RAJESH MIRAJKER, CHENNAI V. DCIT, NCC-10(1), CHENNAI

ITA 59/CHNY/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1361 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 08-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Capital Gains
• Section: 54; 54EC

Judgement Text

आयकर अपील सं./ITA No.59/Chny/2020 िनधा रण वष /Assessment Year: 2013-14 Mr.Rajesh Mirajker, 4/1, Abu Castle, 4 th Floor, 925, Poonamallee High Road, Chennai. v. The Dy. Commissioner- of Income Tax, Non-Corporate Circle-10(1), Chennai. [PAN: AAHPM 9213 G] (अपीलाथ /Appellant) ( थ /Respondent) अपीलाथ की ओर से/ Appellant by : Mr.M.Karunakaran, Adv. थ की ओर से /Respondent by : Mr.G.Johnson, Addl.CIT सुनवाई की तारीख/Date of Hearing : 11.04.2022 घोषणा की तारीख /Date of Pronouncement : 25.05.2022 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 27.11.2019 and pertains to assessment year 2013-14. 2. The brief facts of the case are that the assessee is an individual filed his return of income for the AY 2013-14 on 04.11.2013, declaring total income of Rs.2,41,78,130/-. During the previous year relevant to the AY 2013-14, the assessee had sold a property on 19.04.2012 for a consideration of Rs.12 Crs. The assessee had computed long term capital gains from sale of property and has claimed exemption u/s.54 of the Act, आयकर अपीलीय अिधकरण, ’डी’ ायपीठ, चे#ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ 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.59/Chny/2020 :: 2 :: for purchase of new residential house property on 20.07.2012 for an amount of Rs.8,90,39,216/-, which includes cost of purchase of old building and expenses incurred to make the building habitable. During the course of assessment proceedings, the AO called upon the assessee to substantiate the claim of deduction u/s.54 of the Act, for re-investment in residential house property. In response, the assessee vide letter dated 12.01.2016 submitted that it has purchased a residential house property for a consideration of Rs.4.5 Crs. and had also incurred an amount of Rs.3.80 Crs. for renovation of the house, which is suitable for habitation. The AO, however, was not satisfied with the explanation furnished by the assessee and according to the AO, the assessee is not entitled for deduction u/s.54 of the Act, because the construction of house was not completed within a period of three years from the date of transfer of original asset. Further, assessee has not produced any evidence to show that new house is for residential purpose, except construction bills issued by M/s.Mermaid Swimming Pools, Akkarai, Chennai, who is expert in swimming pools in Guest Houses in ECR location. The AO further noted that the assessee has also not proved the fact that the house was occupied by the assessee for his residential purpose, since in the specific location of ECR, only guesthouse and farm house are operating. Therefore, he opined that the assessee is not entitled for deduction u/s.54 of the Act and thus, rejected the arguments of the assessee and made addition of Rs.8,90,39,216/-. ITA No.59/Chny/2020 :: 3 :: 3. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee submitted that when entire capital gains derived from transfer of property has been utilized for acquiring new house, then merely for the reason of non- completion of house, deduction u/s.54 of the Act, cannot be denied. The assessee had also argued in light of certain judicial precedents, including the decision of the Hon’ble Madras High Court in the case of CIT v. Sardarmal Kothari reported in [2008] 302 ITR 286 and submitted that if entire sale consideration is invested in residential house, the assessee need not complete construction of house. The Ld.CIT(A) after considering relevant facts and also taken note of various facts brought by the AO, opined that the AO has erred in not allowing deduction u/s.54 of the Act, for re-investment of capital gains derived from sale of property to the extent of purchase value of house property and Stamp Duty paid. Therefore, allowed deduction u/s.54 of the Act, towards purchase of house and relevant Stamp Duty paid, including commission expenses. However, rejected the arguments of the assessee in respect of amount invested for making the house habitable, including amount incurred for construction of compound wall, amounting to Rs.3.8 Crs. on the ground that although, the assessee claims to have incurred expenditure for alteration and improvement of the house to make it habitable, but failed to complete the construction of house within a period of three years as prescribed under the Act. Therefore, rejected the arguments of the assessee and sustained ITA No.59/Chny/2020 :: 4 :: additions made by the AO towards construction of house amounting to Rs.3 Crs. and construction of compound wall, amounting to Rs.80 lakhs along with payment made to Architect. The relevant findings of the Ld.CIT(A) are as under: 14. I have examined the facts on record and submissions filed by the appellant and the remand reports. The appellant has not produced the completion certificate from any official authority as prescribed or as required to establish that the construction was completed within the due date. Completion certificate produced by the appellant's own contractor who did the additional construction cannot be accepted as satisfactory requirement to verify the compliance to the statutory provision. However, the AO has noted that there was a building in the land purchased by the appellant before the construction done by him. The appellant has submitted that the said building which was an old house could not be demolished as it was on the land where no new construction was stated to be not permitted in view coastal zone regulations. Therefore, the appellant started making substantial improvements in the existing structure. However, the appellant has claimed the same as a new house and stated that construction was completed within the due date of claim for exemption under section 54. As mentioned earlier, there is no evidence to prove the completion of construction and he is not eligible for exemption for construction work carried on in the house property purchased by him. Thus, though the appellant has to be denied the benefit of section 54 for the construction carried on by him, he has fulfilled the condition of purchasing residential building in a land as per the section 54 where he: did the construction by way of improvement, to make it a 'habitable' house, according to appellant. It is seen that appellant has purchased the land with an old house on 20/7/2012 for total cost of Rs.5.90 cr. The appellant claimed that he spent a further amount of Rs.3 cr for construction on the old house in the same premises. Since the appellant could not satisfactorily prove with official certification on completion of entire construction within the due date, he is eligible only to get the benefit under section 54 for the investment in the land and building before the additional construction. The appellant has submitted documents to prove that the same was a residential house. The property tax receipts while purchasing the property show that the description is that of a house. The appellant has also produced the electricity card, electricity bill and a letter from the TANGEDCO which mentions that the connection was domestic. 15. The purchase value as per document is Rs.4,50,00,000/- and stamp duty paid is Rs.49,65,160/-. The appellant had claimed Rs.4,50,000/- as commission paid for purchase, Rs.5,04,056/- as legal fee, Rs.80,00,000/- towards construction of compound wall and Rs.1,20,000/- towards fee for architect. I have examined the evidences produced. Regarding commission and legal fee, it is seen that the amounts were paid by cheque and appellant has produced the 'relevant bills. Regarding construction of compound wall, appellant claimed that Rs.80,00,000/- was paid by account payee cheques. However, this cannot be included in the claim under section 54, as this may be pertaining to the further construction done by him and claimed for 'renovated' house, which is held not to be eligible for claim under section 54 for being not completed within the prescribed period. Claim regarding Architect fee also cannot be considered for want of proper evidence. 16. Thus, the appellant's claim is restricted to the land and house purchased for Rs.4,50,00,000/- and stamp duty paid of Rs.49,65,160/- and commission and legal fee paid towards the above purchase. The AO is also directed to include the amount of Rs.50,00,000/- invested under section 54EC after verifying the proof. All other claims including further (construction on the site of Rs.3,00,00,000/-, construction of compound wall for Rs.80,00,000/- and the payment made to architect are not considered. ITA No.59/Chny/2020 :: 5 :: 4. The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in denying exemption claimed u/s.54 of the Act, to the extent of Rs.3.80 Crs. without appreciating the fact that the assessee has filed all possible evidences, including agreement with the builder for construction of house, relevant bills & vouchers and also Electricity Bill paid for the house to prove that the house was a residential house and the assessee has incurred expenditure to make the building habitable. The Ld.AR for the assessee further submitted that when the Ld.CIT(A) never disputed the fact that the assessee has made investment in purchase of residential property, but failed to appreciate the fact that he had incurred further amount to make the house habitable, which is also eligible for deduction u/s.54 of the Act. The Ld.AR further submitted that when entire sale consideration and capital gains derived from transfer of original asset, is invested in acquiring new house property, then if such house property is not completed within a period of three years as specified u/s.54 of the Act, deduction u/s.54 of the Act, cannot be denied. In this regard, he has relied upon certain judicial precedents, including the decision of the Hon’ble Madras High Court in the case of CIT v. Sardarmal Kothari (supra). The assessee had also relied upon the decision of ITAT Chennai Benches in the case of Mrs.Seetha Subramanian v. ACIT reported in 59 ITD 94. 5. The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submitted that the assessee is failed to file necessary evidences to prove that he had spent amount for construction of house property and further, ITA No.59/Chny/2020 :: 6 :: said house property has been completed within a period of three years as specified u/s.54 of the Act. The Ld.CIT(A) after apprising relevant facts has rightly allowed relief to the assessee to the extent of amount incurred for purchase of new house property, wherever the assessee is produced necessary evidences, but rejected amount spent for renovation of house and compound wall on the ground that said expenditure is not eligible for deduction u/s.54 of the Act. Hence, there is no error in the reasons given by the Ld.CIT(A) to sustain additions made towards disallowance of amount incurred for construction of house property and compound wall and their orders should be upheld. 6. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The facts borne out from the record clearly indicate that the assessee had sold a residential house property and has claimed deduction u/s.54 of the Act, for re- investment in capital gains for acquiring new house property. In fact, the AO as well as the Ld.CIT(A) have never disputed the fact that the assessee has acquired new house property within the specified period. Further, the Ld.CIT(A) has allowed deduction towards cost of purchase of house property and relevant Stamp Duty and other expenses incurred by the assessee. The only dispute is with regard to the amount incurred for construction of house property to make it habitable. The assessee claims to have incurred a sum of Rs.3 Crs. to make the house habitable and the assessee had also made an investment of Rs.80 lakhs to construct ITA No.59/Chny/2020 :: 7 :: compound wall for the house. Apart from the above, the assessee had also spent an amount of Rs.1.20 lakhs towards Architect fees. The Ld.CIT(A) has rejected deduction claimed towards amount incurred for construction of house property and compound wall on the ground that although, the assessee has filed necessary evidences to prove construction expenses, but said expenditure is not entitled for deduction u/s.54 of the Act, because, the assessee has incurred expenditure for renovation of the house, which is not eligible for claiming deduction u/s.54 of the Act. In other words, the Ld.CIT(A) never disputed the fact that the assessee has acquired a new house property and further spent an amount of Rs.3.80 Crs. towards further construction of house property to make it habitable. The Ld.CIT(A) had also not disputed the fact that the assessee has furnished relevant bills & vouchers and has also made the payment by account payee cheque. The only reason for the Ld.CIT(A) to reject the claim of deduction was that expenditure incurred by the assessee, is not for construction of house property, but to renovate the existing house. Further, new house property was not completed within a period of three years from the date of transfer of original asset. 7. We have given our thoughtful consideration to the reasons given by the Ld.CIT(A) in light of various arguments advanced by the assessee and we ourselves do not subscribe to the reasons given by the Ld.CIT(A) for simple reason that when the Ld.CIT(A) never disputed the fact that what ITA No.59/Chny/2020 :: 8 :: was purchased by the assessee is house property and further, the assessee has invested sale consideration for acquiring new house property within a specified period, then he ought not to have rejected the arguments of the assessee towards expenditure incurred for making the house habitable. Therefore, in our considered view, when the assessee has incurred a substantial amount for making the house habitable, then it amounts to construction of new house property and thus, the authorities could not have rejected deduction claimed u/s.54 of the Act. This proposition is supported by the decision of the ITAT Mumbai Benches in the case of Gulshanbanoo R. Mukhi v. JCIT reported in 83 ITD 649 and the decision of the ITAT Bangalore Benches in the case of Estate of Late Dr.S.Zakaulla Masood v. ITO in ITA No.775/Bang/2018 dated 14.10.2020, wherein, it has been clearly held that expenses incurred to make the house habitable, amounts to construction of building and entitled for deduction u/s.54 of the Act. In this case, there is no dispute with regard to the fact that the assessee has incurred substantial amount for renovating the house to make it habitable and further, the authorities below never disputed the fact that the house is a residential and thus, we are of the considered view that amount incurred by the assessee towards further construction of the house to make it habitable and amount incurred for construction of compound wall, is entitled for deduction u/s.54 of the Act. 8. As regards completion of house property within a period of three years from the date of transfer of original asset, we find that when the ITA No.59/Chny/2020 :: 9 :: assessee has incurred full amount of capital gains derived from transfer of original asset to acquire new residential house property or to construct a new house property, then it should be deemed that sufficient steps have been taken to complete the house property and thus, merely, because, the house property was not completed, benefit of deduction u/s.54 of the Act, cannot be denied. In this case, the allegation of the AO was that the assessee could not produce Completion Certificate obtained from competent authorities to prove completion of house property within a period of three years as specified under the Act. It was the explanation of the assessee that since the house property is located in ‘No Construction Zone’ and further, he cannot construct a house therein, the question of obtaining necessary approvals, plan and Completion Certification, does not arise. We find that the house property is located in ECR which is declared as ‘No Construction Zone’. The assessee cannot construct certain types of house properties in that locality. Therefore, the assessee has purchased a house and incurred substantial amount to make the house habitable within the permissible limits. In this regard, the assessee submitted that copies of plan of the building, agreement with the Builder and relevant bills & vouchers to prove amount spent for construction of building. The assessee had also filed proof of Electricity Bill and a letter from TANGEDCO, which mentions that the house property was for domestic purpose. The assessee had also filed a Property Tax receipts assessed from local municipal authorities, which clearly shows the description of the property is ITA No.59/Chny/2020 :: 10 :: residential one. Therefore, from the above it is very clear that the new house property acquired by the assessee, is a residential property and further amount incurred by the assessee for further construction to make the house habitable, amounts to construction of building. Hence, we are of the considered view that the assessee is entitled for deduction towards amount incurred for acquiring new house property, including amount incurred for further construction of house property. The Ld.CIT(A) although, allowed relief to the assessee in respect of amount spent for purchase of house property and relevant Stamp Duty and other expenses, but, erred in denying deduction towards amount incurred for further construction of house property and compound wall, including Architect fees, without appreciating the fact that unless, the assessee incurred said amount for further construction of house to make it habitable, it cannot be called said house property is a house property. Hence, we are of the considered view that the Ld.CIT(A) is erred in denying the benefit of deduction u/s.54 of the Act, to the extent of Rs.3.8 Crs. towards amount incurred for construction of house property. Hence, we reversed the findings of the Ld.CIT(A) and direct the AO to allow the benefit of deduction u/s.54 of the Act, in respect of total amount incurred by the assessee, including amount incurred for further construction of house property, construction of compound wall and Architect fees. ITA No.59/Chny/2020 :: 11 :: 9. The next issue that came up for our consideration from additional grounds filed by the assessee is towards application of provisions of Sec.50C of the Act, and made addition of Rs.5,85,300/- to the taxable income. The assessee has taken additional grounds challenging the findings of the AO in invoking the provisions of Sec.50C of the Act, and making addition of Rs.5,85,300/- and argued that since variation between guideline value of the property and agreed consideration between the parties is less than the specified percentage, the AO ought not have invoked the provisions of Sec.50C of the Act and made additions. We find that the AO has made addition of Rs.5,85,300/- u/s.50C of the Act, being difference between the sale consideration received on transfer of capital asset and Stamp Duty value as on the date of registration which works out to 0.48%, which is bound to occur in some transactions as the exact guideline value cannot be put while negotiating the value of the property. Further, the provisions of Sec.50C of the Act, inserted by the Finance Act, 2018 w.e.f.01.04.2019 held to be retrospective effect from the date of introduction of Sec.50C of the Act and hence, in case, difference between agreed consideration and Stamp Duty of the property is less than the specified percentage, then the AO ought not have made additions u/s.50C of the Act. In this case, difference between the agreed consideration and Stamp Duty value is less than 1%, which is much below the specified percentage of 5% variation as prescribed under the Act. Therefore, we are of the considered view that additions made by the AO u/s.50C of the Act, ITA No.59/Chny/2020 :: 12 :: cannot be sustained and hence, we direct the AO to delete the additions made u/s.50C of the Act. 10. In the result, the appeal filed by the assessee is allowed. Order pronounced on the 25 th day of May, 2022, in Chennai. Sd/- (वी. दुगा राव) (V. DURGA RAO) ाियक सद+/JUDICIAL MEMBER Sd/- (जी. मंजूनाथा) (G. MANJUNATHA) लेखा सद+/ACCOUNTANT MEMBER चे#ई/Chennai, िदनांक/Dated: 25 th May, 2022. TLN आदेश की ितिलिप अ-ेिषत/Copy to: 1. अपीलाथ /Appellant 4. आयकर आयु./CIT 2. थ /Respondent 5. िवभागीय ितिनिध/DR 3. आयकर आयु. (अपील)/CIT(A) 6. गाड फाईल/GF