• Oct
  • 08
  • 2013

Deduction U/s. 54F allowable even if construction is not complete if Assessee invests the amount within stipulated time

Provision contained u/s 54F being a beneficial provision has to be construed liberally.

In various judicial precedents as also in the decision cited before us by the learned AR, it has been held that the condition precedent for claiming benefit u/s 54F is the capital gain realized from the sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house.

If the assessee has invested the money in construction of residential house merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated that would not disentitle the assessee from claiming the benefit u/s 54F of the Act.

Once the assessee demonstrates that the consideration received on transfer has been invested either purchasing a residential house or in constructing a residential house even though the transactions are not complete in all respects and as required under the law that would not disentitle the assessee from availing benefit u/s 54F of the Act.

Even investment made in purchasing a plot of land for the purpose of construction of a residential house has been held to be an investment satisfying the conditions of section 54F of the Act. Though there cannot be any dispute with regard to the above said proposition of law, the assessee is required to prove the actual date of investment and the amount invested towards purchase/construction of the residential house with supporting evidence.

Since the primary facts relating to which date should be reckoned as the actual date of investment and which is the actual amount of investment have not been properly brought on record, we are inclined to remit the matter back to the file of the Assessing   Officer who shall determine the issue with regard to assessee’s claim u/s 54F of the Act afresh after considering all the facts and materials available before him.

The Assessing Officer shall afford a reasonable opportunity of being heard to the assessee and shall pass the order after considering all material facts and evidences that may be produced by the assessee and also taking note of the decisions that may be relied upon by the assessee. With aforesaid directions, we set aside the order of the CIT(A) and restore the matter to the file of the Assessing Officer. The ground raised by the assessee is allowed for statistical purposes.

INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH ‘B’, HYDERABAD

BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER

AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER

ITA No. 234/Hvd/12
Asst. Year 2008-09

Narasimha Raju Rudra Raju,

V/s.

Asst. Commissioner of Income‑ tax

Date of   Hearing :    07-03-2013

Date of Pronouncement  : 26-04-2013.

ORDER

Per Saktiiit Dev, Judicial Member:

This appeal filed by the assessee is directed against the order dated 24-11-2011 of CIT(A)-III, Hyderabad passed in appeal No.0164/CIT(A)-III/10-11 pertaining to the assessment year 2008-09.

2.     The assessee has filed the appeal on the following grounds of appeal:

1. The order of the learned CIT( A) is erroneous both on facts and in law.

2. The learned CIT(A) erred in confirming the action of the Assessing Officer in rejecting the claim for deduction u/s 54F of the IT Act. The learned CIT(A) ought to have seen that the appellant utilized the entire capital gain for the purpose of acquisition of the property as contemplated u/s 54F of the IT Act.”

3. Briefly the facts relating to issue in dispute are the assessee an individual filed his return of income for the assessment year under consideration on 3 1/03/2010 declaring total income of Rs. 10,45,299/-. The return was initially processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny assessment. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had sold certain property on 29/10/2007 to one Smt. Vakkalanka Padmasree. After deducting the cost of acquisition at Rs. 19,75,886/-, the assessee had computed the capital gains at Rs. 58,90,114/- and had claimed exemption u/s 54F of the Act. On being asked by the Assessing Officer to furnish the details of investment made for claiming exemption u/s 54F, the assessee had submitted hat he had made payment of Rs. 64 lakhs to one M/s Dhatri Constructions in March 2008. He further submitted that M/s Dhatri Constructions had transferred that amount to one M/s Fima Properties Ltd., Hyderbad and the said M/s Fima Properties had concluded agreement of sale on 18/01/10, vide a registered document, in respect of property admeasuring 2528 sq.ft. at Flat No. 1203, on 3rd floor of Fima Hilltop in sy.No. 129/77, situated at shaikpet Village and Mandal, Hyderabad for a sale consideration of Rs. 40 lakhs plus registration charges of Rs. 3,20,100/-.
4. After considering the submissions of the assessee, the Assessing Officer referring to the provisions of section 54F of the Act, noted that in the instant case the assessee did not fulfill the condition for allowance of exemption under that section. He further noted that the assessee had not purchased the house property by making such payment to Dhatri Constructions and the assessee had also not stated as to which property he intended to purchase form Dhatri Constructions. Further, the Assessing Officer noted that the assessee had entered into agreement of sale vide document No. 190/2010 dated 18/01/10 with M/s Fima Constructions, Hyderabad, as per which, the total sale consideration was Rs. 40 lakhs plus registration charges of Rs. 3,20,100/-. He further noted that as per clause 34 at page 13 of the said agreement of sale, the construction has not commenced on the date of said agreement and that the same would be completed within a period of 36 months from the date of agreement, with a grace period of 6 months. With the said observations and stating that the period of 3 years from the date of sale of that property made on 29/10/2007, expired on 29/10/10, by which date the assessee had neither purchased any residential house nor has completed construction of any residential house as stipulated in section 54F of the Act, the Assessing Officer held that the assessee is not eligible for deduction u/s 54F Act. Accordingly, the entire amount of Rs. 58,90,114/- computed by the assessee was taxed under the head long term capital gains.
5. Aggrieved, the assessee carried the matter in appeal before the CIT(A) challenging the denial of deduction u/s 54F of the Act.
6. Before the CIT(A), the AR of the assessee filed written submissions wherein it was stated that the assessee had entered in to an agreement with Dhatri Constructions Pvt. Ltd. on 19/03/2009 for sale of an undivided land and also entered into a construction agreement on the same day. It was further stated that the entire amount was paid and the sale deed was executed on 18/01/10. Therefore, it was submitted that the assessee is entitled for deduction u/s 54F of the Act. It was contended that the Assessing Officer was not justified in rejecting the  claim  of the assessee for such deduction. Along with written submissions, the AR of the assessee also submitted Xerox copy of an agreement of sale stated to be executed on 19/03/2008 between Dhatri Constructions and the assessee, Xerox copy of construction agreement stated to be executed on 19/03/2008 between the assessee and that company and Xerox copy of sale deed dated 18/01/10 executed between several persons represented by M/s Fima Properties Pvt. Ltd., as their development agreement cum General Power of Attorney holder, and the assessee, shown as purchaser, for purchase of undivided share of land 92.7 sq.yds., flat No. 1203 on 3rd floor in residential building known as ‘Fima Hilltop, Block “B”, Tower No. 12, for a lumpsum consideration of Rs. 40 lakhs.

7.  After considering the submissions of the assessee, the CIT(A)  observed that the assessee had not clarified the factual position with reference to various observations made by the Assessing Officer in the assessment order and only made reference had been made to certain agreements. He further observed that  the Assessee had not explained as to how the assessee had acquired a new residential house within the stipulated period, from the date of sale of that property, for allowance of deduction u/s 54F of the Act and, in fact, the assessee had not refuted the findings given by the AO in this regard. The CIT(A) held that assessee had purchased the residential Flat No. 1203 in Fima Hilltop   Building, for a consideration of Rs.40   lakh, in   respect of which he had claimed deduction u/s 54F of the Act. He  further held that however since the said flat, which was purchased by the assessee vide sale deed executed on 18/01/10, was under construction on that date and it was stipulated in that deed that possession of that premises shall be given within a period of 36 months, which shows that the assessee had neither purchased nor constructed any new residential house within the stipulated period, as mentioned in section 54F of the Act, he, therefore, confirmed the action of the Assessing Officer in disallowing the assessee’s claim u/s 54F of the Act.

8. Still aggrieved, the assessee is in appeal before us.
9. The learned AR submitted before us that the assessee has invested an amount of Rs. 64.00 lakhs towards purchase of a plot and construction of a residential house over that plot. In this connection, he referred to two separate agreements entered with M/s Dhatri Constructions Pvt. Ltd. on 19/03/2008. The learned AR submitted that the assessee having invested the aforesaid amount within the stipulated period u/s 54F of the Act, he is entitled for exemption u/s 54F of the Act. It was further submitted by the learned AR that the assessee finally purchased a flat vide registered sale deed dated 18/01/2010. He further submitted that the provision contained u/s 54F being a beneficial provision for promoting the construction of residential house it has to be construed liberally. It was further submitted that once the assessee makes investment towards purchase or construction of a residential house exemption u/s 54F cannot be denied on the ground that it has not been constructed within the stipulated period. In support of such contention, the learned AR relied upon a judgment dated 12/02/2012 of the Hon’ble Karnataka High Court in the case of CIT V/s. Sri Sambandam Udaykumar in IT Appeal No. 175 of 2012. Specifically referring to para 11 of the said     judgment, the learned AR submitted that the condition precedent for claiming benefit under section 54F is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making entire payment merely because a registered sale deed has not been executed and registered in favour of the assessee before the stipulated period the assessee cannot be denied the benefit of section 54F of the Act. Taking a cue from the aforesaid judgment, it was further submitted that once the assessee demonstrates that the consideration received on transfer has been invested either in purchase of a residential house or in construction of a residential house, even though the transactions are not complete in all respects and as required under the law that would not disentitle the assessee from the said benefit.
10. The learned Departmental Representative, on the other hand, submitted that the assessee has entered into a registered sale deed on 18/01/2010, which further reveals the fact that the construction of the flat would be completed within a period of 36 months from the date of execution of sale deed. It was further submitted that though the assessee claimed to have invested an amount of Rs. 64 lakhs towards purchase of the property but the registered sale deed reflects a sale consideration of Rs. 40.00 lakhs plus registration charges of Rs. 3,20,100/-. The learned Departmental Representative submitted that as the construction of the property has not been made within the stipulated period the assessee is not entitled for the benefit u/s 54F of the Act.
11. We have heard the contentions of the parties and perused the materials on record. It is not in dispute that the assessee on 29/10/2007 has sold a property and declared a capital gain of Rs. 58,90,114/-. However, the assessee claimed exemption u/s 54F by stating that he has invested an amount of Rs. 64 lakhs towards purchase of land and construction of house property by virtue of agreement entered into with M/s Dhatri Construction Pvt. Ltd. on 19/03/2008. Perusal of the agreement of sale dated 19/03/2008 between the assessee and M/s Dhatri Constructions Pvt. Ltd. reveals that the assessee has paid an amount of Rs. 52 lakhs to M/s Dhatri Constructions Pvt. Ltd. towards sale consideration of plot No. 40, in Survey No. 18/P, admeasuring 279.55 sq.yards with built up area of 2500 to 2700 sft. situated at Bandlaguda village, Rajendra Nagar Mandal and Municipality, RR Dt.  Clause (1) of the agreement of sale states that the aforesaid   sale consideration    of Rs. 52 lakhs comprises of Rs. 7 lakhs towards plot and  the balance amount of Rs. 45 lakhs towards   the construction of the house. Clause (2) of the agreement reveals that the entire amount of Rs. 52 lakhs waspaid by   the assessee to M/s Dhatri Constructions Pvt. Ltd. through cheque bearing Nos. 118744, 118748, 118749, dated 08/01/2008, 13/03/2008, 14/03/2008 drawn on SBH, Banjara Hills, Hyderabad. On the very same day i.e. on 19/03/2008, the assessee entered into another agreement with M/s Dhatri Constructions Pvt. Ltd. for construction of a residential house over the said plot for a total consideration of Rs. 45 lakhs. However, as it appears, this agreement ultimately were not acted upon and the assessee  on 18/01/2010 entered into another agreement of sale with M/s Fima Properties Pvt. Ltd. and M/s Dhatri Constructions Pvt. Ltd. for purchase of flat admeasuring 2528 sft. in Block B Tower 12 in Fima Hilltop Project in survey No. 129/77 TS No. 26, Ward No. 12, Syed Nagar, Fast Lancer,Shaikpet Village, Hyderabad as described in the 2nd Schedule of the agreement of sale.Part B of the aforesaid 2nd Schedule further reveals that the total consideration for sale of the aforesaid flat is Rs. 1,15,35,000/- out of which the assessee having already paid Rs. 64 lakhs to M/s Dhatri Constructions Pvt. Ltd. agreed to pay the balance of Rs. 51,35,000/- in the name of M/s Dhatri Constructions Pvt. Ltd. On the very same day i.e. on 18/01/2010 a registered sale deed was executed between the assessee and with 7 other persons being represented by their development agreement-cum-general power of attorney holder M/s Fima Properties Pvt. Ltd. for purchase of undivided share of land 92.7 sq.yds., flat No. 1203 on 3rd floor in the residential complex Fima Hilltop at Survey No. 129/77, TS No. 26, Ward No. 12, Syed Nagar, Fast Lancer, Shaikpet Village, Hyderabad for a lumpsum consideration of Rs. 40 lakhs. The aforesaid documents reveal the fact that the property for which initial investment of Rs. 64 lakhs was made with M/s Dhatri Constructions Pvt. Ltd. is not the same which the assessee finally purchased vide registered sale deed dated 18/01/2010 i.e. the property being Flat No. 1203 in the residential complex, Fima Hilltop. Furthermore, though the assessee claimed that he has paid an amount of Rs. 64 lakhs to M/s Dhatri Constructions Pvt. Ltd. while claiming exemption u/s 54F whereas Part B of the 2nd schedule of the agreement of sale dated 18/01/2010 between the assessee and M/s Fima Properties Pvt. Ltd. speaks of the total consideration of Rs. 1,15,35,000/-. The registered sale deed however has been executed for a total consideration of Rs. 40 lakhs. These discrepancies with regard to the exact amount of investment made by the assessee towards purchase/construction of property has not at all been reconciled by the assessee before the revenue authorities. Further, the assessee is also required to explain why and under what circumstances the agreement executed with M/s Dhatri Constructions Pvt. Ltd. on 19/03/2008 was not acted upon and M/s Dhatri Constructions Pvt. Ltd., as claimed by the assessee transferred the amount of Rs. 64 lakhs to Fima Properties Ltd., Hyderabad. It is seen from the order of the CIT(A), though, he has accepted the fact that the assessee has executed a registered sale deed for purchase of residential flat no. 1203 in Fima Hilltop building for a consideration of Rs. 40 lakhs but since the flat was under construction on the date of execution of sale deed wherein it was further stipulated that the possession of that premises can be given within a period of 36 months, he held that it cannot be construed that the assessee has purchased or constructed the residential house within the stipulated period as mentioned in section 54F of the IT Act. We agree with the contention of the learned AR that provision contained u/s 54F being a beneficial provision has to be construed liberally. In various judicial precedents as also in the decision cited before us by the learned AR, it has been held that the condition precedent for claiming benefit u/s 54F is the capital gain realized from the sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If the assessee has invested the money in construction of residential house merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated that would not disentitle the assessee from claiming the benefit u/s 54F of the Act. Once the assessee demonstrates that the consideration received on transfer has been invested either purchasing a residential house or in constructing a residential house even though the transactions are not complete in all respects and as required under the law that would not disentitle the assessee from availing benefit u/s 54F of the Act. Even investment made in purchasing a plot of land for the purpose of construction of a residential house has been held to be an investment satisfying the conditions of section 54F of the Act. Though there cannot be any dispute with regard to the above said proposition of law, the assessee is required to prove the actual date of investment and the amount invested towards purchase/construction of the residential house with supporting evidence. Since the primary facts relating to which date should be reckoned as the actual date of investment and which is the actual amount of investment have not been properly brought on record, we are inclined to remit the matter back to the file of the Assessing   Officer who shall determine the issue with regard to assessee’s claim u/s 54F of the Act afresh after considering all the facts and materials available before him. The Assessing Officer shall afford a reasonable opportunity of being heard to the assessee and shall pass the order after considering all material facts and evidences that may be produced by the assessee and also taking note of the decisions that may be relied upon by the assessee. With aforesaid directions, we set aside the order of the CIT(A) and restore the matter to the file of the Assessing Officer. The ground raised by the assessee is allowed for statistical purposes.

12. In the result, appeal of the assessee is allowed for statistical purposes.

Order pronounced in the court on 26th April, 2013.


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