Case Law Details
ACIT Vs Sh. Sanjay Choudhary (ITAT Delhi)
The ITAT, New Delhi in ACIT v. Sh. Sanjay Choudhary [ITA No.1274/Del/2020 dated January 23, 2023] has affirmed the decision of the Appellate Authority holding that the exemption claimed under Section 54F of the Income Tax Act, 1961 (“the IT Act”) would be granted to the assessee on its residential properties and assessee cannot be said to have not ‘Purchased’ the properties for not having the sale deed executed in its favour. Held that, acquisition of the properties by the assessee otherwise then by the registered sale deeds fall in the ambit of word ‘purchase’. Further held that, the nature and extent of construction like house, plot, cottage, farm house or villa are only indicative of the fact that property purchased is not a commercial property and is not an agricultural property.
Facts:
Sh. Sanjay Choudhary (“the Respondent”) had filed the Return of Income (“ROI”) for the Assessment Year (“A.Y.”) 2013-14 declaring total income of INR 16,94,792/- and the assessment was completed as per Section 143(3) by the Revenue Department (“the Appellant”) on March 28, 2016, computing the taxable capital gain at INR 1,23,01,476/-.
The Principal Commissioner of Income Tax (“PCIT”) was of the view that the Respondent had made a wrong calculation of capital gains, primarily for reason that it considered the property to be not held for 36 months and accordingly vide order dated March 5, 2018 directed to withdraw the deduction claimed and granted to the Respondent and remanded the issue back to be examine afresh.
Thereafter, the Appellant concluded that the capital gain was a Long Term Capital Gain (“LTCG”), and disallowed the exemption claimed under Section 54F of the IT Act vide assessment order dated December 31, 2018, on the ground that the three properties which the Respondent claimed to have purchased out of LTCG, were not covered for the ‘purchase’ under Section 54F of the IT Act. Further, initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of the income.
The Respondent preferred an appeal wherein, the Appellate Authority granted the benefit of Section 54F of the IT Act to the Respondent vide order dated January 29, 2020 (“the Impugned Order”).
Being aggrieved, this appeal has been filed by the Appellant, on the ground that, the Appellate Authority erred by not deleting the disallowance and considering the three properties acquired by the Respondent to be duly purchased, as they do not fall under the category of residential properties. Further contended that, the order passed by the PCIT was not appealed against, and hence became final as the Appellate Authority did not cancel or annul it.
Issue:
Whether exemption under Section 54F of the IT Act would be available for the properties purchased by the Respondent?
Held:
The ITAT, New Delhi in ITA No.1274/Del/2020 held as under:
- Noted that, the Appellant had discredited the purchase of three properties on the basis of documents other than sale deeds.
- Observed that, the execution of the sale deed or any document of Conveyance in favour of vendee, only transfers the ‘legal title’ for the purpose of civil consequences. The ownership of a property is a bundle of interests and apart from the registered sale deed or any other document of conveyance, vendee can acquire interest in semblance of right of owner by documents like GPA or agreement to sell.
- Opined that, the acquisition of the three properties by the Respondent, other than through registered sale deeds, falls within the ambit of the word “purchase” used in Section 54/54F of the IT Act.
- Stated that, the Appellant did not doubt the payments made by the Respondent out of LTCG for the purchase of three properties, then for not having the sale deed executed in the Respondent’s’ favour does not mean that the Respondent did not ‘purchase’ the properties as per statutory compliance.
- Relied on the judgement of ITAT, Jaipur in ACIT V. Om Prakash Gyal [ITA NO. 647/JP/2011 dated February 2, 2012] wherein, it was held that only requirement for claiming exemption under Section 54F of the IT Act is construction of residential house and it does not matter that house constructed is on agricultural land.
- Held that, the three properties of the Respondent are considered as a residential property as nature and extent of construction or nomenclature like house, plot, cottage, farm house or villa are only indicative of the fact that property purchased is neither a commercial property nor is an agricultural property.
- Upheld the decision of the Appellate Authority.
Relevant Provisions:
Section 54F of the IT Act:
“Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
(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, one residential house in India (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,-
“net consideration”, in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.
(2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.
(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head “Capital gains” relating to long-term capital assets of the previous year in which such new asset is transferred.
(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,-
(i) the amount by which-
(a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds
(b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.”
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal has been filed by the Assessee against order dated 29.01.2020 in Appeal No. 60/19-20/1352 assessment year 2013-14 passed by Commissioner of Income Tax (appeals)-28, New Delhi (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 31/12/2018 u/s 143(3) of the Income Tax Act, 1961 passed by the ACIT, Circle 69(1), New Delhi (hereinafter referred to as the Assessing Officer or ‘AO’).
2. The facts in brief are assessee filed return of income declaring total income of Rs. 16,94,792/- and the assessment was completed u/s 143(3) on 28.03.2016 at an income of Rs. 1,40,69,502/- after computing taxable capital gain at Rs. 1,23,01,476/-. The Ld. PCIT was of the view that assessee has made a wrong calculation of the capital gains primarily for reason that he considered property to be not held for 36 months, accordingly, had directed Ld. AO to examine the issue afresh and withdraw the deduction claimed and granted to the assessee u/s 54F of the Act. Ld. AO vide fresh assessment dated 31.12.2018 had concluded that the gain that has arisen was long term capital gain however, disallowed the same for the reason that AO was not satisfied with the three properties which assessee claimed to have purchased out of long term capital gain and Ld. AO held they were not covered for the ‘purchase’ u/s 54F. The relevant findings of para no. 7 of the Ld. AO are reproduced :-
“7. The above submissions were considered. The claims of the assessee regarding acquisition of the two plots of land and claim of construction on the two new pieces of agricultural land cannot be accepted due to the following reasons:-
(i) As per the assessment records, the Property No. Khasra No. 18, 09, Village Malikpur Kohi Rangpuri, Tehsil Mehrauli, Delhi- Purchased for Rs. 1,50.00,000/- through unregistered Agreement to Sell (on a Non Judicial Stamp Paper of Rs.50/-only) is merely ‘ Agricultural Land’ as per the Agreement to Sell filed by the assessee during the assessment proceedings. The assessee has claimed it to be a ‘Farm House’. However, it is pertinent to mention that as per the ‘Agreement to Sell’ filed by the assessee during the assessment proceedings it is clearly written as ‘Agricultural Land’ only and there is no mention of any constructed structure on the said agricultural land. The assessee also provided property tax documents to prove that it is a residential property. It may also be noted this property tax document is dated as 19.06.2017.
(ii) The assessee claimed after purchasing both the above properties that he has made construction on both properties before the time limit as prescribed under the prevision of section 54F of the Income Tax Act. However, the documentary evidence in claim of construction available in the assessment record is not satisfactory enough. Also, no documentary evidence whatsoever, in support his claim of construction has been filed by assessee during present proceedings u/s 263 of the Act, before the undersigned.
(iii) As per assessment record, the -Land at Jawalpur, Haridwar purchased through General Power of Attorney form Dh. Birender Singh Rawat is also merely ‘Agricultural Land’ as per the ‘Mukhtayarnama Aam’ filed by the assessee during the assessment proceedings. It is pertinent to mention that the amount of consideration is not mentioned in the said ‘Mukhtayarnama Aam’ executed on a non judicial stamp paper of Rs. 100/-. There is no mention of any constructed structure on the said agricultural land.
(iv) The claim for purchase of one cottage, double story situated at Rahmatpur Athmal, Tehsil, Roorkee, Distt. Haridwar, Uttarakhand for Rs. 34,00,000/- dated 14thMarch 2013. It can be noted that upon perusal there is no electricity or water connection taken to prove that this said property is residential or not.
(v) Regarding the assessee’s claim that he had done construction on both properties before the time limit as prescribed under the provision of section 54F of the Income Tax Act. The assessee has not filed any documentary evidence whatsoever, in support of his claim of construction during these proceedings.
(Disallowance – Rs.3,14,48,500/-)
Since the assessee has furnished inaccurate particulars of the income. Penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 is being initiated separately for furnishing inaccurate particulars of the income.”
3. Ld. CIT(A) however took contrary view and gave benefit of Section 54F of the Act to the assessee so the revenue is in appeal raising following grounds :-
(i) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in not treating the order passed by the AO u/s 143(3) r.w.s. 263 of the Act dated 31.12.2018 as bad in law and thereby not cancelling/annulling the same as the said order was passed against the directions given by the CIT-23, New Delhi in the order u/s 263 dated 05.03.2018 which has not been appealed against by the assesse in ITAT and consequently the same has become final.
(ii) On the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that by not following the directions of the CIT-23, New Delhi as given in order u/s 263 dated 05.03.2018, AO has travelled beyond his jurisdiction, thereby vitiating the whole assessment proceedings. Therefore, the order of the AO and the Ld.CIT(A) requires to be set aside by the Hon’ble ITAT.
(iii) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the fact that despite clear cut findings and directions given by CIT-23, New Delhi in his order u/s 263 dated 05.03.2018 that the capital gains arising to the assesse on sale of plot of land at village Karawal Nagar, Delhi-94 is a short term capital gain(STCG) and not long term capital gain(LTCG), AO treated the same as long term capital gain in contravention of the findings and directions of the CIT-23, New Delhi and therefore the Ld.CIT(A) thus, has erred in not passing order in consonance with the directions of the CIT-23, New Delhi overruling the decision of the AO particularly when the order u/s 263 dated 05.03.2018 of the CIT-23, New Delhi has not been appealed against in the ITAT by the assessee.
(iv) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.3,11,23,500/- made by the AO on account of disallowing deduction claimed u/s 54F of the Income Tax Act vide order u/s 143(3) r.w.s. 263 dated 31.12.2018 as assesse was not eligible for deduction u/s 54F.
(v) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in allowing the assessee’s claim under section 54F without appreciating the fact that the Ld.Pr.CIT-23, Delhi in his order u/s 263 dated 05.03.2018 had held that the gain arising to the assesse is short term in nature since the period of holding of the transferred asset was less than 36 months and therefore, the entire amount of gain arisen shall be chargeable as Short term capital gain(STCG) in the hands of the assesse. And consequently, no deduction u/s 54F shall be available on Short term capital gains(STCG) to the assessee.
(vi) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.3,11,23,500/- despite the fact that the assessee’s claim of purchasing three properties for which he has claimed deduction u/s 54F has been found to be untenable as the assesse failed to prove that the three properties purchased were indeed residential properties.
(vii) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.3,11,23,500/- despite the fact that the assesse has claimed deduction u/s 54F for purchase of three plots of land treating them as residential units while the provisions of section 54F clearly states that the relief under this section can be claimed only in respect of purchase of one residential unit but even this claim has not been proved by the assessee.
(viii) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.3,11,23,500/- as the Ld. CIT(A) has accepted additional evidence in contravention of Rule 46A which was not available to the AO during assessment proceedings.
(ix) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.3,11,23,500/- as the Ld. CIT(A) has stated that registered sale deed is not a must to claim the exemption u/s 54F and even ‘Agreement to Sell’ or registered POA will suffice which is not sufficient to prove the ownership of these residential properties.
(x) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.3,11,23,500/- as the Ld.CIT(A) has ignored the findings of the AO that in ‘Agreement to Sell’ the properties in question are mentioned as “Agricultural Land”, and further no proof of construction was provided.
(xi) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.3,11,23,500/- as the Ld.CIT(A) has wrongly accepted the assessee’s claim that the payment of certain amounts to contractor as evidence of construction of so called residential units, that too within limited time period without any tangible evidence when they had no water or electricity connections.
(xii) On the facts and in the circumstance of the case and in law, the Ld.CIT(A) has erred in allowing relief the assesse u/s 54F amounting to Rs.3,11,23,500/- by accepting the claim of the assesse that the construction on the agricultural plots of land was completed within stipulated period of time without any proof to this effect provided by the assesse either during the proceedings u/s 263 or during assessment proceedings or appellate proceedings.
(xiii) The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.”
4. Heard and perused the record.
5. On behalf of the revenue, Ld. Sr. DR primarily contended that Ld. CIT(A) has fallen in error in considering the nature of transactions for acquiring three properties by the assessee vide agreements and power attorney to be duly purchased. He submitted that the property did not fall in the class of residential properties and Ld. AO has rightly disallowed the exemption.
5.1 On the other hand, Ld. AR submitted that there is no error in the findings of Ld. CIT(A) and based upon correct interpretation of provisions of Section 54/ 54F, the appeal of assessee was partly allowed.
6. At the outset it can be observed that the order u/s 263 dated 05.03.2018 was directory in nature and Ld. AO had complied the same and in this appeal the revenue cannot agitate that there was not substantial compliances of the order u/s 263. Remedy may be some where else. So, the ground no. 1 to 5 are superfluous and also as nothing specific were argued in regard to them they are decided against Revenue.
7. In regard to remaining grounds. Giving thoughtful consideration to the matter on record and the submissions it can be observed that as with regard to the fact that assessee was owner of the two properties sold being plot no. 22 – 23 Khasra No. 13/5/1 and 13/4/2 and village Sahadra Delhi for sale consideration of Rs. 3,88,00,000/- is not disputed. Assessee infact had claimed to have got these properties in family settlement with his brother Rakesh Bansal and there was a GPA in name Smt. Rekha Rani, wife of Sh. Rakesh Kumar Bansal, who had executed the sale deed, on which the capital gain was claimed by the assessee. Ld. AO even made enquiries in this regard and observed;
“11. The assessee submitted a copy of GPA executed by Sh. Rakesh Kumar Bansal to Smt. Rekha Rani w/o Sh. Rakesh Kumar Bansal dated 10.06.2009 on a Notarised Non Judicial stamp paper of Rs.50/- In order to ascertain the above claim as to whether the property belonged to Sh. Rakesh Kumar Bansal information u/s 133(6) was sought for from Sh. Rakesh Kumar Bansal to confirm the following:
a. Whether he owned the property if so when he acquired the same along with the documentary for the same.
b. Whether he sold the property if so to whom and when and at what consideration.
c. Whether he filed ITR for the relevant assessment year and also whether he showed his capital gain in the ITR.
In reply to the above query, Sh. Rakesh Kumar Bansal replied to having owned and sold the said property as claimed by the assessee. Sh. Rakesh kumar Bansal also provided copy of original GPA dated 10.06.2009 executed by Sh. Rakesh Kumar Bansal in favour of Smt. Rekha Rani w/o Sh. Rakesh Kumar Bansal thereby granting power of attorney for management and to sell the above mentioned property. He also claimed to have received Rs.9,16,926/- as sale consideration from Sh. Sanjay Choudhary vide receipt dated 18.08.2009. He also declared that LTCG on sale of the above property had been duly declared in his ITR for AY 2010-11.”
7.1 Thus admittedly there was no document of title in favour of the assessee. Smt. Rekha Rani as GPA holder of her husband Sh. Rakesh Kumar Bansal had executed the sale deed and she had received the sale consideration of Rs. 3,88,00,000/- from Smt. Bhawana Gupta and Smt. Rekha Rani handed the amount came to the assessee. Ld. AO had considered this transaction to be a sale of capital asset by the assessee and calculated long term capital gain.
8. However, Ld. AO blowing hot and cold at the same time discredited the purchase of three properties by way of documents other than sale deeds by the assessee. Ld. CIT(A) has rightly corrected this error by following findings in para no. 4.6;
“4.6 At the outset, the AO has raised the objection that all these transactions of sale and purchase have been made through Power Of Attorney. It is observed from the records submitted by the appellant that the transactions for sale as well as purchases of land for construction of new residential house/residential house are through registered Power Of Attorney (POA) cum consideration receipts except the property at Mehrauli which is true unregistered POA along with receipts. If the sale consideration has been accepted for the purpose of computing LTCG on the registered POA, then the purchase of land/house on the basis of regd. POA cannot be considered a default for the purpose of exemption u/s 54F.”
9. Further the order of Ld. CIT(A) shows that after taking into consideration various judicial pronouncements for purposive interpretation of Section 54 and 54F of the Act concluded that acquisition of the three properties by the assessee, otherwise then by the registered sale deeds fall in the ambit of word ‘purchase’ used u/s 54/54F of the Act.
10. The Bench is of considered opinion that execution of the sale deed or any document of Conveyance in favour of vendee, only transfers the ‘ legal title’ for the purpose of civil consequences. The ownership of a property is a bundle of interests and apart from the registered sale deed or any other document of conveyance, vendee can acquire interest in semblance of right of owner by documents like GPA or agreement to sell. The ‘purchase’ of immovable property involves acquiring all those interests in the property. Same may be by some inchoate instruments in favour of the purchaser. Non execution of a registered document of transfer of title may have civil consequences in regard to his title, qua rights between the seller and purchaser but for the purpose of benefits of Section 54/54F, the assessee shall be deemed to have ‘purchased’ the properties. As for the purpose of Section 54/54F of the Act, the important question is that money out of LTCG should be paid/spent by the assessee, before the end of statutory period, for claiming exemption. When the Ld. AO had not doubted the payments out of LTCG made by assessee for purchase of three properties with inchoate documents executed in favour of the assessee. Then for not having the sale deed executed in his favour, assessee cannot be said to have not ‘Purchased’ the properties as a statutory compliance. Thus, the findings of Ld. CIT(A) in this regard require no interference.
11. As with regard to the residential nature of these three properties Ld. CIT(A) has thoroughly examined the issue. The 1stproperty situated lies in Tehsil Mehrauli, New Delhi. It is claimed by the assessee to be farm house and the house tax receipt issued by South Delhi Municipal Corporation mentioning that property is used for ‘residential purpose’ was rightly relied by Ld. CIT(A) to hold that property purchased was residential property. Ld. CIT(A) has also examine expenditures made in cash and supported with cash withdrawals from the bank for the construction to make the property habitable.
11.1 As with regard to 2nd property situated village Atmalpur in Haridwar. Ld. CIT(A) had rightly examined the fact of expenditure of Rs. 2,23,500/- on the construction raised for using it as a residence.
11.2 As with regard to 3rd property at Atmal in Haridwar. Ld. CIT(A) has considered the fact that it is admitted to have a construction cottage.
12. The bench is of considered opinion that the nature and extent of construction or nomenclature like house, plot, cottage, farm house or villa are only indicative of the fact that property purchased is not a commercial property and is not an agricultural property. They all convey residential house property. How it is inhabited should not interest the revenue. Ld. AR has also impressed this by citing a judgment of Jaipur bench in ACIT V. Om Prakash Goyal [2012] 24 taxmann.com67(JP) where it has been held that only requirement for claiming exemption under Section 54F is construction of residential house and it does not matter that house constructed is on agricultural land. Thus Ld. CIT(A) has rightly taken into consideration all the aspects of the matter while partly allowing the appeal of assessee and no interference is called for in the same. The remaining grounds no. 6 to 13 are also decided against the revenue on the basis of aforesaid findings. The appeal of revenue is dismissed.
Order pronounced in the open court on 23 January, 2023.
*****
(Author can be reached at [email protected])
Author Bio
