IN THE ITAT AMRITSAR BENCH
Smt. Usha Vaid
Income-tax Officer, Dasuaya
IT Appeal No. 98 (Asr.) of 2011
[Assessment year 2006-07]
July 27, 2012
Per Bench – This appeal of the assessee arises from the order of the CIT(A), Jalandhar, dated 28.01.2011 for the assessment year 2006-07.
2. The assessee has raised following grounds of appeal:
“1. That on the facts & circumstances, Ld. CIT(A) has grossly erred in not admitting additional evidence in the shape of electric bills, letter towards transfer of electric connection to new residential house, and report of approved value filed during appellate proceedings to substantiate the claim that residential house stood completed after assessment proceedings. Rejection of additional evidence is illegal and bad in law.
2. That on the facts & circumstances, Ld. CIT(A) has grossly erred in confirming action of the A.O. of reducing Rs. 12,000/- from cost of shop plot being cost of boundary wall & gate constructed in the year 1987-88 in the absence of vouchers for the same. Action of the Ld. AO is not admitting cost of boundary wall & gate confirmed by the Ld. CIT(A) is illegal and bad in law.
3. That on the facts & circumstances, Ld. CIT(A) has grossly erred in confirming the action of the AO that the amount spent by the assessee on purchase of land and cost of boundary wall and purchase of other material does not qualify for deduction u/s 54F of the Act though the assessee has invested the entire consideration of sale of capital asset in purchase of land, cost of foundation & boundary wall & also purchase of material at the time of visit of the Inspector. Action of the Ld. CIT(A) is illegal and bad in law.
4. That there is no justification in not allowing deduction claimed u/s 54F of the Act by holding that house was not constructed on the date of inspection by the Inspector when entire consideration of sale of capital asset stood invested within the stipulated period of three years in purchase of land, construction of foundation, boundary wall and purchase of material for further construction. House considering of one bedroom, kitchen & bathroom along-with boundary wall, stood completed in November 2009 within 3 years & one month of sale of capital assets.
5. That the assessee requests for leave to add or amend the grounds of appeal before the appeal is heard or disposed off.”
3. The brief facts of the case are that the assessee with her husband had purchased a commercial plot at Faridabad in 1987 for a sum of Rs. 43,075/-. The said plot was sold on 14.10.2005 for Rs. 9,00,000/-. After deducting indexed cost of acquisition from her half share as sale consideration, long term capital gain was calculated at Rs. 3,58,759/-. Out of the sale consideration by the assessee, a claim for the purchase of agricultural land for Rs. 3,11,480/- was made. The assessee later on corrected her claim that the assessee had purchased the residential plot and not the agricultural land along-with co-owner at Rs. 1,65,833/- and Rs. 2,20,000/- were spent for construction of a house and the sources were explained. The Income Tax Inspector was deputed to make on the spot inquiry regarding construction of alleged residential house, who on 25.08.2008 submitted that the assessee had made a boundary wall on this land which is only 2 feet in height. The AO observed that the assessee has neither constructed any residential house nor made any claim for exemption under section 54F in the return of income. The claim under section 54F was made through a letter dated 02.06.2008. As regards construction of the boundary wall, the bills and vouchers were not produced since the construction was made 21 years back. The construction was made by Sh. Ganshyam Kathuria brother of Mr. Pritam Kathuria of Reliance Estate Agencies, Neelam Chowk, Faridabad. The notice under section 131 was issued to Mr. Ganshyam Kathuria. The letter sent to Mr. Ganshyam Kathuria was received back with postal remarks that “No such person”. The same was confronted to the assessee and the assessee in response thereto submitted that Sh. Ganshyam Kathuria had died but no evidence of his death was produced by the assessee. The assessee submitted to verify the contents from one Sh. O.P. Jhanb, partner of Reliance Estate Agency. The AO not being satisfied with the explanation of the assessee did not allow the claim of long-term capital gain and accordingly made the addition.
4. Before the Ld. CIT(A), the assessee submitted an application under Rule 46A being the electricity bill and report of the Approved Valuer that the assessee had completed the construction by the end of October, 2008 and three years had expired on 14.10.2008. The Ld. CIT(A) did not accept the application under Rule 46A of the Act. The claim of the assessee that the assessee had invested total sale consideration in the construction of the house before the completion of three years though the house was completed after expiry of three years. The claim under section 54F which was allowable was not allowed by the ld. CIT(A). The cases relied upon by the assessee before the ld. CIT(A) did not help the assessee. Accordingly, the ld. CIT(A) rejected all the grounds of the assessee.
5. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that the assessee had purchased the property in 1987. On verification by the Inspector, the boundary wall and gate was also found, is also not under dispute. The assessee had claimed vide letter dated 02.06.2008 exemption under section 54F of the Act during the assessment proceedings before the AO is also not under dispute. The sale consideration has been invested in the construction of the house has been explained by the assessee before both the authorities below. Though house was not completed before the expiry of three years from the sale of the plot at Faridabad, but the same was completed immediately after few days of the expiry of three years. As per section 54F, if the assessee being an individual, the capital gain which arises from the transfer of any long term capital asset, not being a residential house and the assessee had 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, referred to as the new asset, then the capital gain is exempt, if whole of the net consideration of the original asset is invested in the new asset i.e. residential house. Now the question arises in the present case whether the assessee had fulfilled the conditions under section 54F or not, has to be perused. In the present case, the assessee had invested the total sale consideration (net consideration) within three years after the transfer of the original asset. The words mentioned in section 54F are that the amount should be invested in the construction of a residential house. Therefore, once the assessee having been invested total sale consideration into construction of a residential house, then it is not necessary that the residential house should have been completed within three years of the transfer of the original asset. The residential house may be completed even after completion of three years of the transfer of the original asset. In such a situation, when a house is completed after expiry of three years from the transfer of the original asset, the assessee is entitled to exemption under section 54F of the Act. This view is supported by the decision of the Hon’ble Madras High Court in the case of CIT v. Sardarmal Kothari  302 ITR 286. The Ld. counsel for the assessee has also placed reliance on the following decisions :
(i) Mrs. Seetha Subramanian v. Asstt. CIT  59 ITD 94
(ii) Smt. Ranjit Sandhu v. Dy. CIT  133 TTJ 46 (Chd)(UO).
5.1 The assessee had submitted application under Rule 46A on having completed the house, after the expiry of three years from the transfer of the original asset along-with electricity bill which was not accepted by the Ld. CIT(A), which in fact, could not be submitted by the assessee before completion of the assessment. The same should have been accepted by the ld. CIT(A). Therefore, as held hereinabove, the assessee having sold an asset which is not a residential house being a long-term capital asset had invested the net sale consideration into the construction of a residential house and therefore, claim of the assessee u/s 54F is allowable. Accordingly, all other claims of the assessee are allowable. The addition made by the AO. is directed to be deleted and the order of the ld. CIT(A) is reversed. Thus, all the grounds of appeal of the assessee are allowed.
6. In the result, the appeal of the assessee in ITA No.98(Asr)/2011 is allowed.