ITAT CHANDIGARH BENCH ‘A’
Smt. Kuldip Kaur Chatha
Versus
Income-tax Officer, Ward 3(4), Chandigarh
IT Appeal No. 852 (Chd.) of 2010
[ASSESSMENT YEAR 2006-07]
JANUARY 29, 2013
ORDER
Ms. Sushma Chowla, Judicial Member
The appeal filed by the assessee is against the order of the Commissioner of Income-tax (Appeals), Chandigarh dated 29.03.2010 relating to assessment year 2006-07 against the order passed u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
2. The grounds of appeal raised by the assessee read as under:
“1. That the order of the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the addition of Rs. 38,73,010/- on account of long term capital gains denying the exemption claimed under section 54-F of the Act which is arbitrary & unjustified.
2. The Ld. Commissioner of Income Tax (Appeals) has further erred in upholding that the new asset for the purposes of section 54F of the Act was the investment made in the plot No.158 (New No.1198) in Sector 8, Chandigarh and not the Flat in Manimajra is against the factual position and as such the order is arbitrary and unjustified.
3. The Ld. Commissioner of Income Tax (Appeals) has further erred in not adjudicating grounds Nos.3 & 4 raised before her in respect of disallowance of expenses incurred on payment of stamp duty, commission, cost of improvement at Rs. 1,88,600/- which are allowable for computation of capital gains which is arbitrary & unjustified.”
3. The brief facts of the case are that during the year under consideration the assessee had sold land at village Garha, Jalandhar for total consideration of Rs. 15 lacs and had also sold land at village Chouma, Distt. Gurgaon for total consideration of Rs. 35 lacs. The capital gains arising on the sale of the asset was claimed as exempt on the ground that the assessee had made investment in purchase of two houses and also on account of investment in TDR with Vijaya Bank, capital gains account. The assessee had declared income from long term capital gains at nil. During the course of assessment proceedings, the Assessing Officer noted the assessee to have invested the sale proceeds in purchase of two separate houses on sale of two separate pieces of land. In addition, the amount invested in the capital gains account totaling Rs. 12,04,410/- was later on withdrawn and utilized in reconstruction of new asset. The Assessing Officer in view of the provisions of section 54F of the Act observed the assessee to have purchased another asset other than the new asset within one year from the transfer of the original asset and hence the assessee was not entitled to exemption under section 54 of the Act. The alternate claim of the assessee that the first house purchased by it was a plot of land and was not a house and the second asset purchased by it was new asset, was found false by the Assessing Officer and consequently the exemption claimed under section 54 of the Act was withdrawn. The Assessing Officer did not allow the benefit of indexed cost of improvement claimed at Rs. 1,88,600/- in the absence of the nature and details of improvement made and the year in which such improvement took place or any other evidence of the sources of the amounts spent by the assessee.
4. In appeal the CIT (Appeals) upheld the order of the Assessing Officer in respect of the denial of deduction under section 54F of the Act.
5. The assessee is in appeal against the order of the CIT (Appeals) and has pointed out that the first investment made by the assessee in purchase of house in Sector 8, Chandigarh was for the purchase of dilapidated asset which was brought down by the assessee and reconstructed in the later years. Consequently, the said investment in the purchase of the first asset i.e. house in Sector 8, Chandigarh could be ignored while computing deduction under section 54 of the Act. The learned A.R. for the assessee further pointed out that deduction under section 54F of the Act should be allowed in relation to the investment made by the assessee for purchase of flat in Manimajra. The learned A.R. for the assessee drew our attention to the computation of income filed before the Assessing Officer which is reproduced by the Assessing Officer at page 2 of the assessment order and also revised computation of income filed during the course of assessment proceedings, placed at page 20 of the assessment order. Further reliance was placed on the decision of Hon’ble Supreme Court in CIT v. K.R. Sadayappan [1990] 185 ITR 49. The learned A.R. for the assessee though fairly conceded that the said decision was in relation to claim of deduction under section 54 of the Act.
6. The learned D.R. for the Revenue placed reliance on the orders of the authorities below.
7. We have heard the rival contentions and perused the record. The assessee during the year under consideration had declared income from capital gains on sale of two different plots of land, one in Garha, Jalandhar for total consideration of Rs.15 lacs and second in village Chouma, Distt. Gurgaon for total consideration of Rs. 35 lacs. The income from long term capital gains was computed on sale of the said asset. The assessee against the said income from long term capital gains claimed exemption under section 54F of the Act being the benefit available for investment in purchase of new asset.
8. Section 54F(1) of the Act reads as under:
“54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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 (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:
[Provided that nothing contained in this sub-section shall apply where—
(a) the assessee,—
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.]
Explanation.—For the purposes of this section,—
“net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.”
9. Under the provisions of section 54F of the Act it is provided that where the assessee being an individual or a Hindu Undivided Family transfers any long term capital gains asset, not being a residential house, then the capital gains arising on such transfer can be set off against the purchase of a new asset. The assessee can within a period of one year before or two years after the date of the transfer took place purchased or within a period of three years constructed new residential house, then under such circumstances no capital gains would be charged to tax, where the cost of the new asset is not less than the net consideration in respect of the original asset. However, where the cost of the new asset is less than the net consideration in respect of the original asset sold, then proportionate deduction is allowable under section 54F of the Act. Certain restrictions are imposed in allowing such benefit under section 54F of the Act by the proviso to section 54F (1) of the Act. It is provided that where the assessee owns more than one residential house other than the new asset, on the date of sale of the original asset, then deduction is not allowable as per the proviso (a)(i); as per clause (ii) where the assessee purchases any residential house other than new asset within the period of one year after the date of transfer of the original asset or as per clause (iii) constructs any residential house other than the new asset, within the period of three years after the date of transfer of the original asset; and as per sub-section (b) the income from such residential house is chargeable under the head ‘income from house property’, then also no deduction is allowable under section 54F of the Act.
10. Now coming to the facts of the present case the assessee during the year under consideration had in the original return of income declared income from capital gains as under:
