ISHWAR SINGH CHAWLA, MUMBAI V. DCIT 23(1), MUMBAI

ITA 5011/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7469 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2006-2007
• Appeal Filed On: 02-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Assessee Lawyers: R K BOTHRA
• Keywords: Source of fund
• Section: 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKO TAIAH ,(AM) ITA NO.5011/M/2009 ASSESSMENT YEAR : 2006-07 MR. ISHAR SINGH CHAWLA 201/202 KARMA STAMBH OPP. MTNL OFFICE, VIKROLI (W) MUMBAI-400 083. ..( APPELLANT ) P.A. NO. (AAAPC 7308 P) VS. DY. COMMISSIONER OF INCOME TAX WARD 23(1) MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI R.K. BOTHRA RESPONDENT BY : MS. VANDANA SAGAR O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 30.7.2009 PASSED BY THE LD. CIT(A) FOR TH E ASSESSMENT YEAR 2006-07. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN IN DIVIDUAL, DERIVES INCOME FROM HOUSE PROPERTY, BUSINESS, LONG TERM CAPITAL GAIN AND OTHER SOURCES. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.16,28,370/- WHICH WAS SUBSEQUENTLY REVISED ON A TOTAL INCOME OF RS.18,29,960/-. DURING THE COURSE OF ASSESSMENT IT WAS INTERALIA ITA NO.5011/M/09 A.Y:06-07 2 OBSERVED BY THE AO THAT THE ASSESSEE HAS DISCLOSED AN AMOUNT OF RS.1,81,660/- BEING TAXABLE CAPITAL GAIN ON SALE OF FL AT AND PLOT AS UNDER :- CAPITAL GAIN ON SALE OF FLAT AT ALTAMOUNT ROAD RS. 1,37,11,000 CAPITAL GAIN ON SALE OF PLOT AT RAJKOT RS. 2, 51,063 RS.1,39,62,063 LESS: INVESTED IN FLAT AT BANDRA RS.1,37,80,405 TAXABLE CAPITAL GAIN RS. 1,81,660 ON EXAMINATION, IT WAS FURTHER OBSERVED BY THE AO THA T THE ASSESSEE HAS ACQUIRED A NEW RESIDENTIAL HOUSE WITH THE HELP OF BORROWED FUNDS FROM PUNJAB NATIONAL BANK. HOWEVER, THE FUNDS RECEIVED ON TRANSFER OF PROPERTY WAS NOT USED TO CLEAR THE LOAN LIABILITY AVA ILED OF FOR ACQUIRING THE NEW RESIDENTIAL HOUSE AS THE LOAN WITH PNB WAS STIL L CONTINUING IN THE SUBSEQUENT YEARS AND ASSESSEE IS CLAIMING INTEREST ON BOR ROWED FUNDS AS A DEDUCTION FROM HIS INCOME. ACCORDING TO THE AO SEC.54(1) WAS NOT APPLICABLE IN THE CASE OF ASSESSEE, THE ASSESSEE WAS A SKED TO SHOW CAUSE AS TO WHY THE EXEMPTION ON CAPITAL GAINS SHOUL D NOT BE DENIED TO HIM. IN RESPONSE, THE ASSESSEE AFTER FILING C OPY OF LOAN ACCOUNT WITH BANK, DETAILS OF RECEIPT IN RESPECT OF HOUSE PROPERTY WHICH WAS SOLD AND UTILISATION THEREOF, AND COPY OF LEDG ER ACCOUNT IN THE BOOKS OF I.S. CHAWLA (HUF), SUBMITTED THAT ALL THE THREE CONDITIONS ARE SATISFIED AND HENCE HE IS ELIGIBLE FOR DEDUCTION U/S. 54(1) OF THE ITA NO.5011/M/09 A.Y:06-07 3 ACT. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES EXPLANAT ION AND HE CONCLUDED VIDE PARA-14 OF THE ASSESSMENT ORDER AS UNDER : 14. THUS, AS PER PROVISIONS OF SECTION 54(2), I F THE AMOUNT IS NOT APPROPRIATED BY THE ASSESSEE TOWA RDS PURCHASE OF A NEW ASSET MADE WITHIN ONE YEAR BEFORE THE DATE OF TRANSFER OF ORIGINAL ASSET THEN EITHER HE H AS TO DEPOSIT IT IN CAPITAL GAIN ACCOUNT WITH SPECIFIED INSTITUTIONS. THE TERM APPROPRIATED HAS NOT BEE N DEFINED IN THE ACT. HENCE THE GENERAL DICTIONARY ME ANING WILL HAVE TO BE ADOPTED. THE DICTIONARY MEANING OF APPROPRIATE IS DEVOTE(MONEY ETC.) TO SPECIAL PUR POSES. IT IS THEREFORE CLEAR FROM THE WORDING USED THAT MO NEY HAS TO BE USED FOR PURCHASE OF A NEW HOUSE AND THE INTENTION OF LEGISLATURE IS VERY CLEAR IN THIS REGA RD. ONLY THEN CAN THE ASSESSEE CLAIM DEDUCTION U/S.54. BESI DES ASSESSEE CANNOT ISOLATE SEC.54(1) FROM SEC.54(2), BECAUSE THE OPENING WORDS OF SEC.54(1) IS SUBJECT TO PROVISIONS OF SUB-SECTION 2. ASSESSEE CANNOT ADOP T AN INTERPRETATION WHICH IS BENEFICIAL TO HIM BY SELECT IVE USAGE OF CLAUSES. IN VIEW OF WHAT IS STATED ABOVE I HOLD THAT ASSESSEE HAS NOT UTILIZED THE ENTIRE GAINS ACC RUED ON TRANSFER OF ORIGINAL ASSET FOR PURCHASE OF A NEW A SSET. THE CAPITAL GAINS CHARGEABLE TO TAX IS WORKED OUT A S UNDER :- TOTAL CAPITAL GAINS AS PER RETURN OF INCOME .... RS.1,39,6 2,063 LESS: UTILISED FOR PURCHASE OF PROPERTY AS PER PARA 10 . RS. 82,22 ,826 RS. 57,39,237 LESS: STAMP DUTY PAID . RS. 6,4 5,000 RS. 50,94,237 ========== ACCORDINGLY THE AO ADDED RS.50,94,237/- AS LONG TERM CAP ITAL GAINS AND COMPLETED THE ASSESSMENT AT AN INCOME OF RS.65,37,107/ - VIDE ORDER DATED 10.11.2008 PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961(THE ACT). ITA NO.5011/M/09 A.Y:06-07 4 3. ON APPEAL THE LD. CIT(A) WHILE RELYING ON THE DE CISION OF THE TRIBUNAL IN SMT. PRAMILA A. PAREKH (ITA NO.7381/BOM /1994 DATED 18.7.2005) AND IN MILAN SHARAD RUPAREL (ITA NO.1920 /M/06 DATED 16.10.2008) HAS OBSERVED THAT THE PURCHASE OF NEW HOUSE IS PRIOR TO THE SALE OF OLD PROPERTY AND IT HAS BEEN ACQUIRED OUT OF BORROWED FUNDS. THE SALE PROCEEDS HAVE BEEN UTILISED FOR THE RE PAYMENT OF LOAN. THE AO HAS ALLOWED EXEMPTION TO THE EXTENT O F SUCH REPAYMENT. HOWEVER, THIS IS NOT CORRECT IN VIEW OF THE DECISIONS OF THE TRIBUNAL CITED ABOVE AND ACCORDINGLY HELD THAT THE APPELLANT I S NOT ENTITLED TO EXEMPTION CLAIMED U/S.54 OF THE ACT AT ALL. THUS, SHE E NHANCED THE ASSESSEES INCOME TO THE EXTENT. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER THE LD. CIT(A) WAS CORRECT IN HOLDING THAT THE APPELLANT IS NOT ENTITLED TO CLAIM EXEMPTION/DEDUCT ION FOR CAPITAL GAIN UNDER SECTION 54 OF THE INCOME TAX ACT , 1961(SIC) ON THE GROUND THAT THE NEW FLAT WAS PURCH ASED OUT OF BORROWED FUNDS AND NOT OUT OF THE SALE PROCE EDS OF THE FLAT SOLD. 2. ON THE FACTS AND CIRCUMSTANCES PF THE CASE, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN ENHANCING T HE AMOUNT OF TAXABLE CAPITAL GAIN FROM RS.1,66,660/- T O RS.1,39,62,063/-. 5. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITA NO.5011/M/09 A.Y:06-07 5 TRIBUNAL IN ACIT VS. DR. P.S. PASRICHA IN ITA NO.680 8/MUM/2003 FOR ASSESSMENT YEAR 2001-02 DATED 11.1.2008, UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. DR. P.S. PASRICHA I N INCOME TAX APPEAL NO.1825 OF 2009 DATED 7.10.2009. HE ALSO PLACE D ON RECORD THE COPY OF THE AFORESAID ORDER/JUDGMENT. 6. ON THE OTHER HAND THE LD. DR SUPPORTS THE ORDER O F THE AO AND THE LD. CIT(A). 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM TH E ASSESSMENT ORDER, AND THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE ASSESSEE HAS SOLD SELF OCCUPIED FLAT AT ALTAMOUNT ROAD, ON 16.12. 2005 RESULTING INTO LTCG OF RS.1,37,11,000/- AND THE ASSESSEE HAS PURCHASE D A NEW RESIDENTIAL HOUSE AT LORDS APTS., BANDRA ON 20.01.2005 AT A COST OF RS.1,37,80,405/- FOR WHICH THE ASSESSEE HAS CLAIMED DEDUCTI ON U/S.54, AS ACCORDING TO HIM THE CONDITION OF PURCHASING TH E FLAT FOR CLAIMING THE DEDUCTION U/S.54(1) IS SATISFIED. THE NEW F LAT WAS PURCHASED BY PARTLY TAKING BANK LOAN FROM PUNJAB NATI ONAL BANK & PARTLY FROM OWN FUNDS. THE ASSESSEE HAS PURCHASED THE NEW F LAT BY PAYING RS.20,45,637/- FROM SAVING ACCOUNT AND THROUGH I.S. CHAWLA HUF DEPOSIT ACCOUNT AND ALSO BY TAKING LOAN FROM PUNJAB NATIONAL ITA NO.5011/M/09 A.Y:06-07 6 BANK OF RS.1,17,50,000/-. THE ASSESSEE HAS PARTLY REPAID THE BANK LOAN OF PUNJAB NATIONAL BANK RS.70,42,802/- UP TO 31 .03.2006 OUT OF THE PROCEEDS OF SALE OF SOP FLAT. AS SUCH THE ASSESSEE HAS PA ID TOTAL AMOUNT OF RS.90,88,439/- (RS.20,45,637/- + RS.70,42,80 2/-) UP TO 31.03.2006. FURTHER THE ASSESSEE HAS ALSO REPAID THE BANK LOAN OF RS.1,65,837/- FROM 01.04.2006 TILL 31.10.2006 I.E. D UE DATE OF FILING OF RETURN. HOWEVER , THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS NOT UTILISED THE ENTIRE CAPITAL GAINS ACCRUED ON TRANSFER OF ORIGINAL ASSET FOR PURCHASE OF A NEW ASSET AND HENCE, HE WORKED OUT LONG TE RM CAPITAL GAINS AT RS.50,94,237/-. ON APPEAL, THE LD. CIT(A) OB SERVED THAT THE PURCHASE OF NEW HOUSE IS PRIOR TO SALE OF OLD PROPERTY A ND IT HAS BEEN ACQUIRED OUT OF BORROWED FUNDS, THE SALE PROCEEDS HAVE B EEN UTILISED FOR REPAYMENT OF LOAN AND HENCE, THE APPELLANT IS NOT ENTITLED TO EXEMPTION CLAIMED U/S.54 AT ALL. 8. IN ACIT VS. DR. P.S. PASRICHA (SUPRA) THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS ACQUIRED A RESIDENTIAL FLAT IN THE B UILDING KNOWN AS DILWARA AT COOPERAGE, MUMBAI AT COST OF RS.3,22,46 4/-. THE SAID PROPERTY WAS SOLD DURING THE YEAR FOR A TOTAL CONSIDERA TION OF RS.1,40,00,000/-. AFTER CLAIMING DEDUCTIONS FOR EXPENSE S INCURRED FOR SALE AND COST, LONG TERM CAPITAL GAINS WAS WORKED OUT BY THE ASSESSEE AT RS.1,24,02,738/-. THE ASSESSEE CLAIMED AN EXEMPTION UN DER SECTION ITA NO.5011/M/09 A.Y:06-07 7 54(1) OF THE ACT TO THE EXTENT OF RS.1,04,78,750/- AN D RETURNED THE TAXABLE CAPITAL GAIN AT RS.19,23,988/-. AFTER THE SA LE OF THE ABOVE PROPERTY, THE ASSESSEE PURCHASED A COMMERCIAL PROPERTY AT KOLHAPUR FOR A TOTAL CONSIDERATION OF RS.125.28 LAKHS AND GAVE T HE SAID PROPERTY ON RENT TO M/S. HUGES TELECOM LTD. THEREAFTER, WITHIN THE PERIOD SPECIFIED UNDER SECTION 54(1) OF THE ACT, THE ASSESSEE PURCHA SED TWO ADJOINING RESIDENTIAL FLATS AT MUMBAI FOR A TOTAL CONSI DERATION OF RS.1,04,78,750/- ON WHICH DEDUCTION WAS CLAIMED UNDER SE CTION 54(1) OF THE ACT. THE AO DISALLOWED THE CLAIM OF DEDUCTION U NDER SECTION 54 ON TWO GROUNDS NAMELY(1) THAT THE SALE PROCEEDS FROM OR IGINAL ASSET WERE NOT DEPLOYED FULLY IN THE NEW ASSET (2) THE ASSESSEE HAS NOT PURCHASED ONE SINGLE PROPERTY, BUT, TWO UNITS. ON APPE AL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. ON SECOND APPEA L BY THE REVENUE IT HAS BEEN HELD BY THE TRIBUNAL VIDE PARA - 9 AND 10 OF ITS ORDER DATED 11.1.2008 AS UNDER :- 9. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM CAREFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORIT IES AND PROVISIONS OF SECTION 54 OF THE ACT, WE FIND THAT ASSESSEE HAS INITIALLY UTILIZED THE SALE PROCEEDS ON SALE OF ITS RESIDENTIAL FLAT IN COMMERCIAL PROPERTIES AND LATER ON HE PURCHASED TWO RESIDENTIAL FLATS WITHIN A PERIOD SPE CIFIED IN SUB SECTION(2) OF SECTION 54 OF THE ACT, AND THESE FACTS ARE NOT DISPUTED BY THE REVENUE. THE REVENUES MAI N DISPUTE IS THAT THE SALE PROCEEDS WERE UTILIZED FOR PURCHASE OF A COMMERCIAL PROPERTY AND RESIDENTIAL H OUSE WAS PURCHASED OUT OF THE FUNDS OBTAINED FROM DIFFE RENT SOURCES, AS SUCH, THE IDENTITY OF HEADS HAS BEEN CH ANGED. WE DO NOT FIND MUCH FORCE IN THIS ARGUMENT AS THE ITA NO.5011/M/09 A.Y:06-07 8 REQUIREMENT OF SECTION 54 IS THAT THE ASSESSEE SHOU LD ACQUIRE A RESIDENTIAL HOUSE WITHIN THE PERIOD OF ON E YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH TRANSFE R TOOK PLACE. NOWHERE, IT HAS BEEN MENTIONED THAT THE SAM E FUNDS MUST BE UTILIZED FOR THE PURCHASE OF ANOTHER RESIDENTIAL HOUSE. THE REQUIREMENT OF THE LAW IS T HAT, THE ASSESSEE SHOULD PURCHASE A RESIDENTIAL HOUSE WITHIN THE SPECIFIED PERIOD AND SOURCE OF FUNDS IS QUITE IRREL EVANT. FOR THE SAKE OF REFERENCE, WE EXTRACT THE PROVISION S OF SECTION 54 AS UNDER :. 10. SINCE THE ASSESSEE HAS PURCHASED THE RESIDENTIAL HOUSE BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME, ITS CLAIM IS NOT HIT BY SUB-SECTI ON(2) OF SECTION 54 OF THE ACT. WE, THEREFORE, OF THE VIEW THAT ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 54 (1) OF THE ACT. 9. THE ABOVE ORDER OF THE TRIBUNAL HAS BEEN UPHELD B Y THE HONBLE BOMBAY HIGH COURT VIDE PARA-2 OF JUDGMENT DATED 7.10 .2009(SUPRA) AS UNDER:- 2. HAVING SEEN THE FINDING OF FACT RECORDED BY THE TRIBUNAL IN PARAGRAPH NO.9, THAT THE ASSESSEE HAD I NITIALLY UTILIZED THE SALE PROCEEDS OF SALE OF HIS RESIDENTI AL FLAT FOR PURCHASE OF COMMERCIAL PROPERTIES AND LATER ON HE PURCHASED TWO RESIDENTIAL FLATS WITHIN A PERIOD SPE CIFIED IN SUB SECTION(2) OF SECTION 54 OF THE ACT. IN THIS V IEW OF THE MATTER, THE VIEW TAKEN BY THE TRIBUNAL CANNOT B E FAULTED. THE APPEAL IS WITHOUT ANY SUBSTANCE. HENC E, THE SAME STANDS DISMISSED IN LIMINE WITH NO ORDER AS TO COST. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT O N RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE ORDER OF THE TR IBUNAL UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), HOLD TH AT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 54(1) OF THE ACT AND ACCORD INGLY THE AO AND ITA NO.5011/M/09 A.Y:06-07 9 THE LD. CIT(A) WERE NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE ALLOWED. 10. IN THE RESULT, THE ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4.3.2010. SD/- SD/- ( B. RAMAKOTAIAH ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 4.3.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 15.2.2010 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 17.2.2010 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 4.3.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 5.3.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER