No. 5568/Del./2015, Order, dt. 22-9-2017

3. Delhi ITAT in the case of Sanjay Khanna, c/o. JeetanNagpal v. DDIT(International Taxation), ITA No. 5852/Del/2012, Order, dt. 14-7-2017

4. Shri Chandrakant S. Choksi HUF v. The Asst. CIT Circle 18 (1) MUMBAI. in (ITA No. 3540/Mum/2013, dt. 26-11-2014) : 2015 TaxPub(DT) 724 (Mum-Trib)

5. The CIT v. Ritesh Kumar Kumat- in (ITA No. 63/2012, dt. 20-1-2014)

6. Chennai ITAT in the case of ACIT Vs, Shri M. Raghuraman, ITA No. 1990/Mds/2017, Order, dt. 8-2-2018.

5. On the other hand, learned Departmental Representative placed reliance on the order passed by the authorities below. It was submitted that the assessee has not obtained the possession within the period of three years and also purchase deed has also not been executed in favour of the assessee and hence, he did not fulfill the condition for claiming exemption under section 54.

6. We have heard the rival submission and perused the entire material available on record including orders passed by the authorities below and the case laws cited. From the facts, it is clear that assessee has made payment of for the purchase of flat to the developer of Rs. 62,68,311. The fact of payment of the same and the transaction of purchase of flat are not in dispute. The only issue is that assessee could not obtain the possession and got the purchase deed executed within the period of three years. The delay was on account of developer and not on account of the assessee. We have also perused the paper book, where we find that there is a complaint filed by La Tropicana, Resident Welfare Association against the developer with National Consumer Disputes Redressal Commission. Thus, the fact that delay in obtaining possession and getting purchase deed executed was on account of the developer and was by reason beyond the control of the assessee. The assessee has made substantial payment of Rs. 62,68,311. In such peculiar facts and circumstances, we are inclined to agree with the contentions of the assessee that exemption under section 54 cannot be denied to the assessee. The assessee has done all what he could have done. There is no failure on the part of the assessee. Our above view is supported by judgment of the Hon’ble Delhi High Court in the case of Balraj v. CIT (2002) 254 ITR 22 (Del-HC) : 2002 TaxPub(DT) 979 (Del-HC) wherein a similar issue of purchase deed having not been executed had come up for consideration and the Hon’ble Court after analyzing the facts and provision of section 54 has held as under :–

“For the purpose of attracting the provisions of section 54 of the Income Tax Act, it is not necessary that the assessee should become the owner of the property. Section 54 of the said Act speaks of purchase. Moreover’ the ownership of the property may have different connotation in different statutes. The question which arises for consideration appears to be squarely covered by a decision of the Apex Court in CIT v. T. N. Aravinda Reddy (1979) 120 ITR 46 (SC) : 1979 TaxPub(DT) 1091 (SC), where it has been held that ‘the word ‘purchase’ occurring in section 54(1) of the Act had to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Each release in this case was a transfer of the releasor’s share for consideration to the releasee and the transferee, the assessee, ‘purchased’ the share of each of his brothers and the assessee was, therefore, entitled to the relief under section 54(1)”. The question now is no longer res integra having regard to the decision of the Apex Court in CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625 (SC) : 1997 TaxPub(DT) 1265 (SC). The Apex Court categorically held that section 22 of the Income Tax Act, 1961, does not require registration of sale deed. The meaning of the word “owner” in the context of section 22 has been held to be a person who is entitled to receive income in his own right. The Apex Court in Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC) : 1999 TaxPub(DT) 1421 (SC) and this court in CIT v. B. L. Sood (2000) 245 ITR 727 (Del) : 2000 TaxPub(DT) 875 (Del-HC) have held that registration of the document is not mandatory for claiming depreciation on the property. In this view of the matter, we have no doubt in our mind that the learned Tribunal went wrong in holding that for the purpose of applicability of section 54, registration of document is imperative. We, therefore, answer the question in the negative, i.e., the assessee is entitled to exemption in terms of section 54 of the Act.”

7. We further get support on the issue of possession not being delivered within the period of three years, from decision of jurisdiction Delhi High Court in the case of CIT v. R.L. Sood (2000) 245 ITR 727 (Del) : 2000 TaxPub(DT) 875 (Del-HC) where the Hon’ble Court has held as under :–

“In our view, the Tribunal was justified in declining to make a reference on the proposed question to this court. Admittedly, the assessee had paid a sum of Rs. 2,39,850 out of the total sale consideration of Rs. 2,75,000 for the purchase of the flat within the period of one year from the date of sale of his old residential house. Thus, on payment of a substantial amount in terms of the agreement of purchase dated 25-9-1981, i.e., within four days of the sale of his old property, the assessee acquired substantial domain over the new residential flat within the specified period of one year and complied with the requirements of section 54 of the Act. Merely because the builder failed to hand over possession of the flat to the assessee within the period of one year, the assessee cannot be denied the benefit of the said benevolent provision. This would not be in consonance with the spirit of section 54 of the Act.”

In view of the above facts and decisions of Hon’ble Jurisdictional High Court, we are of the considered opinion that Commissioner (Appeals) was not justified in denying the exemption of Rs. 62,68,311 claimed by the assessee under section 54 and direct the assessing officer to delete this addition.

8. On the issue of disallowance of exemption of Rs. 19,00,000 in respect of amount deposited by the assessee in the capital gain account on the ground that the same was not utilised within the period of three years, the learned Authorised Representative of the assessee submitted that during the year under consideration, assessee had deposited an amount of Rs. 19,00,000 in Capital Gain account Scheme with State Bank of India, Chandni Chowk, Delhi. The bank statement of the account is placed at PB Page 76-77, the benefit of which was not given to the assessee. It was further submitted before us as also before the learned assessing officer that assessee had paid further an amount of Rs. 10,60,311 on 1-6-2013 to M/s. Parsvnath Landmark Developers (P) Ltd. which is evident from the bank statement placed at Paper book Page 81-82, the benefit of which was not given to the assessee. However, the assessee could not utilize the balance amount of Rs. 8,39,689 as the National Consumer Disputes Redressal Commission vide its Order, dt. 2-6-2014 (PB Page 73-74) had put stay on M/s. Parsvnath Landmark Developers (P) Ltd. As such the reason for non-utilisation was by reason beyond the control of the assessee. The learned Authorised Representative also made an alternative submission that even otherwise the amount is not taxable in the current assessment year. The learned Authorised Representative invited attention to section 54 (2) whereby the addition if any on account of non-utilisation can be made in the year in which the prescribed period of three years expires.

9. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below.

10. Having considered the rival submissions, we observe that as held above, the delay in the present case was on account of the developer and not on account of the assessee. The assessee had deposited the amount in capital gain account. The balance amount could not be utilised as there was a dispute and stay by the National Disputes Redressal Commission. Accordingly, for the reasons stated hereinabove, we hold that the learned Commissioner (Appeals) was not justified in confirming the action of the assessing officer and direct the assessing officer to delete this addition of Rs. 19,00,000 too. Even otherwise the alternative contention that addition in this year cannot be made is correct in terms of section 54(2) of the Act, which read as under :–

“(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return (such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139) in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme30 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :–

Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,–

(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.

In view of the aforesaid provisions, it is clear that even if the amount deposited by the assessee in the capital gain account scheme is to be charged to tax, then it could be taxed only after the expiry of the prescribed period not in the year to which the capital gain pertains to. In view of the above the addition made by the learned assessing officer and sustained by the learned Commissioner (Appeals) deserves to be deleted.

11. Regarding addition of Rs. 20,450, it was submitted that the assessing officer has not taken into consideration a sum of Rs. 20,450 being expenses incurred by the assessee at the time of purchase of property. It was argued by the learned Authorised Representative that during the year under consideration, the assessee had sold the property located at Pitampura, Delhi, which was purchased by the assessee for a total consideration of Rs. 2,20,450 in the year 1985-86. However, the assessing officer has taken cost of acquisition at Rs. 2,00,000 as against Rs. 2,20,450. The difference in cost of acquisition is on account of stamp duty charges, registration charges etc. It is normal practice that at the time of purchase of any property, stamp duty charges, registration charges and other charges have to be paid for taking full right over the property. Since the property was purchased in financial year 1985-86 and the additional cost of acquisition of Rs. 20,450 was genuinely incurred and just for want of specific documentary evidence(s), the assessing officer cannot reject the same when it has been expressly submitted that said cost was incurred in year of acquisition of land.

The amount of Rs. 20,450 on the purchase value of Rs. 2,00,000 is validly claimed by the assessee as includible in the cost of acquisition. Therefore, in view of the above facts the addition of difference in indexed cost of acquisition made by the learned assessing officer and sustained by the learned Commissioner (Appeals) is liable to be deleted.

12. The learned Departmental Representative, on the other hand, submitted that in the absence of any evidence that the assessee has incurred such expenses the assessing officer was justified in disallowing the same.

13. We have heard the rival submissions and have perused the record. On going through the assessment order, we note that assessee failed to submit any evidence in respect of the expenses incurred at the time of purchase of the property. Before us also the learned Authorised Representative has not produced any evidences. Therefore, in absence of any evidence on record, the claim of the assessee does not stand substantiated. We, therefore, support the addition made by the assessing officer and sustained by the learned Commissioner (Appeals). Finding no infirmity in the impugned order on this score, this issue is decided against the assessee.

14. The last issue pertains to disallowance of Rs. 52,867 on account of cost of improvement. It was submitted by the learned Authorised Representative that the assessee had purchased the said property in the year 1985-86 and was sold by the assessee in the year 2011-12. During this period, the assessee had constructed a room on the terrace of the plot sold by the assessee, the benefit of which was not given to the assessee, which is allowable as per section 55 of the Act. Since the property was constructed long back and the additional cost of improvement was genuinely incurred, just for want of specific documentary evidences, the assessing officer cannot reject it where it has been expressly submitted that said cost was incurred in year of acquisition of land. Even the assessing officer and Commissioner (Appeals) has confirmed the addition merely on the ground that proofs were not submitted. No personal visits were made by the assessing officer or Commissioner (Appeals) to know whether there is said construction or not. Therefore, the said addition made by the learned assessing officer and sustained by the learned Commissioner (Appeals) is liable to be deleted.

15. The learned Departmental Representative, on the other hand, supported the order of the assessing officer and submitted that in the absence of any evidence, the assessing officer was justified in ignoring the claim of the assessee.

16. Having considered the rival submissions we find that the facts of this issue are identical to the issue of disallowance of cost of improvement dealt by us above wherein we have upheld the action of the assessing officer in ignoring the expenses in the absence of any evidence. Here also, in the absence of evidences, we hold that assessing officer was correct in rejecting the claim of the assessee. The department is not supposed to make spot enquiry even when the assessee fails to adduce any evidence in support of its claim. Accordingly, this addition also deserves to be sustained.

17. Ground No. 9 pertaining to charging of interest under section 234B and 234C are consequential and the assessing officer is directed to give consequential effect.

Other grounds are general in nature and need no independent adjudication, as the same are covered by our discussion on the three issues involved in this appeal.

18. In the result appeal is partly allowed.