Taxpayers Beneficial Judgment : No deposit made in capital gain account scheme but investment done within a period of three years

Short Overview  Since assessee had expended the amount well within period of 3 years from the date of sale of original asset, assessee was entitled to proportionate deduction under section 54F though the assessee had not deposited capital gains amount in the Capital Gains Account Scheme within the prescribed time.

Assessee claimed deduction section 54F on acquisition of a residential property. AO denied the said claim on the ground that assessee had not deposited capital gains amount in the Capital Gains Account Scheme before the date of furnishing return of income.

It is held that  Assessee had expended the amount well within period of 3 years from the date of sale of original asset. Therefore, following the case of K. Ramachandra Rao (2015) 277 CTR (Kar) 522 : 2015 TaxPub(DT) 1933 (Karn-HC) though the assessee had not deposited capital gains amount in the capital gains account scheme within the prescribed time, since the impugned expenditure was incurred within a period of 3 years from the date of sale of original asset, the assessee was entitled to proportionate deduction under section 54F.

Decision: Partly in assessee’s favour.

Followed: K. Ramachandra Rao (2015) 277 CTR (Kar) 522 : 2015 TaxPub(DT) 1933 (Karn-HC)

IN THE ITAT, BANGALORE BENCH

GEORGE GEORGE K., J.M. & B.R. BASKARAN, A.M.

Sri Haider Noman Kohrakiwala v. Asstt. CIT

ITA No. 2367/Bang/2019

13 October, 2020

Appellant by: V. Srinivasan, AR

Respondent by: Manjeet Singh, DR

George George K., J.M.

This appeal at the instance of the assessee is directed against Commissioner (Appeals)’s Order, dated 30-8-2019. The relevant assessment year is 2015-16.

2. The grounds raised read as follows :–

“1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned Commissioner (Appeals) is not justified in upholding the disallowance of Rs. 15,41,827 in respect of the claim made under section 54F of the Act on the ground that the appellant has not invested the sale proceeds in the capital gains account scheme as required under section 54F of the Act, under the facts and circumstances of the appellant’s case.

3. The learned Commissioner (Appeals) ought to have appreciated that the appellant had incurred expenditure on registration of the sale deed of Rs. 4,33,200 on 5-7-2017 and a further sum of Rs. 8,00,000 on 9-8-2017 for furnishing the new apartment with wardrobes, kitchenette etc., which amount aggregating to Rs. 12,33,200 was spent within a period of 3 years from the date of transfer of the original asset, i.e., 14-8-2014 and hence, the same ought to have been considered for purpose of working out the deduction under section 54F of the Act in pace of the balance estimated sum of Rs. 16,00,000 claimed by the appellant in the return of income under the facts and in the circumstances of the appellant’s case.

4. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies himself liable to be charged to interest under section 234A, 234B and 234C of the Act, which under the facts and in the circumstances of the appellant’s case and the levy deserves to be cancelled.

5. For the above and other grounds that may be urged at the time hearing of the appeal, your appellant humbly prays that the appeal may be awarded costs in proceeding the appeal and also order for the refund of the institution fees as part of the cost.”

3. Briefly stated the facts of the case are as follows: Assessee is an individual. He sold his vacant site on 14-8-2014 for Rs. 1.60 Crores. In the return of income filed on 17-11-2015, the assessee admitted total income of Rs. 75,88,070. Assessee had claimed deduction under section 54F of the Income Tax Act, 1961 amounting to Rs. 90,58,232 on acquisition of a residential property. The investment was made in two stages (1) Rs. 78 lakhs on 27-9-2014 and (2) estimated investment of Rs. 16 lakhs which was subsequently reduced to Rs. 12,33,200 towards registration expenses and for doing kitchenette and wardrobe to rooms, etc. The payment made towards expenditure of Rs. 12,33,000 were incurred in July 2017, i.e., after a period of two years from the date of sale of vacant site.

4. The assessing officer in the Assessment Order completed under section 143(3) of the Act (Order, dated 20-11-2017) had restricted the claim of deduction under section 54 of the Act to Rs. 75,16,405 proportionately on Rs. 78 lakhs. The assessing officer ignored the expenditure incurred in July, 2017 of Rs. 12,33,200 for the following two reasons :–

“(i) Even if the assessee’s claim was to be admitted the expenditure should have been incurred on or before 14-8-2016 (with in a period of 1 year before or two years after the date on which the transfer takes place) in present case the said expenditure is incurred only in July-August, 2017 when the proceeding was under way and ….

(ii) The said expenditure cannot be admitted under section 54F considering it as the cost of construction of the house as the amount was not deposited in capital gains account scheme before the date of furnishing Return of Income under section 139 of the Act.”

5. Aggrieved by the Assessment order in restricting the claim of deduction under section 54F of the Act, the assessee preferred an appeal before the first appellate authority. The Commissioner (Appeals) confirmed the view taken by the assessing officer. The relevant finding of the Commissioner (Appeals) reads as follows :–

“4. During the course of appellate proceedings the A.R. of the appellant has put forth arguments that the sale proceeds were not deposited in capital gains scheme was only a technical lapse, as the amount was invested in acquiring the residential house the same is eligible for deduction under section 54F. I have considered the submissions made and also the Assessment Order passed by the assessing officer carefully. The assessing officer has reproduced the provisions of section 54F in his order and given a finding that the deduction under section 54 is allowed to the extent of Rs. 75,16,405, and remaining amount of Rs. 15,41,827 was added back to the total income under the head Capital Gains, on the premise that all the conditions mentioned in the section 54F of the Act, for claiming the deduction were not fulfilled. I have noticed that, the assessing officer has worked out the deduction proportionately and allowed to the extent of Rs. 75,16,405 and in the absence of documentary evidences for having incurred expenditure further the balance amount of Rs. 15,41,827 was added back. I do not find any infirmity in the findings given by the assessing officer and therefore no interference is needed. The grounds of appeal are therefore not allowed.”

6. Aggrieved by the order of Commissioner (Appeals), the assessee preferred an appeal before the Tribunal. The assessee has filed a Paper Book of 78 pages inter alia, enclosing therein computation of total income, sale deed dated 14-8-2018, written submissions before the Commissioner (Appeals), judicial pronouncements relied on, copies of the receipt for payment of Rs. 8 lakhs to M/s. Mas Furniture, evidences relating to payment of stamp duty for registration, etc. The learned A.R. took us through the written submissions submitted before the Commissioner (Appeals) and contended that none of the contentions raised before Commissioner (Appeals) were considered and he had merely affirmed the order of the assessing officer. It was submitted assessing officer was not right in his observation that assessee had purchased an apartment and not constructed the apartment, hence due date was 2 years (i.e., 14-8-2016) and not 3 years from the date of sale of original asset. The learned A.R. submitted booking of a flat with a builder is a case of construction and not purchase of residential flat and therefore time limit period of 3 years is application. In this context, learned A.R. relied on judgment of the Hon’ble Delhi High Court in the case of Smt. Bindra Kumar, (2002) 253 ITR 343 (Del) : 2002 TaxPub(DT) 0154 (Del-HC). In so far as the second observation of the learned assessing officer that the assessee has not deposited capital gains amount in capital gains accounts scheme before the date of furnishing of the return under section 139 of the Act, it was submitted that assessee has expended the entire consideration of Rs. 12,33,200 within the period of 3 years from the date of sale of vacant site which has given rise to capital gain taxation.

In this context, the learned A.R. relied on the judgment of the Hon’ble jurisdictional High Court in the case of Fathima Bai v. ITO (ITA No. 435 of 2004 judgment dated 17-10-2008) : 2010 TaxPub(DT) 0227 (Karn-HC) and CIT & Anr. v. K. Raachandra Rao (2015) 277 CTR (Kar) 522 : 2015 TaxPub(DT) 1933 (Karn-HC).

7. Learned D.R. strongly supported the orders passed by the Income Tax Authorities.

8. We have heard the rival submissions and perused the materials on record. The assessing officer had held that assessee had purchased an apartment and not constructed the apartment.

Hence, the due date was 2 years (i.e., 14-8-2016) and not 3 years from the date of sale of original asset (Vacant site). Assessee had produced copy of agreement to sale at pages 48 to 61 of the paper book filed. The assessee had entered into a composite agreement with the builder to purchase the undivided share of land and for construction of a residential apartment. The assessee was the original owner of the apartment. The agreement to sell between the assessee and the builder has taken place much prior to completion of the construction of the residential unit. In such circumstances, various judicial pronouncements have held it a case of construction of an apartment and not a case of purchase of apartment. Hence, it was held that the time period of 3 years is applicable. The Mumbai Tribunal in the case of Mr. Kishore H Galaiya v. ITO in ITA No. 7326/Mum/2010 (Order, dated 13-6-2012) : 2012 TaxPub(DT) 2549 (Mum-Trib) has held that booking of a flat with the builder is a case of construction and not purchase of residential flat and therefore, the time period 3 years is applicable. The Delhi Tribunal in the case of CIT v. R.L. Sood (2000) 108 Taxman 227 (Del) : 2000 TaxPub(DT) 0875 (Del-HC) had held that a payment of substantial amount in terms of purchase agreement within 4 days of sale of his old house, assessee acquired substantial domain over the new residential flat within specified period. It was concluded by the Delhi Bench of the Tribunal that it could be said that assessee complied with the requirements of section 54 of the Act and merely because the builder failed to hand over the possession of flat within the specified period, assessee could not be denied the benefit of benevolent provisions of section 54 of the Act.

The Delhi High Court in the case of CIT v. Smt. Brinda Kumari (2002) 253 ITR 343 (Del) : 2002 TaxPub(DT) 0154 (Del-HC) have held that purchase of a house property in a Multistoried building by assessee was “construction of building”. In the light of above judicial pronouncements, the assessing officer is not correct in holding in the facts and circumstances of the case that assessee had purchased an apartment. On the contrary, it is a case of construction of an apartment when assessee had entered into a composite agreement with the builder to purchase the undivided interest in land and for construction of a residential apartment, therefore, a period of 3 years will have to be applicable and not 2 years as held by the assessing officer.

9. The other reasoning of the assessing officer not to grant deduction under section 54F of the Act in respect of a sum of Rs. 12,33,200 was that assessee did not deposit capital gains amount in the capital gains account scheme before the date of furnishing of return of income under section 139 of the Act. The Hon’ble Jurisdictional High Court in the case of CIT v. K. Ramachandra Rao (2015) 277 CTR (Kar) 522 : 2015 TaxPub(DT) 1933 (Karn-HC) has held that when assessee invest the entire sale consideration in construction of a residential house within the period stipulated under section 54F(1) of the Act, then section 54(4) of the Act is not attracted and therefore, the exemption under section 54F of the Act cannot be denied on the ground that he did not deposit the said amount in the capital gains account scheme before the prescribed due date. A similar view was held in the judgment of the Hon’ble Karnataka High Court in the case of Smt. Fatima Bai in ITA No. 435/Bang/2004 (Judgment, dated 17-10-2008) : 2010 TaxPub(DT) 0227 (Karn-HC). In the instant case, assessee had expended Rs. 12,33,200 in July, 2017, i.e., well within period of 3 years from the date of sale of original asset. Therefore, going by the dictum laid down by the Hon’ble jurisdictional High Court in the case of K. Ramachandra Rao (supra) though the assessee has not deposited capital gains amount in the capital gains account scheme within the prescribed time, since the impugned expenditure was incurred within a period of 3 years from the date of sale of original asset, the assessee was entitled to proportionate deduction under section 54F of the Act.

10. Assessee has produced proof of payment of Rs. 8 lakhs to M/s. Mas Furniture. The details of the evidence of payment of the same are enclosed at pages 46 & 47 of the paper book filed by the assessee. M/s. Mas Furniture had acknowledged the receipt of the amount and has stated that amount received from assessee was towards furnishing of apartment of the assessee in Sankalap Central Park. Similarly, evidence for payment of stamp duty (Rs. 4,33,200) have been furnished by the assessee in the paper book (pages 44 & 45). The stamp duty is part of the cost of the apartment and expenditure incurred for furnishing the apartment is a cost of improvement.

Moreover, the amount of Rs. 12,33,200 whether it has been incurred or not was never in doubt by the assessing officer. In light of the above reasoning and judicial pronouncements cited (supra), we hold that assessee is entitled to proportionate deduction under section 54F of the Act on Rs. 12,33,200. It is ordered accordingly.

11. In the result, the appeal filed by the assessee is allowed.