Case Law Details
Sh. Vijay Sharma Vs ACIT (ITAT Delhi)
Objective of Section 54 is that the capital gains to be reinvested in another residential house. The provision emphasizes the investment of amount in new property within the timelines as per Section 54, but not completion of the property so as to be occupied or become habitable even. There may be many intervening factors which make it unreasonable and against the rules of prudence to expect the investor to also have completed the construction in three years. But then the law requires the gain to be statutorily invested.
Here in the case in hand total capital gain exemption was 1,62,76,703/- and which now has been restricted to the claim to the extent of investment of sum of Rs. 78,60,000/- in first property and the investments in two other properties have not been pressed for exemptions. Further, it is admitted case of assessee that income had accrued in FY 2014-15 and after the developer got approved zonal plan, the assessee obtained physical possession of the plot vide letter dated 18.08.2022 and though before that the assessee got approved the construction plan by making application with competent authority. However, construction has not begun. There is no evidence of any construction activity or of the fact that assessee has invested the proceeds in statutory deposits and then spent any proceeds of the sales consideration of two properties he had sold, into the construction over this plot. Thus the property in which part investments of capital gains was done continued to be plot for all purposes and intent, for the assessee in the period when construction was to atleast to be started, if not completed. That being so, there is no error in the determination of issue against the assessee by Ld. tax Authorities below and no merits in the grounds as raised here.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal has been filed by the Assessee against order dated 06.02.2020 in Appeal No. 10351/2018-19 assessment year 2015-16 passed by Commissioner of Income Tax (appeals), Faridabad (hereinafter referred to as the First Appellate Authority or in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 27/12/2017 u/s 143(3) of the Income Tax Act, 1961 passed by ACIT, Circle-II, Faridabad (hereinafter referred to as the Assessing Officer or ‘AO’).
2. The assessee is an individual and filed return of income of Rs. 39,88,810/- and the case was selected for scrutiny. In the year under consideration, assessee had sold two residential accommodations, i.e. one residential house and one plot. Assessee had made investment in residential plots which he claims where made with intention to construct house thereon. The two residential properties sold had given rise to capital gains of Rs. 1,62,76,703/- for which exemption was claimed u/s 54 of the Act on the plea that amount was invested in three properties. First property bearing no. C8-37, Sector-84 B.P.T.P. Parkland (residential plot) second property known as B-39, sector-84, B.P.T.P. parkland (residential plot) and third property is known as fourth floor Piyush Global Heights, Faridabad (office space). Ld. AO in order to verify the claim of exemption, deputed inspector to conduct enquiry on the spot which was conducted on 05.12.2017 and it was reported in respect of residential plots that no construction was carried out till date and the plots were vacant. Accordingly, Ld. AO was of the view that assessee has not fulfilled the conditions laid down u/s 54 of the Act and the exempt income of Rs. 1,62,76,703/- u/s 54 was added to the income of assessee.
4. Ld. CIT(A) was apprised that construction on the said plots could not be carried out due to reasons beyond the control of assessee as the developer M/s. B.P.T.P. did not handover the possession of the plot to the assessee for want of certain approvals and as such non handing over of the possession of the residential plots has prevented the assessee to construct residential house on these plots within the prescribed time period. However, the assessee claimed having invested the requisite amount in financial year itself fulfilled the conditions of Section 54.
5. The Ld. CIT(A) observed that the fact remains that the appellant could not complete the construction of residential houses upon the said plots within specified period of three years as the investment was made by the appellant in the plots which were not having approvals from the concerned government departments for the construction ab initio. The citations of law relied by the Ld. AR of the appellant were distinguished. It further observed that “alternate plea of the ld. AR that disallowance, if any of this account, could have been made only in the previous year in which period of three year from the date of transfer of original asset expires as provided u/s 54/54F of the Act has been considered. However, the facts of the present case are not covered by the provisions of Section 54(2)/54F(4) of the Act as the investment made in the plots was not found eligible for claim of deduction u/s 54/54F of the Act ab-initio”.
6. Accordingly the appeal was dismissed and the assessee has approached the Tribunal raising following grounds :-
1. “That under the facts and circumstances of the case Ld. CIT(A) has erred in law as much as in fact as he has failed to appreciate that the assessment order is bad in law and invalid on the ground that the A.O. did not provide reasonable opportunity of hearing to the assessee.
2. That under the facts and circumstances of the case Ld. CIT(A) has erred in law as much as in fact in upholding the determination of income of the assessee at Rs. 2,02,65,513/- in place of returned income of Rs. 39,88,810/-.
3. That under the facts and circumstances of the case Ld. CIT(A) has erred in law as much as in fact as he has failed to appreciate that the assessee is entitled to get exemption from levy of long term capital gain u/s 54 as well as 54F of the Act amounting to Rs. 1,62,76,703/- therefore, addition upheld by Ld. CIT(A) is contrary to the express provisions of law.
4. That under the facts and circumstances of the case, Ld. CIT(A) has failed to appreciate that the disallowance of exemption claimed could not be made as the amount was invested by the assessee in purchase of plots on which construction was to be made within three years from the date of sale of the long term capital asset and assessee could not construct residential house on those plots for the reasons beyond the control of the assessee and disallowance on these facts was not permissible in law.
5. That under the facts and circumstances of the case, Ld. CIT(A) has erred in law as much as in factas he has failed to appreciate that Ld AO has committed an error in relying upon the report of the inspector which was never confronted to the assessee and the disallowance is based upon show cause notice dated 21-11-2017 which is earlier to submission of the report by the inspector. Therefore, the addition made is in violation of principles of natural justice.
6. That under the facts and circumstance of the case, Ld. CIT(A) has erred in law as much as in fact in upholding the disallowance and also in not appreciating the contention of the assessee that according to the decision of Hon’ble Delhi High Court in the case of CIT vs Kuldip Singh 226 Taxmann 103(Del.) the disallowance only to the extent of un-invested (in the present case there is no uninvested amount) amount could be made in the year when the stipulated period of three years expired and the same could not have been made in the year under consideration.
7. That each of the above grounds is independent and is without prejudice to each other.
8. That under the facts and circumstances of the case, Ld. A.O. has erred in charging u/s 234A, 234B, 234C and 234D.
9. That appellant craves to add, alter, delete or modify any or all of the grounds of appeal on or before the hearing of the appeal.”
7. Heard and perused the record.
7.1b On behalf of the assessee Ld. AR submitted that the Ld. CIT(A) had called for remand report to which rejoinder was filed. It was submitted that the admitted facts are that the developer by letter dated 07.04.2017 had informed the assessee that he has applied for zoning plan of the plot and the same was still under consideration before the concerned department and without approval of zoning plan the assessee was given option to take possession. It was submitted that Ld. CIT(A) has wrongly concluded that it is a case where the developer was not having necessary approval from the government to construct residential units and that it is not a case that assessee was not offered possession. It was submitted that at the time of final arguments, Ld. AR submitted that the assessee is restricting the claim to the extent of investment of sum of Rs. 78,60,000/- in residential plot no. C8-37, Sector 84, B.P.T.P., Parkland, Faridabad which was purchased on 17.12.2014 from the proceeds of residential house no. 866, sector 17, Faridabad. It was submitted that the project was for developing plots for residential houses and the entire purchase price of the plot was paid during the relevant financial year 2014-15 in which the long term capital asset was sold. It was submitted that the plot was purchased from M/s. Ashima Verma vide agreement dated 17.12.2014 and it was transferred in the name of the assessee by the developer as per plot buyer’s agreement dated 04.02.2015 which event is also within the relevant financial year. It was submitted that non-approval of zonal plan alone cannot lead to the conclusion that construction on plot of residence was not permissible thought it may have other effects.
7.2 Ld. AR submitted that assessee in his own wisdom did not consider it proper to take possession without the approval of zonal plan which will not make the investment in plot as being debarred from claiming the exemption as the construction is permissible up to the period of three years from the date of transfer of Long-term Capital Asset. It was submitted that after the developer got approved zonal plan, the assessee obtained physical possession of the plot vide letter dated 18.08.2022 and before that the assessee also got approved the construction plan by making application with competent authority. These relevant papers of possession dated 18.08.2022 and the approval of construction plan were submitted at this stage. It was also submitted that in the light of clause (i) of sub section (1) of Section 54 of the Act, the amount invested in the new asset within specified period is eligible to get benefit of Section 54, irrespective of the fact that whether or not the assessee was able to complete / start the construction of house being new asset.
7.3 Ld. AR also referred to proviso to section 2 of section 54 of the Act and contended that this provision provides that if whole or part of the amount deposited in capital gain scheme is not utilized for the new asset within the period specified, then the unutilized amount will be charged to tax as income of the previous year in which the period of three years expires from the date of transfer of long term capital asset. Ld. AR submitted that this proviso makes it ample clear the only unutilized amount can be brought to tax and not the amount utilized. He relied judgments Smt. V.A. Tharabai vs. DCIT [2012] taxmann.com 276 (Chennai) ; R.S.Sharma vs. ITO, Bangalore [2015] 55 taxmann.com 187 (Karnataka) ; Mrs. Seema Sabharwal vs. ITO (ITA No. 272/CHD./2017) ; CIT vs. Kuldeep Singh {2014} 49 taxmann.com 167 (Delhi) to contend and support his arguments that by purchase of plot and payment of complete consideration assessee established intention to construct the residential property.
8. On the other hand, Ld. DR submitted that there is no error in the findings of Ld. Tax Authorities below.
9. Giving thoughtful consideration to the submissions it can be observed that section 54 gives a window period of three years, from the date of transfer of original asset, for the construction of a new house and two years for purchasing a new house. Further as per the section the amount utilized for the said purpose along with the amount deposited in a specified bank account for the purpose, before the date of filing of return of income, is treated as cost of construction of the new asset and exemption granted thereof. The fulfillment of the condition of completion of construction or purchase of house is to be looked into only in the year in which the window period ends and if it is then found that the assessee has not constructed/purchased the house, to the extent the amount deposited in specified bank account is not utilized for the said purpose ,it is treated as capital gains of the previous year in which the period of three years expires.
10. In this context after relying the law cited by Ld. AR and to the controversy covered up under the grounds it is relevant to refer to certain more judicial precedents. Hon’ble Supreme Court in the case of Sanjeev Lal Vs. CIT [2014] 365 ITR 389 (SC) has laid down the purposive interpretation of section 54 to give a liberal approach to the assessee who clearly intended to claim benefit of section 54. Their Lordships held that section 54 is a beneficial provision and is to be construed keeping in view the intention of the Legislature to give relief in the matter of payment of tax on the long-term capital gain. The Bench is of considered opinion that the liberal interpretation of beneficial provisions cannot be stretched to the extent that provisions look superfluous in the statue.
10.1 The Bangalore Bench has held that in the case of Estate of Late Dr Zakaulla Masood v. Income Tax Officer, Ward 1(5)(4), Bangalore [2020] 122 taxmann.com 214 (Bangalore – Trib.) that absence of an Occupation Certificate is not a ground to deny the claim of the assessee for deduction u/s. 54 of the Act, if other evidence filed by the assessee sufficiently, demonstrates that the assessee has constructed a residential house within the period stipulated by law.
10.2 Hon’ble Karnataka High Court in the case of CIT v. Smt. B.S. Shanthakumari [2015] 60 taxmann.com 74/233 Taxman 347 held that completion of construction within three years was not mandatory and was necessary that the construction should be commenced.
10.3 In the case of Bhavna Cuccria v. Income-tax Officer, Ward 4 (1), Chandigarh [2017] 82 taxmann.com 306 (Chandigarh – Trib.) the Chandigarh Bench of ITAT has held that “It has been decided in the number of cases that for the purpose of claiming exemption under section 54, investment of substantial amount in the new asset, is sufficient compliance. It has been held by various courts that in such circumstances the assessee is entitled to claim exemption despite the fact that the construction is not completed within three years. This issue was addressed by the Delhi High Court in the case of CIT v. R.L. Sood [2000] 245 ITR 727/108 Taxman 227, wherein the Hon’ble High Court held that the assessee has invested a substantial amount in the purchase of a new asset, thus acquiring substantial domain over the new flat within the specified period, the assessee could be said to have complied with the requirement of section 54 and merely because possession of the Flat was not handed over to the assessee within the specified period the said benefit could not be denied.”
10.4 In Balraj v. Commissioner of Income-Tax [2002] 254 ITR 22(Del) it is held that for the purpose of attracting the provisions of section 54 of the Income-tax Act, it is not necessary that the assessee should become the owner of the property. Section 54 of the said Act speaks of purchase.
11. Thus the objective of Section 54 is that the capital gains to be reinvested in another residential house. The provision emphasizes the investment of amount in new property within the timelines as per Section 54, but not completion of the property so as to be occupied or become habitable even. There may be many intervening factors which make it unreasonable and against the rules of prudence to expect the investor to also have completed the construction in three years. But then the law requires the gain to be statutorily invested.
13. Here in the case in hand total capital gain exemption was 1,62,76,703/- and which now has been restricted to the claim to the extent of investment of sum of Rs. 78,60,000/- in first property and the investments in two other properties have not been pressed for exemptions. Further, it is admitted case of assessee that income had accrued in FY 2014-15 and after the developer got approved zonal plan, the assessee obtained physical possession of the plot vide letter dated 18.08.2022 and though before that the assessee got approved the construction plan by making application with competent authority. However, construction has not begun. There is no evidence of any construction activity or of the fact that assessee has invested the proceeds in statutory deposits and then spent any proceeds of the sales consideration of two properties he had sold, into the construction over this plot. Thus the property in which part investments of capital gains was done continued to be plot for all purposes and intent, for the assessee in the period when construction was to atleast to be started, if not completed. That being so, there is no error in the determination of issue against the assessee by Ld. tax Authorities below and no merits in the grounds as raised here. The appeal is dismissed.
Order pronounced in the open court on 14th December, 2022.
