S Vijayalakshmi, Chennai V. ITO, Non Corp Ward 10(5), Chennai

ITA 419/CHNY/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3436 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 18-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Cost of acquisition; Competent authority; Capital Gains
• Section: 54

Judgement Text

आयकर अपील सं./ITA No.419/Chny/2019 िनधा रण वष /Assessment Year: 2015-16 Smt. S. Vijayalakshmi, No.69, Flat No.S-2, Akshya Flats, Sixth Main Road, Teachers Colony, Kolathur, Chennai. v. The Income Tax Officer, Non-Corporate Ward-10(5), Chennai. [PAN: AHYPS 2042 M] (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओर से/ Appellant by : Mr.N.Quadir Hoseyn, Adv. यथ क ओर से /Respondent by : Ms.Helen Ruby Jesindha, JCIT सुनवाई क तारीख/Date of Hearing : 13.04.2022 घोषणा क तारीख /Date of Pronouncement : 28.04.2022 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)-12, Chennai, dated 31.01.2019 and pertains to assessment year 2015-16. 2. The assessee has raised the following grounds of appeal: 1. The order of the Commissioner of Income Tax (Appeals), in so far as it is against the appellant, is contrary to law erroneous and unsustainable on the facts of the case. Exemption claimed u/s 54: 2. The Commissioner of Income Tax (Appeals) erred in confirming the Assessment Order as regards claim u/s 54. 3. The Commissioner of Income Tax (Appeals) has failed to appreciate that the appellant had satisfied conditions required for claiming exemption u/s 54 and the "new property" in आयकर अपीलीय अिधकरण, ‘बी’ यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI ी वी. दुगा राव, माननीय ाियक सद एवं ी जी. मंजूनाथा, माननीय लेखा सद के सम BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER AND SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER ITA No.419/Chny/2019 :: 2 :: respect of which deduction u/s 54 was claimed is in fact and truth a residential property, capable of harmonious habitation and peaceful dwelling. 4. The Commissioner of Income Tax (Appeals) further failed to appreciate that notwithstanding the apparent nature of the building which has "approval as cottage industry" and "commercial" for electricity supply, it is factually correct to note that none of those activities as a matter of fact, were carried on and having due regard to the fact that the income arising therefrom was assessable under the head "income from property", there was no justification for rejecting the appellant's claim. 5. The Commissioner of Income Tax (Appeals) has erred in relying upon the categorization, in the Municipal Tax Records, as this by no means describes the actual character or usage of the building. 6. The Commissioner of Income Tax (Appeals) has ignored the fact that although saree business was carried on in the premises that was sold, the income from the same had been admitted under the head "property". 7. The Commissioner of Income Tax (Appeals) ought not to have ignored the fact that the entire sale proceeds obtained on transfer of old asset is invested in the construction of New Asset and hence the appellant is clearly entitled to the deduction claimed u/s.54 of the Act. 8. The Commissioner of Income Tax (Appeals) has given a grand goby to the several judicial pronouncements in this regard and hence, the order is wholly unjustified. 9. The Commissioner of Income Tax (Appeals) has failed to appreciate that if two views are possible regarding the allowability of claim u/s.54, the one that favours the subject is to be preferred, this being the considered view of the Apex Court. 10. In any view of the matter denial of exemption u/s.54 in entirety is uncalled for and totally unjustified. 3. The brief facts of the case are that the assessee filed its return of income for the AY 2015-16 on 31.08.2015 declaring total income at Rs.3,02,608/-. During the previous year relevant to the AY 2015-16, the assessee has sold a property at Chennai on 17.12.2014 for a consideration of Rs.1.03 Crs. and computed long term capital gains of Rs.99,09,344/- after claiming indexed cost of acquisition. The assessee had also claimed deduction u/s.54F of the Act, for construction of new residential house property. During the course of assessment proceedings, when the AO called upon the assessee to justify the claim of deduction u/s.54F of the Act, the assessee has filed various details, including plan approval from the competent authority and housing loan taken from M/s.CAN Fin Homes Ltd. ITA No.419/Chny/2019 :: 3 :: The AO, on the basis of information submitted by the assessee noted that the new house property constructed by the assessee, is a commercial one, which is not meant for residential purpose. Therefore, the assessee cannot claim deduction u/s.54F of the Act. According to the AO, the plan approval from the competent authority is for residential purpose. Further, the assessee has taken approval for running a cottage industry. The assessee had also taken loan from bank for construction of commercial property. Therefore, he opined that the assessee is not entitled for deduction u/s.54F of the Act and thus, rejected the arguments of the assessee and made additions of Rs.99,09,344/-. 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee had reiterated her arguments made before the AO. The Ld.CIT(A) after considering the relevant submissions of the assessee and also taken note of provisions of Sec.54 of the Act, observed that the assessee has invested sale consideration received from transfer of original asset for construction of commercial property, which was used for running a cottage industry, which is evident from various evidences filed by the assessee, including the plan approval for the building, Tax paid receipt and loans sanctioned letter by M/s.CAN Fin Homes Ltd. Therefore, opined that there is no error in the reasons given by the AO to reject the deduction claimed u/s.54F of the Act. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us. ITA No.419/Chny/2019 :: 4 :: 5. The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in not appreciating the fact that the assessee is satisfied the condition prescribed for claiming exemption u/s.54F of the Act, by investing sale consideration received from transfer of original assets for construction of new house property, the income from which is assessable under the head ‘income from house property’. The Ld.AR for the assessee referring to various documents, including order of the Ld.CIT(A) in deleting penalty levied by the AO u/s.271(1)(c) of the Act, argued that although, the Ld.CIT(A) has confirmed the additions made by the AO, but while deleting penalty levied u/s.271(1)(c) of the Act, very clearly observed that though, the assessee was constructed house by taking plan sanction for commercial purpose, but 2/3 rd of the house has been occupied for residence and only 1/3 rd of the house has been let out for commercial purpose. The Ld.CIT(A) has observed that the assessee never used the property for running a cottage industry. Therefore, from the above, it is very clear that although, documents shown house property is commercial in nature, but in reality, the house has been used for residential purpose and thus, the assessee is entitled for deduction u/s.54F of the Act. 6. The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submitted that evidences brought on record clearly indicate that the assessee has constructed new commercial house property, which has been used for running a cottage industry and further, let out for commercial purpose. The assessee has failed to file any evidence to prove that the ITA No.419/Chny/2019 :: 5 :: house is used for residential purpose. Therefore, the AO and the Ld.CIT(A) have rightly rejected the claim of the assessee and their orders should be upheld. 7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The provisions of Sec.54F of the Act, provides exemption for long term capital gains derived from transfer of property, in case, capital gains is invested in purchase/construction of residential house property. As per the provisions of Sec.54F of the Act, the condition precedent for claiming deduction is that sale consideration received from transfer of original asset, should be invested in purchase or construction of new residential house property. The term house property has not been defined under the Act, but various Courts have interpreted house property, as per which, house property means a property, the income from which is chargeable to tax under the head ‘income from house property’. If you go by the meaning assigned by various Courts, there is no differentiation between property which is used for residential purpose and property which is used for commercial purpose, but only condition for claiming exemption is that the new house property, should be constructed within specified period for the residential purpose. In this case, the claim of the assessee was that although, the documents including the plan approval from the competent authority shows the new house property is for commercial purpose, but in reality said property has been used for residential purpose. The assessee has taken support from ITA No.419/Chny/2019 :: 6 :: the order of the Ld.CIT(A)-12 dated 09.04.2019 in dealing with the penalty levied by the AO u/s.271(1)(c) of the Act, where the Ld.CIT(A) very categorically and candidly admitted that the assessee has used 2/3 rd of the property for residential purpose and 1/3 rd house property for letting out to commercial purpose. The Ld.CIT(A) further noted that there is no cottage industry running in the premise as claimed by the AO. The Ld.CIT(A) had also considered an Affidavit filed by Mr.N.Ranga Swamy. As per which, the assessee was ill-advised to get approval for running a cottage industry for the sake of obtaining quick loan from the bank. Otherwise, it was established from the facts that the house property was partially used for residential purpose and partially used for let out purpose and income from house property is chargeable to tax under the head ‘income from house property’. From the above, what is clear is that although, the evidences gathered during the course of assessment proceedings prove the fact that the house is commercial one, but in reality the house property has been predominantly used for residential purpose of the assessee. Therefore, on the basis of evidences, the deduction claimed by the assessee cannot be rejected. Further, the provisions of Sec.54F of the Act, is a beneficial provision, which is meant for encouraging investments in housing sector. As per the said provision, the assessee is allowed to claim deduction towards long term capital gains derived from sale of properties, if such long term capital gains is invested for construction of another house property. As per the said provision and also from the interpretation by various Courts, ITA No.419/Chny/2019 :: 7 :: the only condition precedent for claiming deduction is investment of sale consideration received from transfer of original asset for construction of new house property. In this case, the assessee has invested capital gains derived from transfer of original asset for construction of house property, which has been used for residential purpose as well as commercial purpose. Since, provisions of Sec.54F of the Act, is a beneficial provision, we are of the considered view that merely for the reason that the assessee has used part of house property for commercial purpose, the benefit of deduction u/s.54F of the Act, cannot be denied. 8. In this view of matter and considering facts and circumstances of the case, we are of the considered view that the assessee is entitled for deduction u/s.54F of the Act, towards capital gains derived from transfer of original asset. Hence, we direct the AO to delete additions made towards disallowance of deduction claimed u/s.54F of the Act. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced on the 28 th day of April, 2022, in Chennai. Sd/- (वी. दुगा राव) (V. DURGA RAO) याियक सद य/JUDICIAL MEMBER Sd/- (जी. मंजूनाथा) (G. MANJUNATHA) लेखा सद य/ACCOUNTANT MEMBER चे ई/Chennai, दनांक/Dated: 28 th April, 2022. TLN आदेश क ितिलिप अ ेिषत/Copy to: ITA No.419/Chny/2019 :: 8 :: 1. अपीलाथ /Appellant 4. आयकर आयु"/CIT 2. यथ /Respondent 5. िवभागीय ितिनिध/DR 3. आयकर आयु" (अपील)/CIT(A) 6. गाड फाईल/GF