Sanjay Kanna, Gurgaon V. DDIT, New Delhi

ITA 5852/DEL/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2757 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 22-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 20-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Question of law; Cost of acquisition
• Section: 54F; 54

Judgement Text

1 ITA NO. 5852/DEL/2012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 5852/DEL/2012 (ASSESSMENT Y EAR 2009-10) SANJAY KHANNA C/O. JEETAN NAGPAL, FCA, 1118-1119, DLF GALLERIA, DLF PHASE-IV GURGAON AAFPK8362G (APPELLANT) VS DDIT CIRCLE-3(1) INTERNATIONAL TAXATION NEW DELHI (RESPONDENT) APPELLANT BY SH. SANJIV SAPRA, FCA RESPONDENT BY SH. N. K. BANSAL, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 13/9/2012 PASSED BY CIT(A)-XXIX, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT( A)] HAS ERRED IN: 1.1. CONFIRMING THE ADDITION OF RS. 92,96,818 UNDER THE HEAD LONG- DATE OF HEARING 22.05.2017 DATE OF PRONOUNCEMENT 14.07.2017 2 ITA NO. 5852/DEL/2012 TERM CAPITAL GAINS ON SALE OF RESIDENTIAL HOUSE NO . 9, ROAD NO. V-34, DLF PHASE III GURGAON HARYANA BY DENYING THE EXEMPTION UNDER SECTION 54 OF INCOME-TAX ACT, 1961 (ACT). 1.2. CONFIRMING THE ADDITION OF RS 4,12,655, IN THE NAT URE OF INTEREST ON BORROWED FUNDS, ON ACCOUNT OF ADJUSTMENT IN INDE XED COST OF ACQUISITION FOR COMPUTATION OF LONG TERM CAPITAL GA INS. 2. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN: 2.1. CONFIRMING THE FINDING OF THE ASSESSING OFFICER THA T THE APPELLANTS CASE FALLS UNDER THE CATEGORY OF PURCHASE OF NEW HO USE AND NOT THE CONSTRUCTION OF A RESIDENTIAL HOUSE AS STIPULAT ED U/S 54 IN COMPLETE DISREGARD TO CIRCULAR NO.672 DATED 16.12.9 3 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES. 2.2. NOT APPRECIATING THE FACT THAT THE CIRCULARS AND IN STRUCTIONS, ISSUED BY THE CBDT IN EXERCISE OF POWERS UNDER SECTION 119 ARE BINDING ON THE AUTHORITIES ADMINISTERING THE TAX DEPARTMENT AND ARE ALSO CLEARLY IN THE NATURE OF CONTEMPORANEOUS EXPOSITION FURNISHING LEGITIMATE AID TO THE CONSTRUCTION OF THE ACT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING: 3.1. THE FACT THAT BOOKING OF AN APARTMENT WITH A BUILDE R WAS A CASE OF CONSTRUCTION AND NOT PURCHASE OF RESIDENTIAL FLAT, THEREFORE, APPLICABLE TIME PERIOD WOULD BE THREE YEARS AND NOT TWO YEAR. 3.2. THE FACT THAT WHERE THE APPELLANT HAS MADE INVESTME NT IN THE CONSTRUCTION OF NEW HOUSE PROPERTY WITHIN A PERIOD OF THREE YEARS EXEMPTION U/S 54 COULD NOT BE DENIED. 3.3. FURTHER, THAT TAKING OF POSSESSION MAY BE DELAYED B ECAUSE OF MANY FACTORS NOT UNDER CONTROL OF APPELLANT AND MER ELY BECAUSE POSSESSION HAD NOT BEEN TAKEN WITHIN THREE YEARS, E XEMPTION U/S 54 COULD BE DENIED. 4. THAT WITHOUT PREJUDICE, EVEN IF THE APPELLANTS CASE WAS TO BE COVERED UNDER THE CATEGORY OF PURCHASE OF NEW HOUSE AS STIPULATED U/S 54 THE DATES OF PURCHASE OF NEW RESIDENTIAL APA RTMENT AND OF THE SALE OF HOUSE PROPERTY HAVE BEEN ERRONEOUSLY AD OPTED BY THE REVENUE. 3 ITA NO. 5852/DEL/2012 3. THE ASSESSEE IS A NON-RESIDENT INDIAN AND FI LED HIS RETURN OF INCOME ON 10/7/2009 DECLARING THEREIN INCOME OF RS.2,98,550/- COMPRISING OF LONG TERM CAPITAL GAINS AND INCOME FROM OTHER SOURCES. DURING ASSESSMENT YEAR UNDER CONSIDERATION, HE SOLD A RESIDENTIAL HOUSE FO R A SUM OF RS.1,16,50,000/- BY WAY OF SALE DEED DATED 11/4/200 8. THIS PROPERTY WAS ACQUIRED ON 10/12/1996 FOR A PRICE OF RS.10,16,943/ -. THE ASSESSEE HAD INCURRED INTEREST COST OF RS.2,16,255/- ON LOAN TAK EN TO ACQUIRE THE PROPERTY AND INCLUDED IT IN COST OF ACQUISITION. LONG TERM CAPITAL GAINS WAS WORKED OUT TO BE RS.97,09,473/- AFTER CONSIDERING INDEXED COST OF ACQUISITION. THE ASSESSEE CLAIMED EXEMPTION U/S 54 OF THE INCOME-TAX ACT, 1961 AS HE HAD INVESTED RS.1,03,22,025/- ON 22/4/2008 IN FLAT BEIN G CONSTRUCTED BY A DEVELOPER UNDER AGREEMENT DATED 3/1/2007. THE A.O DENIED EXEMPTION U/S 54 OF THE ACT AND BROUGHT LONG TERM CAPITAL GAINS T O TAX ON GROUNDS THAT THE ASSESSEE DID NOT HAVE FIRM OWNERSHIP OF THE PROPERT Y, THE ASSESSEE HAD NOT MADE SUBSTANTIAL PAYMENTS TOWARDS PURCHASE OF PROPE RTY AS ON DATE OF FILING THE RETURN, THE SAID FLAT CLAIMED AS EXEMPT FALLS U NDER CATEGORY OF FIRST PART OF SECTION 54(1) I.E PURCHASE OF THE PROPERTY AND A CCORDINGLY SHOULD HAVE BEEN PURCHASED AFTER 11/4/2007 I.E. ONE YEAR BEFORE DATE OF SALE (11- 04- 2008) AND THE ASSESSEE HOWEVER ENTERED INTO AGREEME NT ON 3/1/2007 FOR ACQUIRING NEW RESIDENTIAL PROPERTY, THE PROPERTY SH OULD HAVE BEEN PURCHASED/CONSTRUCTED WITHIN TIME FRAME AS MENTIONE D IN SECTION 54 AND THE SUBSTANTIAL PAYMENTS MADE FOR PURCHASE/CONSTRU CTION OF NEW HOUSE DOES NOT ENTITLE FOR CLAIM OF EXEMPTION U/S 54, TR EATMENT OF GRANTING EXEMPTION VIDE CIRCULAR 471 DATED 15/10/1986 AND 6 72 DATED 16/12/1993 ARE APPLICABLE ONLY TO DDA, REGISTERED SOCIETIES A ND OTHER SIMILAR INSTITUTIONS BUT NOT TO DEVELOPERS. 4. THE ASSESSEE CHALLENGED THE ACTION OF THE A.O BEFOR E THE CIT(A). THE CIT(A) UPHELD THE ADDITION BY HOLDING THAT THE ASS ESSEE HAS NOT SATISFIED VARIOUS REQUIREMENTS OF SECTION 54 OF THE ACT & THE REFORE, EXEMPTION U/S 54 OF THE ACT IS NOT AVAILABLE. AS RELATES TO ISSUE OF INTEREST EXPENSES ON 4 ITA NO. 5852/DEL/2012 BORROWED FUNDS THE SAME WAS ALSO NOT ALLOWED BY THE CIT(A) BY HOLDING THAT THE ASSESSEE CAN CLAIM DEDUCTION OF SUCH EXPENSES U /S 24(B) OF THE ACT & THERE IS NO PROVISION IN THE ACT FOR TREATING SUCH EXPENSES AS COST OF ACQUISITION OF THE HOUSE. 5. THE LD. AR SUBMITTED THAT INVESTMENT MADE BY THE ASSESSEE IN THE NEW ASSET FALLS UNDER THE CATEGORY OF CONSTRUCTION AN D NOT PURCHASE AS SPECIFIED IN SECTION 54 OF I.T. ACT FOR WHICH LD. A R RELIED UPON THE CBDT CIRCULAR NO. 471 DATED 15/10/1986 READ WITH CIRCULA R NO. 672 DATED 16/12/1993 AND STATED THAT THE TERMS OF SCHEME OF A LLOTMENT AND CONSTRUCTION OF BELAIRE APARTMENT (NEW ASSET) AS PR OVIDED IN APARTMENT BUYERS AGREEMENT ARE SIMILAR TO THOSE AS MENTIONED IN PARA 2 OF CBDT CIRCULAR 471 DATED 15/10/1986 . THE CIRCULAR NO. 672 DATED 16/12/1993 WAS CONSIDERED BY ITAT MUMBAI JUDGMENT IN THE CASE OF ACIT VS. SMT. SUNDER KAUR SUJAN SINGH GADH (3 SOT 206) . RELEVANT EXTRACTS FROM PARA 10 OFF SUCH JUDGMENT ARE REPRODUCED BELOW: AS PER BOARDS CIRCULAR NO. 672, DATED 16-12-1993 THE BOARD AFTER REFERRING TO THE ABOVEMENTIONED CIRCULAR NO. 471 EX TENDED THE FACILITY OF EXEMPTION UNDER SECTIONS 54 AND 54F IN RESPECT OF ALLOTMENT OF FLATS/HOUSE BY CO-OPERATIVE SOCIETIES AND OTHER INSTITUTIONS, AND THE ALLOTMENT AND CONSTRUCTION OF THE FLAT BY CO- OPERATIVE SOCIETIES AND OTHER INSTITUTIONS ARE TO B E CONSIDERED IN SIMILAR MANNER FOR THE PURPOSE OF ALLOWING EXEMPTIO N UNDER SECTION 54. THE ABOVE CIRCULARS ARE BINDING ON THE REVENUE AUTHORITIES UNDER SECTION 119 OF THE ACT. SINCE THE FLAT HAS BEEN ALLOTTED TO THE ASSESSEE BY THE BUILDER WHO WOULD FALL IN THE CATEG ORY OF OTHER INSTITUTIONS MENTIONED IN THE CIRCULARS, IT HAS TO BE TAKEN AS A CASE OF CONSTRUCTION OF THE RESIDENTIAL FLAT AND NOT AS A P URCHASE OF A RESIDENTIAL FLAT . THE LD. AR FURTHER SUBMITTED THAT BOARDS CIRCULAR NO. 471 DATED 15-10- 1986, HAS ALSO BEEN CONSIDERED BY HONBLE BOMBAY HI GH COURT IN THE CASE OF CIT V. HILLA J.B. WADIA 216 ITR 376 (BOM). THUS, THE LD. AR SUBMITTED THAT THE CIT(A) WAS INCORRECT IN OBSERVIN G THAT THE ASSESSEES CASE FALLS UNDER THE CATEGORY OF PURCHASE OF NEW HO USE WHEN IT IS CLEARLY A CASE OF CONSTRUCTION OF NEW HOUSE. 5 ITA NO. 5852/DEL/2012 6. THE LD. AR FURTHER SUBMITTED THAT THERE IS NO RE STRICTION UNDER SEC. 54 IF CONSTRUCTION OF NEW ASSET IS STARTED PRIOR TO SALE OF OLD ASSET FOR WHICH RELIED UPON THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. BHARTI MISHRA (41 TAXMANN.COM 50) THESE SYNOPSIS. RELEVANT PORTION FROM PARA 12 & 13 OF SUCH JUDGMENT ARE REPRODUCED BELOW: 12. SECTION 54F(1) IF READ CAREFULLY STATES THAT T HE ASSESSEE BEING AN INDIVIDUAL OR HINDU UNDIVIDED FAMILY, WHO HAD EA RNED CAPITAL GAINS FROM TRANSFER OF ANY LONG TERM CAPITAL NOT BE ING A RESIDENTIAL HOUSE COULD CLAIM BENEFIT UNDER THE SAID SECTION PR OVIDED, ANY ONE OF THE FOLLOWING THREE CONDITIONS WERE SATISFIE D; (I) THE ASSESSEE HAD WITHIN A PERIOD OF ONE YEAR BEFORE THE SALE, PURCHASED A RESIDENTIAL HOUSE; (II) WITHIN TWO YEAR S AFTER THE DATE OF TRANSFER OF THE ORIGINAL CAPITAL ASSET, PURCHASE D A RESIDENTIAL HOUSE AND (HI) WITHIN A PERIOD OF THREE YEARS AFTER THE DATE OF SALE OF THE ORIGINAL ASSET, CONSTRUCTED A RESIDENTIAL HO USE. 13. FOR THE SATISFACTION OF THE THIRD CONDITION, IT IS NOT STIPULATED OR INDICATED IN THE SECTION THAT THE CONSTRUCTION MUST BEGIN AFTER THE DATE OF SALE OF THE ORIGINAL/OLD ASSET. THERE IS NO CONDITION OR REASON FOR AMBIGUITY AND CONFUSION WHICH REQUIRES M ODERATION OR READING THE WORDS OF THE SAID SUB-SECTION IN A DIFF ERENT MANNER. THUS, THE LD. AR SUBMITTED THAT AS MENTIONED IN PAR A 6 OF SUCH JUDGMENT, SECTION 54 IS PARI MATERIA TO SECTION 54F. HENCE TH E ABOVE JURISDICTIONAL DELHI HIGH COURT JUDGMENT APPLIES ON ALL FOURS TO T HE FACTS OF ASSESSEES CASE. IN VIEW OF THE ABOVE FACTS, CIRCUMSTANCES AND LEGAL POSITION, IT IS IMMATERIAL THAT THE ASSESSEE HAD ENTERED INTO APART MENT BUYERS AGREEMENT FOR THE NEW ASSET WITH THE BUILDER DLF PRIOR TO ONE YEAR BEFORE THE DATE OF TRANSFER OF ORIGINAL ASSET PARTICULARLY WHEN SUCH C ONSTRUCTION WAS COMPLETED SUBSEQUENT TO THE TRANSFER OF ORIGINAL ASSET AND SU BSTANTIAL AMOUNT OF ABOUT 94% OF THE COST OF THE NEW ASSET HAD BEEN PAI D WITHIN THE TIME LIMITS AS SPECIFIED U/S 54 OF THE ACT. 7. THE LD. AR FURTHER SUBMITTED THAT TIME LIMIT AS PROVIDED IN SECTION 54(1) FOR MAKING INVESTMENT OF CAPITAL GAINS IN NEW ASSET HAVE BEEN FULLY COMPLIED WITH BY THE ASSESSEE AS EXPLAINED BELOW: (I) OLD ASSET WAS SOLD ON 11/04/2008 AND THEREFORE, TIM E LIMIT FOR 6 ITA NO. 5852/DEL/2012 INVESTING CAPITAL GAINS IN CONSTRUCTION OF NEW ASSE T WOULD HAVE EXPIRED ON 10/04/2011. (II) FROM CLAUSE 10.1 OF THE APARTMENT BUYERS AGREEMENT FOR NEW ASSET , IT WOULD BE EVIDENT THAT THE SCHEDULED COMPLETION O F CONSTRUCTION OF NEW ASSET WAS JANUARY, 2010 (I.E. WITHIN A PERIOD O F 3 YEARS FROM THE DATE OF EXECUTION OF THIS AGREEMENT ON 03/01/2007). HENCE, AS PER SUCH AGREEMENT, CONSTRUCTION OF NEW ASSET WAS TO BE COMPLETED WELL WITHIN THE TIME LIMIT OF 3 YEARS AS SPECIFIED IN SE CTION 54(1) FROM THE DATE OF TRANSFER OF ORIGINAL ASSET IN APRIL, 2008. (III) EVEN IF FOR ARGUMENTS SAKE, THE TIME LIMIT AS SPECI FIED IN SECTION 54 IS TO BE CONSIDERED AS 2 YEARS FROM TRANSFER OF ORIGIN AL ASSET AS SPECIFIED IN CASE OF PURCHASE (AND NOT CONSTRUCTION) OF NEW A SSET, THEN ALSO, THE SCHEDULED DATE FOR GIVING POSSESSION OF THE NEW ASS ET IN JANUARY, 2010 WAS WELL WITHIN SUCH 2 YEAR TIME LIMIT FROM AP RIL, 2008. (IV) OUT OF TOTAL CONSIDERATION OF RS.2,36,81,250/- (WHI CH WAS LATER ENHANCED TO RS.2,40,18,750) FOR THE NEW ASSET, THE APPELLANT ON 22/04/2008 HAD PAID RS.1,03,22,025/- TO THE BUILDER /DLF AND ON SUCH PAYMENT ALONGWITH TOTAL OF INSTALLMENTS PAID P RIOR TO THAT OF RS. 1,18,40,625/- ACCOUNTED FOR 94% OF THE TOTAL CONSID ERATION AMOUNT AS MENTIONED IN THE APARTMENT BUYERS AGREEMENT AND AS PER DETAILS REFLECTED IN ANNEXURE I TO THE SYNOPSIS. (V) HENCE, NOT ONLY THE LONG TERM CAPITAL GAINS OF RS.9 2,96,818/- AS WORKED OUT BY THE APPELLANT BUT THE ENTIRE SALE PRO CEEDS OF RS.1,16,50,000/- AS RECEIVED ON SALE OF OLD ASSET S TOOD INVESTED IN THE NEW ASSET WITHIN THE TIME LIMIT AS SPECIFIED IN SEC TION 54. (VI) THE SALE DEED/POSSESSION OF THE NEW ASSET WAS DELAYED BY DLF BEYOND THE SCHEDULED COMPLETION DATE OF JANUARY 201 0 DUE TO LITIGATION BETWEEN DLF AND APARTMENT BUYERS OF BELA IRE BEFORE THE COMPETITION COMMISSION OF INDIA (CCI) UNDER THE CO MPETITION ACT, 2002. THE DISPUTE INVOLVED SOME CLAUSES OF THE AGR EEMENT BETWEEN DLF AND THE PERSONS DESIROUS OF PURCHASING THE FLAT S/APARTMENTS IN BELAIRE. AS IS EVIDENT FROM NEWSPAPER REPORT ATTACH ED AS ANNEXURE IV TO THE SYNOPSIS, IN SUCH LITIGATION CCI MODIFIED SO ME OF THE CLAUSES IN THEIR APARTMENT BUYERS AGREEMENT IN ORDER TO MAKE IT CONSISTENT WITH THE RELEVANT PROVISIONS OF THE LAWS APPLICABLE TO DEVELOPMENT OF GROUP HOUSING PROJECTS IN HARYANA SINCE AS PER CCI SUCH PROVISIONS WERE MANDATORY FOR EVERY DEVELOPER/ BUILDER. AS A R ESULT, THE COMPLETION OF CONSTRUCTION AND POSSESSION OF APARTM ENTS IN BALAIRE WERE DELAYED DUE TO CIRCUMSTANCES BEYOND THE CONTRO L OF THE APPELLANT. CCIS ORDER DATED 12/08/2011 AND ALSO TH E APPELLATE ORDER DATED 13/01/2013 ARE IN PUBLIC DOMAIN. (VII) THE DELAY IN CONSTRUCTION/ HANDING OVER THE P OSSESSION BEYOND JANUARY 2010 IS ATTRIBUTABLE TO DLF WHICH IS ALSO B ORNE OUT BY THE FACT THAT DLF ADMITTED TO COMPENSATE THE APPELLANT FOR THIS DELAY 7 ITA NO. 5852/DEL/2012 W.E.F. JANUARY 2010 TO JANUARY 2012 AND ACTUALLY PA ID A COMPENSATION OF RS. 873,465/-. PLEASE SEE DLFS LET TER DATED 31/01/2012 OF THE PAPER BOOK. POSSESSION OF THE NEW ASSET WAS TAKEN BY THE APPELLANT ON 26/08/2012 VIDE POSSESSION LETT ER (VIII) HENCE, THE APPELLANT HAVING INVESTED THE EN TIRE SALE PROCEEDS FROM SALE OF ORIGINAL ASSET IN THE CONSTRUCTION OF NEW A SSET BEFORE THE EXPIRY OF STIPULATED 3 YEAR PERIOD FROM SALE OF ORI GINAL ASSET, THEREFORE, CONDITIONS OF SECTION 54 STAND FULFILLED . THE DELAY IN COMPLETION OF CONSTRUCTION AND HANDING OVER OF NEW ASSET BEYOND THE STIPULATED 3 YEAR PERIOD WAS DUE TO CIRCUMSTANCES B EYOND THE CONTROL OF THE APPELLANT AS EXPLAINED ABOVE FOR WHICH BENEF IT OF SECTION 54 CANNOT BE DENIED. RELIANCE IS PLACED ON THE FOLLOWI NG CASE LAWS: 8. FOR CLAIMING EXEMPTION U/S 54, IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD OBTAIN POSSESSION OF THE NEW ASSET OR BECOME THE OWNER OF SUCH NEW ASSET BY WAY OF REGISTRATION OF DOCUMENT WITHIN THE TIME LIMIT AS SPECIFIED THEREIN AS LONG AS THE ASSESSEE HAS ACQUIRED SUBSTA NTIAL DOMAIN OVER THE NEW ASSET AND PAID SUBSTANTIAL AMOUNT OF ITS COST W ITHIN SUCH SPECIFIED TIME LIMITS. THE LD. AR RELIED UPON CIT VS. KULDEEP SINGH (JURISDICTIONAL DELHI H.C.) 270 CTR 561 IN WHICH IT WAS HELD AS UND ER: IT IS ACCEPTED POSITION AND IT IS NOT DISPUTED BY THE REVENUE THAT AMOUNT HAD BEEN INVESTED BY THE ASSESSEE FOR PURCHASE OF F LAT. HOWEVER, LEGAL TITLE IN THE SAID PROPERTY WAS NOT PASSED OR TRANSFERRED TO THE ASSESSEE WITHIN A PERIOD OF TWO YEARS FROM THE DATE OF SALE OF RESIDENTIAL PROPERTY. THE FLAT WAS STILL UNDER CONSTRUCTION THOUGH THE BUILDER HAD ENT ERED INTO AND EXECUTED THE FLAT BUYERS AGREEMENT WITH THE ASS ESSEE. THE SAID AGREEMENT MENTIONS THE APARTMENT NUMBER AND GIVES S PECIFIC DETAIL OF THE PROPERTY. THE PAYMENTS WERE LINKED TO STAGE OF CONS TRUCTION AND THAT AMOUNT WAS PAYABLE WITHIN 21 MONTHS OF BOOKING. THE CONSIDERATION BEING PAID BY THE ASSESSEE WAS NEARLY 9 TIMES INCOM E BY WAY OF CAPITAL GAINS WHICH WAS EARNED BY THE ASSESSEE. [PARA 7], THE BASIC PURPOSE BEHIND SECTION 54 IS TO ENSURE TH AT THE ASSESSEE IS NOT TAXED ON THE CAPITAL GAINS, IF HE REPLACES HIS HOUS E WITH ANOTHER HOUSE AND SPENDS MONEY EARNED ON THE CAPITAL GAINS WITHIN THE STIPULATED PERIOD. [PARA 12]. THE LD. AR ALSO RELIED ON THE CASE OF CIT VS. R L S OOD 245 ITR 727 (JURISDICTIONAL DELHI H.C.). IN THIS CASE, THE ASSE SSEE HAD ENTERED INTO AN 8 ITA NO. 5852/DEL/2012 AGREEMENT OF SALE AND MADE PAYMENTS TOWARDS PURCHAS E CONSIDERATION WITHIN ONE YEAR OF SALE OF HIS OLD FLAT. RELIEF U/S 54 WAS FOUND ADMISSIBLE THOUGH REGISTRATION OF SALE DEED WAS MADE SUBSEQUEN TLY. THE TRIBUNAL HELD THAT EXEMPTION UNDER SECTION 54 WAS AVAILABLE AS SU BSTANTIAL AMOUNT OF COST OF NEW HOUSE WAS PAID WITHIN A YEAR, ACQUIRING SUBSTANTIAL CONTROL AND DOMAIN DURING THE PERIOD. THE HIGH COURT, THEREFORE , HELD THAT NO REFERABLE QUESTION OF LAW ARISES. THE LD. AR ALSO RELIED UPON THE CASE OF BALRAJ VS. CIT 254 ITR 22, (JURISDICTIONAL DELHI H.C.). IN THIS CASE, IT WAS H ELD THAT FOR CLAIMING EXEMPTION UNDER SECTION 54, IT IS NOT NECE SSARY THAT THE ASSESSEE SHOULD BECOME THE OWNER OF THE PROPERTY PURCHASED B Y REGISTRATION OF THE DOCUMENT AS PROVIDED UNDER SECTION 17 OF THE REGIST RATION ACT. IT WAS FURTHER HELD THAT SECTION 54 SPEAKS OF PURCHASE. TH IS CASE HAS BEEN RELIED UPON BY THE INDORE BENCH OF MADHYA PRADESH HIGH COU RT IN CIT VS. AJIT SINGH KHAJANCHI (2008) 297 ITR 95 (MP). THUS, THE LD. AR FURTHER SUBMITTED THAT THE ASSESSE E HAD ACQUIRED SUBSTANTIAL DOMAIN OVER THE NEW ASSET AND HAD PAID SUBSTANTIAL AMOUNT OF THE COST OF NEW ASSET WITHIN THE SPECIFIED TIME LIM ITS OF SECTION 54 OF THE I.T. ACT FROM THE DATE OF SALE OF ORIGINAL ASSET. 9. THE LD. AR SUBMITS THAT SECTION 54 OF I.T. ACT BEIN G AN INCENTIVE PROVISION, THE SAME SHOULD BE LIBERALLY CONSTRUED A ND BENEFIT SHOULD BE GIVEN TO THE ASSESSEE. RELIANCE IS PLACED ON THE FO LLOWING CASE LAWS: I. BAJAJ TEMPO LTD. VS. CIT 196 ITR 188 (SUPREME COURT ) IN WHICH AT PAGE 189, IT WAS HELD AS UNDER: A PROVISION IN A TAXING STATUTE GRANTING INCENTIVE S FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALL Y; AND SINCE A PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY, THE RESTRICTION ON IT TOO HAS TO BE CONS TRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO F RUSTRATE IT. II. CIT VS. GWALIOR RAYON SILK CO. LTD. 196 ITR 149 (SU PREME COURT), IN WHICH IT WAS HELD AS UNDER IT IS EQUALLY SETTLED LAW THAT IF THE LANGUAGE IS PLAIN AND 9 ITA NO. 5852/DEL/2012 UNAMBIGUOUS ONE CAN ONLY LOOK FAIRLY AT THE LANGUAG E USED AND INTERPRET IT TO GIVE EFFECT TO THE LEGISLATIVE ANIM ATION. NEVERTHELESS TAX LAWS HAVE TO BE INTERPRETED REASONABLY AND IN C ONSONANCE WITH JUSTICE ADOPTING PURPOSIVE APPROACH. THE CONTE XTUAL MEANING HAS TO BE ASCERTAINED AND GIVEN EFFECT TO. A PROVISION FOR DEDUCTION, EXEMPTION OR RELIEF SHOULD BE CONSTRUED REASONABLY AND IN FAVOUR OF THE ASSESSEE. III. CIT VS. J.H. GOTLA 156 ITR 323 (SUPREME COURT), IN WHICH IT WAS HELD AS UNDER: IF A STRICT AND LITERAL CONSTRUCTION OF THE STATUT E LEADS TO AN ABSURD RESULT, I.E., A RESULT NOT INTENDED TO BE SU BSERVED BY THE OBJECT OF THE LEGISLATION ASCERTAINED FROM THE SCHE ME OF THE LEGISLATION, THEN, IF ANOTHER CONSTRUCTION IS POSSI BLE APART FROM THE STRICT LITERAL CONSTRUCTION, THEN, THAT CONSTRUCTIO N SHOULD BE PREFERRED TO THE STRICT LITERAL CONSTRUCTION. WHERE THE PLAIN LITERAL INTERPRETATION OF A STATUTO RY PROVISIONS PRODUCES A MANIFESTLY UNJUST RESULT WHICH COULD NEV ER HAVE BEEN INTENDED BY THE LEGISLATURE, THE COURT MIGHT MODIFY THE LANGUAGE USED BY THE LEGISLATURE SO AS TO ACHIEVE THE INTENT ION OF THE LEGISLATURE AND PRODUCE A RATIONAL RESULT. BY THE COURT: THOUGH EQUITY AND TAXATION ARE OFTEN STRANGERS, ATTEMPTS SHOULD BE MADE THAT THESE DOE NOT REMAIN A LWAYS SO AND IF A CONSTRUCTION RESULTS IN EQUITY RATHER THAN IN INJUSTICE, THEN SUCH CONSTRUCTION SHOULD BE PREFERRED TO THE L ITERAL CONSTRUCTION. 10. THE LD. AR FURTHER SUBMITTED THAT EVEN OTHERWIS E, IF THERE ARE TWO VIEWS POSSIBLE, THEN THE ONE WHICH IS IN FAVOUR OF THE ASSESSEE MUST BE ADOPTED AS HELD BY THE HONBLE SUPREME COURT. THUS, THE LD. AR SUBMITTED THAT EXEMPTION OF RS.92,96,818/- U/S 54 OF I.T. ACT AS CLAIMED FROM LONG TERM CAPITAL GAINS DESERVES TO BE ALLOWED. 11. AS RELATES TO THE GROUND NO. 1.2, FOR TREATING THE INTEREST EXPENSES OF RS.2,16,255/- ON BORROWED FUNDS TOWARDS COST OF ACQ UISITION OF RESIDENTIAL HOUSE AS TRANSFERRED. THE AO HAS DEALT WITH THIS ISSUE VIDE PARA 2.1 TO 2.4 AT PAGE 2-3 OF THE ASSESSMENT ORDER. THE CIT(A) HAS HELD THAT SUCH INTEREST CAN BE CLAIMED AS A DEDUCTION U/S 24(B) OF I.T. ACT AND THERE IS NO PROVISION FOR TREATING SUCH EXPENSE AS COST OF ACQUISITION OF THE HOUSE. AS THE ASSESSEE HAD NOT CLAIMED SUCH INTEREST EXPENSE AS A DEDUCTION ON SUCH SELF 10 ITA NO. 5852/DEL/2012 OCCUPIED HOUSE PROPERTY UNDER ANY SECTION LIKE 24(B ) OR 57 OF I.T. ACT, THEREFORE, IT WAS ENTITLED TO CLAIM IT AS PART OF C OST OF ACQUISITION OF SUCH HOUSE. MODE OF COMPUTATION OF CAPITAL GAINS IS DEFI NED IN SECTION 48 ACCORDING TO WHICH COST OF ACQUISITION OF THE ASSET AND THE COST OF ANY IMPROVEMENT THERETO IS TO BE DEDUCTED FROM FULL VAL UE OF CONSIDERATION TO ARRIVE AT THE CAPITAL GAINS. HENCE, INTEREST PAID O N BORROWINGS FOR ACQUISITION OF A CAPITAL ASSET MUST FALL FOR DEDUCT ION U/S 48 PROVIDED THE SAME HAS NOT BEEN CLAIMED AS A DEDUCTION UNDER OTHE R HEADS LIKE THOSE U/S 57 AS HAS BEEN HELD BY KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MAITHREVI PAI 152 ITR 247 . 12. THE LD. DR SUBMITTED THAT CONSTRUCTION AND PURCHASE ARE DIFFERENT ASPECTS. CIRCULAR NO. 471 READ WITH 672 IS NOT APP LICABLE TO THE CONSTRUCTION AND DEVELOPERS. THE AGREEMENT WAS PRI OR TO ONE YEAR ALMOST 50% PAYMENT WAS DONE BY THE ASSESSEE. SO, HE WAS T HE OWNER. THERE WAS NO CONVERSATION WHICH WAS DONE WITHIN TWO YEARS ON THE POSSESSION WAS ALSO NOT OBTAIN BY THE ASSESSEE SO THIS DOES AMOUNT TO PURCHASE. THE ASSESSEE HAS NOT ESTABLISHED THAT IT HAS MADE 94% O F THE AMOUNT OF THE SALE VALUE INTO PURCHASE VALUE. THE LD. DR ALSO SUBMITT ED THAT CASES SUBMITTED BY THE LD. AR ARE NOT IDENTICAL, IN-FACT, THEREFORE , SHOULD NOT BE REFUND TOO AND RELIED UPON. AS RELATED TO INTEREST THE CIT(A) WAS RIGHT. 13. WE HAVE HEARD BOTH THE PARTIES IT IS PERTINE NT TO NOTE THAT THE CIRCULAR NO. 471 & 672 ALSO MENTIONS THE OTHER INSTITUTIONS WHICH INCLUDES DEVELOPERS AND BUILDERS. THE ASSESSEE HAS SHOWN ON RECORD THAT THE SALE VALUE OF THE EARLIER PROPERTY HAS BEEN TOTALLY BEEN UTILIZED IN THE PURCHASE VALUE OF THE NEW PROPERTY. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BHARTI MISHRA HAS ALSO HELD IN PARA 14 AS UNDER :- SECTION 54F IS A BENEFICIAL PROVISION AND IS APPLI CABLE TO AN ASSESSEE WHEN THEH OLD CAPITAL ASSET IS REPLACED BY A NEW CA PITAL ASSET IN FORM OF A RESIDENTIAL HOUSE. ONCE AN ASSESSEE FALLS WIT HIN THE AMBIT OF A 11 ITA NO. 5852/DEL/2012 BENEFICIAL PROVISION, THEN THE SAID PROVISION SHOUL D BE LIBERALLY INTERPRETED. THE HON'BLE SUPREME COURT IN CCE VS. FAVOURITE INDUSTRIES, [2012] 7 SCC 153 HAS SUCCINCTLY OBSERVE D:- 21. FURTHERMORE, THIS COURT IN ASSOCIATED CEMENT COMPANIES LTD VS. STATE OF BIHAR [(2004) 7 SCC 642], WHILE EX PLAINING THE NATURE OF THE EXEMPTION NOTIFICATION AND ALSO THE MANNER IN WHICH IT SHOULD BE INTERPRETED HAS HELD: (SCC P. 6 48, PARA 12). 12. LITERALLY EXEMPTION IS FREEDOM FROM LIABI LITY, TAX OR DUTY. FISCALLY IT MAY ASSUME VARYING SHAPES, SPECIALLY, I N A GROWING ECONOMY. IN FACT, AN EXEMPTION PROVISION IS LIKE A N EXCEPTION AND ON NORMAL PRINCIPLE OF CONSTRUCTION OR INTERPRETATI ON OF STATUES IT IS CONSTRUED STRICTLY EITHER BECAUSE OF LEGISLATIVE IN TENTION OR ON ECONOMIC JUSTIFICATION OF INEQUITABLE BURDEN OF PRO GRESSIVE APPROACH OF FISCAL PROVISIONS INTENDED TO AUGMENT S TATE REVENUE. BUT ONCE EXCEPTION OR EXEMPTION BECOME APPLICABLE NO RULE OR PRINCIPLE REQUIRES IT TO BE CONSTRUED STRICTLY. TR ULY SPEAKING, LIBERAL AND STRICT CONSTRUCTION OF AN EXEMPTION PRO VISION IS TO BE INVOKED AT DIFFERENT STAGE OF INTERPRETING IT. WHE N THE QUESTION IS WHETHER A SUBJECT FALLS IN THE NOTIFICATION OR IN T HE EXEMPTION CLAUSE THEN IT BEING IN THE NATURE OF EXCEPTION IS TO BE CONSTRUED STRICTLY AND AGAINST THE SUBJECT BUT ONCE AMBIGUITY OR DOUBT ABOUT APPLICABILITY IS LIFTED AND THE SUBJECT FALLS IN TH E NOTIFICATION THEN FULL PLAY SHOULD BE GIVEN TO IT AND IT CALLS FOR A WIDER AND LIBERAL CONSTRUCTION.(SEE UNION OF INDIA VS. WOOD PAPER LTD . [(1990) 4 SCC 256: 1990 SCC (TAX) 422] AND MANGALORE CHEMICAL S AND FERTILIZERS LD.CIT(A) VS. DY CCT [1992 SUPP (1) SCC 21] TO WHICH REFERENCE HAS BEEN MADE EARLIER). 22. IN G.P CERAMICS (P) LTD. VS. DY. COMMISSIONER , TRADE TAX (2009) 2 SCC 90], THIS COURT HAS HELD: (SCC PP. 10 1-02, PARA 29) 29. IT IS NOW A WELL-ESTABLISHED PRINCIPLE OF LAW THAT WHEREAS ELIGIBILITY CRITERIA AND LAID DOWN IN AN EXEMPTION NOTIFICATION ARE REQUIRED TO BE CONSTRUED STRICTLY, ONCE IT IS FOUND THAT THE APPLICANT SATISFIED THE SAME, THE EXEMPTION NOTIFIC ATION SHOULD BE CONSTRUED LIBERALLY, [ SEE CTT VS. DFM GROUP OF IND USTRIES [ (2005)] 1 SCC 657] (SCC PARA 26); TISCO LTD. VS. ST ATE OF JHARKHAN [(2005) 4 SCC 272] (SCC PARAS 42-45); STAT E LEVEL COMMITTEE VS. MORGARDSHAMMAR INDIA LTD. { [(1996) 1 SCC 108}; 12 ITA NO. 5852/DEL/2012 NOVOPAN INDIA LTD VS. CCE & CUSTOMS {1994 SUPP (3) SCC 606); A.P. STEEL RE-ROLLING MILL LD. VS. STATE OF KERALA {2007) 2 SCC 725} AND REIZ ELECTRONCONTROL (P) LTD. VS. CCE {200 6) 6 SCC 213] THE CONTENTION OF THE ASSESSEE THAT THERE IS INVEST MENT MADE BY THE ASSESSEE IN THE NEW ASSET DEFINITELY FALLS UNDER TH E CATEGORY OF CONSTRUCTION AND NOT PURCHASE AS SPECIFIED IN SECTION 54 OF THE ACT. THE SAME IS SUPPORTED BY CBDT CIRCULAR NO. 471 DATED 15/10/1986 READ WITH CIRCULAR NO. 672 DATED 16/12/2993 THE TERMS OF SCHEME OF ALL OTMENT AND CONSTRUCTION OF NEW APARTMENT AS PROVIDED IN APARTM ENT BUYERS AGREEMENT ARE SIMILAR TO THOSE AS MENTIONED IN PARA 2 OF CBDT CIRCULAR NO. 471 DATED 15/10/1986. THE RELIANCE OF THE ASSESSEE ON VARIOU S CASE LAWS SUPPORTS THE CASE OF THE ASSESSEE. THE ASSESSEE HAS COMPLIE D WITH ALL THE CONDITIONS FOR MAKING INVESTMENT OF CAPITAL GAINS IN ASSET WHI CH CANNOT BE TERMED AS NEW ASSET AS THE OLD ASSET WAS SOLD ON 11/4/2008 AN D TIME LIMIT FOR INVESTING CAPITAL GAINS IN CONSTRUCTION OF NEW ASSE T WOULD HAVE EXPIRED ON 10/4/2011 BUT THE ASSESSEE PRIOR TO THAT HAD ENTERE D INTO AN APARTMENT BUYERS AGREEMENT ON 3/1/2007. THUS, THE ASSESSEE H AS PROVED ITS STAND ALONG WITH THE DOCUMENTARY EVIDENCE WHICH WAS TOTAL LY IGNORED BY THE ASSESSING OFFICER AS WELL AS BY THE CIT(A). AS PER THE ISSUE FOR TREATING THE INTEREST EXPENSE ON BORROWED FUNDS TOWARDS COST OF ACQUISITION OF RESIDENTIAL HOUSE AS TRANSFERRED THE ASSESSEE HAD NOT CLAIMED S UCH INTEREST EXPENSE AS A DEDUCTION ON SUCH SELF OCCUPIED PROPERTY UNDER AN Y SECTION LIKE THAT OF SECTION 24(B) OR SECTION 57 OF THE ACT. THEREFORE, THE ASSESSEE IS ENTITLED TO CLAIM IT AS PART OF COST OF ACQUISITION OF SUCH HOU SE. THE SAME IS SUPPORTED BY THE KARNATAKA HIGH COURT JUDGMENT IN CASE OF CIT VS. MAITHREVI PAI 152 ITR 247 WHEREIN IT IS HELD THAT INTEREST PAID ON BO RROWINGS FOR ACQUISITION OF A CAPITAL ASSET MUST FALL FOR DEDUCTION U/S 48 OF T HE ACT PROVIDED THE SAME HAS NOT BEEN CLAIMED AS A DEDUCTION UNDER OTHER HEA DS LIKE THOSE U/S 57 OF THE ACT. THUS, THE ORDER OF CIT(A) IS SET ASIDE. 13 ITA NO. 5852/DEL/2012 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JULY, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 14/07/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 22/05/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 23/05/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 14 ITA NO. 5852/DEL/2012 5. APPROVED DRAFT COMES TO THE SR.PS/PS 14.07.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 14.07.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.