As per the provisions of Section 54, the assessee has to utilize the amount deposited in the capital gain account for the purpose of purchase or construction of the new asset within the specified time for availing the benefit of capital gain. Here the assessee has made payments for purchase of a flat. He has paid an amount of Rs.35.10 lakhs out of the capital gain of Rs.50lakhs and the balance amount of Rs.14.90 lakhs was lying unutilized in the capital gain account scheme which was brought to tax by the Assessing Officer and the assessee himself had agreed before him during the course of assessment proceedings.
In the instant case, the assessee has not utilised the amount lying in the capital gain account within the statutory period and in fact had surrendered the same during the course of assessment proceedings and, therefore, the said amount is liable to tax.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal filed by the assessee is directed against the order dated 18.11.2019 of the CIT(A)-35, New Delhi, relating to assessment year 2012-13.
2. Facts of the case, in brief, are that the assessee is an individual. It was noted by the AO that during the course of assessment proceedings for A.Y. 2010-11 that the assessee had sold a flat for Rs.70 lakhs during the F.Y. 2008-09 and earned long-term capital gain of Rs.50 lakhs which was deposited by him in capital gain account of SBI on due date. Out of this amount of capital gain the assessee has invested Rs.35.10 lakhs in new project within 36 months and could not utilize a sum of Rs.14.90 lakhs. It was seen that the assessee had filed his return of income for A.Y. 2012-13 declaring the returned income of Rs.18,49,027/- without offering the unutilized amount of Rs.14.90 lakhs to tax. Accordingly, the case of the assessee was reopened u/s 147 of the Act after taking prior approval u/s 151 of the IT Act. In response to the notice issued u/s 148 dated 26th March, 2018, the assessee furnished the return of income declaring the total income at Rs.18,49,027/- which was the income originally returned.
2.1 During the course of assessment proceedings, the AO asked the assessee to explain the utilization of capital gain. The assessee stated that the capital gain was invested in time over a period of 36 months and the instalments were paid as demanded from time to time, but, he could not get the allotment/possession of the flat as required within three years. The assessee accordingly surrendered an amount of Rs.14.90 lakhs for taxation with the condition that no penal action should be initiated against him. The AO accordingly determined the total income of the assessee at Rs.33,39,030/- by making an addition of Rs.14,90,000/- which the assessee could not utilize.
3. Before the CIT(A) the assessee submitted that the assessee had surrendered the income under some mistaken belief. It was argued that the assessee had paid the amount as demanded by the builder M/s Unitech Ltd., but, since there was delay in handing over the property by the builder and the matter was pending before the Hon’ble Supreme Court, the balance amount of Rs.15 lakhs was held back. It was argued that an amount of Rs.7,17,975/- was paid later on after the assessment was done. It was accordingly argued that the addition made by the AO on the basis of mistaken surrender by the assessee should be deleted.
3.1 However, the ld. CIT(A) did not accept the arguments advanced by the assessee and upheld the action of the AO by observing as under:-
I have considered the facts of the case, the order by the AO and the arguments of the AR during the appellate proceedings. The decision is as below –
i.It has been submitted that the appellant had surrendered the amount under some mistaken belief.
ii The assessee sold his Flat at Dwarka- Delhi in Feb 2009 for a consideration of Rs 70 lakh and earned LTCG of Rs 50 lakh. The appellant deposited the sum in the CG account of SBI on 24/06/2009. The appellant intended to purchase a Residential House being constructed by M/s UNITECH. The amount was to be utilised within 36 months. The appellant invested Rs.35.1 lakh within 36 months. And the balance of Rs.14.9 lakh could not be used
during this period. The AO has accordingly made the addition.
iii. It is also undisputed fact that as per the agreement the premises was to be handed over in 36 months as per Clause 5 A of the agreement. All the investments as demanded by the builders till date to the tune of Rs, 35.10 Lacs have been made from this very account directly to Unitech only. Also given is a statement of the demands made by the builder and payments made along with the statement of Account issued by the Builder. Various letters dated 13-10-11, 29-12-2011,8.8.2015, 18-08- 2016, and 3-12-2016 were written by the appellant to the builders about the delay made by them. The fact was published in various Newspapers cases in this regard are pending against the builder which are being taken up by the Hon’ble Supreme Court of India.
iv. It has further been submitted that the appellant held back the balance amount of Rs. 15 lakh payable to the builder with the bank till date of assessment to be invested in this flat with Unitech Ltd. It was submitted that an amount of Rs 7,17,975/- was paid later on after delays in the project. It has been submitted by the appellant in this regard- “Because of all this the part of the capital gain remains still to be invested in the flat. I also enclose certain decided cases where the courts have decided that where there is delay in giving possession by the builder the assesses have been granted relief in the matter”
v. But, the AO is bound to follow the statute as laid down. Further, the appellant had surrendered the income on account of the unpaid funds to the builder per the deposits in the specified account of SBI. the fact of legal disputes in this regard, notwithstanding. The appellant has relied upon the ease of SATISH CHANDRA GUPTA vs. ASSESSING OFFICER (1995) 54 IT’D 508- this decision is in context of proceedings of setting aside assessment under section 263 of the Income Tax Act 1961. The appellant invested to purchase the property to have a habitable dwelling unit. As per the documents filed, the appellant made part payments on account of the property but retained back balance consideration due to delay in delivery by the builder.
vi. Considering the aforementioned and the principles with regard to the interpretation of Statute pertaining to the tax laws, the relevant provisions have to be interpreted. But, it is clearly the position that the appellant did not make the payments to the builder within statutorily provided time frame though the reason was unreliable service/s by the builder. Therefore, the reference to the above decisions does not help as the appellant is holding the funds received on account of the sale of immovable property. In view of the clear position of law in this regard, the action of the AO is in line with law. Though it also goes without saying that the appellant has not indulged in any wanton or deliberate act to conceal his income or furnish inaccurate particulars of income that might attract provisions of section 271(l)(c). The default has plainly been on account of the circumstances beyond control of the appellant. But, the appellant having himself conceded before the AO, this forum is unable to offer any relief on the count of the addition of Rs 14,90,000/- made by the AO. The action of the AO in making the addition is upheld.”
4. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:-
“1. That the Ld. CIT(A) has erred in law and on Facts of the cases in not deleting the addition of Rs 1490000/- made by the Ld. A.O. Treating the unpaid amount out of the capital gains account to the Builder as income of the Assessee.
2. That there has been no default on part of the assessee. The Ld. CIT(A) having agreed that the assessee has neither concealed income nor furnished inaccurate particulars and accordingly the CIT(A) erred in accepting the forced surrender of the assessee as a ground of upholding the addition.
3. That the appellant craves leave to add, alter, amend or delete any of the grounds of appeal at the time of hearing and all above grounds are without prejudice to each other.”
5. The ld. counsel for the assessee submitted that the AO taxed the unutilized amount ignoring the belief of the assessee that the full amount could not be utilized because of the circumstances beyond the control of the assesseee since the builder had delayed the project. He submitted that as per the agreement with the builder, he was supposed to handover the flat within a period of 36 months. All the installments as demanded by the builder to the tune of Rs.35.10 lakhs were made from the capital gain account directly. Since the builder had committed defaults in the construction of the flat in time and did not give possession due to various reasons such as diversion of money for other land and building, inflation of cost by arbitrary means, curbs of the government due to environmental clearance, construction defaults and matters pending with Noida authorities and various other delay tactics followed by the builder, the remaining payment was held back since the matter was pending before the Hon’ble Supreme Court. He submitted that the amount of Rs.14,90,000/- was lying in the capital gain account. Referring to the provisions of sections 54 and 54F of the IT Act, 1961,he submitted that these provisions should be construed liberally. Referring to the following decisions, he submitted that merely because the assessee could not obtain the possession of the property within a period of 36 months due to defaults committed by the builder, the assessee should not be penalized and deduction u/s 54 should not be denied. For the above proposition, he relied on the following decisions:-
i. Bal Kishan Atal vs. ACIT, (2019) 176 ITD 0330 (Delhi-Trib);
ii. Mrs. Seetha Subramanian Vs. ACIT (1996) 59 ITD 0094 (Madras-Trib);
iii. Satishchandra Gupta vs. AO (1995) 53 TTJ (Del) 578/(1995) 54 ITD 508 (Del);
iv. CIT vs. Hilla J.B. Wadia (1995) 216 ITR 376 (Bom);
6. The ld. DR, on the other hand, heavily relied on the orders of the CIT(A).
7. I have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find the Assessing Officer in the instant case re-opened the assessment of the case on the ground that the assessee has not offered the unutilized amount of Rs.14.90 lakhs lying in the capital gain account. I find before the Assessing Officer the assessee agreed to surrender the above amount with the condition that no penalty should be levied u/s 271(1)(c) of the IT Act, 1961. I find the ld.CIT(A) upheld the addition made by the Assessing Officer the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the ld. counsel for the assessee that the full amount could not be utilised because of circumstances beyond the control of the assessee since the builder had delayed the project. It is also his submission that since the builder who was supposed to handover the flat within a period of 36 months defaulted in delivering the same, the assessee withheld the amount. It is his submission that the provisions of section 54 and 54F being beneficial provisions should be interpreted liberally and the assessee should not be given the benefit of section 54.
7.1 The provisions of section 54 read as under:-
“ Profit on sale of property used for residence.
54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (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, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—
(i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain:
2[Provided that where the amount of the capital gain does not exceed two crore rupees, the assessee may, at his option, purchase or construct two residential houses in India, and where such option has been exercised,—
(a) the provisions of this sub-section shall have effect as if for the words “one residential house in India”, the words “two residential houses in India” had been substituted;
(b) any reference in this sub-section and sub-section (2)to “new asset” shall be construed as a reference to the two residential houses in India:
Provided further that where during any assessment year, the assessee has exercised the option referred to in the first proviso, he shall not be subsequently entitled to exercise the option for the same or any other assessment year.]
(2) The amount of the capital gain 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 not so utilised shall be charged under section 45 as the 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 such amount in accordance with the scheme aforesaid.
Explanation.—[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]”
8. As per the above provisions, the assessee has to utilize the amount deposited in the capital gain account for the purpose of purchase or construction of the new asset within the specified time for availing the benefit of capital gain. Here the assessee has made payments for purchase of a flat. He has paid an amount of Rs.35.10 lakhs out of the capital gain of Rs.50lakhs and the balance amount of Rs.14.90 lakhs was lying unutilized in the capital gain account scheme which was brought to tax by the Assessing Officer and the assessee himself had agreed before him during the course of assessment proceedings.
9. A perusal of the details of payments made by the assessee shows that he has paid the following amounts after the assessment year:-
(Amt. in Rs.)
07.05.2012 – 4,16,957/-
16.01.2013 – 4,60,809/-
30.04.2013 – 3,26,825/-
25.09.2013 – 3,26,826/-
12.02.2014 – 2,20,000/-
10. From the above, it is clear that the assessee has made payments subsequently, but, not utilised the capital gain amount lying in the capital gain account scheme before the specified date. Therefore, the action of the ld.CIT(A) confirming the addition in my opinion is justified.
11. The various decisions relied on by the ld. counsel for the assessee are distinguishable and not applicable to the facts of the present case. In all those decisions the benefit of section 54/54F were allowed since there was delay in handing over of the flats to the assessees concerned where full or substantial payments were made and in none of the cases, there was non-payment from the capital gain account within the statutory period. In the instant case, the assessee has not utilised the amount lying in the capital gain account within the statutory period and in fact had surrendered the same during the course of assessment proceedings and, therefore, the said amount is liable to tax.
12. In this view of the matter, I do not find any infirmity in the order of the ld.CIT(A). Accordingly, the same is upheld and the grounds raised by the assessee are dismissed.
13. In the result, the appeal filed by the assessee is dismissed.
The order pronounced in the open court on 28.05.2021.