Income Tax Officer, Pune V. PRAKASH RAMKRISHNA POPHALE, PUNE

ITA 283/PUN/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1483 (ITAT-PUNE)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-05-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 13-02-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Additional evidence; Cost of acquisition; Capital Gains
• Section: 54; 54F; 142(1); 133(6); 250; 143(2); 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND SHRI VINAY BHAMORE, JUDICIAL MEMBER ITA No.283/PUN/2024 Assessment Year : 2017-18 ITO, Ward 6(4), Pune Vs. Prakash Ramkrishna Pophale 501-B, Ghorpade Peth, Pannal Chambers, Shivaji Road, Swargate Corner, Pune – 411042 PAN: AFPPP5151F (Appellant) (Respondent) Assessee by : Shri Prasad Bhandari Department by : Shri Sourabh Nayak, Addl.CIT Date of hearing : 12-06-2024 Date of pronouncement : 25-06-2024 O R D E R PER R. K. PANDA, VP : This appeal filed by the Revenue is directed against the order dated 20.12.2023 of the CIT(A) / NFAC, Delhi relating to assessment year 2017-18. 2. Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 04.08.2017 declaring total income of Rs.15,33,650/-. The case was selected under CASS for limited scrutiny to verify the issue of “Large deduction claimed u/s 54”. Subsequently, notice u/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and 142(1) of the Act were issued and served on the assessee, to which the assessee replied from time to time. 2 ITA No.283/PUN/2024 3. During the course of assessment proceedings, the Assessing Officer noted that the assessee has e-mailed Deed of Assignment dated 26.07.2016 of the property at S.No.696/2, Final Plot No.475 part/6, Plot No.6, Anandnagar Co- operative Housing Society Ltd. which was executed for the consideration of Rs.7,25,00,000/- as sale to Shri Ramesh Shreehari Kondhare, Smt. Manda Ramesh Kondhare and Shri Girish Ramesh Kondhare. The Assessing Officer further noted that the assessee has claimed deduction of Rs.2,26,33,135/- u/s 54 of the Act and also claimed improvement cost of Rs.30,42,700/- which comes to Rs.31,66,547/- after indexation while computing Long term capital gain. He, therefore, asked the assessee to submit the working of improvement cost and proof thereof. 4. In support of his claim, the assessee filed certain details i.e. a Bill – RA.01 (Final Bill) dt. 25.01.2016 for Rs.30,42,936/- issued by M/s. Vision Buildcon and copy of the bank statement of the Account No.025910025468 held in Dena Bank. On verification of the same, the Assessing Officer noted that the assessee made payment of Rs.19 lacs to M/s. Vision Buildcon. Further, an amount of Rs.20 lacs was paid by Shri Ramesh Kondhare, the purchaser of the property to M/s. Vision Buildcon. He, therefore, issued a show cause notice to the assessee asking him to explain as to why the expenditure claimed of Rs.11,42,700/- as improvement cost while computing the Long term capital gains should not be disallowed. The assessee filed the bank statement of Kotak Mahindra Bank held by him bearing Account No.509044010742 and another account No.509044010731 held by his 3 ITA No.283/PUN/2024 wife Smt. Lata Prakash Pophale. It was explained that he and his wife had paid Rs.15 lacs each to Shri Ramesh Kondhare on 26.08.2019. 5. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee on the ground that the above transaction does not justify the improvement cost reimbursed to Shri Ramesh Kondhare. According to him, no prudent person will wait for more than three years when there is no such reference in the sale deed. The above said payment, according to the Assessing Officer, was made only after issue of show cause notice which is nothing but an afterthought. He, therefore, held that the assessee has wrongly claimed improvement cost of Rs.30,42,700/- in the computation of income as against the actual payment of Rs.19 lacs. He, therefore, disallowed the improvement cost to this extent. 6. So far as the claim of deduction u/s 54 of the Act made by the assessee is concerned, the Assessing Officer noted from the details furnished by the assessee that the Assignment of Leasehold Rights (Purchase Deed) for the Plot NO.4 at Anandnagar Co-op. Hsg. Society, Gultekdi, Pune was executed on 29.07.2016 for a consideration of Rs.3 crores. The said plot was purchased by the assessee and his wife. Further, the assessee filed a copy of capital gain account showing the deposit of Rs.68,56,000/- on 31.07.2017. He, therefore, asked the assessee to explain the claim of deduction u/s 54 of the Act. In the meantime, the Assessing Officer issued notice u/s 133(6) of the Act to PMC to obtain the status of completion of construction on the plot No.4 wherein the assessee has invested and claimed 4 ITA No.283/PUN/2024 deduction u/s 54 of the Act. The Executing Engineer, Development & Construction Zone No.5, PMC vide letter No.2616 dated 18.09.2019 informed that no completion certificate has been issued for the construction activity on plot No.4. The Assessing Officer analyzed the provisions of section 54(1) of the Act, according to which the construction should be completed within three years from the date of transfer of original asset. He noted that in this case, the original asset was transferred on 26.07.2017 and therefore, the date of completion of the construction should be on or before 26.07.2019. Since the construction was not completed before 26.07.2019, therefore, the Assessing Officer held that the assessee failed to fulfill the conditions required u/s 54(1) of the Act. The Assessing Officer rejected the various explanations given by the assessee by observing that the property sold was under-construction property and the subsequent property purchased was also under-construction property. The Assessing Officer therefore rejected the claim u/s 54 of the Act and accordingly determined the total income of the assessee at Rs.2,41,66,780/- which includes Long term capital gain of Rs.2,26,33,135/-. 7. In appeal, the Ld. CIT(A) / NFAC deleted both the additions. So far as the denial of cost of improvement of Rs.11,42,700/- is concerned, the Ld. CIT(A) / NFAC deleted the same by observing as under: “6.2. I have considered the facts of the case and appellant’s submissions. The AO noted that the assessee had claimed deduction of Rs.2,26,33,135/- u/s 54 of the Act and while working of Long Term Capital Gain, he claimed improvement cost of Rs.30,42,700/-, which came to Rs. 31,66,547/- after indexation. The AO found 5 ITA No.283/PUN/2024 that "assessee had made payment of only Rs.19,00,000/- to M/s. Vision Buildcon and balance amount of Rs.20,00,000/- had been paid by Shri Ramesh Kondhare, purchaser of the property to M/s.Vision Buildcon. On being asked in this regard, the assessee furnished relevant bank accounts before the AO and submitted that he and his wife paid Rs.15 lakhs each (total Rs.30 lakhs) to Shri Ramesh Kondhare on 26/08/2019. However, the AO, being not satisfied with the assessee's reply, held that this claim was an afterthought and accordingly, disallowed Rs.11,42,700/- being difference in improvement cost claimed by the assessee. In the written submissions uploaded on the ITBA, the appellant had submitted that he along with his wife purchased an old bungalow on 09/05/2011 which was constructed in 1977 and assesses had to get the same renovated, therefore, his wife engaged M/s VISION BUILDCON to get the property renovated. The appellant has contended that the AO failed to appreciate that assessee is the joint owner of the property and cost was borne by his wife also. To support his claim, the appellant has certain documents, which have been considered. The appellant has also pointed out that similar type of disallowance was also made in scrutiny assessment of AY 2017-18 in his wife's case Smt. LATA PRAKASH POPHALE but said disallowance was deleted by the CIT(A), NFAC, Delhi vide order dated 10/03/2023. Upon considering the facts of the case and documents furnished by the appellant, I am inclined to agree with the appellant's claim. In the instant case, controversy regarding cost of improvement arose because in the books of M/s. Vision Buildon, the total payment Rs.19,00,000/- was reflected in appellant's name and Rs.20,00,000/- was entered as payment from Shri Ramesh Kondhare, purchaser of the property. However, the AO failed to take note of the appellant's claim that in right perspective that the appellant and wife paid Rs.15 lakhs each (total Rs. 30 lakhs) to Shri Ramesh Kondhare on 26/08/2019 as reimbursement towards improvement of cost. The AO did not conduct any enquiry with Shri Ramesh Kondhare. It may be noted that similar type of the disallowance was made in appellant's wife case (Smt. Lata Prakash Pophale) in the AY 2017-18 and the same has been deleted by the CIT(A), NFAC vide order dated 10/03/2023. For the sake of clarity, relevant para 7.3 of CIT(A)'s order dated 10/03/2023 passed vide DIN & Order No.ITBA/NFAC/S/250/2022-23/1050582996(1) is reproduced as under: "7.3 GOA NO. 3 and 4 - Disallowance of Cost of improvement of Rs.30,42,400/- and Disallowance of deduction u/s.54 of Act. a) During the course of assessment proceedings the appellant filed the following documentary evidences before the AO for its claim of the cost of improvement and claim of deduction u/s.54 of Act. (i) Submission filed on 15-10-2018 giving the following details: (Page 79) (a) Capital gains of loss computation statement (ii) Submission filed on 16-1-2019 giving the following details: (Page 80) 6 ITA No.283/PUN/2024 1. Balance sheet/statement of affairs along with detailed schedules 2. Bank account statement 3. Evidence is respect of investment made in properties 4. Evidence in investment in capital gains scheme account 5. Capital gains or loss computation statement (iii) Submission filed on 3-7-2019 giving the following details: (Page 81) (a) Evidence regarding cost of improvement 1. AO has given a wrong finding that appellant sold a plot of land and purchased a new plot of land. In fact the appellant sold a residential house property and purchased a new residential house property as discussed in subsequent paras of this order. 2. AO has wrongly held that Appellant claimed deduction u/s.54F of Act. In fact the appellant has claimed deduction u/s.54 of Act of Rs.2,26,33,135/- as evident from the ITR and the computation of income filed for AY 2017- 18 by appellant. Hence, the AO has wrongly disallowed the deduction u/s.54F in the case of appellant whereas the deduction claimed was u/s.54 of Act. 3. Property sold by appellant on 27.06.2016.  Appellant purchased an old Bungalow which was constructed in 1977 on 09.05.2011 situated at Anand Nagar CHS, S. No.696/2, CTS No.2/6, Plot No. 475 / Part 6, TP Scheme No. 3, Gultekdi, Pune along with 2 Share Certificates bearing No.6 and 21 in Anand NagarCHS.  The appellant got it renovated from M/s. Vision Buildon. Thereafter the renovated residential property (Plot area 3630 sq. ft. and Construction area 3557 sq. ft.) was sold by appellant on 27.06.2016.  These facts show that appellant sold a residential house property and not a plot of land. e) Property purchased by Appellant on 29.07.2016 The new property purchased by Appellant was at Plot No.475, Anand Nagar, Sahakar Gruharachana Sanstha which was a residential house. When the said property was purchased the house was already constructed on the said plot. The house constructed on the said plot was done after obtaining permission from Pune Municipal Corporation for which a Completion Certificate was issued. These facts show that Appellant purchased a residential house property and not a plot of land as held by AO. 7 ITA No.283/PUN/2024 The Consideration paid including Stamp Duty etc by Appellant was Rs.1,57,78,000/-. Appellant deposited an amount of Rs.68,56:000/- in the Capital Gain account. (f) Calculation of deduction u/s 54 (Property Sold Details) 1. Description of capital assets sold 1. Plot No.6, No.475/6, T.P. Scheme, Anand Nagar Co-op HSG Society Ltd. Gultekdi, Pune 2. Plot area 3630 Sq ft 3. Construction area 3557 Sq ft 2. Date of Acquisition by Appellant 9-5-2011 3. Cost o fAcquisitions Rs.72,92,000 4.Cost of Improvement (Construction) Rs.30,42,700 5. Year of cost of improvement F.Y. 2015-16 6. Indexed cost of acquisition Rs.1,04,50,318 7. Indexed cost of improvement Rs.31,66,547 8. Date of transfer (Sale Deed enclosed) 27-6-2016 9. Consideration received Rs.3,62,50,000 10. Long-term Capital [9-6-7] Rs.2,26,33,135 Property Purchased (i) Date of purchase 29-7-2016 (ii) Details of the new asset (Purchase deed enclosed) Plot no.475, Anand Nagar Sahakari, Gruharchana Sanshta (iii) Consideration paid stamp duty & etc. Rs.1,57,78,000 (iv) Amount deposited in capital gain A/c Rs.68,56,000 (v) Exemption claimed Rs.2,26,33,135 g) The above facts clearly show that Appellant has claimed deduction u/s 54 of Act and not u/s 54F of Act as held and disallowed by the AO. h) Appellant has submitted all the bills/vouchers regarding Cost of improvement of residential property sold before the AO during assessment proceedings. The AO did not allow the Cost of improvement due to following reasons:- i) Bills of Cost of improvement uploaded by Appellant relate to c onstruction of Bunglow and not construction of Plot. 8 ITA No.283/PUN/2024 ii) Some of the bills are in name of husband of Appellant i.e Prakash Pophale. In view of these facts the AO disallowed the cost of improvement. These findings of AO are not acceptable due to following reasons:-  Appellant purchased an old Bungalow which was constructed in 1977 on 09.05.2011 situated at Anand Nagar CHS, S. No. 696/2, CTS No. 2/6, Plot No.475 / Part 6, TP Scheme No. 3, Gultekdi, Pune alongwith 2 Share Certificates bearing No. 6 and 21 in Anand Nagar CHS.  The appellant got it renovated from M/s. Vision Buildon.  Thereafter the renovated residential property (Plot area 3630 sq. ft. and Construction area 3557 sq. ft.) was sold by appellant on 27.06.2016.  These facts show that appellant sold a residential house property and not a plot of land. Thus, the Appellant on 09.05.2011 purchased an old bunglow which was constructed in 1977. She got the same renovated to make it liveable. She engaged Vision Buildcon to renovate the said property and paid the cost of improvement to the said party. AO failed to appreciate the fact that said residential property was a very old construction and to make it livable the Appellant incurred the "Cost of Improvement" on said old bungalow. iii) AO failed to appreciate the fact that the husband of Appellant i.e. Sh. Prakash Pophale is joint owner of the said property, therefore, some of the bills were in his name. These facts show that AO wrongly rejected the claim of Appellant towards cost of improvement. In view of the above facts the claim of Appellant towards cost of improvement of Rs.3,042,400/- is hereby allowed." Since the facts and circumstances, under which disallowance on account of cost of improvement was made, are identical in both the cases i.e. in appellant’s case and his wife case (being co-owner of property sold), therefore, I find no justifiable reason/ basis to divert from the findings as recorded in order dated 10/03/2023 passed u/s. 250 of the Act by the CIT(A), NFAC, Delhi in the case of the appellant's wife case (Smt. Lata Prakash Pophale) as reproduced above. Accordingly, it is held that the AO was not justified in disallowing the part cost of improvement of Rs.11,42,700/-, which is hereby deleted. Ground no. 3 raised by the appellant regarding this issue is allowed.” 9 ITA No.283/PUN/2024 8. Similarly, so far as the deduction u/s 54 of the Act amounting to Rs.2,26,33,135/- is concerned, the Ld. CIT(A) / NFAC allowed the claim of the assessee by observing as under: “7.2. I have considered the facts of the case and appellant's submission. The AO rejected the assessee claim deduction of Rs.2,26,33,135/- u/s. 54 of the Act on account of investment of sale proceeds of original asset to new residential house property by stating that the assessee failed to comply with condition stipulated in section 54 of the Act i.e. not completed construction within 3 years from the date of transfer of original asset i.e. before 26/07/2019. In the written submissions uploaded on the ITBA Portal, the appellant has submitted that he furnished all the relevant documents before the AO to establish that the claim of deduction of Rs. 2,26,33,135/- u/s. 54 of the Act on account of investment of sale proceeds of original asset to new residential house property was rightly made, however, the AO ignored the same and disallowed the assessee's claim of deduction u/s. 54 of the Act. Before deciding the issue, it is necessary to look into the brief facts of the case. The assessee sold a property situated at S.No. 696/2, Final Plot No. 475 part/6, Plot No. 6 , Anandnagar Co-Operative Housing Society Ltd. for the consideration of Rs.7,25,00,000/-.to Shri Ramesh Shreehari Kondhare, Smt. Manda Ramesh Kondhare and Shri Girish Ramesh Kondhare vide sale deed dated 27/06/2016. The assessee purchased a residential property situated at Plot no. 475, Anand Nagar Sahakari, Gruharchana Sanstha vide purchase deed dated 29/07/2016 at total consideration of Rs.3,00,00,000/-. In both these transactions/properties, the assessee’s wife was also co-owner and both claimed to have invested Rs.1,57,78,000/- each and deposited Rs.68,56,000/- in the capital account. In this way, the assessee had shown LTCG of Rs.2,26,33,135/- and claimed the same as exempt u/s 54 of the Act on account of investment of sale proceeds of original asset to new residential house property. However, the AO rejected the assessee's claim after reaching at the conclusion that the assessee failed to comply with the conditions prescribed in sec. 54 of the Act i.e. not completed construction within 3 years from the date of transfer of original asset i.e. before 26/07/2019. Upon considering the facts of the case, I am inclined to agree with the appellant's claim. Section 54 of the Act in respect of investment made in the new house cannot be denied. I find force in the contentions made by the appellant Section 54 of the Act is reproduced as under for the sake of clarity:- "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 7[***], being buildings or [and 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 1 ''[constructed, one residential house in India], 10 ITA No.283/PUN/2024 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 u/s 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)] 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 utilized 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 utilized wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,- ( the amount not so utilised shall be charged under section 45 as i 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 ( the assessee shall be entitled to withdraw such amount in ii accordance with the scheme aforesaid” ) 7.3 The only conditions to be satisfied for claiming exemption u/s. 54 are:- 11 ITA No.283/PUN/2024 1. the assessee should be an individual or a Hindu undivided family, 2. the capital gain arises from the transfer of a long-term capital asset (original 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" 3. 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 7.4 From a plain reading of this section, one would appreciate that the condition as regards to the time period is that the assessee within a period of one year before or two years after the date on which the transfer took place purchased, or within a period of three years after that date constructed, one residential house in India. Now coming to the facts of the instant case, it is seen that the original asset was sold on 27/06/2016 and the appellant purchased a new house at Plot no. 475, Anand Nagar Sahakari, Gruharchana Sanstha on 29/07/2016. The AO denied the appellant's claim by observing that property so purchased was a plot and construction was not done on the said plot within 3 year of transfer of original asset. However, this observation of the AO is factually not correct. In respect of the same property, the CIT(A), NFAC, Delhi in appellant's wife case, who is a co-owner of the property under consideration, vide order u/s. 250 of the Act 10/03/2023 has already held that property purchased by the appellant on 29/07/2016 was not a plot. For the sake of clarity, relevant para 7.3 of CIT(A)'s order dated 10/03/2023 passed vide DIN & Order No. ITBA/NFAC/S/250/2022-23/1050582996(1) is reproduced as under:- “7.4 Deduction u/s 54 of Act a) AO has wrongly held that Appellant claimed deduction u/s.54F of Act. In fact the appellant has claimed deduction u/s.54 of Act of Rs.2,26,33,135/- as evident from the ITR and the computation of income filed for AY 2017-18 by appellant. Hence, the AO has wrongly disallowed the deduction u/s.54F in the case of appellant whereas the deduction claimed was u/s.54 of Act. b) In assessment proceedings the Appellant filed the following documents (as outlined by Appellant on Para 16 of written submissions filed and reproduced in para 5 of this order) before the AO to claim deduction u/s 54 of Act:  Purchase documents of new residential property.  Sale documents of old residential property.  Evidence regarding investment in Capital Gain Scheme.  Bank account statement  Capital Gain Computation statement.  Evidence regarding cost of Improvement etc. 12 ITA No.283/PUN/2024  As discussed above, the asset sold is a residential house property and not a plot. c) Further, the Appellant purchased a new residential property and not a plot of land and claimed deduction u/s 54 (not u/s 54F of Act). AO has wrongly observed that Appellant claimed deduction u/s 54F of Act and disallowed the same.  The conditions to be satisfied to claim exemption under section 54 are as under: i) the asset transferred is a residential house; ii) the asset transferred is a long-term capital asset and hence there is a long term capital gain; iii) the asset has been transferred by an individual or a Hindu Undivided Family; iv) the assessee has purchased one residential house in India within one year before or 2 years after the date on which the transfer took place, or constructed one residential house in India within a period of 3 years after the date on which the transfer took place. As discussed above the Appellant furnished the documentary evidences pertaining to this transaction and claimed deduction u/s 54 of Act. Appellant has satisfied all these conditions u/s.54 of Act. After examination of these documents and the facts of the case, it is clear that Appellant has satisfied all the above conditions and claimed exemption u/s 54 of Act............................." 7.5 Once it is already established that new property purchased by the appellant was a residential house property and a simple plot, it would not be logical / reasonable to divert from the findings recorded by the CIT(A), NFAC in appellate order dated 10/03/2023, in appellant's wife case who is a co-owner of property under consideration. In the case of the appellant, the AO has failed to record any findings that at the time of purchase of new property, the same was not habitable. It might have that in appellant's case subsequent construction on purchased property was completed but the pendency of work does not preclude the assessee from availing of the rebate U/s. 54 of the Act. In this regard, I may refer the following decisions:- a. In the case of C.I.T. Vs. Sardarmal Kothari reported in (2008) 302 ITR 286, the Hon'ble Madras High court have held that "In order to get the benefit U/s. 54F the assessee need not complete the construction of the house and occupy it, and it was enough if the assessee established the investment of the entire net consideration within the stipulated period." 13 ITA No.283/PUN/2024 b. CIT Vs. Sambandam Uday Kumar reported in (2012) 345 ITR 389 (Karnataka H.C.). c. The Hon'ble ITAT, Jodhpur bench in the appeal No.365/JU/2009 in the case of ACIT Vs. Mahabir Prasad dated 11/02/2013, held that “As per settled, the nature of the property at the point of time of its purchase has to be considered and not its subsequent user. Accordingly we confirm the action of the learned CIT(A) in this regard also.” 7.6 After considering the factual matrix of the case and legal precedents on the issue in hand, I am of the considered opinion that subsequent developments or past events are not crucial in deciding the matter. In the present case, the assessee sold an old asset and realised the consideration and applied the consideration for acquiring a new asset. The new asset is in the nature of a residential house as is quite evident from the purchase deed filed by the appellant. However, from the facts as illustrated above, it is clear that the reason advanced by the AO is not correct and the appellant satisfies all conditions as stipulated u/s 54 of the Act. The purpose of deduction u/s 54/54F is to give impetus for construction of residential houses. The Supreme Court in case of CIT vs. Vegetable Products Ltd. [1973] 88 ITR 192 has observed that if a statutory provision is capable of more than one view, then the view which favours the taxpayer should be preferred. Therefore, section 54, being a beneficial provision enacted for encouraging investment in residential houses, should be liberally interpreted. The Hon'ble Supreme Court held that a provision for exemption or relief in a fiscal statute should be construed liberally and in favour of the assessee - Maharajadhiraj Sir Kameshwar Singh v. CIT [1957] 32 ITR 687 (SC). Considering the facts of the case and legal position as discussed above, it is held that the appellant fully satisfied the conditions for availing exemption u/s. 54 of the Act in respect of the long term capital gains on sale of residential property. The AO is directed to allow deduction of Rs.2,26,33,135/- claimed u/s. 54 of the Act. The ground no. 4 raised by the appellant regarding this issue is allowed.” 9. Aggrieved with such order of CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds: 1. On the fads and circumstances of the case and in law, the Ld. C1T(A) erred in allowing the appeal of the assessee by merely relying on the appellate order passed by the NFAC in the case of Smt. Lata Prakash Pophale (AUKPP5101C), co-owner of the capital asset, without rebutting the factual aspects brought out by the Assessing Officer in the assessment order with regard to the transfer of the long term capital asset and deduction claimed u/s.54 of the I.T. Act, 1961. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.11,42,700/- made by the AO and allowing the same as cost of improvement, without appreciating that the 14 ITA No.283/PUN/2024 said payment was made by the assessee to Shri Ramesh Kondhare on 26/08/2019 i.e. after transfer of the asset and after issuance of show cause notice by the AO and therefore, the same was an afterthought. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting, the addition of Rs.2,26,33,135/- made by the AO and allowing the deduction u/s 54 of the I.T. Act, 1961 in respect of investment in new asset, irrespective of the fact that the condition laid down in the said provisions that the construction of the new residential house should be completed within the period of three years from die date of transfer of the original asset, was not fulfilled in the case. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring that the information obtained by the AO from the Local Municipal Corporation as well as the field inspection carried out through the Income Tax Inspector indicated that no completion / occupation certificate was issued by the Municipal Corporation and the construction of the building was still not completed.” 10. The Ld. DR strongly supported the order of Assessing Officer and submitted that the CIT(A) / NFAC allowed the cost of improvement to the extent of Rs.11,42,700/- without appreciating the fact that the said payment was made by the assessee to Shri Ramesh Kondhare on 26.08.2019 i.e. after the transfer of asset and after issue of show cause notice. Similarly, deduction u/s 54 of the Act amounting to Rs.2,26,33,135/- was erroneously allowed by the CIT(A) / NFAC when the assessee did not fulfill the conditions laid down in the said section. 11. The Ld. Counsel for the assessee on the other hand, while supporting the order of CIT(A) / NFAC filed a copy of the order of the Tribunal in the case of co- owner of the property i.e. Smt. Lata Prakash Pophale, spouse of the assessee and submitted that the Tribunal vide ITA No.566/PUN/2023, order dated 27.06.2023 for assessment year 2017-18 has dismissed the appeal filed by Revenue against the order of CIT(A) allowing the cost of improvement as well as deduction claimed u/s 15 ITA No.283/PUN/2024 54 of the Act. Therefore, this being a covered matter in favour of the assessee by the decision of the Tribunal in the case of other co-owner i.e. Smt. Lata Prakash Pophale, order of the CIT(A) / NFAC be upheld and the grounds raised by the Revenue be dismissed. 12. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed by both the sides. We have also considered the various decisions cited before us. So far as the first issue i.e. deletion of addition of Rs.11,42,700/- is concerned, we find the Assessing Officer disallowed the claim of cost of improvement to the extent of Rs.11,42,700/- out of total amount of Rs.30,42,700/- on the ground that the assessee has made payment of Rs.19 lacs to M/s. Vision Buildcon whereas the amount of Rs.20 lacs was paid by Shri Ramesh Kondhare, the purchaser of the property to M/s. Vision Buildcon. According to the Assessing Officer, no prudent person would wait for more than three years when there is no reference of such improvement in the sale deed. Further, the payment has been made only after the issue of show cause notice. We find the Ld. CIT(A) / NFAC allowed the claim of cost of improvement, the reasons of which are already reproduced in the preceding paragraphs. We do not find any infirmity in the order of Ld. CIT(A) / NFAC on this issue. We find the identical addition was made by the Assessing Officer in the hands of spouse of the assessee i.e. another co-owner. We find the Ld. CIT(A) / NFAC deleted the said addition and although the Revenue has filed an appeal against the order of CIT(A) / NFAC challenging the deduction u/s 54 / 54F of the 16 ITA No.283/PUN/2024 Act, however, no such ground was raised by the Revenue on the issue of cost of improvement in the hands of the spouse of the assessee. Once the Revenue has accepted the cost of improvement in the hands of the spouse of the assessee being the co-owner to the extent of her share, we find no reason as to how and why the Revenue is aggrieved against the order of CIT(A) / NFAC on this issue. Further, we find the CIT(A) / NFAC has given justifiable reasons while deleting the cost of improvement and the Ld. DR could not rebut the findings of the Ld CIT(A) / NFAC by producing any contrary material. In this view of the matter and in view of the detailed reasoning given, the order of CIT(A) / NFAC deleting the cost of improvement to the extent of Rs.11,42,700/- in the hands of the assessee is upheld and the grounds raised by the Revenue on this issue are dismissed. 13. So far as the second issue which relates to the order of CIT(A) / NFAC in allowing the claim of deduction u/s 54 of the Act amounting to Rs.2,26,33,135/- is concerned, we find the Assessing Officer in the instant case disallowed the claim of deduction u/s 54 of the Act on the ground that the assessee failed to comply with the conditions stipulated in section 54 of the Act i.e. he has not completed the construction within three years from the date of transfer of original asset on or before 26.07.2019. We find the CIT(A) / NFAC has allowed the claim of deduction u/s 54 of the Act, the reasons of which are already reproduced in the preceding paragraphs. We do not find any infirmity in the order of Ld. CIT(A) / NFAC on this issue. We find the CIT(A) / NFAC in the present case has given a finding that the assessee sold an old asset and realized the consideration and 17 ITA No.283/PUN/2024 applied the same for acquiring the new asset which is in the nature of residential house, which is evident from the purchase deed filed by the assessee. He has given a finding that the assessee has satisfied all the conditions as stipulated u/s 54 of the Act. Further, we find in the case of spouse of the assessee the claim of deduction u/s 54 of the Act was denied by the Assessing Officer and in appeal the CIT(A) / NFAC allowed the claim of the assessee. We find on appeal by the Revenue, the Tribunal vide ITA No.566/PUN/2023, order dated 27.06.2023 for assessment year 2017-18 has dismissed the appeal filed by the Revenue by observing as under: “3... The AO noted that assessee failed to file explanation to justify cost of improvement and deduction claimed u/s.54F of Act. The bills for cost of improvement uploaded by the assessee relates to construction of bungalow and not for cost of improvement. Some of the bills are in the name of her husband. Therefore, the AO disallowed the cost of improvement of Rs.30,42,000/- and also disallowed the claim u/s.54F of Act as the assessee had two other residential houses apart from the new property purchased. Accordingly, the AO calculated the LTCG of Rs.2,57,99,682/- on sale of above mentioned property and added the same to the total income of the assessee and passed order u/s.144 of the Act. 4. The ld. CIT(A) had given a finding on this issue that the claim of the assessee was deduction u/sec. 54 of the Act of Rs. 2,26,33,135/- as evident from ITR and computation of income filed for the A.Y. 2017-18 by the assessee and the AO had wrongly held that assessee had claimed deduction u/sec. 54F of the Act. Therefore, the adjudication conducted by the AO was on a wrong premise. Accordingly, the ld. CIT(A) in detailed order from para 7.4 onwards examined all the documents/evidences required to claim deduction u/sec. 54 of the Act and all those documents/evidences had been filed by the assessee before the AO as well. After examining all those details, the ld. CIT(A) held that the assessee had satisfied the conditions for claiming deduction u/sec. 54 of the Act, and hence, the matter was allowed in favour of the assessee. 5. We observe from the documents/materials filed on record that the assessee had never claimed deduction u/sec. 54F, but had rather claimed deduction u/sec. 54 as rightly held by the ld. CIT(A). The requisite details for claiming deduction u/sec. 54 had also been filed before the AO and accordingly, on examination of all those documents, the deduction was allowed by the ld. CIT(A). We do not find any infirmity with the findings of the ld. CIT(A). We also observe that there were no additional evidences entertained by the ld.CIT(A) on this issue and rather all those 18 ITA No.283/PUN/2024 evidences had been filed even at the level of ld. Assessing Officer. Further, ld.DR fairly conceded that it is a case of deduction claimed u/sec. 54 and not 54F of the Act. In view thereof, the findings of the ld. CIT(A) are upheld and the grounds of appeal filed by the Revenue are dismissed.” 14. Since the Assessing Officer in the hands of spouse of the assessee had disallowed the claim of deduction u/s 54 / 54F of the Act, which was allowed by the CIT(A) / NFAC and on an appeal by the Revenue the Tribunal has dismissed the appeal holding that the CIT(A) / NFAC has correctly allowed the claim of deduction u/s 54 of the Act, therefore, we do not find any reason as to how such claim of deduction in the hands of other co-owner i.e. assessee can be denied. In this view of the matter and in view of the detailed reasoning given by the CIT(A) / NFAC on this issue, we do not find any infirmity in the order of CIT(A) / NFAC. Accordingly, we uphold the second issue raised by the Revenue i.e. allowability of deduction u/s 54 of the Act to the extent of Rs.2,26,33,135/-. The grounds of appeal raised by the Revenue on this issue are accordingly dismissed. 15. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on 25 th June, 2024. Sd/- Sd/- (VINAY BHAMORE) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT प ु णे Pune; दिन ांक Dated : 25 th June, 2024 GCVSR 19 ITA No.283/PUN/2024 आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, ‘B’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune S.No. Details Date Initials Designation 1 Draft dictated on 18.06.2024 Sr. PS/PS 2 Draft placed before author 19.06.2024 Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order