Even if an assessee acquires a new house on credit i.e. the payment for which may be made in future, the assessee cannot be denied the benefit of deduction u/s 54 because what is required by sub-clause (i) is that cost of new house should be equal to or more than the amount of long term capital gain.
IN THE ITAT DELHI BENCH ‘C’
Gopal Saran Darbari
Income-tax Officer, Ward 11 (1), New Delhi
AND L.P. SAHU, ACCOUNTANT MEMBER
IT APPEAL NOS. 1248 & 1249 (DELHI) OF 2013
[ASSESSMENT YEARS 2007-08 & 2008-09]
OCTOBER 25, 2016
Amit Goel and Saurabh Goel,CAs for the Appellant. Amrit Lal, Sr. DR for the Respondent.
H.S. Sidhu, Judicial Member – The Assessee has filed these two Appeals against the separate Orders dated 22.1.2013 and 10.1.2013 of the Ld. CIT(A)-XIII, New Delhi pertaining to assessment years 2007-08 & 2008-09 respectively. Since the issues involved in these appeals are common, therefore, the same are being consolidated by this common order for the sake of convenience.
2. The following grounds raised in ITA No. 1248/Del/2013 (AY 2007-08):—
1. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming action of the AO of making addition of Rs. 9,01,349/- by reducing claim of deduction / exemption u/s. 54 of the Income Tax Act, 1961.
The appellant craves leave to add, alter, modify or delete one or more ground of appeal before or at the time of hearing of appeal.
3. The following grounds raised in ITA No. 1249/Del/2013 (AY 2008-09):—
|1.||On the facts and circumstances of the case and in law, the CIT(A) erred in confirming action of the AO of making addition of Rs. 1,42,1000/- as alleged capital gain.|
|2.||On the facts and circumstances of the case and in law, the CIT(A) erred in deciding the appeal exparte.|
|The appellant craves leave to add, alter, modify or delete one or more ground of appeal before or at the time of hearing of appeal.|
4. The brief facts of the case are that the return of income was filed on 16.11.2007 declaring total income at Rs. 4,81,560/-. The return was processed u/s 143(1) of the IT Act and case was selected for scrutiny. The assessee is a Director of M/s Effectron Luminex Ltd. Holding 47.9% equity. In this case order u/s 250(6) of the IT Act was passed by the CIT(Appeal) on 24.11.2011. The appeal of the assessee was dismissed on the ground of late filing of appeal and on account of non compliance. Against the said order, the assessee filed an appeal before ITAT, the ITAT vide its order dated 27.4.2012 passed in ITA 745/DEL/2012 set aside the order of CIT(Appeal) and restored the issue before CIT(Appeal) for re-adjudication after providing an opportunity of being heard. Accordingly, opportunity of being heard to the assessee has been provided on 18.12.2012 and 22.01.2013. During the course of appellate proceedings it was noticed by the Assessing Officer that assessee has claimed deduction U/S 54 in respect of an amount of Rs. 51,27,000/- during the year i.e. an amount of Rs.15,27,000/- was claimed to have been paid to the builder M/s Ajay Enterprises for booking of a Flat and Rs. 35,00,000/- was deposited in capital gain account scheme 1988. On examination of the receipts issued by Ajay Enterprises Ltd. it was noticed that appellant has booked two flats namely A-907 and C-408. It was also observed that appellant has paid Rs. 5,77,0000/- for Flat No. A-907 and Rs. 9,50,000/- for Flat No.C-408. This fact was admitted by the assessee in its reply dated 07.12.2009 and admitted that amount of Rs.9,50,000/- invested in C-408 was wrongly considered u/s 54 of the IT Act. Therefore, in the assessment order the Assessing Officer worked out the capital gain after indexation at Rs.49,78,349/-and allowed deduction for the amount deposited of Rs. 35,00,000/- in capital gain account scheme and investment in Flat No. A-907 of Rs. 5,77,000/- and the balance amount of Rs. 9,01,349/- claimed u/s. 54 was added back as income of the assessee as this amount was paid for booking of second flat C-408 and assessment was completed at Rs. 13,91,750/- vide AO’s order dated 21.12.2009 passed u/s. 143(3) of the I.T. Act, 1961.
5. Against the Order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 22.1.2013 has dismissed the appeal of the assessee.
6. Aggrieved with the aforesaid order of the Ld. CIT(A), Assessee is in appeal before the Tribunal.
7. Ld. Counsel for the assessee has stated that during the year the assessee has made payment of Rs. 15,27,000/- to the builder namely Ajay Enterprises Pvt. Ltd. from whom the ‘new house’ was purchased. Out of this amount of Rs. 15,27,000/- the builder has appropriated Rs. 9,50,000/- towards another Flat No. C-408 booked by the assessee with the builder. He stated that it should not be reason for making disallowance. The assessee has invested a total sum of Rs. 61,74,683/- in the eligible new house (A-907) upto 4.12.2008 i.e. well within the period specified under section 54 of the Income Tax Act, 1961. The assessee being an old man of around 76 years could not keep track of the adjustment made by the builder. However, the made the substantive compliance of section 54 by making the required investment in the new house within the period specified u/.s 54 of the I.T. Act, 1961. In support of his contention, he filed the copies of the following decisions wherein the similar issue has been dealt with and decided in favour of the assessee.
|–||ITO v. Smt. Sapana Dimri  50 SOT 96 (Delhi)|
|–||CIT v. Ms.Jagriti Aggarwal  339 ITR 610 (Punj. & Har.)|
|–||Kishore H. Galaiya v. ITO  137 ITD 229 (Mum.)|
|–||CIT v. Rajesh Kumar Jalan  286 ITR 274 (Gau.)|
|–||K.S. Ramchandran v. ITO [IT Appeal No. 941 (Mds.) of 2011]|
In view of the above, he requested that following the above precedents, the appeal of the assessee may be allowed.
8. On the contrary, Ld. DR relied upon the orders passed by the authorities below and stated that the lower authorities have passed well reasoned order which does not need any interference on our part, therefore, the appeal of the assessee may be dismissed.
9. We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities and the case laws cited by the assessee’s counsel. We note that the assessee is an individual aged about 76 years. During the year under consideration, the assessee has earned long term capital gain of Rs. 4978349/- on sale of residential flat No. A-30, Mandakini Enclave, New Delhi. The appellant claimed deduction u/s 54 for amount of Rs. 5227000/- (Rs.36 Lacs for amount deposited in capital gain account scheme and Rs. 1527000/- for payment made for purchase of New House prior to the due date of filing of return of income. Since the investment new house (including the deposit in capital gain was computed at Rs. NIL. The assessing officer has however reduce the deduction by Rs. 901349/- on the ground that:-
|(a)||Amount deposited in capital gain account was Rs. 35 Lacs and not Rs.36 lacs.|
|(b)||That the amount of Rs. 1527000/- claimed as investment in new house includes Rs. 950000/- in respect of other house other than the “new house”.|
9.1-2 During the year the assessee has made payment of Rs.1527000/- to the builder namely Ajay Enterprises Pvt. Ltd from whom the “new house” was purchased. Out of this amount of Rs. 1527000/- the builder has appropriated Rs. 950000/- toward another flat No. C-408 booked by the assessee with the builder. It should not be reason for making disallowance/addition. The fact of the matter is that the assessee has invested a total sum of Rs. 6174683/- in the eligible new house (A-907) upto 04/12/2008 i.e. well within the period specified under section 54 of Income Tax Act, 1961. The assessee being an old man of around 76 years could not keep track of the adjustment made by the builder. However, he made the substantive compliance of section 54 by making the required investment in the new house within the period specified u/s 54 of Income Tax Act, 1961. For the sake of clarity, we are reproducing the provisions of Section 54 as under:—
‘(1)] [Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (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, then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,
|(i)||if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or|
|(ii)||if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.|
(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 scheme 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 utilized 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.’|
9.3 A bare reading of aforesaid provisions would reveal that for giving exemption, the legislature has required that the cost of new asset should be equal to or more than the capital gain. The main sub-clause (i) providing for the exemption does not require that the whole payment for purchase of new asset should be made. In other words even if an assessee acquires a new house on credit i.e. the payment for which may be made in future, the assessee cannot be denied the benefit of deduction u/s 54 because what is required by sub-clause (i) is that cost of new house should be equal to or more than the amount of long term capital gain.
9.4 We find that in the case of J.V. Krishan rao v. Dy. CIT  54 SOT 44 (ITAT – Hyderabad), the ITAT Held that all that is required to be eligible for relief u/s 54F of the Act is compliance with the condition of investment within the specified time and deduction u/s 54F cannot be denied even if the deposit in capital gain account was out of borrowed fund and not out of capital gain. It was held that money has no color and all i.e. required is that investment be made in new house within the specified time.
9.5 In the case of K.S. Ramachandran (supra), the ITAT held that deduction u/s 54 was allowable even in a case where the amount of capital gain was not deposited in capital gain account but the amounts was utilized for the purchase of new house within the period specified u/s 54 even though the amount was invested after the due date of filing of return u/s 139(4) but before the period of 2/3 years as specified in section 54.
9.6 The requirement to invest in a bank account under the capital gain account scheme is a procedural requirement to ensure that investment is made in a residential house as claimed in the return of income. Merely because of technical breach / non-compliance the benefit due to the assessee by the legislature cannot be denied particularly when there is substantive compliance made. Section 54 is a beneficial section and as held by Hon’ble Apex Court in the case of Bajaj Tempo Ltd. v. CIT  196 ITR 188, the provisions of a beneficial section should be construed liberally.
9.7 The Hon’ble Supreme Court in CIT Vs Gwalior Rayon Silk Manufacturing Co. Ltd.  196 ITR 149 observed as under:—
“The Contextual meaning has to be ascertained and given effect to A Provision for deduction, exemption or relief should be construed reasonable and in favour of the assessee.”
9.8 We further note that assessee has not surrendered or offered the amount of Rs. 9,50,000/- for addition. Before the AO assessee has stated that the amount of Rs. 9.50 Lacs be not considered as investment u/s 54. Even without considering this amount of Rs.9.50 Lacs, the actual investment by the assessee in purchase of eligible new house within the specified period of 3 years was more than the amount of long term capital gain.
9.9 The Delhi Bench of ITAT in case of Smt. Sapana Dimri (supra) in para 10 of its order held as under :—
“Now, coming to second issue, the Hon’ble Punjab & Haryana High Court in the case of Ms. Jagriti Aggarwal (supra) has held that sub-sec. (4) of sec. 139 provides the extension period of limitation as an exception to sub-sec.(1) of sec. 139 of the Act. Sub-sec. (4) was in relation to the time allowed to an assessee under sub-sec. (1) to file the return. Therefore, such provision was not an independent provision, but relates to the time contemplated under sub-sec. (1) of sec. 139. Therefore, sub-sec. (4) has to be read along with sub-sec.). Therefore, the due date for furnishing the return of income under sec. 139) of the Act was subject to extended period provided under sec. 139(4) Of the Act. Similar view was taken by Hon’ble Guwahati High Court in the case of Rajesh Kumar Jalan (supra). During the course of hearing the learned Sr. DR could not cite a contrary decision to what has been held by the Hon’ble Guwahati High Court and Hon’ble Punjab & Haryana High Court. Respectfully following the decision of Hon’ble Punjab & Haryana High Court it is held that since the assessee had invested in the new property within the time allowed under sec. 139(4) of the Act the assessee will be entitled for exemption under sec. 54 of the Act to the extent the amount invested in the new property. Accordingly, we do not find any infirmity in the order of the CIT(A) allowing relief in respect of both the issues.”
9.10 In the headnote of judgement in case of Jagriti Aggarwal (supra) the Hon’ble High Court has observed as under :—
“Section 54, read with section 139, of the Income-tax Act. 1961 – Capital gains – Profits on sale of property used for residence – Assessment year 2006-07 – Assessee sold her house property on 13-1-2006 while filed her return on 28-3-2007 claiming deduction under section 54 on ground that she had purchased another property jointly on 2-1-2007 for higher sum – Assessing Officer declined said claim -One of grounds was that assessee had failed to purchase house property before due date of filing return of income under section 139(1), i.e. prior to 31-7-2006 – According to assessee, due date of filing return of income in her case was not as specified in section 139(1) but as specified in section 139(4) i.e., 31-7-2007 – Whether due date for furnishing return of income as per section 139(1) is subject to extended period provided under sub-section (4) of section 139 and, if a person had not furnished return of previous year within time allowed under sub-section (1), assessee could file return under sub-section (4) before expiry of one year from end of relevant assessment year -Held, yes – Whether, therefore, section 54 deduction could not be denied to assessee on this count – Held, yes [in favour of assessee]”
9.11 The Hon’ble Mumbai Bench of IT AT in case of Kishore H. Galaiva (supra) in para 6.4 of the order held as under:—
“6.4 The assessee has also made a point that the due date of filing of the return of income u/s 139(1) for the purpose of utilization of the amount for purchase/construction of residential house has to be construed with respect to the due date prescribed for filing of the return u/s 139(4) of the Act. The point made by the assessee is supported by the judgment of the Hon’ble Punj and Haryana High Court in the case of Ms. Jagriti Aggarwal (supra).In this case, the Hon’ble High Court observed that section 139(4) provides the extended period of limitation as an exception to the period provided u/s 139(1). Therefore, the Hon’ble High Court held that the provision of section 139(4) is not an independent provision but is related to the time contemplated under the provisions of section 139(1) of the Act. Accordingly, the Hon’ble High Court held that sub-section (4) to section 139 had to be read alongwith sub-section (1) and the due date for furnishing the return of income u/s 139(1) is subject to the extended period provided ills 139(4) and hence the extended period u/s 139(4) has to be considered for the purposes of utilization of the capital gain amount. In that case, the assessee had sold the old flat on 13.1.2006 and the new residential house was purchased by the assessee on 2.1.2007 which was within the extended time limit till 31.3.2007 u/s 139(4) for assessment year 2006-07 and therefore the claim was allowed even though the amount had not been deposited in the capital gain account. The said judgment has been followed by the Delhi Bench of the Tribunal in the case of Jagtar Singh Chawla v. ACIT [IT Appeal No.4923/Delhi/201O (AY- 2007-08), order dated 30.6.2011], in which case the Tribunal held that since the assessee had invested the whole amount by 23.4.2008 which was within the extended period of filing the return of income u/s 139(4) till 31.3.2009 and therefore, the assessee was entitled to claim exemption u/s 54(F). In the present case, the capital gain earned by the assessee was Rs.9,98,411/- and the assessee had utilized a sum of Rs. 13.50 lakhs towards the construction of residential house by 5.7.2007 which was within the extended period of filing of the return u/s 139(4) till 31.3.2008 for the assessment year 2006-07. The assessee had thus utilized the amount which was more than capital gain earned towards construction of new residential house within extended period u/s 139 (4) and therefore the there was no default in not depositing the amount under the capital gain account scheme. Therefore, the claim made by assessee cannot be denied following the judgments cited (supra).”
9.12 In the head note of judgment in the case of Raiesh Kumar Jalan (supra) the Hon’ble Court has observed as under:—
“Section 54 of the Income-tax Act, 1961 – Capital gains – Profit on sale of property used for residential purpose – Assessment year 1996-97 – Assessee sold his residential property on 21-12-1995 and earned capital gain – Subsequently, in May, 1996, he purchased residential property – Assessing Officer rejected assessee’s claim of exemption under section 54 on ground that assessee had not complied with provisions of section 54(2) by not depositing unappropriated amount of capital gain in Capital Gains Deposit Scheme, 1988 within stipulated time of furnishing return of income-tax under section 139(1) – Assessee’s case was that since return for assessment year 1996-97 could be furnished before expiry of one year from end of relevant assessment year or before completion of assessment, whichever is earlier, under sub-section (4) of section 139, he could fulfill requirement under section 54 for exemption of capital gain from being charged to income-tax on sale of property used for residence up to 30-3- 1998 – Whether assessee was entitled to claim benefit under section 54 on entire amount of capital gains – Held, yes”
10. In the background of the aforesaid discussions and respectfully following the precedents, as aforesaid, we delete the addition of Rs. 9,01,349/- and allow the exemption u/s. 54 of the I.T. Act, 1961 as claimed by the assessee.
11. As regards the ITA No. 1249/Del/2013 (AY 2008-09) is concerned. The brief facts of this case are that the return of income was filed on 19.02.2009 declaring total income at Rs. 4,41,740/-. The return was processed u/s 143(1) of the IT Act. The case was reopened u/s. 147 of the IT Act by recording reasons as per order sheet entry dated 21.05.2010 and notice u/s 148 was issued on the same date. During the course of assessment for A.Y. 2007-08 it was noticed by the Assessing Officer that assessee has claimed exemption u/s 54 in respect of two flats namely A-907 and C-408 with M/s Ajay Enterprises Ltd. The assessee had deposited a sum of Rs.35,00,000/- in capital gain scheme 1988. In the order passed u/s 143(3) dated 21.12.2009 for A.Y. 2007-08 exemption u/s 54 was disallowed on the amount invested in second flat C-408. During the F.Y. 2007-08, relevant to A.Y. 2008-09, the assessee on 18.12.2007 has paid a sum of Rs.14,21,000/-from the amount lying in capital gain scheme towards cost of Flat No. C-408. Since the assessee has already claimed exemption u/s 54 in respect of Flat No. A-907, therefore, exemption u/s 54 is not allowable in respect or. Flat No. C- 408. Hence, the amount of Rs.14,21,000/- which was withdrawn from capital gain account scheme is taxable in A.Y. 2008-09. It was observed by the Assessing Officer that amount of Rs.14,21,000/-was not offered by the assessee as taxable amount. Hence, the same was accordingly taxed in the hands of the assessee. In the assessment proceedings, the assessee has claimed that due to bona fide error the payment for Flat No. C-408 was made from capital gain account instead of saving account. He has also submitted that he has made fully and required investments in Flat No. A-907 which is eligible for deduction u/s 54 of the IT Act. He also claims that investment in A- 907 is much more than the amount required for deduction U/S 54 of the IT Act. The Assessing Officer has discussed the modus operandi adopted by the assessee for hiding this transaction and the appellant did not submit the required information as required. Therefore, the Assessing Officer had to resort to the provision of section 133(6) to unearth the truth. Since, the assessee has willfully and deliberately utilized the amount deposited under capital gain scheme 1988 for acquisition of two flats, thereby he has violated the provisions of capital gain scheme 1988. Hence, he was required to offer the amount of Rs.14,21,000/- in the A.Y. 2008-09. The Assessing Officer has taxed the amount of capital gain in the hands of the assessee in A.Y. 2008-09. Accordingly, the same was confirmed on merit by the Ld. CIT(A).
11.1 From the above, we have noted that for the Assessment year 2008-09, the AO has made the addition on the ground that the deduction u/s. 54 was not available. Since the deduction u/s. 54 was allowed by us in the assessment year 2007-08, as aforesaid, the addition for the assessment year 2008-09 is not sustainable in the eyes of law, therefore, the addition in dispute is deleted.
12. In the result, both the appeals of the Assessee are allowed.