In deciding the exemption u/s 54F in the case of Sri M.S. Lakshmana Rao vs. DCIT, Hyderabad Tribunal held that non-compliance to condition of depositing sale proceeds in capital gain account scheme as required u/s 54 will not be so fatal to debar the assessee from getting benefit of section 54F. But whereas in the facts of the present case, no documentary evidence has been brought on record to establish the fact that assessee’s father has given up his right over the property or assessee has actually made investment towards construction of house property, deduction u/s 54F is not allowable.
Fact of the case
Assessee, an individual, during the year sold immovable property and claimed deduction u/s 54F of the Act for an amount of Rs. 50,37,209 while calculating capital gain. During the assessment proceeding When AO called upon assessee to produce documentary evidence to justify the claim of deduction u/s 54, AO noticed that during the relevant P.Y., assessee sold immovable property for consideration of Rs. 76 lakh and deposited the entire sale consideration into his S.B. Account with ICICI Bank instead of depositing the sale consideration in capital gain account scheme, 1988. Further, before A.O. assessee also failed to produce details of completion of construction of house. A.O. proceeded to complete the assessment by disallowing deduction claimed u/s 54 of the Act stating that assessee failed to satisfy the conditions of section 54 and further he has not furnished any evidence regarding construction of house. Being aggrieved of disallowance of deduction u/s 54, assessee preferred appeal before ld. CIT(A) and submitted copy of agreement entered into with his father for construction over the land owned by the assessee’s father. Ld. CIT(A) was, however, not satisfied with the agreement and submissions made by the assessee, rejected the appeal. Assessee being aggrieved filed the appeal before the ITAT taking it as first ground of appeal.
While verifying the computation of capital gain made by assessee, A.O. also noticed that assessee has claimed cost of acquisition at Rs. 8 lakhs and after indexation, the same was adopted at Rs. 25,62,791. A.O. observing that assessee has not furnished any basis for adoption of cost acquisition at Rs. 8 lakhs, recomputed indexed cost of acquisition at Rs. 7,49,634. Before ld. CIT(A), assessee submitted the details of cost of acquisition. Ld. CIT(A), however, was not convinced with the submissions of assessee and accordingly upheld the order of the A.O. rejecting Rs.4,32,720/- as part of cost of acquisition of immovable property which is the second ground of appeal before the Tribunal.
Contention of the Assessee
It was submitted that the assessee, being unaware of the legal position, deposited the sale consideration in his SB account. Further, non-compliance to section 54(2) cannot prevent assessee from getting deduction u/s 54 as assessee has utilized the capital gain in construction of new house within the due date of filing of return u/s 139 of the Act. Assessee further submitted that he has entered into agreement with his father, who is the owner of Plot No. 283 in Sy.Nos.125 & 126 of Yousufguda village for construction of house. In this context, he referred to a decision of ITAT, Mumbai Bench in case of JCIT Vs. Smt. Armeda K. Bhaya,95 ITD 313 (Mum.)
To substantiate its claim of Rs.4,32,720/- as part of cost of acquisition, assessee submitted that the land cost alone cannot be the cost of flat, since construction cost is to be paid separately. Ld. AR submitted additional evidence in the form of the confirmation letter issued by Parsn Foundation Pvt. Ltd in which the concerned party has clearly stated of receiving the amount of Rs.4,32,720/- towards cost of construction of flat sold by assessee.
Contention of Revenue
On the other hand, Ld. DR submitted as assessee has failed to comply the conditions imposed u/s 54 of the Act by depositing the capital gain in capital gain account scheme he is not eligible for deduction u/s 54. He further submitted, as far as assessee’s claim of utilizing sale proceeds in construction of new house, same cannot be accepted as neither assessee is owner of the property nor there any evidence to suggest that assessee has utilized the capital gain in construction of house. He submitted, the bank account copy only shows withdrawals but for what purpose they have been utilized has not been substantiated with any documentary evidence. Further, as per the agreement, assessee has only requested his father for construction of residential house to which his father has agreed. However, the agreement which is an unregistered one, does not make it clear that any legal right has been conferred on assessee as far as ownership of the property is concerned. The assessee was not having any legal right over the property in which assessee claimed to have constructed house, deduction claimed u/s 54 cannot be allowed.
With respect to ground no.2, Ld. DR did not raise any serious objection for admission of additional evidence produced by assessee, but, he submitted that the matter has to be examined and verified by AO.
Held by Tribunal
After considering the submissions of the parties and perusing the orders of revenue authorities as well as other material on record, the tribunal was of the view that non-compliance to condition of depositing sales proceeds in capital gain account scheme will not be so fatal to debar the assessee from getting benefit of section 54. However, the fundamental issue in the present appeal was whether assessee’s claim that he has utilized the capital gain in construction of a new house is acceptable. As is evident, assessee has claimed that he has entered into an agreement with his father for construction of house over the plot of land belonging to his father. However, it is a fact that the so-called agreement is not only unregistered one, but, it does not indicate in clear terms as to whether the ownership rights over the property was transferred to assessee by his father or father has given up his right over the said property in favour of assessee. Moreover, a reference to the bank account copy, which has been filed in the paper book, though reveal that assessee has withdrawn an amount of Rs.52,75,000 during the P.Y. but for what purpose these amounts have been withdrawn is not known. Therefore, in absence of even a single piece of evidence to indicate that assessee has utilized sale proceeds/capital gain in construction of new residential house, the claim of deduction u/s 54 cannot be accepted. As far as decisions relied upon by ld. AR is concerned, there is no dispute to the principles laid down therein. However, as can be seen from the decision of ITAT, Mumbai Bench in case of JCIT Vs. Smt. Armeda K. Bhaya, the property was not only purchased in the name of assessee along with two other persons, namely, his father and mother, but, father and mother in fact submitted affidavits giving up their rights over the said property and also admitting the fact that entire investment in purchase of the property has been made by assessee. Whereas in the facts of the present case, no documentary evidence has been brought on record to establish the fact that assessee’s father has given up his right over the property or assessee has actually made investment towards construction of house property. In the aforesaid facts and circumstances, the decision relied upon will be of no help to assessee. Accordingly, the order of ld. CIT(A) on this issue was confirmed by dismissing the first ground raised by assessee.
On the second ground, the tribunal ordered that the assessee’s claim of incurring an amount of Rs. 4,32,720 as cost of construction requires to be considered afresh in view of additional evidence submitted by assessee by way of confirmation letter dated 28/01/12 from Parsn Foundation Pvt. Ltd. Accordingly, the order of ld. CIT(A) on this issue was set aside and the matter was remitted back to the file of AO for deciding the same afresh after due opportunity of hearing to assessee.