R.MOHAN, CHENNAI V. ITO NONCORORATE WARD 7(4), CHENNAI

ITA 3128/CHNY/2018

AI Insights

The case involves Mr. R. Mohan, the proprietor of M/s.Innovative Auto Tec, who appealed against the order of the Commissioner of Income Tax (Appeals)-7, Chennai, concerning the assessment year 2012-13. The dispute centered on the re-computation of long-term capital gains and the disallowance of tax exemption under section 54 of the Income Tax Act, 1961, following the sale of inherited property. The Assessing Officer had re-computed the cost of acquisition and allowed deductions differently than claimed by the assessee, leading to the appeal. The Tribunal's decision addressed the method of calculating the cost of acquisition for capital gains and the conditions for claiming deductions under section 54.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127917 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 02-01-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 15-11-2018
• Other Referred Cases: CIT v. Manjula J. Shah [2013] 355 ITR 474 (Bom)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: INHERITANCE. HOWEVER; REMAINING; WAY OF GIFT OR WILL
• Keywords: Gift; Principle of natural justice; Cost of acquisition; Valuation report; Capital Gains
• Section: 54

Judgement Text

आयकर अपील सं./ITA No.3128/Chny/2018 िनधा रण वष /Assessment Year: 2012-13 Mr.R.Mohan, No.109, Vellalar Street, Ambattur, Chennai-600 058. v. The Income Tax Officer, Non-Corporate Ward-7(4), Chennai. [PAN: ARVPM 4705 E] (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओर से/ Appellant by : Mr.N.Arjunraj, CA For Mr.S.Sridhar, Adv. यथ क ओर से /Respondent by : Mr. AR.V.Sreenivasan, Addl.CIT सुनवाई क तारीख/Date of Hearing : 03.01.2023 घोषणा क तारीख /Date of Pronouncement : 18.01.2023 आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-7, Chennai, dated 27.08.2018 and pertains to assessment year 2012-13. 2. The assessee has raised the following grounds of appeal: 1. The order of the Commissioner of Income Tax (Appeals) - 7, Chennai dated 27.08.2018 in I.T.A.No.63/CIT(A)-7/2015-16 for the above mentioned Assessment Year is contrary to law, facts, and in the circumstances of the case. 2. The CIT (Appeals) erred in sustaining the re-computation of long term capital gains without assigning proper reasons and justification and ought to have appreciated that the re-computation of long term capital gains on various facets was wrong, erroneous, unjustified, incorrect and not sustainable in law. आयकर अपीलीय अिधकरण, ‘ए’ यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI ी महावीर िसंह, माननीय उपा , एवं ी जी. मंजूनाथा, , माननीय लेखा सद के सम BEFORE SHRI MAHAVIR SINGH, HON’BLE VICE PRESIDENT AND SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER ITA No.3128/Chny/2018 :: 2 :: 3. The CIT (Appeals) erred in sustaining the adoption of the cost of acquisition being the Fair Market Value as on 1.4.1981 in the re-computation of long term capital gains as well as went wrong in sustaining the indexation in relation to the cost of acquisition adopted by the Assessing Officer without assigning proper reasons and justification. 4. The CIT (Appeals) failed to appreciate that the adoption of cost of acquisition and indexation adopted by the Assessing Officer in the re-computation of long term capital gains was wrong, erroneous, unjustified, incorrect and not sustainable in law and ought to have appreciated that the provisions of section 49(1) of the Act was completely overlooked while the judicial trend on the said issue was also brushed aside, thereby vitiating the related findings. 5.The CIT(Appeals) erred in sustaining the restriction of the claim u/s 54 of the Act in the re-computation of long term capital gains without assigning proper reasons and justification. 6. The CIT(Appeals) failed to appreciate that the reasons given for the restriction of the said claim of tax exemption/deduction u/s.54 of the Act without cross verification were wrong, erroneous, unjustified, incorrect and not sustainable in law. 7. The CIT(Appeals) failed to appreciate that the evidence/facts placed on record were completely misread as well as overlooked while restricting the claim of tax exemption/deduction u/s.54 of the Act, thereby vitiating the related findings. 8. The CIT(Appeals) failed to appreciate that the utilization of the capital gains in creating the new asset on the purposive consideration of section 54 of the Act was completely omitted to be considered while resorting to strict interpretation of the said provisions of the Act which strict interpretation was consistently negatived in view of the judicial trend in relation thereto. 9. The ACIT failed to appreciate that the technical breach/violation of the conditions prescribed in the provisions of section 54 of the Act should not stand in the way for approving the claim for the said deduction in view of the admitted position of the creation of the new asset, thereby vitiating the related findings in para 4.1.6 of the impugned order. 10. The ACIT failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles of natural justice would be nullity in law. 11. The Appellant craves leave to file additional grounds/arguments at the time of hearing. 3. The brief facts of the case are that the assessee is the proprietor of M/s.Innovative Auto Tec, filed his return of income for the AY 2012-13 on 26.09.2013 declaring total income of Rs.2,38,960/-. During the Financial Year 2011-12 relevant to the AY 2012-13, the assessee has sold land and building at Kanchipuram, for a consideration of Rs.1.20 Crs. vide Document No.4713/2011 dated 22.09.2011. The property has been originally acquired by his father by Partition Deed dated 21.06.1977 and assessee got right over the property after demise of his father on 24.04.1993. The ITA No.3128/Chny/2018 :: 3 :: other legal heirs i.e. three sisters of the assessee executed Release Deed on 16.02.2006 in favour of the assessee vide Document No.493/2006 for a consideration of Rs.3 lakhs. The assessee has computed long term capital gains derived from sale of property by taking into account cost of acquisition as on 01.04.1981 in terms of provisions of Sec.49 of the Act. The assessee had claimed exemption u/s.54 of the Act, for purchase of residential house plot and construction of residential house thereon for a consideration of Rs.89,51,190/-. 4. During the course of assessment proceedings, the AO noticed that the assessee had computed indexed cost of acquisition by adopting Fair Market Value of the property as on 01.04.1981 contrary to the provisions of Sec.49 of the Act. Therefore, re-computed cost of acquisition and allowed benefit of indexation from 01.04.1981 in respect of 1/4 th share of property received by the assessee by inheritance. However, for remaining 3/4 th share of property, which assessee got right by way of Release Deed dated 16.02.2006, he has allowed indexation benefit from the FY 2006-07 and re-computed indexed cost of acquisition. The AO had also allowed deductions towards re-investment in purchase of another residential house property site to the extent of Rs.18,06,000/- which includes total consideration paid for purchase of property plus Stamp Duty and other incidental expenses. However, disallowed amount claimed to have been incurred for construction of house property on the ground that the assessee could not file any evidences to prove completion of house construction on ITA No.3128/Chny/2018 :: 4 :: or before due date prescribed under the Act. The assessee carried the matter in appeal before the First Appellate Authority, but could not succeed. The Ld.CIT(A) for the reasons stated in their appellate order dated 27.08.2018, rejected the arguments of the assessee and sustained the additions made by the AO towards re-computation of capital gains and disallowance of exemption claimed u/s.54 of the Act. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us. 5. The Ld.AR for the assessee referring to the decision of the Hon’ble Bombay High Court in the case of CIT v. Manjula J. Shah reported in [2013] 355 ITR 474 (Bom), submitted that while computing capital gains arising on transfer of capital asset acquired by assessee by way of gift or will, indexed cost of acquisition has to be computed with reference to the year in which previous owner first held asset, but not on the date assessee became owner of asset. He further referring to dates and events submitted that there is no dispute with regard to fact that the assessee had acquired the property from his late father by inheritance and further, although, nomenclature of deed executed by other legal heirs in favour of the assessee is Release Deed, but in fact, it is a Partition Deed which tantamount to acquiring property in any one of the modes specified u/s.49 of the Act. Therefore, the assessee has rightly computed cost of acquisition from the date previous owner held the asset, but the Ld.CIT(A) has ignored the relevant facts and sustained the additions made by the AO. As regards, deduction claimed u/s.54 of the Act, the Ld.Counsel for the assessee ITA No.3128/Chny/2018 :: 5 :: referring to various documents including building permission issued by Corporation of Chennai and EB Card for the new property submitted that the assessee has filed all evidences to prove construction of new residential house property within stipulated date. The AO ignoring all facts simply disallowed amounts spent for construction of house property only on the basis of suspicion and surmise. 6. The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submitted that as per the provisions of Sec.49 of the Act, cost to the previous owner needs to be considered only, in case, where the assessee acquired right over the property by way of gift or will or inheritance. In this case, no doubt, the assessee has acquired his 1/4 th share of property by inheritance, but remaining 3/4 th share of property, has been acquired form other legal heirs by way of Release Deed by payment of consideration. Therefore, the assessee cannot claim benefit of indexation from the date previous owner held asset. As regards, deduction claimed u/s.54 of the Act, the Ld.DR submitted that except a simple estimation from Valuer and EB Bill, the assessee could not furnish any evidence to prove completion of house property within stipulated date. Further, if you go by EB Bills before demolition and after new construction, there is no substantial change in electricity consumption. Therefore, on the basis of EB Bill, it cannot be held that the assessee has constructed new house to allow the benefit. ITA No.3128/Chny/2018 :: 6 :: 7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts with regard to impugned dispute are that the assessee has sold a land and building at Kanchipuram on 22.09.2011 for a consideration of Rs.1.20 Crs. The impugned property had been originally acquired by his father by Partition Deed in the year 1977 and he has died intense-state on 24.04.1993. The assessee is having three sisters and they had executed Release Deed on 16.02.2006 in favour of the assessee for remaining 3/4 th share of property for a consideration of Rs.3 lakhs. The assessee has computed cost of acquisition of the property by taking into account the period of asset held by previous owner in respect of whole property including 3/4 th share of property acquired by the assessee from other three legal heirs in the year 2006. The AO has allowed indexed cost of acquisition from the year in which the assessee became absolute owner of the property i.e. from 2006 onwards. 8. Having heard both sides, we find that in so far as 1/4 th share of property is concerned, the assessee is acquired right over the property by inheritance as per provisions of Sec.49 of the Act and thus, he is entitled to claim the benefit of indexation from the period the previous owner held the property or from 01.04.1991, whichever is later. Therefore, we direct the AO to allow benefit of indexed cost of acquisition towards 1/4 th share of property from the date of previous owner held the asset or from 01.04.1991 as claimed by the assessee. As regards remaining 3/4 th share ITA No.3128/Chny/2018 :: 7 :: of property, admittedly other three legal heirs had released their right in property in favour of the assessee on 16.02.2006 for a consideration of Rs.3 lakhs. Since, the assessee has acquired right over the property in respect of 3/4 th share of property from 2006, he cannot claim indexed cost of acquisition from the date previous owner held asset, because, 3/4 th share of property, has not been acquired in any one of the modes specified u/s.49 of the Act. Therefore, we direct the AO to allow the benefit of indexation for 3/4 th share of property from the year 2006. Thus, we direct the AO to re-compute capital gains arising out of transfer of property by adopting cost of acquisition as directed by us hereinabove. 9. Coming back to deduction claimed u/s.54 of the Act. There is no dispute with regard to the fact that the assessee had purchased another residential house property site. In fact, the AO has allowed deduction u/s.54 of the Act, towards amount spent for purchase of house property site and registration fees plus incidental charges amounting to Rs.18,06,000/-. The only dispute is with regard to amounts spent for construction of new building for Rs.71 lakhs. The assessee claims that he had spent remaining amount of Rs.71 lakhs for construction of house property, for which, the assessee has produced necessary evidences, including the ‘Building Permission’ issued by Corporation of Chennai, ‘Planning Permission’ issued by Corporation of Chennai, ‘Estimate’ for construction of residential building and relevant EB card for new building. The assessee had also obtained Valuation Report from approved Valuer ITA No.3128/Chny/2018 :: 8 :: along with photos of the new building and claimed that he has spent remaining amount for construction of house property within three years from the date of sale of original asset. We find that the assessee has obtained Demolition & Re-construction Permission’ from Corporation of Chennai on 15.05.2012 and also obtained ‘Building Plan Permission’ on 19.05.2012. If you go by the date of permission given by the Corporation of Chennai, then, it is within three years from the date of sale of original asset, which expires on 30.07.2012. But, fact remains that on the basis of ‘Building Permission Plan’ obtained on 19.05.2012, it cannot be assumed that the assessee has completed construction of house property on or before 30.07.2012. The assessee had also filed EB Card to prove that there is a new house construction. The assessee had also filed ‘Estimate’ for construction of residential building and Valuation Report obtained from approved Valuer along with photos taken, but fact remains that Valuation Report obtained from approved Valuer specified probable date of completion of construction of house property and further, the photographs alone cannot give any indication of completion of house property. Therefore, on the basis of said evidences, it cannot be concluded that the assessee has satisfied conditions prescribed u/s.54 of the Act, to allow the benefit. But fact remains that if you go by cumulative of all evidences filed by the assessee, there seems to be merit in the arguments of the Ld.Counsel for the assessee that the assessee has constructed a new house by demolishing old structure on property purchased in the year 2012 and ITA No.3128/Chny/2018 :: 9 :: hence, facts need to be further verification from the AO. Therefore, we set aside the issue of deduction claimed u/s.54 of the Act, to the file of the AO and direct the AO to re-examine the claim of the assessee in light of various evidences filed before us, including Building Plan Permission, EB Card and Valuation Report obtained from approved Valuer along with photographs of the building. The assessee is directed to furnish all evidences before the AO to justify his case. 10. In the result, appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced on the 18 th day of January, 2023, in Chennai. Sd/- (महावीर िसंह) (MAHAVIR SINGH) उपा /VICE PRESIDENT Sd/- (जी. मंजूनाथा) (G. MANJUNATHA) लेखा सद य/ACCOUNTANT MEMBER चे ई/Chennai, दनांक/Dated: 18 th January, 2023. TLN आदेश क ितिलिप अ ेिषत/Copy to: 1. अपीलाथ /Appellant 4. आयकर आयु"/CIT 2. यथ /Respondent 5. िवभागीय ितिनिध/DR 3. आयकर आयु" (अपील)/CIT(A) 6. गाड फाईल/GF