If an assessee booked a flat under self-finance scheme of DDA or any other similar situated institutions, then it would be construed that the assessee has fulfilled conditions enumerated in section 54 and would be entitled for the exemption. In the present case also the assessee has booked a flat in a scheme launched by PIPL. He has made payment through account payee cheque and that concern has issued receipt to him. Thus, in the assessment year 2009-10 case of the assessee falls within the ambit of section 54, because the assessee has purchased a house under a self-finance scheme in the same assessment year. However, during the course of assessment proceedings, it emerged out that there was change in the circumstances. Certain development taken place whereby the flat could not be constructed and builder returned the money. This change in the circumstances would disentitle the assessee from claiming exemption under section 54.
FULL TEXT OF THE ITAT JUDGMENT
Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-11 dated 2.5.2016 passed for the assessment year 2009-10.
2. Though assessee has taken five grounds of appeal, but his main grievance revolves around a single issue whereby he has pleaded that the ld.CIT(A) has erred in confirming rejection of assessee’s claim for grant of exemption under section 54 of the Income Tax.
3. Brief facts of the case are that a search and seizure operation was carried out in the case of JCM group on 17.11.2011. The assessee was also covered under the search. A notice under section 153A of the Income Tax Act was issued and served upon the assessee. Originally the assessee has filed return under section 139 of the Act on 30.7.2009 declaring total income at Rs.78,73,470/-. On scrutiny of the accounts it revealed to the AO that the assessee had acquired a residential flat situated at C/2/33, 3rd Floor, Goyal Intercity, Thaltej, Ahmedabad in financial year 1995-96 for a consideration of Rs.4,01,000/-. He has sold this property during this accounting year for a consideration of Rs.13,50,411/-. The assessee contended that he had purchased a property in the scheme called “Patadia Infrastructure P.Ltd.” (“PIPL” for short) and claimed exemption under section 54 of the Act. The ld.AO did not accept computation of capital gain made by the assessee. The assessee has computed long term capital gain at Rs.3,37,607/- after including various expenditure in the cost of acquisition. However, the ld.AO on re-appreciation calculated the long term capital at Rs.5,19,871/-. He did not allow exemption under section 54 on the ground that the assessee has failed to produce purchase deed of new property.
4. Appeal to the CIT(A) did not bring any relief to the assessee. The ld.counsel for the assessee contended that the assessee made payment of more than Rs.29 lakhs to “PIPL”. He drew our attention towards receipts and submitted that these payments were made through account payee cheque for purchase of flat No.A/304. Somehow builder failed to construct the flats and ultimately money has been returned to the assessee in the assessment year 2011-12. He contended that case of the assessee is covered by the Board’s circular no.471 and 672. Copies of these circulars have been placed on page no.19 and 20 of the paper book. According to the ld. counsel for the assessee, these circulars contemplate that if an assessee book a property under self-financing scheme in a cooperative society or DDA or any other institutions, then it is to be construed as the assessee has constructed an house and would entitle deduction under section 54/54F of the Act. The ld.counsel for the assessee emphased that subsequent development at the end of the builder may disentitle him for claiming exemption under section 54, but in that case, long term capital gain will be taxable in the hands of the assessee in the year in which the builder has returned the money. On the other hand, the ld.CIT-DR contended that the assessee failed to fulfill conditions of section 54 in the present assessment year. Therefore, he has not entitled for any exemption. The ld.CIT(A) has rightly disallowed the claim of the assessee.
5. We have duly considered rival submissions and gone through the record. As far as the taxability of capital gain amounting to Rs.5,19,871/- is concerned, there is no dispute about its taxability in the present situation. Dispute only relates to year of taxability. According to the assessee when he has made payment for acquisition of new assets, he has fulfilled the conditions enumerated in section 54 as per the circular. Subsequent development of non-construction of building by the builder and return of money disentitle him for exemption under section 54 of the Act. At this stage, we deem it appropriate to take note of both circulars, which read as under:
Subject: Deductions from Capital gains u/s. 54/54F of the Income tax Act – Clarification regarding.
1. Attention is invited to Board’s Circular No.471, dated 15-10-1986. It was clarified therein that cases of allotment of fiats under the Self-Financing Scheme of the Delhi Development Authority (DDA) should be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act. The Board has since received representations that even in respect of allotment of flats/houses by co-operative societies and other institutions‘ whose schemes of allotment and construction are similar to those of Delhi Development Authority‘ a similar view should be taken.
2. The Board has considered the matter and has decided that if the terms of the schemes of allotment and construction of flats/houses by the co-operative societies or other institutions are similar to those mentioned in para 2 of Board’s Circular No. 471‘dated 15-10-1986 (SI. No. 428)‘ such cases may also be treated as cases of construction for the purposes of sections 54 and 54F of the Income-tax Act.
3. The content of the circular may be brought to the notice of all officers working under you.
Central Board Of Direct Taxes
Enclosed: Circular no. 471
[F.No.225/1 74/93-ITA-II dated 16-12-1993 from Central Board of Direct Taxes‘ New Delhi.J
[Enclosure Circular No. 471
Subject: Capital gains tax-Whether investment in a flat under the Self-financing Scheme of the Delhi Development Authority would be construction for purpose of sections 54 and 54F of the Income-tax Act‘ 1961.
Sections 54 and 54F of the Income-tax Act‘ 1961‘ provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein‘ where the amount of capital gain is invested in a residential house. In the case of purchase of a house‘ the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house‘ the benefit is available if the investment is made within three years from the date of the transfer.
2: The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-financing Scheme of the Delhi Development Authority amounts to purchase or is construction by the D.D.A. on behalf of the allottee. Under the Self-financing Scheme of the Delhi Development Authority‘ the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the. allotment letter and the payment of instalments is only a . ..?
6. A perusal of these circulars would indicate that if an assessee booked a flat under self-finance scheme of DDA or any other similar situated institutions, then it would be construed that the assessee has fulfilled conditions enumerated in section 54 and would be entitled for the exemption. In the present case also the assessee has booked a flat in a scheme launched by “PIPL”. He has made payment through account payee cheque and that concern has issued receipt to him. Thus, in the assessment year 2009-10 case of the assessee falls within the ambit of section 54, because the assessee has purchased a house under a self-finance scheme in the same assessment year. However, during the course of assessment proceedings, it emerged out that there was change in the circumstances. Certain development taken place whereby the flat could not be constructed and builder returned the money. This change in the circumstances would disentitle the assessee from claiming exemption under section 54. This change in the circumstance taken place in accounting year relevant to the assessment year 2011-12. “PIPL” has returned the money to the assessee. Thus, the assessee has offered this long term capital gain for taxation on receipt from “PIPL” in the assessment years 2011-12. He has raised a specific plea to this effect before the ld. CIT(A). Before us, the ld. DR pointed out that as per law the time limit to reopen the assessment for A.Y.2011-12 might have expired, and the assessee may escape from paying tax in this assessment year also. The ld. counsel for the assessee drawn to our notice provisions of section 153(6) as well as Explanation 2 appended to this section. He contended that a mechanism has been provided in this section whereby if some directions about taxability of a particular amount in a particular period are being issued, then there is no time limit for giving effect to those directions. At this stage, we deem it appropriate to take note of sub-section (6) of section 153(6) along with Explanation 2, which reads as under:
(6) Nothing contained in sub-sections (1) and (2) shall apply to the following classes of assessments‘ reassessments and recomputation which may‘ subject to the provisions of sub-sections (3) and (5)‘ be completed –
(i) where the assessment‘reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250‘ section 254‘ section 260‘ section 262‘ section 263‘ or section 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act‘ on or before the expiry of twelve months from the end of the month in which such order is received or passed by the Principal Commissioner or Commissioner‘ as the case may be; or
(ii) where‘in the case of a firm‘ an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147‘ on or before the expiry of twelve months from the end of the month in which the assessment order in the case ofthe firm is passed.
Explanation 2. – For the purposes of this section‘ where‘ by an order referred to in clause (i) of sub-section (6)‘ –
(a) any income is excluded from the total income of the assessee for an assessment year‘then‘ an assessment of such income for another assessment year shall‘ for the purposes of section 150 and this section‘ be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order; or
(b) any income is excluded from the total income of one person and held to be the income of another person‘then‘ an assessment of such income on such other person shall‘ for the purposes of section 150 and this section‘ be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order‘ if such other person was given an opportunity of being heard before the said order was passed.”.
7. Taking into consideration the above provision as well as the stand of the assessee that he has no grievance if the long term capital gain be taxed in the assessment year 2011-12 on being refunded to him by the “PIPL”. We direct the AO to take action in the assessment year 2011-12 and assess the long term capital gain at Rs.5,19,871/-. It is pertinent to observe that we do not find any merit in the contention of the assessee with regard to alleged wrong computation of capital gain at 5,19,871/-. The AO has rightly computed it because the assessee has failed to substantiate his computation at Rs.3,7,607/-. The assessee has unnecessarily included a sum of Rs.88,000/- in the cost of acquisition for taking benefit of indexation. He failed to substantiate the inclusion of Rs.88,000/- in the cost of acquisition.
8. In view of the above discussion, we partly allow the appeal of the Assessment of long term capital gain is to be excluded from the assessment year 2009-10. But it is to be taxed in the assessment year 2011-12. The ld.AO shall give necessary effect accordingly.
8. In the result, appeal of the assessee is partly allowed.
Pronounced in the Open Court on 12thJu1y, 2018.