Sri Pradeep Singh Gurung, Siliguri V. DCIT, Circle-3, Siliguri, Siliguri

ITA 374/KOL/2017

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4270 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 23-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: S AGARWAL
• Keywords: Salary income; Source of fund
• Section: 139; 54

Judgement Text

1 ITA NO. 374/KOL/2017 PRADEEP SINGH GURUNG, AY 2011-12 , D , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 374/KOL/2017 ASSESSMENT YEAR: 2011-12 PRADEEP SINGH GURUNG (PAN: AEDPG9995F) VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3, SILIGURI APPELLANT RESPONDENT DATE OF HEARING 17.07.2018 DATE OF PRONOUNCEMENT 10.10.2018 FOR THE APPELLANT SHRI S. AGARWAL, ADVOCATE FOR THE RESPONDENT SHRI A. BHATTACHARJEE, ADDL. CIT ORDER PER SHRI A.T.VARKEY, JM THIS APPEAL PREFERRED BY THE ASSESSEE IS AGAINST TH E ORDER OF LD. CIT(A), SILIGURI DATED 16.12.2016 FOR AY 2011-12. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL OF ASSESS EE IS AGAINST THE ORDER OF LD. CIT(A) IN RESTRICTING THE DEDUCTION TO THE EXTENT OF RS.16 ,97,479/- U/S. 54 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND HAS BEEN EARNING INCOME FROM SALARY AND ALSO OTHER INCOME VIZ., LONG TERM A ND SHORT CAPITAL GAIN ON SALE OF SHARES, HOUSE PROPERTY INCOME, DIVIDEND INCOME AND INCOME F ROM OTHER SOURCES. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESS EE HAS SHOWN TO HAVE EARNED LTCG OF RS.35,80,904/- ON SALE OF RESIDENTIAL HOUSE BUILDIN G SITUATED AT DELHI IN RELATION TO WHICH HE CLAIMED DEDUCTION U/S. 54 OF THE ACT ON THE GROUND THAT IT WAS INVESTED IN CONSTRUCTION OF A NEW RESIDENTIAL HOUSE PROPERTY. IN ORDER TO ASCERTA IN THE FACTS THE AO DEPUTED THE DEPARTMENTAL INSPECTOR TO ENQUIRE AND FURNISH REPOR T AND ACCORDINGLY HE FILED BEFORE AO HIS 2 ITA NO. 374/KOL/2017 PRADEEP SINGH GURUNG, AY 2011-12 REPORT. ACCORDING TO AO, ON 10.01.2014, THE AR OF T HE ASSESSEE APPEARED AND IN COURSE OF HEARING ADMITTED THAT THOUGH THE ASSESSEE CLAIMED D EDUCTION U/S 54 OF THE ACT WITH AN INTENTION OF MAKING INVESTMENT IN CONSTRUCTION OF H IS OWN HOUSE BUILDING DURING THE F.Y. 2010-11, 2011-12, & 2012-13 BUT THE ASSESSEE HAS MA DE AN INVESTMENT OF RS.13,61,727/- IN THE F. Y. 2010-11 FOR CONSTRUCTION OF HOUSE BUILDIN G BUT THE BALANCE AMOUNT THE ASSESSEE FAILED TO INVEST IN CONSTRUCTION OF RESIDENTIAL HOU SE PROPERTY IN SUBSEQUENT TWO FINANCIAL YEARS. ACCORDING TO AO, THE ASSESSEE ADMITTED HIS MISTAKE THAT HE FAILED TO MAKE INVESTMENT IN CONSTRUCTION OF HOUSE PROPERTY AND ST ATED THAT HE WOULD PAY FULL TAX THEREON WITH INTEREST. ACCORDINGLY THE AO TOOK NOTE OF THE DIFFERENCE OF AMOUNT THE ASSESSEES FAILURE TO MAKE INVESTMENT IN CONSTRUCTION OF HOUSE PROPERTY AND COMPUTED IT AT RS.22,19,177/- (RS.35,80,904/- - RS. 13,61727/-). ACCORDING TO AO, THE ASSESSEE FAILED TO INVEST RS.22,19,177/- IN CONSTRUCTION OF RESIDENTIA L HOUSE PROPERTY WITHIN STIPULATED TIME FRAME SO THE SAID SUM OF RS.22,19,177/- WAS ADDED T O ASSESSEES INCOME. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO RESTRICTED THE DEDUCTION U/S. 54 OF THE ACT TO THE EXTENT OF RS.16,97,479/- (RS.13,61,7 27/- + RS.3,35,752/-) OUT OF THE TOTAL CLAIM OF RS.35,80,905/- BY OBSERVING AS UNDER: I HAVE PERUSED THE ASSESSMENT ORDER AND SUBMISSIO NS MADE BY THE LD. A/R OF THE APPELLANT. IT HAS BEEN OBSERVED THAT DURING THE ASSESSMENT PRO CEEDINGS BEFORE THE AO, THE ERSTWHILE A/R OF THE APPELLANT MADE A WRITTEN SUBMISSION DATE D 10.01.2014 THAT INVESTMENT U/S 54 FOR EXEMPTION OF LONG TERM CAPITAL GAIN COULD NOT BE DO NE IN FULL BEFORE THE DUE DATE OF FILING OF INCOME TAX RETURN FOR THE AY 2011-12 AND PART OF CLAIM OF EXEMPTION U/S 54 OF THE ACT HAS BEEN MADE OUT OF OVERSIGHT. HE ALSO OFFERED THE PART OF SAID EXCESS CLAIM FOR TAXATION. HOWEVER, DURING THIS APPEAL, LD. A/R OF THE APPELLA NT CONTRADICTED THE SUBMISSION MADE BEFORE AO AND STATED THAT DURING THE COURSE OF HEAR ING OF THE-SCRUTINY CASE THE ASSESSEE COULD NOT EXPLAIN HIS CASE-PROPERLY BEFORE THE A.O AND WAS GUIDED BY THE OPINION OF THE A.O REGARDING ALLOWABILITY OF DEDUCTION U/S 54 AND ADMI TTED THAT HE HAS CLAIMED EXCESS DEDUCTION BY MISTAKE. CAREFUL READING OF SECTION 54(1) OF THE ACT MAKES I T CLEAR THAT THE ASSESSEE, TO CLAIM DEDUCTION UNDER THIS SECTION, SHOULD WITHIN A PERIO D OF ONE YEAR BEFORE OR TWO YEAR AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE PURCHASE, OR WITHIN A PERIOD OF THREE YEARS AFTER THAT DATE CONSTRUCTED ONE RESIDENTIAL HOUSE IN INDIA. THEREFORE, CONTENTION OF THE LD. A/R THAT CONDITION S LAID DOWN UNDER SECTION 54 PROVIDES ONLY FOR COMPLETION OF CONSTRUCTION OF HOUSE PROPER TY WITHIN THREE YEARS OF TRANSFER OF ORIGINAL ASSET, DOES NOT HOLD GOOD. AS THE LAW CLE ARLY MENTIONS THAT THE HOUSE PROPERTY SHOULD BE CONSTRUCTED WITHIN A PERIOD OF THREE YEAR S AFTER THE DATE ON WHICH TRANSFER TOOK PLACE, IT PRIMA FACIE EXCLUDES CONSTRUCTION MADE BE FORE THE DATE OF TRANSFER OF ORIGINAL ASSET. 3 ITA NO. 374/KOL/2017 PRADEEP SINGH GURUNG, AY 2011-12 THE LD. AR OF THE APPELLANT CITED SOME JUDICIAL PRO NOUNCEMENTS IN SUPPORT OF GROUNDS OF APPEAL IN THIS BEHALF. FACTS OF THE CASE IN ISHAR S INGH CHAWLA V. CIT [20L0] 130 TTJ (MUM)(UO) 108, DOES NOT MATCH WITH FACTS OF THIS CA SE, AS IN THAT CASE, PURCHASE OF NEW HOUSE PROPERTY WAS MADE WITHIN TIME FRAME STIPULATE D U/S 54(1) OF THE ACT AND ONLY THE MATTER WAS RELATED TO SOURCE OF FUND INVESTED UNDER THIS SECTION. IN CIT V. J.R. SUBRAMANYA BHAT (1987) 165 ITR 571 (KARN), IT WAS HELD THAT DA TE OF COMMENCEMENT OF CONSTRUCTION OF NEW BUILDING IS IMMATERIAL FOR BEING ELIGIBLE FOR D EDUCTION U/S 54 OF THE ACT. BUT, IN THIS CASE ALSO, THE HON'BLE HIGH COURT MADE THE HOUSE BUILDIN G ELIGIBLE FOR EXEMPTION UNDER THIS, CONSTRUCTION OF WHICH HAS BEEN STARTED BEFORE THE D ATE OF TRANSFER OF ORIGINAL ASSET AND NOT THE AMOUNT SPENT BEFORE THAT DATE. THE PRINCIPLE LA ID DOWN IN THAT CASE HAS BEEN RIGHTLY FOLLOWED BY THE AO IN THIS CASE BY ALLOWING EXEMPTI ON FOR EXPENSES INCURRED DURING FY 2010-11 ON CONSTRUCTION OF THE SAME RESIDENTIAL HOU SE, CONSTRUCTION OF WHICH WAS STARTED BEFORE THE DATE OF TRANSFER OF ORIGINAL ASSET. IF T HE INTERPRETATION TAKEN BY THE ASSESSEE WAS TO BE ACCEPTED THEN IT WOULD LEAD TO ABSURD RESULT. TA KE A CASE WHERE CONSTRUCTION OF HOUSE STARTS IN YEAR 2000, IN YEAR 2011 THE ASSESSEE SAY TRANSFERS A HOUSE, AS PER ASSESSEE'S INTERPRETATION HE CAN CLAIM EXEMPTION U/S 54 FOR AL L THE EXPENSES INCURRED FROM YEAR 2000 TO YEAR 2011, I.E. FOR LAST 11 YEARS. THIS WOULD BE AN ABSURD RESULT WHICH COULD NOT HAVE BEEN INTENDED BY THE LEGISLATURE. THERE IS AN ECONOMIC R ATIONALE FOR EXISTENCE OF SECTION 54. THIS PROVISION IS FOR FACILITATING MOVEMENT OF HOUSING . IF SOMEONE WANTS TO CHANGE HIS HOUSE, IT SHOULD BE TAX NEUTRAL. APPARENTLY ALLOWING PAST CON STRUCTION EXPENSES COULD NOT HAVE BEEN INTENDED. IN VIEW OF THE ABOVE DISCUSSION, DISALLOWANCE MADE B: THE AO ON ACCOUNT OF AMOUNT SPENT FOR CONSTRUCTION IN EARLIER YEAR THEN THE YEAR OF T RANSFER IS HEREBY UPHELD AND ALL THE GROUNDS OF THE APPELLANT IN THIS BEHALF ARE DISMISSED. IT HAS BEEN ADMITTED BY THE APPELLANT THAT RS.3,35, 752/- HAS BEEN SPENT DURING THE PERIOD FROM 01-04-11 TO 31-07-12 (DUE DATE OF FILING OF RE TURN FOR A.Y. 11-12) FOR CONSTRUCTION OF SAID RESIDENTIAL HOUSE. BY VIRTUE OF SUB-SECTION 2 OF THE SECTION 54, AMOUNT UTILIZED BY THE ASSESSEE FOR THE PURCHASE OR CONSTRUCTION OF THE NE W ASSET BEFORE THE DATE OF FURNISHING THE RETURN OF INCOME UNDER SECTION 139 FOR THE YEAR IN WHICH TRANSFER TOOK PLACE, SHALL QUALIFY FOR DEDUCTION U/S 54 OF THE ACT. THEREFORE, THE AO IS H EREBY DIRECTED TO ENHANCE THE AMOUNT OF EXEMPTION U/S 54 OF THE ACT BY RS.3,35,752/- AND GR OUNDS OF APPELLANT IN THIS BEHALF IS ALLOWED TO THE EXTENT OF THIS AMOUNT. AGGRIEVED BY THE AFORESAID DECISION OF THE LD. CIT( A), THE ASSESSEE IS BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT ASSESSEE IS AN INDIVIDUAL, WHO HAS DERIVED LONG TERM CAPITAL GAIN OF RS.35,80,904/- ON SALE OF HIS RESIDENTIAL HOUSE PRO PERTY IN DELHI DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AND HAD CLAIMED DEDUCTION U/S. 54 OF THE ACT SINCE ACCORDING TO ASSESSEE, CAPITAL GAIN WAS INVESTED IN CONSTRUCTION OF A NEW RESIDENTIAL HOUSE PROPERTY AS PER THE SAID PROVISIONS OF THE ACT. ACCORDING TO L D. AR, THE AMOUNT SPENT FOR CONSTRUCTION OF NEW RESIDENTIAL HOUSE WAS TO THE TUNE OF RS.38,3 9,746/-, OUT OF WHICH RS.21,42,267/- HAS BEEN SPENT BY THE ASSESSEE IN THE IMMEDIATE PRECEDI NG YEAR I.E. AY 2010-11; RS.13,61,727/- IN THE RELEVANT AY 2011-12 AND RS.3,35,752/- FROM 0 1.04.2011 TO 31.07.2012 WHICH IS THE 4 ITA NO. 374/KOL/2017 PRADEEP SINGH GURUNG, AY 2011-12 DUE DATE OF FILING OF THE RETURN FOR THE RELEVANT A SSESSMENT YEAR UNDER CONSIDERATION BEFORE US (AY 2011-12). SO, THE ASSESSEE CLAIMED DEDUCTIO N U/S. 54 OF THE ACT OF LTCG OF RS.35,80,904/- WHICH CLAIM WAS NOT ACCEPTED BY THE AO WHO RESTRICTED THE DEDUCTION TO RS.13,61,727/- BEING THE AMOUNT INVESTED IN RESPECT TO THE NEW RESIDENTIAL HOUSE PROPERTY IN THE ASSESSMENT YEAR UNDER CONSIDERATION (AY 2011-12 ONLY) AND THEREAFTER, HE DISALLOWED RS.22,19,177/- (RS.35,80,904 RS.16,97,479/-) WHIC H WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) WAS PLEASED T O GIVE PARTIAL RELIEF TO THE ASSESSEE BY GIVING FURTHER DEDUCTION OF RS.3,35,752/-, WHICH WA S THE AMOUNT THE ASSESSEE INVESTED FROM 01.04.2011 TO 31.07.2012 ( UP-TO THE DUE DATE OF FI LING OF RETURN). THUS LD. CIT(A) GAVE DEDUCTION TO THE EXTENT OF RS.16,97,479/- (RS.13,61 ,727 + RS.3,35,752/-) OUT OF THE TOTAL CLAIM OF RS.35,80,905/-. ACCORDING TO LD. CIT(A), AN ASSESSEE IN ORDER TO CLAIM DEDUCTION UNDER SECTION 54 OF THE ACT SHOULD WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE, PURCHASE OR WITHIN A PERIOD OF THREE YEARS AFTER THE DATE CONSTRUCTED ONE RESIDENTIAL HOUSE IN INDIA THE N ONLY THE ASSESSEE QUALIFIES FOR DEDUCTION U/S. 54 OF THE ACT. ACCORDING TO LD. CIT(A), THE D EDUCTION CANNOT BE ALLOWED FOR CONSTRUCTION OF RESIDENTIAL HOUSE MADE BEFORE THE D ATE OF TRANSFER OF ORIGINAL ASSET, THEREFORE, HE DISALLOWED THE AMOUNT EXPENDED FOR CONSTRUCTION OF NEW RESIDENTIAL HOUSE PROPERTY FOR AY 2010-11. WE DO NOT SUBSCRIBE TO THE SAID INTERP RETATION MADE BY THE LD. CIT(A) FOR THE SIMPLE REASON THAT IN ORDER TO CLAIM DEDUCTION U/S. 54 OF THE ACT THE ASSESSEE HAS TO PURCHASE A HOUSE WITHIN A PERIOD OF ONE YEAR BEFORE OR TWO Y EARS AFTER THE DATE ON WHICH THE TRANSFER OF THE OLD ASSET TOOK PLACE OR CONSTRUCTED ONE RESI DENTIAL HOUSE IN INDIA WITHIN A PERIOD OF THREE YEARS. THE PARLIAMENT HAS GIVEN THIS DEDUCTI ON FOR ASSESSEES TO INVEST THEIR CAPITAL GAIN UPON SALE OF OLD ASSET FOR ACQUIRING RESIDENTI AL HOUSE WITHIN THE PERIOD OF TIME AS PRESCRIBED AND NOTED ABOVE. WE NOTE THAT FOR PURCH ASE OF NEW RESIDENTIAL HOUSE PROPERTY, THE DEDUCTION IS ALLOWED IN THE EVENT THE ASSESSEE PURCHASED THE NEW RESIDENTIAL HOUSE PROPERTY TAKES PLACE BEFORE ONE YEAR OF THE TRANSFE R OF OLD ASSET OR PURCHASE OF NEW PROPERTY HAPPENS TWO YEARS AFTER THE DATE OF SALE OF THE OLD ASSET WHICH MEANS PURCHASE OF NEW RESIDENTIAL HOUSE PROPERTY CAN BE INDULGED BY AN AS SESSEE ONE YEAR BEFORE THE DATE OF SALE OF THE OLD ASSET, THEN THE ASSESSEE QUALIFIES DEDUCTIO N U/S. 54 OF THE ACT. HOWEVER, THE LD. CIT(A) HAS NOT ALLOWED THE CLAIM OF DEDUCTION BECAU SE ASSESSEE HAS STARTED CONSTRUCTION OF 5 ITA NO. 374/KOL/2017 PRADEEP SINGH GURUNG, AY 2011-12 NEW RESIDENTIAL HOUSE ONE YEAR BEFORE THE SALE OF P ROPERTY CANNOT BE COUNTENANCED. SINCE IT DOES NOT STAND TO LOGIC THAT AN ASSESSEE WHO STARTS CONSTRUCTING A NEW RESIDENTIAL HOUSE WITHIN ONE YEAR BEFORE THE SALE OF THE OLD ASSET CA NNOT GET THE BENEFIT OF DEDUCTION U/S. 54 OF THE ACT HOWEVER, AN ASSESSEE WHO PURCHASES A NEW RE SIDENTIAL PROPERTY A YEAR BEFORE SALE OF PROPERTY IS ALLOWED DEDUCTION U/S. 54 OF THE ACT IS ILLOGICAL. THE PURPOSE OF GIVING DEDUCTION U/S. 54 OF THE ACT IS TO ENCOURAGE THE AS SESSEE TO INVEST IN RESIDENTIAL PROPERTY WHETHER IT IS PURCHASE OR CONSTRUCTION OF RESIDENTI AL HOUSE. THEREFORE, THE ACTION/INTERPRETATION OF THE LD. CIT(A) TO DENY THE CLAIM OF THE ASSESSEE FOR THE INVESTMENT MADE BY THE ASSESSEE FOR CONSTRUCTION OF RESIDENTIA L HOUSE PROPERTY WITHIN ONE YEAR BEFORE THE DATE OF SALE OF THE OLD ASSET CANNOT BE COUNTEN ANCED. THEREFORE, WE FIND FORCE IN THE GROUND RAISED BY THE ASSESSEE THAT THE ENTIRE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 54 OF THE ACT NEEDS TO BE ALLOWED AND, THEREFORE, THE BAL ANCE AMOUNT OF RS.18,83,426/- (RS.35,80,905/- AND RS.16,97,479/-) ALSO NEED TO BE ALLOWED AND WE DIRECT THE AO TO ALLOW RS,35,80,905/- AS DEDUCTION U/S. 54 OF THE ACT. IN ORDER TO COME TO SUCH A CONCLUSION, WE TAKE NOTE OF THE RATIO DECIDENDI LAID BY THE HONBL E KARNATAKA HIGH COURT IN THE CASE OF CIT VS. J. R. SUBRAMANIAM BHAT (1987) 165 ITR 571, THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. H. K. KAPOOR (DECEASED) 234 ITR 753 , HONBLE KERALA HIGH COURT IN THE CASE OF ITO VS. K. C. GOPALAN 107 TAXMAN 591 AND HO NBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARTI MISHRA, ITA NO. 567 OF 2013 AND T HE DECISION OF ITAT, HYDERABAD BENCH IN THE CASE OF DCIT VS. VIDYASAGAR DONTINENI, ITA NOS. 632 & 1238/HYD/2013 FOR AYS 2009-10 & 2010-11 DATED 28.01.2015. THUS THE A PPEAL OF THE ASSESSEE IS ALLOWED. 5. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2018. SD/- SD/- (DR. A. L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10TH OCTOBER, 2018 JD.(SR.P.S.) 6 ITA NO. 374/KOL/2017 PRADEEP SINGH GURUNG, AY 2011-12 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT SHRI PRADEEP SINGH GURUNG, TEA AUCTI ON ROAD, HIMALAYAN APARTMENT, SILIGURI. 2 RESPONDENT DCIT, CIRCLE-3, SILIGURI 3. 4. 5. CIT(A), SILIGURI CIT, SILIGURI DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY