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Landmark Judgement : Construction of new residential building without approval of Municipal Council and capital gain exemption
Where it was not in dispute that one capital asset was sold and thereafter, new house was constructed and the fact was verified by Inspector, denying of deduction under section 54F, simply because bills and vouchers were not produced by assessee, was not permitted.
Assessee sold the agricultural land and utilized the sale consideration for construction of new house. He claimed deduction under section 54F, but the same was denied on the ground that bills and vouchers were not produced by assessee, though it was admitted that Inspector had verified the place and reported that construction of house took place.
It is held that, It was not in dispute that one capital asset was sold and thereafter, new house was constructed. Further, it was agreed that Inspector had visited the site and had reported that residential house was constructed consisting of 6 RCC rooms on the ground floor. Thus, without negating the report and without conducting any specific enquiry to demonstrate that the construction of new house was from any other source other than net consideration received from sale of land, denial of deduction was not within the ambit of welfare legislation which was embedded in taxing statutes. Hence, AO was not justified in denying deduction to assessee.
Decision: In assessee’s favour.
Referred: Pr. CIT v. C. Gopalaswamy (2017) 384 ITR 307 (Kar.): 2016 TaxPub (DT) 2902 (Karn-HC), CIT v. K. Ramachandra Rao 2015 TaxPub (DT) 1933 (Karn-HC).
IN THE ITAT, PUNE ‘B’ BENCH
R.S. SYAL, V.P. & PARTHA SARATHI CHAUDHURY, J.M.
Govind Gangadhar Sabane v. ITO
IT Appeal No. 1654 (Pun.) of 2016
18 December, 2018
Appellant by: P.B. Sandbhor and S.N. Doshi
Respondent by: Anil Chaware
Partha Sarathi Chaudhury, J.M.
This appeal preferred by the assessee emanates from the order of the learned Commissioner (Appeals)-1, Aurangabad dated 8-3-2016 as per the grounds of appeal on record.
2. This appeal was filed with the delay of 60 days. The learned AR has filed sworn in affidavit wherein the reasons for delay is explained and submitted that the delay is not intentional and therefore, prayed that the delay of 60 days be condoned. Learned DR did not seriously object to the prayer of condonation. On the issue of condonation of delay of appeal, we have gone through the sworn in affidavit filed by assessee and heard the learned DR. After considering the reasons stated in the affidavit we are of the view that the delay in filing the appeal has been satisfactorily explained. In view of these facts, delay in filing the appeal is condoned and appeal is admitted for hearing.
3. On perusal of the grounds of appeal, it is observed that the assessee has raised both, the legal grounds as well as ground on merits. However, at the time of hearing, the legal grounds raised by assessee were ‘not pressed’. Hence, they are dismissed as ‘not pressed’.
4. The ground on merits pertains to the allowability of deduction under section 54F of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The facts on the grounds on merits are that on the basis of AIR information, the assessing officer noted that late Shri Gangadhar Govindrao Sabne had sold the agricultural land for Rs. 18,70,000. The stamp duty valuation of this property was made by the Sub-Registrar at Rs. 61,17,000. Thereafter, Shri Gangadhar Govindrao Sabne died on 24-8-2010. The assessment hearing was attended by Legal Heir namely, Govind Gangadhar Sabne and explained transactions relating to the sale of land. The Legal Heir furnished various documentary evidences viz. copy of sale deed, computation of income, and completion certificate of the Consulting Engineer, i.e., Shri Ganesh Subash Tiwadi certifying the estimated sale value of the property at Rs. 18,13,500. The exemption was also claimed under section 54F for the new house constructed by the assessee. The completion certificate from Consulting Engineer has also been filed. The assessing officer deputed his inspector to verify the construction of the residential house. The inspector reported that residential house has been constructed consisting of 6 RCC rooms on the ground floor. However, the assessing officer adopted the full value of sale consideration at Rs. 61,70,000 as against actual sale consideration of Rs. 18,70,000 by invoking the provisions of section 50C of the Act. The assessing officer did not allow claim of exemption on the ground that though completion certificate was by the Government registered contractor and consulting engineer, the completion certificate from municipal council had not been produced. The assessing officer, accordingly, computed long-term capital gain at Rs. 57,04,400.
5. The arguments before the First Appellate Authority by assessee was that the entire sale consideration that has been received has been utilized for the construction of the house and that Inspector of the Department has examined and verified the place and have submitted the concerned report. Therefore, deduction in accordance with section 54F of the Act which is net consideration received and used for construction of the residential house that should be allowed, whereas, the assessing officer has resorted to section 50C of the Act which is for the purpose of section 48 and not for section 54F of the Act. The learned Commissioner (Appeals) did not allow the deduction claimed under section 54F of the Act on the ground that bills and vouchers were not produced though admitting in his order that Inspector had verified the place and has reported that the construction of house has taken place and also for all other various reasons as appearing in the Commissioner (Appeals) order which is already on record. That being further aggrieved, the assessee is in appeal before us.
6. The learned AR reiterated the submissions made before the sub-ordinate Authorities and vehemently stated that entire net consideration received has been utilized for construction of the house which have been verified by Revenue Authorities through inspection by the Inspector. Once the net consideration has been spent for acquiring new capital asset then the assessee is eligible for deduction under section 54F of the Act. The learned AR has placed reliance on the following decisions :–
(i) Pr. CIT v. C. Gopalaswamy (2016) 384 ITR 307 (Kar.) : 2016 TaxPub(DT) 2902 (Karn-HC)
(ii) CIT v. K. Ramachandra Rao (2017) 230 Taxman 334 (Kar.) : 2015 TaxPub(DT) 1933 (Karn-HC)
7. Per contra, learned DR has placed reliance on the orders of Authorities below and supported the action of assessing officer in resorting to section 50C of the Act.
8. We have perused the case record and heard the rival contentions. We find that there is no dispute to the fact that one capital asset was sold and thereafter, new house was constructed. That both the Revenue Authorities in their respective orders have agreed that the Inspector had visited the site and has reported that residential house has been constructed consisting of 6 RCC rooms on the ground floor. That without negating this report, Revenue Authorities have simply rejected the claim of deduction under section 54F of the Act so far as the assessee is concerned. Moreover, neither assessing officer nor Commissioner (Appeals) has conducted any specific enquiry to demonstrate that the construction of the new house was from any other source other than the net consideration received from sale of land. The Commissioner (Appeals) denied the deduction under section 54F of the Act simply because bills and vouchers were not produced. But the factual parameters of existence of new residential house was not denied by the Commissioner (Appeals). Nor he has shown the fund utilized for such construction was from other sources. In absence of these specific enquiry and not granting deduction under section 54F of the Act to the assessee, is not permitted within the ambit of welfare legislation which is embedded in the taxing statutes. We take guidance from the judicial pronouncements in C. Gopalaswamy (supra.) where the Hon’ble Karnataka High Court opined that “where assessee invested money in construction of a residential house, deduction under section 54F of the Act cannot be denied merely because construction was not complete in all respect within stipulated time”. Similarly in the case of K. Ramachandra Rao (supra.), the Hon’ble Karnataka High Court held “where assessee invested entire sale consideration in construction of a residential house within three years from date of transfer of land, deduction under section 54F of the Act cannot be denied just because he did not deposit the said amount in capital gains account scheme”.
In view of the above facts, we allow the appeal of the assessee setting aside the order of Commissioner (Appeals).
9. In the result, appeal of the assessee is partly allowed.