IN THE ITAT CHENNAI BENCH ‘D’
Smt. Seshu Jaggaiah
Income-tax Officer, Business Ward XIV (2), Chennai*
DR. O. K. NARAYANAN, VICE-PRESIDENT AND CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
IT APPEAL NO. 2147 (MAD.) OF 2011
[ASSESSMENT YEAR 1995-96]
MARCH 20, 2012
Dr. O.K. Narayanan, Vice-President
This appeal filed by the assessee relates to the assessment year 1995-96. The appeal is directed against the order of the Commissioner of Income-tax(Appeals)-XII at Chennai, dated 21-10-2011. The appeal arises out of the order passed under section 143(3), read with section 254 of the Income-tax Act, 1961.
2. The assessee in the present case, had sold a property in Chennai on 27-2-1995 for a consideration of Rs. 95 lakhs. In filing her return of income, the assessee claimed exemption under section 54 and returned a total income of Rs. 4,56,710/-. The claim of deduction under section 54 was rejected by the assessing authority and the income was determined at Rs. 81,60,000/-. The matter was taken up before the Income-tax Appellate Tribunal. The Tribunal remitted back the file to the Assessing Officer to consider the issue of disallowance under section 54 after giving a finding on the genuineness of the claim of the assessee that she had given advances towards purchase of a property to construct a residential house. The Tribunal also directed to re-examine the question of setting off of short-term capital loss arising on sale of shares.
3. In the consequential assessment done by the Assessing Officer, the deduction under section 54 was again negatived and also the short-term capital loss was held to be speculative in nature.
4. In first appeal, the Commissioner of Income-tax(Appeals) allowed the issue of short-term capital loss, but confirmed the disallowance of deduction under section 54. It is on that issue of section 54 that the assessee has come in second appeal before us, which is for the second time.
5. The only ground raised by the assessee in the present appeal is that the Commissioner of Income-tax(Appeals) has erred in confirming the denial of deduction under section 54 of the Income-tax Act, 1961.
6. We heard Shri B.Ramakrishnan, the learned chartered accountant appearing for the assessee, and Shri KEB Rengarajan, the learned standing counsel appearing for the Revenue.
7. In the first round of second appeal, the Income-tax Appellate Tribunal has directed to adopt the fair market value of the property at Rs. 2 lakhs per ground. On that basis the Assessing Officer has worked out capital gains at Rs. 72,49,400/-. The claim of the assessee is that she has purchased a vacant plot at Akshaya Colony for a consideration of Rs. 8,92,136/-, admeasuring 2400 sft.. The plot was purchased for constructing a residential property therein. The further contention of the assessee towards deduction under section 54 is that the assessee has given advances to three parties for acquiring the new property and that the same was not complete because the property was neither constructed by those persons nor the advances were returned in time. Ultimately, the Assessing Officer found that the construction of the property was completed only during 2001-02 and as such the assessee had not purchased any residential house either one year prior or two years after the date of transfer and also no residential property was constructed within three years from the date of transfer. The deduction was denied.
8. The case of the assessee is that the assessee was prevented from depositing the sale proceeds in the capital gains account, as she had advanced the money with an intention to purchase a property. The advances were made to Shri K.Rajaneenath, Shri K.Madhuvan Prasad and M/s.Natco Organics Ltd. The total of the advances comes to Rs. 50 lakhs. It is her case that the said amount was advanced for purchase of a residential house. Those parties did not hand over the house, nor did they return the advance in time. So the assessee could not either construct a house herself or acquire a property herself or deposit the proceeds in the designated account. Therefore, it is the case of the assessee that the assessee could not perform what was not possible of performance. She relied on the concept of lex non cogit ad impossibilia.
9. The assessee also relied on the decision of the Jodhpur Bench of the Income-tax Appellate Tribunal in the case of Jagan Nath Singh Lodha v. ITO,  148 Taxman 1 (Jodh).
10. We considered the issue in detail. The case of the assessee is that the assessee could not comply with the provisions of section 54 within the time prescribed for reasons beyond her control, inasmuch as the money, which was blocked by her by paying advances to procure the property, was not realized within the time and, therefore, she could not make any alternative investment within the prescribed time. It is the case of the assessee that the acquisition of the property has been completed in 2001-02 and, therefore, deduction under section 54 may be granted, condoning the period of delay caused in complying with the time limit prescribed under section 54.
11. There are instances of decisions rendered by various Benches of the Tribunal in extending the benefit of deduction available under section 54 even when the conditions were complied with by the assessee beyond the prescribed period. But, in such cases the assessees could not have satisfied the conditions by performance, as the assessees were prevented by sufficient reasons. The assessees were prevented from performing the conditions by virtue of supervening impossibilities, either by way of judicial restraint or by any other cogent reasons beyond the control of the assessee.
12. In the present case, the constraint stated by the assessee is that the advances given by her to acquire the property were not returned to her in time, nor property was acquired. As pointed out by the Assessing Officer, the payment of advances for the purpose of acquiring the property itself has not been proved by the assessee. In addition to that, it is to be seen that the advances were given on the basis of an agreement between the parties and the assessee. Those advances are stated to have not been received back within the time. That cannot be a supervening impossibility by operation of any uncontrollable events. Payment of advance and return of the same are all matters of normal commercial agreements. Such things as such cannot act as supervening impossibilities.
13. In the present case, similar arguments of the assessee are nothing but naive, as two out of the three persons to whom advances were made by the assessee, are her own sons. When the assessee got the money on sale of the property, she handed over the money to her sons and they enjoyed the money for quite a long time and thereafter returned the money to the assessee and again thereafter she constructed the residential property beyond three years of the prescribed time limit and now seeking deduction under section 54 on the ground of supervening impossibilities in performing the conditions under section 54. These events lead us to a reasonable belief that the contentions of the assessee are not sustainable in law.
14. In result, this appeal filed by the assessee is dismissed.