Vikas Kumar, Hyderabad, Secunderabad V. DCIT, Circle-8(1), Hyderabad, Hyderabad

ITA 758/HYD/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2315 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 02-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Keywords: Capital asset; Business income; Assessment record
• Section: 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 758/HYD/2017 ASSESSMENT YEAR: 2012-13 VIKAS KUMAR, HYDERABAD. PAN AFUPV0344P VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 8(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C. DEVDAS REVENUE BY : SMT. N. SWAPNA DATE OF HEARING : 28-06-2017 DATE OF PRONOUNCEMENT : 26-07-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS IS AN APPEAL OF THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 2, HYDE RABAD, DATED 28.02.2017 FOR AY 2012-13. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS CARRYING ON TRADITIONAL FAMILY BUSINESS IN THE LINE OF GOLD JEW ELLERY ETC. IN INDIVIDUAL CAPACITY UNDER THE NAME AND STYLE OF M/S SURAJ BHAN GEMS AND JEWELLERS AT HYDERABAD. ASSESSEE IS REGULARLY A SSESSED TO INCOME TAX. FOR THE ASSESSMENT YEAR 2012-13, THE AS SESSEE DECLARED HIS REGULAR BUSINESS INCOME AND INCOME FROM HOUSE P ROPERTY AND ALSO CLAIMED DEDUCTION U/S. 54 OF THE ACT IN RESPECT OF CAPITAL GAIN ON SALE OF RESIDENTIAL HOUSE PROPERTY. 2 ITA NO. 758/H/15 SHRI VIKAS KUMAR 2.1 WHILE COMPLETING THE ASSESSMENT U/S.143(3) OF T HE INCOME TAX ACT, THE ASSESSING OFFICER HAD DISALLOWED THE DEDUC TION CLAIMED U/S.54 OF THE INCOME TAX ACT ON THE GROUND THAT THE INTENTION OF PURCHASE OF NEW RESIDENTIAL HOUSE WAS NOT FOR RESID ENTIAL PURPOSE RELYING ON SUBSEQUENT EVENTS IN THE FINANCIAL YEAR 2013-14 I.E. DEVELOPMENT AGREEMENT ENTERED INTO ON 27.05.2013 W ITH A BUILDER FOR DEVELOPMENT OF COMMERCIAL COMPLEX. THEREFORE, THE A O DISALLOWED THE TOTAL CLAIM OF DEDUCTION OF RS. 12,32,19,770/-. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT IT IS SEEN FROM THE FACT THAT THE AS SESSEE HAD PURCHASED A RESIDENTIAL HOUSE PROPERTY BEARING MUNI CIPAL NO 6-3-354, AT ROAD NO.1, BANJARA HILLS, ADMEASURING 2000 SQ YA RDS, VIDE REGISTRATION NO.1511/2012 DATED 5/7/2012 AT SRO, S. R. NAGAR, HYDERABAD AFTER DISPOSING HIS PROPERTY SITUATED AT MCH H.NO. 8-2- 576, ROAD NO.7, BANJARA HILLS, HYDERABAD. FURTHER, HE OBSERVED THAT IT IS ALSO SEEN THAT THE ASSESSEE ENTERED INTO A DE VELOPMENT AGREEMENT WITH M/S. RAICHANDANI CONSTRUCTION PVT LT D FOR CONSTRUCTION OF COMMERCIAL COMPLEX AND GOT THE SAID PROPERTY WHICH WAS PURCHASED, THEREBY DEMOLISHED FOR THE SAID PURP OSE. SINCE THE DEMOLITION OF THE RESIDENTIAL PREMISE BY BUILDER TO OK PLACE AT THE BEHEST OF ASSESSEE, THERE IS A TRANSFER OF CAPITAL ASSET. 4.1 CIT(A) OBSERVED THAT, ON LOOKING AT THE FACTS O F THE CASE, THE AO WAS OF THE VIEW THAT EXTINGUISHMENT OF RIGHTS TH ERE IN AMOUNTS TO TRANSFER AND WOULD COVER CASES OF DESTRUCTION OF TH E CAPITAL ASSETS. FURTHER, RELYING ON, THE DECISION OF HON'BLE MADRAS HIGH COURT IN CASE OF NEELAMALAI AGRO INDUSTRIES, IT CAN BE SEEN THAT ANY EXTINGUISHMENT OF RIGHTS U/S.2(47)(II) OF THE ACT ON ACCOUNT OF AC T OF THE ASSESSEE WOULD AMOUNT TO TRANSFER AND THE ONLY EXCEPTION PRO VIDED THERE IN 3 ITA NO. 758/H/15 SHRI VIKAS KUMAR WAS THE EXTINGUISHMENT ON ACCOUNT OF ACT OF GOD SUC H AS DESTRUCTION OF THE CAPITAL ASSET IN A FIRE, COMPLETE LOSS IN TH E CASE OF SINKING OF A VESSEL OF THE ASSESSEE. 4.2 FURTHER, THE CIT(A) DRAWING ANALOGY FROM THE D ECISION OF ITAT MUMBAI BRANCH 'D' IN CASE OF ACIT VS DILIP MANHOR P AREKH, IT APPEAL NO. 6596 (MUM) OF 2011, AND RELYING UPON THE DECISI ON OF HON'BLE MADRAS HIGH COURT IN CASE OF CIT VS V. PRADEEP KUMA R [153 TAX MAN 138 (MAD)], HELD THAT THE CONSTRUCTION MUST BE REAL ONE AND IT SHOULD NOT BE A SYMBOLIC CONSTRUCTION, THE DEDUCTION U/S. 54F OF IT ACT, 1961 IS AVAILABLE TO PURCHASE OF RESIDENTIAL HOUSE AND S UCH HOUSE SHOULD BE REAL AND NOT SYMBOLIC. IF THE OLD HOUSE IS ONLY MEANT FOR DEMOLITION, IT MAY NOT SATISFY THE TEST OF PURCHASE OF RESIDENTIAL HOUSE, MORE PARTICULARLY WHEN IT IS DEMOLISHED WITH IN TWO YEARS. THUS, IT MAY BE A SYMBOLIC PURCHASE OF BUNGALOW WHICH MAY NOT PASS THE TEST OF 'PURCHASE' U/S. 54F OF THE ACT OR IF IT IS TREATED AS PURCHASE, THEN DEMOLITION BEING A VOLUNTARY ACT, MAY AMOUNT T O TRANSFER AS PER THE DECISION OF HON'BLE S.C IN THE CASE OF MRS GRAC E COLLIS [248 ITR 323 (SC)]. THE CIT(A) OBSERVED THAT SINCE THE ASSES SEE HAS EXTINGUISHED HIS RIGHT THROUGH AGREEMENT THROUGH TH E BUILDER, PROVISIONS OF SEC.54(1)(I) ARE SQUARELY APPLICABLE TO THE FACTS OF THE CASE. 4.3 IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A) H ELD THAT IT IS CLEAR FROM THE FACTS OF THE CASE THAT THE INTENTION OF THE ASSESSEE IS TO BUILD THE COMMERCIAL COMPLEX ON PURCHASE OF THE OLD RESIDENTIAL PROPERTY (AS EVIDENT FROM THE REGISTERED DOCUMENT N O.1511/2012 DATED 5/7/2012, REGISTERED AT SRO, S.R. NAGAR, HYDE RABAD IN THE NAME OF THE ASSESSEE WHICH CLEARLY DEPICTS AT ANNEX URE -I-A ENCLOSED TO THIS REGISTERED DOCUMENT THAT THE EXISTING STRUC TURES AGE IS 60 YEARS) AND NOT TO RESIDE OR LET OUT WHICH IS CLEARL Y EVIDENT FROM THE ABOVE FACTS AND SEQUENCE OF EVENTS. THEREFORE, THE ASSESSEE'S CASE IS HIT BY THE ABOVE PROVISIONS. HE CONCLUDED THAT T HE ACTION OF THE AO 4 ITA NO. 758/H/15 SHRI VIKAS KUMAR IN DENYING DEDUCTION U/S 54 OF THE ACT IS VERY WELL JUSTIFIED WHICH IS IN ACCORDANCE WITH LAW AND HENCE CONFIRMED. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD. CIT (A) IS WHOLLY UNSUSTAI NABLE BOTH IN LAW AND IN FACTS OF I THE CASE. 2. THE LD. CIT(A) ERRED SUSTAINING THE DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTION 54 OF THE INCOME TAX ACT, 1 961. 3. THE LD. CIT(A) FAILED TO CONSIDER THAT THE PROVI SIONS OF SECTION 54 UNAMBIGUOUSLY STIPULATES THAT A RESIDENT IAL HOUSE SHOULD BE PURCHASED WITHIN THE STIPULATED PERIOD BY UTILIZING THE SALE PROCEEDS OF A RESIDENTIAL HOUSE TO CLAIM EXEMP TION FROM CAPITAL GAIN TAX WHICH WAS COMPILED BY THE APPELLAN T AS EVIDENCED BY THE SALE DEED ON 5.7.2012 4. THE LD. CIT(A) ERRED IN SUSTAINING THE INTERPRET ATION OF SECTION 54 OF THE INCOME TAX ACT, 1961 PLACED BY TH E LD. ASSESSING OFFICER, THAT THE RESIDENTIAL HOUSE PURCH ASED, WAS DEMOLISHED BY THE DEVELOPER AND HENCE THE EXEMPTION CANNOT BE CLAIMED. 5. WITHOUT PREJUDICE TO THE AFORESAID GROUNDS, THE LD. CIT (A) FAILED TO NOTE THAT 'TRANSFER' IN A DEVELOPMENT AGR EEMENT OCCURS ONLY WHEN THE DEVELOPER HANDS OVER THE BUILT UP ARE A ON COMPLETION OF THE PROJECT AND THEREFORE THE PERIOD OF HOLDING BY THE APPELLANT FROM 5.7.2012 WAS FOR A PERIOD OF MOR E THAN 3 YEARS AND HENCE WAS ELIGIBLE FOR THE EXEMPTION CLAI MED. 6. THE LEARNED CIT(A) FAILED TO OBSERVE THAT EXECUT ION OF DEVELOPMENT AGREEMENT OR SUBSEQUENT DEMOLITION COUL D NOT AMOUNT TO TRANSFER AS CONTEMPLATED UNDER SECTION 53 A OF TRANSFER OF PROPERTY ACT. 6. LD. AR SUBMITTED THAT ASSESSEE HAS COMPLIED WITH THE CONDITIONAL STAY GRANTED IN HIS CASE AS THE ASSESSE E HAS PAID TWO INSTALMENTS AS PER THE DIRECTIONS OF THE TRIBUNAL. 6.1 LD. AR SUBMITTED THAT ASSESSEE HAS SOLD THE RES IDENTIAL PROPERTY SITUATED AT BANJARA HILLS TO THE EXTENT OF 1430 SQ.YDS. ON 30/01/2012. OUT OF THE SALE CONSIDERATION, ASSESSEE HAS PURCHASED 5 ITA NO. 758/H/15 SHRI VIKAS KUMAR ANOTHER RESIDENTIAL PROPERTY ON 05/07/2012 TO THE E XTENT OF 2000 SQ.YDS. AND ACCORDINGLY, CLAIMED DEDUCTION U/S 54 O F THE ACT BY MAKING INVESTMENT IN RESIDENTIAL PROPERTY AND THE S AME WAS IN AGREEMENT WITH THE SALE DOCUMENT WHICH WAS FILED BE FORE AO. HE SUBMITTED THAT ASSESSEE HAS CLAIMED THE BENEFICIAL PROVISION U/S 54 AND COMPLIED WITH THE PROVISIONS OF SECTION 54 BY M AKING INVESTMENT IN RESIDENTIAL PROPERTY. HE SUBMITTED THAT THERE IS NO PROVISION IN THE ACT THAT THE ASSESSEE HAS TO RESIDE IN THE RESIDENT IAL PROPERTY OR LET OUT, AS, IT IS ENOUGH THAT THE PROPERTY SHOULD BE R ESIDENTIAL PROPERTY. HE FURTHER SUBMITTED THAT ASSESSEE HAS ENTERED INTO A DEVELOPMENT AGREEMENT WITH THE BUILDER FOR CONSTRUCTION OF A CO MMERCIAL BUILDING. IN THE SUBSEQUENT YEAR, I.E. ON 27/05/2013, THE ASS ESSEE GRANTED GPA TO THE DEVELOPER. THE DEVELOPER OBTAINED THE BU ILDING PERMIT ON 22/08/2014 AND SUBSEQUENTLY DEMOLISHED THE RESIDENT IAL PROPERTY ACQUIRED BY THE ASSESSEE ON 05/07/2012. HE SUBMITTE D THAT ALL THESE THINGS WERE TAKEN PLACE IN THE SUBSEQUENT AYS 2013- 14 & 2014-15. 6.2 AS FAR AS CLAIM OF DEDUCTION U/S 54 IS CONCERNE D, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS FULFILLED THE CONDI TIONS U/S 54 AND THE CLAIM CANNOT BE DENIED TO THE ASSESSEE IN THE AY 20 12-13. HE SUBMITTED THAT SINCE EVALUATION WAS NOT TAKEN PLACE IN AY 2012-13, CAPITAL GAINS CANNOT BE CHARGED IN AY 2012-13. 7. LD. DR SUBMITTED THAT THE ASSESSEE DID NOT PASS THE TEST OF COMPLIANCE AS ASSESSEE HIMSELF CONFIRMED IN THE QU ESTIONNAIRE, WHICH IS PART OF THE ASSESSMENT RECORD IN PARA 14 O F THE ASSESSMENT ORDER, AS PER WHICH ASSESSEE HAS CONFIRMED THAT ASS ESSEE NEITHER RESIDED NOR LET OUT THE PROPERTY. SHE SUBMITTED THA T ORDER OF ITAT IN THE CASE OF K.V. VIJAYARAGHAVAN VS. DCIT, ITA NOS. 455 & 456/MDS/2014, DATED 30/11/2016 SUPPORTS THE CASE OF THE REVENUE AS THE FACTS OF THE SAID CASE ARE SIMILAR TO THE ASSES SEES CASE. FURTHER, SHE RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 6 ITA NO. 758/H/15 SHRI VIKAS KUMAR 8. IN THE REJOINDER, LD. AR SUBMITTED THAT THE CASE RELIED ON BY THE LD. DR DOES NOT CONTAIN FULL FACTS OF THE CASE, THE REFORE, THE SAME IS DISTINGUISHABLE ON THE FACTS TO THE CASE OF ASSESSE E. HE RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE O F CIT VS. MS. CHHAYA B. PAREKH, ITA NO. 1583 OF 2012, VIDE JUDGME NT DATED 24 TH JANUARY, 2013. HE FURTHER SUBMITTED THAT MERE DEMO LITION DOES NOT AMOUNT TO TRANSFER AS PER THE DECISION OF HONBLE A P HIGH COURT IN THE CASE OF POTLA NAGESWARA RAO VS. DCIT, 365 ITR 249 ( AP) AND AS PER THE HONBLE MADRAS HIGH COURT IN THE CASE OF NEELAM ALAI AGRO INDUSTRIES LTD. VS. CIT, 259 ITR 651 (MAD.) AS PER WHICH EXTINGUISHMENT OF RIGHT IS NOT AMOUNT OF TRANSFER. 9. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AND CONSIDERED CASE LAWS SUBMITTED BEFORE US. IN THE GIVEN CASE, THE ASSESSEE HAS INVESTED THE SALE CONSIDERAT ION/CAPITAL GAINS IN THE RESIDENTIAL PROPERTY PURCHASED BY HIM ON 05/ 07/2012, WHICH IS EVIDENT FROM THE SALE DEED SUBMITTED BEFORE THE TAX AUTHORITIES. THE CLAIM OF THE ASSESSEE WAS DENIED BY THE AO BY MAKIN G SPOT ENQUIRIES AT THE TIME OF REGULAR ASSESSMENT. AS PER THE ENQUI RY, THE ASSESSEE HAS DEMOLISHED THE NEW PROPERTY PURCHASED AND START ED CONSTRUCTING THE COMMERCIAL COMPLEX AFTER ENTERING INTO DEVELOPM ENT AGREEMENT WITH M/S RAICHANDANI CONSTRUCTIONS PVT. LTD. THE AO ISSUED SHOW CAUSE NOTICE TO M/S RAICHANDANI CONSTRUCTIONS ON 05 /02/2015. FROM THE RECORDS, THE DATE OF DEMOLITION IS NOT CLEAR BU T THE REGISTERED DEVELOPMENT AGREEMENT AND IRREVOCABLE GPA WAS DATED 27/05/2013 AND THE DEVELOPER HAS OBTAINED THE BUILDING PERMIT FROM GHMC ON 22/08/2014. OBVIOUSLY, THE DEMOLITION OF BUILDING M UST HAVE TAKEN PLACE AFTER SUCH PERMISSION. 9.1 THE AO HAS DENIED THE EXEMPTION BECAUSE OF DEMO LITION OF BUILDING, SUCH ACTS AMOUNTS TO EXTINGUISHMENT OF RI GHT AND ALSO ASSESSEE HAS NOT RESIDED NOR LET OUT THE PROPERTY. SINCE THE ASSESSEE HAS ENTERED INTO DEVELOPMENT AGREEMENT TO CONSTRUCT THE COMMERCIAL 7 ITA NO. 758/H/15 SHRI VIKAS KUMAR BUILDING, CIT(A)/AO OPINED THAT THE INTENTION OF TH E ASSESSEE WAS MERELY TO CONSTRUCT THE COMMERCIAL BUILDING, HENCE, THE EXEMPTION CANNOT BE EXTENDED TO THE ASSESSEE. 9.2 LD. CIT(A) HAS CONFIRMED THE ABOVE VIEW BY RELY ING ON THE CASE LAWS, VIZ., DILIP MANHOR PAREKH (SUPRA), PRADEEP KU MAR (SUPRA) AND NEELAMALAI AGRO INDUSTRIES (SUPRA). LET US ANALYSE THE RATIOS OF THESE DECISIONS WITH THE CASE ON HAND. IN THE CASE OF DIL IP MANHOR PAREKH, THE COORDINATE BENCH HAS ANALYSED THE QUESTION BEFO RE THEM: I.E. WHETHER THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTIO N U/S 54F WHEN THE ASSESSEE VOLUNTARILY DEMOLISHES THE PROPERTY BEFORE COMPLETION OF THREE YEARS FOR THAT PURPOSE, IT HAS ANALYSED THE RATIOS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF VANIA SILK MI LLS (P) LTD., 191 ITR 647 AND MRS. GRACE COLLIS, 248 ITR 323. IN THE CASE OF VANIA SILK MILLS (P) LTD., THE PROPERTY WAS DESTROYED AND ASSE SSEE HAS RECEIVED THE COMPENSATION. IT WAS HELD THAT EXTINGUISHMENT O F RIGHTS IN A CAPITAL ASSET AS A NECESSARY CONSEQUENCE OF DESTRUC TION OF THE ASSET DOES NOT AMOUNT TO TRANSFER. IN THE CASE OF GRACE C OLLIS (SUPRA), THERE WAS TRANSFER OF SHARES IN THE SCHEME OF AMALGAMATIO N, OLD SHARES WERE REPLACED WITH NEW SHARES IN THE AMALGAMATED CO MPANY, IT WAS HELD THAT DESTRUCTION OF RIGHT AND EXCHANGE OF NEW SHARES ARE AMOUNTS TO TRANSFER. HOWEVER, AT THE SAME TIME, THE COORDINATE BENCH HAS OBSERVED AS BELOW: 20. THE LAW LAID DOWN IN VANIA SILK MILLS (P) LTDS CASE (SUPRA) THAT EXTINGUISHMENT OF RIGHTS IN A CAPITAL ASSET AS A NECESSARY CONSEQUENCE OF DESTRUCTION OF THE ASSET D OES NOT AMOUNT TO TRANSFER, HAS NOT BEEN OVERRULED BY THE A PEX COURT IN THE CASE OF MRS. GRACE COLLIS (SUPRA). SINCE THE COORDINATE BENCH HAS ALREADY ANALYSED BOT H THE DECISIONS OF HONBLE APEX COURT AND ALSO ANALYSED THE OTHER DECISIONS OF HONBLE MADRAS HIGH COURT IN THE CASE OF NEELAMALAI AGRO INDUSTRIES (SUPRA), CAME TO CONCLUSION THAT DEMOLITION OF HOUS E WITHOUT TRANSFERRING OF RIGHT IS NOT AMOUNT TO TRANSFER. 8 ITA NO. 758/H/15 SHRI VIKAS KUMAR LD. DR RELIED ON THE CASE LAW OF K. V. VIJAYARAGHAV AN (SUPRA) OF THE ITAT, CHENNAI C BENCH TO SUBMIT THAT IT IS SIMILA R TO THE CASE IN HAND, IN WHICH THE CASE OF V. PRADEEP KUMAR (SUPRA) WAS ALSO ANALYSED. IN THE CASE OF V. PRADEEP KUMAR (SUPRA), IT WAS HELD THAT CONSTRUCTION MUST BE REAL ONE, IT SHOULD NOT BE A SYMBOLIC CONSTRUCTION. IN THE CASE OF ITAT CHENNAI, THE FAC TS WERE, THE ASSESSEE HAS SOLD AND PURCHASED THE NEW RESIDENTIAL PROPERTY. ASSESSEE HAS DEMOLISHED THE NEW PROPERTY WITHIN THE SAME YEAR OF PURCHASE. THE BENCH HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT CONSTRUCTED THE RESIDENTIAL PROPERTY BUT DE CIDED TO BUILD COMMERCIAL PROPERTY. IN THAT CONTEXT, THE BENCH HAS RELIED ON THE DECISION IN THE CASE OF V. PRADEEP KUMAR (SUPRA). H OWEVER, THIS CASE CANNOT BE APPLIED TO THE PRESENT CASE AS THE ASSESS E IN THAT CASE HAS DEMOLISHED THE PROPERTY WITHIN THE SAME YEAR OF PUR CHASE. 9.3 COMING TO THE PRESENT CASE, THE ASSESSEE HAS IN VESTED THE SALE CONSIDERATION IN THE NEW RESIDENTIAL PROPERTY WITH IN THE MEANING OF SECTION 54 AND CLAIMED THE DEDUCTION U/S 54 IN THE AY UNDER CONSIDERATION. IN THE SUBSEQUENT YEAR OR YEAR AFTER , THE ASSESSEE HAS ENTERED INTO DEVELOPMENT AGREEMENT WITH THE BUILDER TO CONSTRUCT COMMERCIAL PROPERTY. IN OUR VIEW, BY ENTERING INTO THE JOINT DEVELOPMENT AGREEMENT (JDA), THE PROPERTY WILL NOT LOOSE THE STATUS OF BEING RESIDENTIAL PROPERTY. IT LOSES ITS CHARACT ER ONLY ON THE DATE ON WHICH THE ACTUAL DEMOLITION OCCURS/HAPPENS. IN THE GIVEN CASE, IT IS NOT RECORDED WHEN THE ACTUAL DEMOLITION TOOK PLACE. AO HAS RELIED HEAVILY ON THE FACT THAT ASSESSEE HAS ENTERED INTO JDA AND HE HAS NOT RESIDED NOR LET OUT THE PROPERTY. AO OPINED THAT TH E INTENTION OF THE ASSESSEE WAS ONLY TO CONSTRUCT COMMERCIAL PROPERT Y. IN OUR VIEW, THE ASSESSEE HAS INVESTED THE SALE CONSIDERATION IN THE RESIDENTIAL PROPERTY AND IT IS NOT DISPUTED THAT THE NEW PROPER TY IS RESIDENTIAL. IT IS ONLY THAT ASSESSEE HAS NOT RESIDED NOR LET OUT A ND IN THE YEAR SUBSEQUENT TO PURCHASE OF PROPERTY, ASSESSEE HAS E NTERED INTO JDA. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE AO CANNOT 9 ITA NO. 758/H/15 SHRI VIKAS KUMAR DENY THE EXEMPTION U/S 54 BECAUSE THE ASSESSEE HAS NOT DEMOLISHED THE HOUSE EVEN ON THE DAY OF JDA. AS PER THE PRO VISIONS OF SECTION 54, WHEN THE ASSESSEE TRANSFERS THE NEW PROPERTY WI THIN A PERIOD OF THREE YEARS, THE ASSESSEE LOOSES THE BENEFITS U/S 5 4 AND THE CAPITAL GAIN SO CLAIMED IS TAXABLE IN THE YEAR IN WHICH THE NEW ASSET IS TRANSFERRED. IN THE GIVEN CASE, THE ASSESSEE HAS DE MOLISHED THE NEW ASSET IN THE YEAR SUBSEQUENT TO PURCHASE OF NEW ASS ET. HENCE, IT IS AN EVENT WHICH OCCURRED SUBSEQUENTLY AND THE AO CAN NOT TRAVEL BACK TO THE AY IN WHICH ASSESSEE CLAIMED THE EXEMPTION U /S 54 AND DENY THE EXEMPTION. ACCORDINGLY, GROUND NOS. 2 & 3 ARE A LLOWED. 9.4 WE ARE RESTRAINING OURSELVES TO THE QUESTION WH AT IS RELEVANT TO THIS AY I.E. WHETHER IN THE RELEVANT AY THE ASSESSE E IS ELIGIBLE TO CLAIM EXEMPTION U/S 54. WE HAVE DECIDED THE ISSUE I N FAVOUR OF THE ASSESSEE, BUT ENTERING INTO THE JDA AND THE DEMOLIT ION HAS TAKEN PLACE IN THE YEAR SUBSEQUENT TO PURCHASE OF NEW RES IDENTIAL HOUSE AND WHETHER THE JDA AND DEMOLITION OF SUCH PROPERT Y THEREAFTER AMOUNTS TO TRANSFER OR NOT IS NOT THE QUESTION BEFO RE THE AO OR BEFORE US AS IT IS A SUBSEQUENT EVENT. HENCE, WE CANNOT AD JUDICATE ON THIS ASPECT. 9.5 ASSESSEE HAS RAISED THE OTHER GROUNDS I.E. 5 & 6 WHICH ARE RELATING TO THE EVENTS TAKEN PLACE SUBSEQUENT TO TH E YEAR OF PURCHASE OF NEW ASSET. IN OUR VIEW, IT IS PREMATURE TO ADJUD ICATE THESE GROUNDS AT THIS STAGE. 9.6 ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 10 ITA NO. 758/H/15 SHRI VIKAS KUMAR 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 26 TH JULY, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 26 TH JULY, 2017. KV COPY TO:- 1) SHRI VIKAS KUMAR, C/O SEKHAR & CO., 133/4, RP RO AD, SECUNDERABAD 500 003. 2) DCIT, CIRCLE 8(1), HYDERABAD. 3) CIT(A) - 2, HYDERABAD 4 PR. CIT 2, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE