IN THE ITAT CHANDIGARH BENCH ‘B’
Anu Agarwal
versus
Income-tax Officer
IT APPEAL NO. 655 (CHD.) OF 2011
[ASSESSMENT YEAR 2008-09]
NOVEMBER 27, 2012
ORDER
T.R. Sood, Accountant Member
This appeal is directed against the order passed by the CIT(A)-II, Ludhiana, dated 30.5.2011.
2. In this appeal the assessee has raised following grounds:
“1. That the ld. CIT(A)-II has erred in rejecting the claim of the appellant without appreciating the facts of the case and without application of mind.
2. That the ld. CIT(A)-II acted with great enthusiasm in rejecting the appeal of appellant.
3. That he ld. CIT(A)-II has erred in holding that the capital gains claimed exempt u/s 54F is to assessed in the year the claim is made and not in the year when the time for completion of house expires i.e. period allowed for making the investment in construction of residential house on account of non fulfillment of the provisions of law.”
3. Brief facts of the case are that he assessee had sold a property during the year for a sum of Rs. 21 lakhs which was purchased on 12.12.1974. After reducing the indexed cost of Rs. 13,77,500/- capital gain from the sale of said property was worked at Rs. 7,22,500/-. The assessee invested a sum of Rs. 15,46,898/- in the purchase of plot on which residential house was to be constructed. On the basis of this investment proportionate deduction u/s 54F was claimed. However, the house could not be constructed. During assessment proceedings the AO observed that as per provisions of section 54F the assessee was required either to purchase within a period of one year before or two years after the date on which the transfer took place or complete the construction of residential house within a period of three years. Though the assessee purchased the plot the assessee was also required to complete the construction of a new house till 31.3.2010 and since admittedly no construction had taken place, the deduction u/s 54F could not be allowed. Accordingly he disallowed deduction u/s 54F.
4. On appeal before the ld. CIT(A) it was mainly submitted that the assessee had purchased plot on which construction was to be done. Only proportionate deduction amounting to Rs. 5,32,207/- out of the total capital gain of Rs. 7,22,500/- was claimed and tax was paid on balance of the capital gain. Since the assessee could not complete the construction, therefore, the addition can be made only after the period of three years expired and period of three years expired in AY 2011-2012. It was further submitted that it was a matter of common sense that whether the property has been constructed or not, would be known only in the year when the time is to expire. Reliance was also placed on the decision of Hon’ble Allahabad High Court in case of Ranjit Narang v. CIT [2009] 317 ITR 332.
5. The ld. CIT(A) after considering the submissions observed that the assessee has not started the work of construction on the said plot, therefore, the claim of deduction u/s 54F was not acceptable. Accordingly he upheld the action of the AO.
6. Before us, the ld. counsel of the assessee submitted that after the sale of the property on which some capital gain arose and the assessee purchased a plot of land and wanted to construct the house. After the purchase of plot the assessee was not left with any money to be deposited in the specified account with the bank. Later on when the house could not be constructed the assessee voluntarily filed a return by surrendering deduction u/s 54F and paid taxes in AY 2011-2012. In this regard he filed a copy of return for AY 2011-2012. He mainly contended that once the house could not be constructed the same would be known to the assessee only after a period of three years and therefore, if the construction could not be completed, the said capital gain could be taxed only after a lapse of period of three years. Since the assessee has filed return declaring capital gain in AY 2011-2012, the same could not be taxed again in AY 2008-2009.He vehemently contended that in view of the provision to Section 54F if the assessee was not able to do any construction then the capital gain can be subjected to charge u/s 45 only in the previous year in which period of three years from the date of transfer of original assets expire. He strongly relied on the following case laws – (i) Ranjit Narang’s case (supra) (ii) Smt. V.A. Tharabai v. Dy. CIT [2012] 50 SOT 537 (iii) Smt. Ranjit Sandhu v. Dy. CIT [IT Appeal No. 392/Chd/2010] (copy of order enclosed) and (iv) Asstt. CIT v. Gagandeep Kaur [ITA No. 655/Chd/2005] (copy of order enclosed). On a specific query by the Bench whether the assessee had taken any steps to construct the house for example, sanction of plan, the ld. counsel of the assessee admitted that plans were not prepared and sanction could not be obtained and he does not have any evidence to show that the assessee really wanted to start construction. The ld. counsel of the assessee submitted that in any case suitable direction may be issued for adjustment of taxes paid in AY 2011-12 in the current year because no income can be taxed twice.
7. On the other hand, the ld. DR for the revenue strongly supported the orders of AO and the ld. CIT(A). He further submitted that admittedly the construction of the house never commenced and therefore, the assessee was not entitled to deduction u/s 54F. The decisions relied on by the ld. counsel of the assessee are distinguishable on the facts of the case involved in those cases. He also submitted that the Tribunal had no power to give direction in respect of any other year in view of the decision of Hon’ble Supreme Court in case of ITO v. Murlidhar Bhagwandas [1964] 52 ITR 335.
8. We have heard the rival submissions carefully in the light of material on record as well as the decision cited by the parties. Section 54F 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,-
