Amarnath Sarala Vs ITO (ITAT Bangalore)
ITAT Bangalore held that for claiming exemption under section 54F of the Income Tax Act, the assessee is required to furnish necessary evidence proving construction of the residential building within the period as enumerated in section 54F of the Act. As assessee failed to produce the same, exemption u/s 54F not available.
Facts- The assessee has sold one property for Rs.18,00,000/- vide deed of registration dated 22.11.2013 and another property for Rs.18,00,000/- vide deed of registration dated 28.11.2013. Thus, total sale consideration from the sale of two plots received by the assessee was Rs.36,00,000/-. The assessee declared Long Term Capital Gains (LTCG) of Rs.29,76,006/- after claiming indexed cost of acquisition of Rs.3,23,994/- and brokerage of Rs.4,00,000/-. The assessee claimed exemption u/s 54F of the amount of capital gains. She entered into an agreement with Mr. Raju for the purchase of a residential house at # 262, 8th Phase, J.P. Nagar, Bangalore vide. Subsequently, this agreement was cancelled and the assessee purchased 2 plots of land on 07.10.2016 for a total consideration of Rs. 26,00,000/- @ Rs.13,00,000/- for each plot. As the assessee did not construct house on the said plot, the AO disallowed exemption claimed u/s 54F.
Conclusion- We are not in a position to hold that the assessee is entitled for deduction u/s. 54F of the Act. It is needless to say that when the assessee claims deduction u/s. 54F of the Act, it is incumbent upon the assessee to place necessary evidence in support of its claim. In the present case in spite of the Assessing Officer and the CIT(A) requiring the assessee to furnish necessary evidence for construction of the residential building within the period as enumerated in section 54F of the Act, the assessee failed to produce the same. Being so, when we examine the facts on record to see whether the assessee herein has actually constructed any residential house within the meaning, object and time laid down u/s. 54F of the Act, the material on record does not suggest any construction of the house in terms of section 54F of the Act. The onus lies on the assessee to prove by way of evidence to justify their claim for deduction. In this case, the onus was not discharged by the assessee herein in view of the fact that the assessee could not furnish the requisite evidence to prove the fact that there was any actual construction within the time stipulated in section 54F of the Act. The assessee has not placed any cogent evidence, so that it can be inferred that actually there was construction of residential building out of the sale proceeds of the sale of land and also not placed evidence for the purchase of any materials relating to construction of residential building. Merely producing a copy of permission from Gram Panchayat with regard to construction permission that itself cannot discharge the assessee from proving actual construction.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by assessee is directed against order of CIT(A) dated 31.1.2019 for the assessment year 2014-15. The first ground for our consideration in ground Nos.1.1 to 1.4 are as follows:
“1. Addition on account of difference in sale consideration and guidance
1.1 That the learned CIT(A) was not justified in adopting the fair market value of Rs.2,34,63,205/- under section 50C of the Income tax Act, without considering the objection of the assessee with regard to fair market value of the property sold by the Assessee during the relevant A.Y. 2014-15, based on the report of the DVO as well as against the presumptive value of the capital asset as per Sec. 50C of the Act..
1.2 The learned CIT(A) has failed to consider the Assesses CBDT approved valuer’s report., wherein he adopted the Land & Building method of valuation being the most appropriate method of valuation and determined the FMV of the property at Rs.1,25,30,606/- by considering the factors like type of property, transactions, & specific situation of the property etc,.
1.3 The Hon’ble Madras High Court, in the case of MA. Jagannathan Sailaja China v. The Income Tax officer, T.C.A. NoJ42 of 2019, Dated 15,02.2019 dealing with similar question held that ‘A bare reading of Scheme of Sec. 50C of the Act would show that Assessee can object to presumptive value as per Sec.50C (1) and, therefore, it is only after hearing the objections of the Assessee, the Fair Market Value of the Capital Asset as per * Guidance Value” can be determined by the authorities. The Assessee cannot be denied an opportunity to raise his objections even against the presumptive Fair Market Value under Sec, 50C (1) of the Act or Report of DVO under Section 50C (2) of the Act and the Assessing Authority or the Appellate Authorites, whose powers are co-extensive with those of the Assessing Authority, cannot refuse to meet those objections point by point’.
1.4 The Hon’ble Delhi High Court, in the case of CIT v. Khoobsurat Resorts (P) Ltd., (2012) 28 taxman.com 93dealing with a similar question held that the provisions of Sec, 50C of the Act only enable the Revenue to adopt the Guidance Value declared by the State for payment of stamp duty, as the Fair Market Value under section 48 of the Act. But that Guidance Value cannot, ipso facto, be taken as the valuation for the purposes of computing Capital Gain Tax liability in the hands of the assessee/seller. Sub Sec. 2 of Section 50C of the Act itself provides for reference to DVO if the assessee objects to invoking of Sec. 50C (1) of the Act’.
2. Facts of the case are that during the F.Y. 2013-14 corresponding to the A.Y. 2014-15 the assessee sold a property (l/4th share) bearing No.18/2, PID No.60-106-18/2 with super built up area of 2005 Sq. Ft. in the Third Floor, 10th Main D Road, 4th block, Jayanagar, Bengaluru-560011 dated 13.11.2013 for a consideration of Rs.1,55,00,000/-. The AO found that at the time of registration of the property guidance value of Rs.2,66,50,000/-was adopted and stamp duty at 1%, which came to Rs.2,66,500/-was paid. The AO proposed to apply the provision of Sec 50C of the Act and wanted to adopt the total value of the property at Rs.2,66,50,000/- thereby enhancing the sale proceeds by Rs.1,11,50,000/- for the purpose of computation of capital gains. As the assessee’s share in the property was 25% the proposed enhancement in the sale proceeds was Rs.27,87,500/-. The assessee argued before the AO that the sub-registrar has valued the property at a higher rate because the place has been named as 10th D Main in the Government notification whereas in reality the property is situated on the cross road and not in the Main. He also contended that the property has been sold in piecemeal and not as a whole stock which has considerable impact on the value of the property. However, the AO was not convinced and he applied the provision of Sec 50C and adopted the sale consideration at Rs.66,62,500/- as against the claim of the assessee at Rs.38,75,OOO/-. Accordingly, he computed short term capital gains at Rs.52,51,376/- and added to the total income of the assessee.
3. Before the ld. CIT(A), assessee requested him to refer the matter to DVO. Accordingly, ld. CIT(A) directed the AO to refer the matter to the DVO. The AO referred the matter to the DVO and he forwarded the valuation report on 3.9.2018, wherein the value was estimated at Rs.2,84,63,205/- as against the declared value of Rs.1.55 lakhs. After considering the valuation report, ld. CIT(A) observed that the objections raised by the assessee were raised before the valuation officer also and he has taken into account those objections and has disposed of the same by a speaking order. The ld. CIT(A) has gone through the valuation report dated 03.09.2018 wherein the valuation officer has discussed in detail the objections raised by the assessee and the ground on which the objections had been dismissed. The valuation officer has estimated the value of the property in question at Rs.2,34,63,205/- as against the value declared by the assessee at Rs.1,55,00,000/- after making detailed enquiry and taking into account all the relevant factors. The assessee has not brought any evidence to prove that the report of the valuation officer has a fallacy and that it cannot be relied upon. Therefore, the objection of the assessee to the report of the valuation officer was rejected by the ld. CIT(A). However, the ld. CIT(A) observed that the value to be adopted at Rs.2,34,63,205/- in the place of Rs.26,65,000/- as adopted by AO on the basis of DVO report. Against this assessee is in appeal before us.
4. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the co-owner’s case Amarnath Sarla in ITA No.673/Bang/2019 dated 21.6.2022 wherein held as under:
“7. We have heard the rival submissions and perused the materials available on record. In this case, assessee has filed the valuation report from the registered valuer before Ld. CIT(A) and the fact has been noted by the Ld. CIT(A) in his order. However, no credence has been given to it. As per the registered valuer report given by A.S. Anil Kumar dated 23.8.2018, the value has been determined by him as Rs.1,25,30,606/- as against the value adopted by the DVO at Rs.2,34,63,205/-. However, the assessee declared the value at Rs.1.55 crores in sale deed. However, the AO considered the guideline value adopted for registration as sale consideration to determine the capital gain. There is a substantial difference between the value adopted for registration and valuation made by different valuers. The argument of the Ld. D.R. is that the assessee has not furnished copy of registered valuer report to AO at the time of assessment and only at the time of first appellate proceedings, he has produced it. Hence, no credence has been given. In our opinion, an appropriate opportunity ought to have been given to the assessee to reconcile the value mentioned by DVO and registered valuer and also with regard to the method of valuation followed by the different valuers. It is also submitted by Ld. A.R. that DVO has considered the value of certain property, which was not in the impugned sale deed which has to be excluded while determining the FMV of the impugned property. We also direct the authorities to bring more comparable cases for deciding the issue. With this observation, we remit the entire issue to the file of AO for reconsideration in the light of above.”
4.1 In view of the above order of the Tribunal, we remit this issue also to the file of AO for similar directions. These grounds of assessee’s appeal are partly allowed for statistical purposes.
5. Now we take up Ground Nos.2 to 2.3 for adjudication, which are as follows:
2. Disallowance of deduction u/s 54F amounting to Rs.32,76,006/-
2.1 That the learned CIT(A) has failed to consider the fact that claim of the assessee regarding investment made in purchase of the site of Rs.36,00,000/- even if the assessee finally could not construct the new house within the time period specified under section 54F once the assessee has invested the sale proceeds of existing asset for the purposes of construction of new house the deduction u/s,54F cannot be denied.
2.2 That the Hon’ble High Court of Karnataka in the case of CIT v. Mrs. Shakuntala Devi (2016) 389ITR 366/75 taxmann.com 222 (Kar.) has held that’ the condition precedent for claiming benefit under said provision is that the capital gains realized from sale of a capital asset should be reinvested with in purchasing a residential house or utilised for constructing a residential house. If it is established that consideration so received on transfer of the asset has been invested in either purchasing a residential house or spent on construction of a residential house, an assessee would be entitled to the benefit U/S.54F of the Act irrespective of the fact that transaction not being complete in all respects.
2.3 In the case of CIT v, Smt B.S. Shantakumarl (2015) 233 Taxmann 347/60 taxmann.com 74 (Kar.) it was held that if the assessee has invested money in constructing the residential house, merely because the construction was not complete in all respect or such building is yet to be completed fully or the building not being in fit condition for being occupied, would by itself riot be ground for the assessee to be denied the benefit under Section 54F of the Act.
5.1 Facts of the case are that the assessee has sold one property for Rs.18,00,000/- vide deed of registration dated 22.11.2013 and another property for Rs.18,00,000/- vide deed of registration dated 28.11.2013. Thus total sale consideration from the sale of two plots received by the assessee was Rs.36,00,000/-. The assessee declared Long Term Capital Gains (LTCG) of Rs.29,76,006/- after claiming indexed cost of acquisition of Rs.3,23,994/- and brokerage of Rs.4,00,000/-. The assessee claimed exemption u/s 54F of the amount of capital gains. She entered into an agreement with Mr. Raju for the purchase of a residential house at # 262, 8th Phase, J.P. Nagar, Bangalore vide. Subsequently, this agreement was cancelled and the assessee purchased 2 plots of land on 07.10.2016 for a total consideration of Rs. 26,00,000/- @ Rs.13,00,000/- for each plot. As the assessee did not construct house on the said plot, the AO disallowed exemption claimed u/s 54F. During the appeal proceedings the ld. AR furnished a certificate from a Chartered Engineer giving the completion status of the house as on 10.12.2017 showing the following expenses:
