The issue under consideration is whether the additional claim (section 54 exemption Claim) will be allowed to be presented in front of appellate authorities?
ITAT states that, the Assessing Officer has been barred from accepting any new claims, but no such bar has been imposed on the appellate authorities, including the first appellate authority. The assessee is in second round of the litigation and claim of the assessee for deduction under section 54 of the Act has not been decided properly and its evidence of investment or booking has not been examined in perspective of the relevant CBDT circulars and judicial decisions. The CBDT in Circular No. 672 dated 16/12/1993 has clarified that in terms of a scheme of the allotment and construction of the flat/house by the co-operative societies or the other institution are similar to those mentioned in para 2 of CBDT circular No. 471/Dated 15/10/1986 and thus such case may be treated as the construction of the flat for the purpose of section 54 and 54F of the Act. Accordingly, matter was remanded back to AO for examination afresh with direction to assessee to produce all documentary evidences before AO at the earliest.
FULL TEXT OF THE ITAT ORDER /JUDGEMENT
The assessee has preferred this appeal against the order dated 24/12/2018 passed by the Ld. Commissioner of Income-tax (Appeals), Faridabad [in short ‘the Ld. CIT(A)’] for assessment year 2011-12, raising following grounds of appeal:
1. Under the facts and circumstances of the case, the Ld. Assessing Authority and Ld. First Appellate Authority have grossly erred in not allowing the claim of exemption in terms of section 54 amounting to Rs. 5,99,244/-of the Act in respect of Long term capital gain arising on sale of residential flat at Varsova (Mumbai) against the purchase of new residential property made during the year, which is grossly injudicious, unwarranted against the facts and bad at law.
Tax Effect relating to above mentioned ground of appeal is Rs. 93,057/-.
2. Under the facts and circumstances of the case, the Ld. Assessing Authority and Ld. First Appellate Authority have grossly erred in holding that no ground has been raised by the assessee regarding claim of exemption u/s 54 at any stage during appellate proceedings, which is grossly arbitrary, injudicious and against the facts of the case.
3. Under the facts and circumstances of the case, the Ld. Assessing Authority and Ld. First Appellate Authority has not accepted the contention of the assessee that she is entitled for exemption for long term capital gain which is grossly arbitrary, unwarranted and against the facts of the case.
4. The Ld. Assessing Authority and Ld. First Appellate Authority have grossly erred in disallowing the cost of construction of flat amounting to Rs. 14,60,083/- as claimed by the assessee based on the valuation report of registered valuer which is grossly injudicious, arbitrary and bad at law.
Tax Effect relating to above mentioned ground of appeal is Rs. 3,59,056/-.
2. Briefly stated facts of the case are that the assessee along with other two co-owners owned an ancestral property at Versowa, Mumbai and on 05/03/2009 all the co-owners entered into a development agreement with M/s J. V. Construction and Developers for construction of a multi-storey tower (building), which was named as “Ratan Kunj”. As per the terms of the development agreement, the assessee along with other co-owners i.e. Saurabh Jain and Mrs. Usharani, out of the flats constructed in the multi-storey building, got one residential flat on second floor against consideration of share of their land. The Ld. CIT(A) has mentioned that the developer was to undertake the entire construction work of the tower at his expense and the developer was entitled to get entire first and fifth floor as his share. The assessee with other co-owners had not incurred any expenses towards construction of the multi-storey tower (building).
2.1 On 02/07/2010, the assessee along with other co-owners sold the residential flat at Second floor, Tower A, Ratan Kunj, Versova for a consideration of 4.2 crores.
2.2 In the return of income filed, the assessee has shown income under the head long-term capital gain and short-term capital gain on account of the sale of one third share in the residential flat sold along with other co-owners. The assessee has bifurcated the sale consideration into two components. One component is of ₹ 1,02,57,406/- towards sale consideration for the land and ₹ 16,42,594/- towards sale consideration for the constructed part. The assessee also claimed deduction against long-term capital gain of ₹ 21 lakh i.e. the amount which was retained by the buyer due to house tax dispute. The Learned Assessing Officer did not allow the deduction of Rs. 21 lakh while computing the long-term capital gain. He also did not allow the cost of the construction of the flat against short-term capital gain on the ground that no such cost was incurred by the assessee. The claim of the assessee for deduction under section 54 of the Act was also denied on the ground that no such claim was made in the return of income and the assessee already owned residential house at the time of the investment in the residential house claimed for deduction under section 54 of the Act. On further appeal, the Ld. CIT(A) dismissed the claim under section 54 of the Act on the ground that assessee had not raised any ground of the appeal or additional ground before him and assessee also failed to lead any evidence regarding expenses made for construction of the second floor, which has been sold by the assessee along with other co-owners. On further appeal, Income Tax Appellate Tribunal (in short ‘the Tribunal’), on the issue of exemption under section 54, directed the learned CIT(A) to consider the additional ground raised by the assessee after going through the evidences which would be produced by the assessee. On the issue of the cost of the construction of the flat against short-term capital gain, the Tribunal directed to decide the issue afresh keeping in view the assessment order passed in the case of other co-owner Sh. Saurab Jain.
2.3 The Ld. CIT(A) in the impugned order, regarding deduction under section 54 of the Act held that no claim was filed by the assessee before the Commissioner (Appeals) in first round of the proceedings. The CIT(A) has merely dismissed the claim on the ground that conveyance deed in respect of the new flat was executed after approximately seven years from the date of the sale of the residential flat on second floor and thus assessee was not entitled for deduction under section 54 of the Act. The claim of the cost of construction claimed under short term capital gain has also been denied holding that the Assessing Officer in the case of Saurabh Jain has failed to appreciate the facts correctly and, therefore, same cannot help the case of the assessee.
3. Before us, the learned Counsel of the assessee appeared through videoconferencing and filed a paper-book containing pages 1 to 110. As regard to the issue of claim of deduction under section 54 of the Act is concerned, she submitted that the learned CIT(A) has not decided the issue properly and not considered the evidences regarding investment made for booking of the flat with BPTP, Faridabad on 16.03.2011. According to her, in view of the various CBDT circulars, the booking made for investment in flat is eligible for deduction under section 54 of the Act. She submitted that this issue might be restored back to the Learned CIT(A)/AO for deciding afresh. On the issue of the cost of the construction, she again submitted that under the development agreement, the developer has incurred the cost of construction, which has been allowed in the case of the other co-owner. She submitted that this issue may also be restored back to the learned CIT(A) or the AO for deciding afresh.
4. On the other hand, the Learned DR also appeared through videoconferencing and relied on the order of the lower authorities but did not object for restoring the matter back to the Assessing Officer for deciding afresh.
5. We have heard the rival submission of the parties and perused the relevant material on record. On perusal of the development agreement available on pages 39 to 58 of the paper-book, we find that the land in question was owned by many other co-owners other than the three co-owners i.e. the assessee, Sh Saurabh Jain and Usharani. The owners of the land had started work in the towers A and B, but work was stopped after second slab and thereafter, they entered into agreement with the developer for construction of the tower ‘A’ upto 9 floors. The developer agreed to complete the construction work of the said tower and was entitled for few floors of the tower. The development agreement has provided details of various floors which were assigned to the developer and owners of the land. The assessee along with other two co-owners were assigned second floor of the tower, which the assessee has sold along with the co-owners. The assessee has claimed event of taxability of the longterm capital gain and short-term capital gain only at the time of the sale of the flat on second floor. In the case, the assessee has received second floor of the tower in exchange of the sale of his share of the land and thus fair market value of the flat at the time of the receipt or possession by the assessee should have been considered as sale consideration received in transfer of land through exchange and long-term capital gain liabilities would have been decided accordingly. Any gain thereafter on sale of the second floor should have been taxed at the time of the sale of the second floor and taxed for the long-term capital gain nor short-term capital gain in view of the period the asset was held.
5.1 The question before us is of admissibility of the claim under section 54 of the Act. In our opinion, in the decision of the Hon’ble Supreme Court in the case of Goetze India Ltd Vs CIT (2006) 157 Taxmann 1 (SC), the Assessing Officer has been barred from accepting any new claims, but no such bar has been imposed on the appellate authorities, including the first appellate authority. The assessee is in second round of the litigation and claim of the assessee for deduction under section 54 of the Act has not been decided properly and its evidence of investment or booking has not been examined in perspective of the relevant CBDT circulars and judicial decisions. The CBDT in Circular No. 672 dated 16/12/1993 has clarified that in terms of a scheme of the allotment and construction of the flat/house by the co-operative societies or the other institution are similar to those mentioned in para 2 of CBDT circular No. 471/Dated 15/10/1986 and thus such case may be treated as the construction of the flat for the purpose of section 54 and 54F of the Act. The Tribunal in the case of Ayushi Patni (supra) after following the decision of the Hon’ble Bombay High Court in the case of CIT Vs Smt. Beena Jain, 217 ITR 363, treated the date of the taking possession as the date of the purchase of the flat and allowed benefit of section 54F of the Act, observing as under:
“6. We have heard the submissions made by rival sides and have perused the orders of authorities below. We have also perused the decisions on which the ld. A.R. has placed reliance. The solitary issue raised in the present appeals by the assessee and Revenue is:
Whether the assessee is eligible for claiming exemption u/s 54F in respect of residential flat / house for which the assessee has entered into an agreement for purchase more than one year before the date of transfer of capital asset ?
The dates qua, transfer of capital asset, execution of agreement for purchase of residential flat and possession of the flat are not in dispute.
7. The contention of the assessee is that since final consideration was paid and the possession of flat was received within a period of one year prior to the date of transfer of capital asset, the same should be considered as the date of purchase. Whereas, the stand of Department is that the date of execution of agreement for purchase of flat should be considered as the date of purchase.
8. The ld. A.R. has drawn our attention to Clause (12) of the deed of agreement between the assessee and the builder for purchase of flat. The said clause is reproduced herein below :
“12. Nothing contained in this Agreement shall be construed to as to confer upon the Purchaser any right whatsoever into or over the said property or the said new building or any part thereof including the said premises on execution of this agreement. It is agreed by and between the parties that conferment of title in respect of the said premises shall take place in favour of the Purchasers only on the Purchaser’s making full payment of consideration to the Developers and complying with the terms and conditions of this Agreement and on the Purchaser being admitted as a member of the said society as herein provided.”
The aforesaid clause makes it unambiguously evident that the assessee has no right whatsoever in the property on mere execution of agreement. The assessee shall be conferred title of property only on making full payment of consideration to the builder. In the instant case, full consideration has been paid by the assessee for purchase of residential flat within a period of one year before the date ITA Nos.1424 & 1707/PUN/2016 of transfer of capital asset. Thereafter, actual possession of the flat was delivered to assessee on 17.09.2010 i.e., within a period of one year prior to the date of transfer of capital asset. It is an un-rebutted fact that at the time of execution of agreement, the residential property was not in existence. Therefore, taking into consideration facts of the case, the date of possession of flat is the date of actual purchase for the purpose of claiming exemption u/s 54F of the Act.
9. We find that similar issue had come up before the Hon’ble Bombay High Court in the case of CIT Vs. Smt. Beena K. Jain (supra). The Hon’ble High Court in the appeal by Department, upholding the order of Tribunal and allowed the benefit of exemption u/s 54F to the assessee. The substantial question for consideration before the Hon’ble High Court was :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing exemption of Rs.11,04,423/-under section 54F of the Income Tax Act, 1961, considering the date of possession of the new residential premises instead of the date of sale agreement and the date of registration ?”
The Hon’ble High Court decided the issue in favour of the assessee by answering the question as under :
“2. Under section 54F of the Income-tax Act, in the case of an assessee if any capital gain arises from the transfer of any long- term capital asset, not being a residential house, and the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased a residential house, the capital gain shall be dealt with as provided in that section. As per the section certain exemption has to be allowed in respect of the capital gains to be calculated as set out therein. The Department contends that the assessee did not purchase the residential house either one year prior to or two years after the sale of the capital asset which resulted in the long-term capital gains. According to the Department, the agreement for purchase of the new flat was entered into more than one year prior to the sale. Hence, petitioner is not entitled to the benefit under section 54F. In our view, the Tribunal has rightly negatived this contention and has held that the new residential house had been purchased by the assessee within two years after the sale of the capital asset which resulted in long-term capital gains. The Tribunal has held that the relevant date in this connection is July 29, 1988, when the petitioner paid the full consideration amount on the flat becoming ready for occupation and obtained possession of the flat. This has been taken by the Tribunal as the date of purchase. The Tribunal has looked at the substance of the transaction and come to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by payment of full consideration on July 29, 1988, and handing over of possession of the flat on the next day.”
10. The Mumbai Bench of the Tribunal in the case of Bastimal K. Jain Vs. ITO (supra) under similar set of facts had allowed the benefit of exemption u/s 54 to the assessee by following the ratio laid down in the case of CIT Vs. Smt. Beena K. Jain (supra).
11. Thus, in view of undisputed facts of the case and the decision rendered in the case of CIT Vs. Smt. Beena K. Jain (supra), we hold that the assessee is eligible for claiming exemption u/s 54F on the entire amount of capital gain utilized for purchase of residential property. Consequently, the appeal of the assessee is allowed and the appeal of Revenue is dismissed.”
5.2 Both the parties before us have agreed that all the issues involved in the appeal need to be examined afresh by the Assessing Officer in accordance with law, after verification of documentary evidences available with the assessee. It shall be duty of the assessee to produce all the documentary evidence before the Assessing Officer at the earliest. Accordingly, we feel it appropriate to restore the entire assessment to the file of the Assessing Officer with the direction for fresh assessment de-novo. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. All the grounds raised by the assessee are accordingly allowed for the statistical purposes.
6. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 21st July, 2020.