Case Law Details
Where assessee sold his agricultural land and deposited part of consideration with a builder for purchase of a plot on which no construction activity could be started within a period of 3 years because no plot was ever handed over to him, benefit of section 54F was not available to assessee – The main thrust of the section 54F is construction of a residential house; the Legislation in its wisdom has specifically provided the period of three years, it cannot be enlarged to indefinite period.
IN THE ITAT INDORE BENCH
Pankaj Wadhwani
V/s.
Commissioner of Income-tax-I, Indore
IT APPEAL NO. 58 (IND.) OF 2011
[ASSESSMENT YEAR 2006-07]
JANUARY 25, 2012
ORDER
Joginder Singh, Judicial Member – By way of this appeal, the assessee seeks to challenge the order of the learned CIT-I, Indore, dated 17.3.2011 on the ground that the learned CIT was not justified in holding that the order passed by the AO u/s 147/143(3) of the Act was erroneous and prejudicial to the interest of the revenue.
2. During hearing, we have heard Smt. Richa Parwal, learned counsel for the assessee and Shri Keshave Saxena, learned CIT DR. The crux of arguments on behalf of the assessee is that the ld. CIT passed order u/s 263 by holding that the deduction u/s 54F was wrongly allowed by the Assessing Officer. The original assessment was claimed to be framed u/s 147 r.w.s. 143(3) of the Act as the reason for reopening was the issue of capital gain. It was strongly contended that since the subject matter u/s 147 was capital gain and the ld. Assessing Officer extensively and exhaustively verified the calculation, that too with the help of supporting material and after due inquiry, therefore, the assessment order was claimed to be passed within the parameters of the law, that too, after due application of mind, therefore, invocation of revisional jurisdiction u/s 263 is against the provisions of the Act. Plea was also raised that the original order is neither erroneous nor prejudicial to the interest of the Revenue. It was also pointed out that failure to comply with the provisions of Section 54F would render its effect only after laps of three years and not at the stage of invoking revisional jurisdiction by the ld. CIT. A strong plea was raised that non-construction of the house was due to failure on the part of the coloniser to hand over the plot to the assessee.
3. On the other hand, the ld. CIT/DR strongly defended the invocation of revisional jurisdiction u/s 263 of the Act by the ld. CIT on the plea that till today, the house has not been constructed by the assessee and the prescribed limit of three years provided under the Act has already lapsed. It was strongly contended that the assessment order was very much prejudicial to the interest of the Revenue because it was framed without fulfilling the conditions provided u/s 54F of the Act for claiming exemption, therefore, the ld. CIT rightly invoked his revisional jurisdiction u/s 263 of the Act.
4. We have considered the rival submissions and perused the material available on file. The facts, in brief, are that the assessee declared income of Rs. 1,43,990/- in its return filed on 31.10.2006. It was noticed by the Assessing Officer, from the return of income, that the assessee sold an agricultural land for a sum of Rs. 5,40,000/- and claimed exemption u/s 54F from long term capital gain. As per the Assessing Officer, the long term capital gain which works out to Rs. 65,449/- should have been shown in the return of income instead of nil, therefore, he issued notice u/s 148 on 4.1.2008 to the assessee. The assessee, in response to the notice, filed return on 22.2.2008 declaring total income at Rs. 2,03,100/-. It is pertinent to mention here that after reopening the case u/s 147 of the Act, the assessee worked out the long term capital gain at Rs. 59,118/- and offered the same in the revised return filed on 22.2.2008. As per the Assessing Officer, if scrutiny notice would not have been issued to the assessee, the amount of capital gain would have escaped taxation, therefore, he also ordered for initiation for penalty proceedings u/s 271(1)(c) of the Act. Admittedly, as contained in para 2 of the assessment order, the details filed by the assessee were duly examined by the Assessing Officer. The main grievance of the assessee is that while invoking the revisional jurisdiction u/s 263 of the Act by the ld. CIT, the time limit of three years for claiming exemption u/s 54F was available to the assessee, therefore, ld. CIT exceeded its jurisdiction. On questioning from the Bench whether the assessee has started construction even today, it was clarified that no construction has yet started as the plot has not been handed over to the assessee by the builder/coloniser. Before coming to any conclusion, we are reproducing hereunder the relevant provisions of Section 54F of the Act:
54F. Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house—(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,-
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“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.
(2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.
(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred.
(4) The amount of the net consideration 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 by which-
(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds
(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in subsection (1) been the cost of the new asset,
shall be charged under section 45 as 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 the unutilised amount in accordance with the scheme aforesaid.
Explanation.-[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
5. If the aforesaid Section is analysed, it is clear that the exemption is subject to the provision of sub-section (4), meaning thereby, the amount of net consideration is to be appropriated towards the purchase of new asset within one year before the date on which the transfer of the original asset took place or if not utilised for the purchase or construction of the new asset before the date of furnishing the return of income u/s 139, it shall be deposited (unutilised portion) by the assessee, before furnishing such return, in any account or in capital gain account in the bank or institution as specified in any scheme by the Central Government, by notification in the official gazette and the proof of the such deposit in the capital gains tax account shall be accompanied while filing the return. As per sub-section (1) to Section 54F, the capital gain arises from transfer of any long term capital asset, the assessee has to invest the amount within a period of one year before such transfer or within two years after the date on which such transfer took place or within a period of three years for construction of a residential house (new asset) then the capital gain shall be dealt with in accordance with the provisions of Section 45 of the Act or as the case may be. The main thrust of the Section is construction of a residential house. However, in the case of the assessee, till today, even no construction has started, therefore, the benefit of the exemption provided u/s 54F is not available to the assessee. At most, we can show a lip sympathy to the assessee because the plot was not handed over to the assessee by the coloniser/builder, therefore, no investment could be made in construction of the house. At the same time, we are of the view that when language used in the Section is very much clear, no violence is permitted to the Legislation by the Courts, that too under the facts of the present appeal before us because the original return was filed by the assessee on 31.10.2006 and till the hearing of this appeal, no construction of the new asset has yet started. The Legislation in its wisdom has specifically provided the period of three years, therefore, it cannot be enlarged to indefinite period especially under the facts before us. The assessee though deposited Rs. 2,61,429/- with Omex Limited for purchase of plot before filing the return but the ownership of the plot was not transferred to the assessee even till date. Neither the Omex Limited gave the possession of the plot to the assessee nor any registration of the said plot was made in the name of the assessee. The exemption u/s 54F of the Act is available for investment for construction of a residential house, whereas though the assessee deposited the part of the consideration for purchase of the plot but till date, not to talk of construction even the possession of plot was not handed over to the assessee. There is an uncontroverted finding in the impugned order that even the plot was not registered in the name of the assessee, consequently, in the absence of the plot, no construction activity can be started. Moreso, the stipulated period of three years had already expired when the revisional jurisdiction by the ld. CIT was invoked because the assessee filed the original return on 31.10.2006 and the revisional order is dated 17.3.2011. The assessee was expected to invest the capital gain amount or part thereof before filing the return i.e. 31.10.2006. Even it is not the case that construction has already taken place and substantial portion of the capital gain has been invested by the assessee. Section 54F emphasises on construction of a residential house and such construction must be real one. Thus, the ratio laid down by Hon’ble Madras High Court in CIT v. V. Pradeep Kumar [2006] 153 Taxman 138 and the Hon’ble Rajasthan High Court in Usha Gupta v. CIT [2008] 296 ITR 287 goes in favour of the Revenue. So far as the cases relied upon by the assessee are concerned, these are being on different facts, therefore, may not help the assessee.
6. So far as invoking the jurisdiction u/s 263 of the Act is concerned, it can be invoked when the assessment order is either erroneous as well as prejudicial to the interest of Revenue. Both the conditions of order being erroneous as well as prejudicial to interest of revenue is required to be satisfied. There had been judicial debate on the word “prejudice to the Revenue”. One view is that it does not necessarily mean loss of revenue and the expression is not to be construed in a pettifogging manner and must be given a dignified construction. Another view is that even if one item is found prejudicial to the interest of the Revenue, the order can be revised. However, both the twin conditions, erroneous and prejudicial to the interest of the Revenue, must be satisfied before invoking the revisional jurisdiction by the ld. CIT. What it may be we are of the view that allowing unproved deduction/exemption not only renders the order of Assessing Officer erroneous but also prejudice the interest of Revenue. If the facts of the present appeal are kept in juxtaposition with the judicial scrutiny, we find that these twin conditions are existing in the present appeal, therefore, we find justification in invoking the revisional jurisdictional u/s 263 of the Act by the ld. CIT, consequently, we are in agreement with the order of the ld. CIT in directing the Assessing Officer to rework the total income of the assessee. The impugned order is affirmed.
