Sri. K. Rajendra, Bangalore V. ITO, Bangalore

ITA 790/BANG/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63684 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-07-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRATHIBHA S
• Keywords: Capital asset
• Section: 143(3); 54F; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO. 790/BANG/2010 ASSESSMENT YEAR : 2005-06 SHRI K. RAJENDRA, NO.59, KRUMBIGAL ROAD, BANGALORE 560 004. PAN : ABDPR 5283J VS. THE INCOME TAX OFFICER, WARD 12(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SHEETAL BORKAR & SMT. PRATHIBHA, ADVOCATES RESPONDENT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) DATE OF HEARING : 07.08.2012 DATE OF PRONOUNCEMENT : 31.08.2012 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 01.03.2010 OF THE COMMISSIONER OF INCOME-TAX (CIT) PASSED U/ S. 263 OF THE ACT RELATING TO ASSESSMENT YEAR 2005-06. 2. THE CIRCUMSTANCES UNDER WHICH THE ORDER U/S. 263 WAS PASSED BY THE CIT ARE AS FOLLOWS. THE ASSESSEE IS AN INDIVID UAL. FOR THE A.Y. 2005- 06, HE FILED A RETURN OF INCOME DECLARING TOTAL INC OME OF Q 2,41,274 BESIDES ITA NO.790/BANG/10 PAGE 2 OF 13 AGRICULTURAL INCOME. DURING THE PREVIOUS YEAR, THE ASSESSEE SOLD 7 FLATS IN BTM LAYOUT FOR A TOTAL CONSIDERATION OF Q 1,46,35,000. ON SUCH SALE, THE ASSESSEE DERIVED LONG TERM CAPITAL GAINS OF Q 41,61,600. THE ASSESSEE CLAIMED THAT HE HAD INVESTED IN PURCHASE OF A RESID ENTIAL PROPERTY AT KOLLAM, KERALA FOR Q 40 LAKHS AND CLAIMED EXEMPTION FROM CAPITAL GAINS TO THE EXTENT OF Q 40 LAKHS U/S. 54F OF THE ACT. THE SAME WAS ACCEPTE D BY THE AO IN THE ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT IN THE AOS ORDER DATED 28.12.2007. THERE IS NO DISCUSSION ABOUT THE LONG TERM CAPITAL GAIN DERIVED BY THE ASSESSEE FROM THE SALE OF LONG TERM CAPITAL ASSET REFERRED TO ABOVE IN THE ORDER OF ASSESSMENT. 3. THE CIT IN EXERCISE OF HIS POWERS U/S. 263 OF TH E ACT WAS OF THE VIEW THAT THE AFORESAID ORDER OF THE ASSESSING OFFICER A LLOWING DEDUCTION U/S. 54F OF THE ACT AS CLAIMED BY THE ASSESSEE WAS ERRON EOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CIT NOTICED THAT THAT THE ASSESSEE HAD PURCHASED PROPERTY AT KOLLAM UNDER REGISTERED S ALE DEED DATED 10.09.2004 AND THE PROPERTY SO PURCHASED WAS PURCHA SED BY HIM WITH CONSTRUCTION STANDING THEREON BEARING VP VIII 361 & 363, SHED WITH ELECTRICITY SANITARY CONNECTION EXCEPT WATER CONNEC TION. ACCORDING TO THE CIT, OUT OF A SUM OF Q 40 LAKHS CLAIMED AS DEDUCTION U/S. 54F OF THE ACT, A SUM OF Q 37 LAKHS WAS SPENT BY THE ASSESSEE ON EXTENSION AN D RENOVATION OF AN OLD BUILDING WHICH WAS ALREADY IN EXISTENCE A ND THEREFORE DEDUCTION U/S. 54F OF THE ACT CANNOT BE ALLOWED ON A SUM OF Q 37 LAKHS, AS THE AMOUNT INCURRED FOR RENOVATION AND EXTENSION DOES N OT AMOUNT TO CONSTRUCTION OF RESIDENTIAL HOUSE AS ENVISAGED U/S. 54F OF THE ACT. THE CIT ACCORDINGLY ISSUED A SHOW CAUSE NOTICE DATED 08.07. 2009 PROPOSING TO ITA NO.790/BANG/10 PAGE 3 OF 13 REVISE THE ORDER OF THE ASSESSING OFFICER. THE ASS ESSEE BY HIS REPLY DATED 22.09.2009 SUBMITTED AS FOLLOWS:- I AM ENCLOSING HEREWITH THE COPY OF DOCUMENTS PERT AINING TO THE PURCHASE OF SITE AND CONSTRUCTION OF NEW RESIDENTIA L PROPERTY AT KOLLAM IN KERALA AGAINST WHICH I HAD CLAIMED BENEFI T U/S 54F IN RESPECT OF LONG TERM CAPITAL GAIN ON SALE OF AN IMM OVABLE PROPERTY DURING THE F Y 2004-05. YOU MAY KINDLY NO TE THAT THE SITE ON WHICH THE CONSTRUCTION HAS BEEN DONE WAS PU RCHASED ON 10/09/2004 ALONG WITH AN OLD BUILDING IN IT WHICH W AS TOTALLY DEMOLISHED AND A NEW BUILDING WAS CONSTRUCTED IN IT S PLACE, AND HENCE IT COULD BE EASILY ESTABLISHED THAT THE CONST RUCTION WAS A NEW ONE AND NOT RENOVATION OF AN EXISTING BUILDING, WHICH WAS THE SUBJECT MATTER OF REVISION. THE DETAILS OF COS T OF CONSTRUCTION HAS ALREADY BEEN SUBMITTED TO THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT. HENCE I REQUEST YOUR GOOD SELF TO KINDLY ACCEPT OUR CLAIM U/S. 54F. FURTHER, WE ARE HAPPY TO PROVIDE ANY MORE INF ORMATION SO AS TO COMPLETE THE REVISION PROCESS. 4. ANOTHER REPLY DATED 09.11.09 WAS ALSO FILED BY T HE ASSESSEE IN WHICH THE ASSESSEE SUBMITTED AS FOLLOWS:- 1. DURING THE F. Y. 2004-05, I HAD SOLD SEVEN APA RTMENT UNITS CONSTRUCTED ON A RESIDENTIAL PLOT PURCHASED BY ME D URING 1980 ON WHICH I HAD DECLARED A LONG TERM CAPITAL GAIN OF RS . 41,61,300/- DURING THE A. Y. 2005-0 6 AND CLAIMED A N EXEMPTION U/S 54F TO THE EXTENT OF RS. 40,00,000/- TOWARDS IN VESTMENT MADE BY ME IN ANOTHER RESIDENTIAL PROPERTY AT KOLLAM IN KERALA. 2. THE INVESTMENT MADE BY PURCHASING A RESIDENTIAL SITE FOR ALONG WITH AN OLD HOUSE IN IT, WHICH WAS PARTLY DEM OLISHED AND SUBSTANTIALLY RENOVATED AND RECONSTRUCTED, WITHIN T HE SAME PREVIOUS YEAR. 3. MY I. T. RETURN WAS SUBJECTED TO SCRUTINY BY TH E ITO, WARD 3(1) OF BANGALORE AND HE HAS ACCEPTED MY CLAIM U/S 54F AFTER HEARING FROM ME AND PRODUCTION OF REQUIRED DE TAILS. (COPY OF ASSESSMENT ORDER ENCLOSED.) 4. AS FAR AS THE INVESTMENT MADE U/S 54F, THE PLAN SANCTIONING AUTHORITY HAS GIVEN APPROVAL FOR THE BU ILDING ITA NO.790/BANG/10 PAGE 4 OF 13 MENTIONING THAT THE SAME WAS GIVEN FOR RENOVATION O F THE OLD BUILDING EXISTED THOUGH FACTUALLY, THE SAME WAS FOR PART DEMOLITION AND SUBSTANTIAL RECONSTRUCTION, AS THE O LD HOUSE COULD NOT BE USED AS A DWELLING UNIT SINCE IT WAS VERY OL D AND IT WAS NOT SAFE TO USE AS THE SAME FOR RESIDENCE. MOREOVER THE PRICE PAID WAS MAINLY FOR THE SITE AND THE VALUE OF THE OLD HO USE WAS NOT CONSIDERED. 5. THE ASSESSEE REITERATED THAT A SUM OF Q 37 LAKHS WAS EXPENDITURE INCURRED FOR NEW CONSTRUCTION AND CANNOT BE SAID TO BE RENOVATION OF AN ASSET WHICH WAS ALREADY IN EXISTENCE PRIOR TO THE R ECEIPT OF CAPITAL GAIN BY THE ASSESSEE. THE LD. CIT DID NOT ACCEPT THE CLAI M OF THE ASSESSEE AND HE HELD AS FOLLOWS: 5. I HAVE CONSIDERED THE ASSESSEES ARGUMENTS AND FACTS OF THE CASE. IN THE REPLY DATED 9.11.2009, THE ASSESSEE HA S HIMSELF MENTIONED THAT THE INVESTMENT RELATES TO PURCHASING OF A RESIDENTIAL SITE ALONG WITH AN OLD HOUSE IN IT WHIC H WAS PARTLY DEMOLISHED AND SUBSTANTIALLY RENOVATED & RECONSTRUC TED . MOREOVER, THE PLAN SANCTIONING AUTHORITY HAS GIVEN APPROVAL FOR RENOVATION OF THE OLD BUILDING. IN VIEW OF THESE FA CTS, I HOLD THAT THE AMOUNT OF RS.37,00,000/- HAD BEEN INCURRED FOR RENOVATION AND EXTENSION NOT AMOUNTING TO CONSTRUCTION OF A RE SIDENTIAL HOUSE AS ENVISAGED IN SECTION 54F AND HENCE DOES NO T QUALIFY DEDUCTION U/S 54F. 6. I THEREFORE, HOLD THAT THE ORDER U/S 143(3) DAT ED 28.12.2007, PASSED BY ITO, WARD 12(1), BANGALORE IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE WITHIN THE MEANING OF SECTION 263 OF THE IT ACT, 1961 IN AS MUCH AS EXEMP TION U/S 54F HAS BEEN WRONGLY ALLOWED TO THE EXTENT OF RS.37,00, 000/- BEING THE AMOUNT SPENT ON EXTENSION AND RENOVATION OF AN OLD BUILDING. 7. TO SUMMARISE, THE ORDER U/S 143(3) PASSED BY T HE ITO, WARD 12(1), BANGALORE FOR THE A.Y.2005-06 ON 28.12. 2007 IS HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE. THE ASSESSMENT ORDER IS MODIFIED TO THE EXTENT THAT DEDUCTION U/S 54F OF THE IT ACT 1961 TO THE EXTENT RELATES TO EXP ENDITURE OF RS.37,00,000/- INCURRED FOR RENOVATION AND EXTENSIO N STANDS WITHDRAWN. ITA NO.790/BANG/10 PAGE 5 OF 13 8. TO SUM UP, THE ASSESSMENT ORDER U/S 143(3) PASS ED BY THE TC, WARD 12(1), BANGALORE STANDS MODIFIED TO THE EX TENT THAT DEDUCTION U/S 54F OF THE IT ACT 1961 TO THE EXTENT IT RELATES TO EXPENDITURE OF RS.37,00,000/- INCURRED FOR RENOVATI ON AND EXTENSION STANDS WITHDRAWN. THE AO IS DIRECTED TO C OMPUTE THE DEDUCTION U/S 54F IN ACCORDANCE WITH THE ABOVE DIRE CTIONS WHILE GIVING EFFECT TO THIS ORDER. 6. AGGRIEVED BY THE ORDER OF THE LD. CIT, THE ASSES SEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE PRIMARILY PLACE D RELIANCE ON THE DECISION OF THE LUCKNOW BENCH OF THE ITAT IN THE CA SE OF JYOTHI PAT RAM V. ITO, 92 ITD 423 (LUCK) . THE LUCKNOW BENCH OF THE ITAT IN THE AFORESAID DECISION CONSIDERED A SIMILAR CLAIM OF TH E ASSESSEE FOR DEDUCTION U/S. 54F OF THE ACT. THE ASSESSEE SOLD A PROPERTY AND INVESTED THE SAME IN REMODELING AND RENOVATION OF RESIDENTIAL HOUSE A ND CLAIMED DEDUCTION U/S. 54F OF THE ACT IN RESPECT OF THE SAID INVESTME NT. THE ASSESSING OFFICER REJECTED THE CLAIM FOR DEDUCTION ON THE GROUND THAT REMODELING AND RENOVATION OF RESIDENTIAL HOUSE WILL NOT B EQUIVALE NT TO CONSTRUCTION OF RESIDENTIAL HOUSE AS CONTEMPLATED U/S. 54F OF THE A CT. FACTUALLY, THERE WAS AN EXISTING DILAPIDATED HOUSE WHICH WAS REMODELED A ND RENOVATED. ON THE ABOVE FACTS, THE QUESTION BEFORE THE TRIBUNAL WAS W HETHER THE DEDUCTION U/S. 54F OF THE ACT, SHOULD BE ALLOWED. THE TRIBUN AL HELD THAT REMODELING AND RENOVATION AMOUNTS TO CONSTRUCTION OF HOUSE. M ORE SO, WHEN AS A FACT IT IS NOT DISPUTED THAT ALTOGETHER NEW PORTION HAS BEEN BUILT AFTER RAZING OLD CONSTRUCTION TO THE GROUND. THE RELEVANT OBSERVATI ONS OF THE BENCH WERE AS FOLLOWS: ITA NO.790/BANG/10 PAGE 6 OF 13 20.. NOW COMING TO THE GIST OF THE MATTER AS TO WHETHE R REMODEL AND RENOVATION IN THE PRESENT CASE AMOUNTS TO CONST RUCTION OF RESIDENTIAL HOUSE, WE BEG TO SUBMIT THAT THE IT ACT ITSELF DOES NOT CONTAIN THE DEFINITION OF THE TERM REMODEL AND RENO VATION. THEREFORE, AT THE FIRST INSTANCE, WE BEG TO REFER T O THE DICTIONARY MEANING AS GIVEN IN 'WEBSTER'S NEW TWENTIETH CENTUR Y DICTIONARY OF THE ENGLISH LANGUAGE UNABRIDGED SECON D EDN.' OF THE TWO TERMS : REMODEL : TO MODEL AGAIN, TO MAKE OVER, TO REBUILD (B) RENOVATION : TO MAKE NEW THE AFORESAID DICTIONARY MEANING OF THE TWO TERMS, EVEN IF THE SAME ARE USED SEPARATELY, MEANING TO CONSTRUCT OR T O CONSTRUCT SOMETHING NEW IN CASE THE TWO WORDS ARE READ JOINTL Y, THEN THE SAME WILL MEAN NOTHING BUT 'BUILDING SOMETHING NEW. ' 6. IN LEGAL PARLANCE ALSO, THE SAID TERMS HAVE BEEN INTERPRETED TO HAVE THE SAME IN 'THE LAW LEXICON' BY JUSTICE Y.V. CHANDRACHUD, SECOND EDN. (REPORT) 2001. 'CONSTRUCTION AND RECONSTRUCTION ARE INTERCHANGEABL E TERMS AND THE ONLY DIFFERENCE IS THAT THE PHRASE 'CONSTRUCTIO N' WILL BE USED WHERE A NEW BUILDING IS PUT UP WHERE NONE EXISTED B EFORE, BUT RECONSTRUCTION WILL APPLY TO A BUILDING WHICH IS RE BUILT IN THE PLACE OF AN EXISTING BUILDING, BUT IN BOTH THESE CA SES THERE WOULD' BE CONSTRUCTION. SADHA SINGH S. MULLA SINGH VS DIST RICT BOARD, AIR 1962 PUN 204 (EAST PUNJAB URBAN RENT RESTRICTIO N ACT 3 OF 1949 S. 3)' THUS, FROM WHATEVER ANGLE THE CASE IS EXAMINED, 'RE MODEL AND RENOVATION' AMOUNTS TO CONSTRUCTION OF HOUSE AND TH IS IS MORE SO IN THE PRESENT CASE WHERE AN ALTOGETHER NEW PORTION HAS BEEN BUILT AFTER RAZING OLD CONSTRUCTION, TO THE GROUND. .. 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS ON THIS ISSUE AND FIND FORCE IN THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE TERMS REMODEL AND REN OVATION SUFFICIENTLY REFER TO NEW CONSTRUCTION ALSO AND THE REFORE, THE ASSESSEE HAS TO BE HELD TO HAVE MADE INVESTMENT IN CONSTRUCTION OF RESIDENTIAL HOUSE WITHIN THE STIPULATED TIME. IN COMING TO THIS CONCLUSION, WE HAVE DERIVED DUE SUPPORT FROM THE DE FINITION OF THE SAID TERMS AS ALSO VARIOUS CASE LAWS AS HAVE BE EN MENTIONED IN THE SUBMISSIONS THAT HAVE BEEN REPRODUCED BY US IN PARA 19 ITA NO.790/BANG/10 PAGE 7 OF 13 ABOVE. IN PRINCIPLE, IT IS ENTITLED TO EXEMPTION UN DER S. 54F OF THE ACT AND WE HOLD ACCORDINGLY. STILL THE CLAIM FOR EX EMPTION IS NOT EFFECTIVELY AVAILABLE TO THE ASSESSEE IN THIS YEAR. IT HAS RIGHTLY BEEN OBSERVED BY THE LEARNED CIT(A) THAT IN THIS PA RTICULAR YEAR, I.E., ASST. YR. 2000-01, THE PROVISO BELOW S. 54F S PECIFICALLY LAYS DOWN THAT THE EXEMPTION SHALL NOT BE AVAILABLE TO A N ASSESSEE IF HE OWNS ANOTHER HOUSE ON THE DATE OF TRANSFER. IN T HE PRESENT CASE, THE ASSESSEE OWNED HOUSE NO. 3/3/74, REKABGANJ, FAI ZABAD. IF REMODEL AND RENOVATION IS TREATED AS CONSTRUCTION O F HOUSE, AS HAS BEEN HELD BY US EARLIER, THE EFFECT WOULD BE THAT T HE ASSESSEE BECOMES OWNER OF A HOUSE OTHER THAN THE HOUSE THAT HE OWNED EARLIER. IN VIEW OF THE PROVISO TO S. 54F AS WAS AP PLICABLE FROM THE ASST. YR. 2000-01, THE CLAIM FOR EXEMPTION UNDE R S. 54F IS NOT EFFECTIVELY ALLOWABLE AND WE HOLD ACCORDINGLY. 8. FURTHER REFERENCE WAS ALSO MADE TO THE DECISION OF THE HYDERABAD BENCH OF THE ITAT IN THE CASE OF ELVIS STEPHENSON V. ITO, ITA NO.1924/HYD/2011 , ORDER DATED 17.02.2011 . THE CLAIM IN THIS CASE WAS ALSO FOR DEDUCTION U/S. 54F OF THE ACT. THE ASSESS EE PURCHASED OLD BUILDING (53 YEARS OLD), DISMANTLED THE WALLS AND A FTER CARRYING OUT SEVERAL RENOVATIONS TO MAKE THE HOUSE HABITABLE, SPENT MONI ES. THE QUESTION WAS WHETHER THE SAME WOULD AMOUNT TO CONSTRUCTION OF RE SIDENTIAL HOUSE AS ENVISAGED U/S. 54F OF THE ACT. THE TRIBUNAL AFTER REFERRING TO THE PROVISIONS OF SECTION 54F OF THE ACT, HELD AS FOLLOWS:- 11. SUBJECT TO THE FULFILMENT OF THE ABOVE THREE CONDITIONS, IF THE INVESTMENT IS MORE THAN NET CONSIDERATION, FULL CAPITAL GAIN IS EXEMPT, OTHERWISE PROPORTIONATE CAPITAL GAIN IS EXE MPT. THE DEPARTMENTS CONTENTION IS THAT THE ASSESSEE HAD NO T CONSTRUCTED A NEW RESIDENTIAL HOUSE PROPERTY. ON THE OTHER HAND, THE ASSESSEE HAS ONLY PURCHASED RESIDENTIAL PROPERTY AND THE REN OVATION OF THAT PROPERTY DOES NOT AMOUNT TO CONSTRUCTION OF NEW RES IDENCE. 12. IN THE CASE OF SALEEM FAZELBHOY (SUPRA) IT WAS HELD AS FOLLOWS: THE PROVISIONS OF S. 54F ARE INCENTIVE PROVISIONS INTENDED TO AUGMENT THE INVESTMENT IN RESIDENTIAL H OUSES. ITA NO.790/BANG/10 PAGE 8 OF 13 IT IS THE SETTLED LEGAL POSITION THAT INCENTIVE PRO VISIONS SHOULD BE CONSTRUED LIBERALLY IN SUCH A MANNER THAT OBJECT OF THE STATUTE IS FULFILLED RATHER THAN THE MANNER WHICH MAY FRUSTRATE THE OBJECT. INVESTMENT IN RESIDENTIAL HOU SE WOULD NOT ONLY INCLUDE COST OF PURCHASE OF THE HOUSE BUT ALSO THE COST INCURRED IN MAKING THE HOUSE HABITABLE. AN INHABITABLE PREMISES CANNOT BE EQUATED WITH A RESID ENTIAL HOUSE. IF ONE PERSON CANNOT LIVE IN A PREMISES, THE N SUCH PREMISES CANNOT BE CONSIDERED A RESIDENTIAL HOUSE. IN THE MODERN AGE, THE BUILDER MAY PROVIDE SEMI-FINISHED H OUSE OR COMPLETE HOUSE DEPENDING UPON THE PRICE AGREED T O BETWEEN THE PARTIES. IN CASE OF SEMI-FINISHED HOUSE , THE PURCHASER WILL HAVE TO INVEST ON FLOORING, WOODEN W ORK, SANITARY WORK, ETC., TO MAKE IT HABITABLE. THEREFOR E, THE INVESTMENT IN HOUSE WOULD BE COMPLETE ONLY WHEN SUC H HOUSE BECOMES HABITABLE. EXPENDITURE INCURRED ON MA KING THE HOUSE HABITABLE SHOULD BE CONSIDERED AS INVESTM ENT IN PURCHASE OF THE HOUSE SUBJECT TO THE CONDITION THAT PAYMENT WAS MADE DURING THE PERIOD SPECIFIED IN S. 54F. THERE IS DISTINCTION BETWEEN EXPENDITURE INCURRED O N MAKING THE HOUSE HABITABLE AND THE EXPENDITURE ON RENOVATION. ONE MAY VISUALIZE A SITUATION WHERE ASS ESSEE MAY BUY A HABITABLE HOUSE BUT THE ASSESSEE MAY LIKE TO INCUR EXPENDITURE BY WAY OF RENOVATION TO MAKE IT M ORE COMFORTABLE. HE MAY NOT BE HAPPY WITH THE QUALITY O F MATERIAL USED BY THE BUILDER AND, THEREFORE, HE MAY INCUR THE EXPENDITURE ON IMPROVEMENT OF THE HOUSE. SUCH EXPENDITURE CANNOT BE EQUATED WITH THE EXPENDITURE ON MAKING THE HOUSE HABITABLE. WHETHER THE HOUSE PURCH ASED BY THE ASSESSEE WAS IN A HABITABLE CONDITION OR NOT WOULD DEPEND ON THE STATE OF CONDITION OF THE HOUSE AT TH E TIME OF PURCHASE. HENCE, THIS ASPECT WOULD HAVE TO BE KEPT IN MIND WHILE ADJUDICATING SUCH ISSUE. IN THE PRESENT CASE, THE AO AS WELL AS THE LEARNED CIT(A) HAD REJECTED T HE CLAIM OF THE ASSESSEE ON THE GROUND THAT NO EXPENDI TURE COULD BE CONSIDERED FOR EXEMPTION UNDER S. 54F WHIC H WAS INCURRED AFTER THE DATE OF PURCHASE. THE AO HAD NO OCCASION TO EXAMINE THE STATE OF THE CONDITION OF T HE HOUSE PURCHASED BY THE ASSESSEE. THOUGH THE LIST OF EXPEN DITURE HAS BEEN PROVIDED BY THE ASSESSEE, YET IT IS TO BE EXAMINED WHETHER SUCH EXPENDITURE WAS INCURRED TO MAKE THE H OUSE HABITABLE OR JUST TO MAKE THE HOUSE MORE COMFORTABL E. THIS ASPECT OF THE MATTER REQUIRES EXAMINATION BY T HE AO. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET ASIDE A ND THE AO IS DIRECTED TO READJUDICATE THE ISSUE IN ACCORDA NCE WITH THE GUIDELINES GIVEN AND AFTER CONSIDERING THE ENTI RE ITA NO.790/BANG/10 PAGE 9 OF 13 MATERIAL PRODUCED BY ASSESSEE BEFORE HIM. THE ASSES SEE SHALL BE GIVEN PROPER OPPORTUNITY TO REPRESENT HIS CASE. 13. IN THE CASE OF MRS. MEERA JACOB (CITED SUPRA) IT WAS HELD THAT SINCE THE ASSESSEE HAD ONLY MADE ADDITION TO T HE PLINTH AREA WHICH WAS IN THE FORM OF MODIFICATION OF AN EXISTIN G HOUSE, SHE WAS NOT ENTITLED TO DEDUCTION CLAIMED UNDER SECTION 54F OF THE INCOME-TAX ACT, 1961. 14. IN THE CASE OF JYOTI PAL RAM (SUPRA) IT WAS HE LD THAT THE TERM REMODELLING AND RENOVATION SUFFICIENT REFERRED TO NEW CONSTRUCTION ALSO AND, THEREFORE, THE ASSESSEE HAS TO BE HELD TO HAVE MADE INVESTMENT IN CONSTRUCTION OF RESIDENTIAL HOUSE WITHIN THE STIPULATED TIME. IN PRINCIPLE, IT IS ENTITLED F OR EXEMPTION U/S. 54F. .. . 17. COMING TO THE FACTS OF THE PRESENT CASE, THE A SSESSEE HAVING PURCHASED THE NEW PROPERTY VIDE SALE DEED DA TED 21.1.2011. FOR THIS AGREEMENT OF SALE WAS ENTERED O N 29.11.2010 ALONG WITH THE CONTRACT FOR CONSTRUCTION ON 29.11.2 010 AND CONSTRUCTION WAS COMPLETED BEFORE THE SALE DEED IS EXECUTED AND THE COST OF THE BUILDING WAS PAID BETWEEN 28.11.201 0 TO 18.1.2011. IN OUR OPINION, WE HAVE TO TAKE A LIBERA L VIEW OF THE BENEFICIAL PROVISIONS OF SECTION 54F AND REMODELLIN G OR RENOVATION OF THE HOUSE TO MAKE IT HABITABLE TO SUI T THE REQUIREMENT OF THE ASSESSEE AND THEREBY WE HAVE TO HOLD THAT THE PROVISIONS OF SECTION 54F HAVE BEEN COMPLIED WITH B Y THE ASSESSEE. IN OUR OPINION, DEDUCTION U/S. 54F HAS TO BE GRANTED TO THE ASSESSEE. ACCORDINGLY, WE ALLOW THE APPEAL OF T HE ASSESSEE. 9. THE LD. DR, HOWEVER, RELIED ON THE DECISION OF T HE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. V. PRADEEP KUMAR, 209 ITR 90 (MAD) , WHEREIN THE HONBLE MADRAS HIGH COURT HELD THAT WHE RE THERE WAS MERE EXTENSION OF AN EXISTING BUILDING OF RESIDENTIAL HO USE, THAT WOULD NOT AMOUNT TO CONSTRUCTION OF A RESIDENTIAL HOUSE WHICH WILL ENABLE THE ASSESSEE TO CLAIM EXEMPTION U/S. 54F OF THE ACT. ITA NO.790/BANG/10 PAGE 10 OF 13 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS C AN BE SEEN FROM THE FACTS OF THE CASE, THE ASSESSEE HAD TAKEN A SPECIFI C PLEA BEFORE THE LD. CIT THAT THE BUILDING THAT WAS IN EXISTENCE AT THE TIME OF PURCHASE, WAS VERY OLD AND NOT IN A HABITABLE CONDITION AND THEREFORE TO M AKE IT HABITABLE, THE ASSESSEE HAD TO SPEND A SUM OF Q 37 LAKHS BY DEMOLISHING AND REBUILDING THE HOUSE TO A GREAT EXTENT. THIS FACTUAL PLEA OF THE ASSESSEE HAS NOT BEEN DISPUTED BY THE REVENUE. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD BE ENTITLED TO THE BENEFIT U/S. 54F OF THE ACT. THE DECISION OF THE LUCKNOW BENCH OF THE ITAT IN THE CA SE OF JYOTHI PAT RAM (SUPRA) CLEARLY SUPPORTS THE PLEA OF THE ASSESSEE. AS FAR AS THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF V. PRADEEP KUMAR (SUPRA) IS CONCERNED, THAT WAS A CASE OF EXTENSION CARRIED OUT TO AN EXISTING HOUSE WHEREAS IN THE CASE OF THE ASSESSEE THE EXISTING HO USE WAS DEMOLISHED SUBSTANTIALLY TO MAKE IT HABITABLE. IN THE PRESENT CASE OF THE ASSESSEE, IT IS NOT A CASE WHERE THERE WAS MERE EXTENSION OF EXISTI NG BUILDING. THE LD. COUNSEL FOR THE ASSESSEE HAD ALSO PLACED RELIANCE O N THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF B.B. SARKAR V. CIT, 132 ITR 150 (CAL) . BESIDES THE ABOVE, RELIANCE WAS ALSO PLACED ON T HE DECISION OF THE BANGALORE BENCH OF THE ITAT IN THE CASE OF M. VIJAYA KUMAR V. ITO, 122 ITD 15 (BANG) , WHEREIN THE ITAT HELD AS FOLLOWS:- 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. ON OUR CAREFUL CONSIDERATION OF FACTS AND CIRCUMSTANCES IT TRANSPIRES THAT THE ASSESSING OFFI CER AFTER HAVING PERUSED THE PURCHASE DEED HELD THAT THE ASSESSEE HA D PURCHASED A SITE HAVING A DILAPIDATED HOUSE BUILT ABOUT 100 YEA RS BACK AND COMPUTED THE CLAIM OF DEDUCTION UNDER SECTION 54F I NSOFAR AS HE PROPORTIONATELY DISALLOWED THE CLAIM ON THE COST OF CONSTRUCTION OF A NEW BUILDING ON THE DEMOLISHED SITE. IN CASE O F THE LADY SMT. ITA NO.790/BANG/10 PAGE 11 OF 13 VIJAYALAKSHMI, HOWEVER, HE HAS ALLOWED THE ENTIRE L ONG-TERM CAPITAL GAINS AS CLAIMED ALTHOUGH IN THE ORDER REST RICTED THE CLAIM OF THE DEDUCTION UNDER SECTION 54F TO THE PURCHASE OF LAND AND BUILDING BY NOT ALLOWING THE AMOUNT SPENT ON CONSTR UCTION. THE LEARNED CIT(A) SECONDED THE ASSESSING OFFICER'S OPI NION THAT ONCE THE CONSIDERATION HAS BEEN INVESTED IN RESIDEN TIAL PROPERTY THE APPLICATION OF SECTION 54F ENDED AND THE CLAIM OF THE LONG- TERM CAPITAL GAINS EXEMPTION FOR THE CONSTRUCTION O F HOUSE PROPERTY DOES NOT ARISE. WE ARE UNABLE TO SATISFY O URSELVES TO THIS PROPOSITION OF THE AUTHORITIES BELOW INSOFAR AS IT WAS THE CASE OF THE ASSESSEE TO CLAIM DEDUCTION UNDER SECTION 54F B Y TRANSFERRING SHARES HELD AS LONG-TERM ASSET TO PURCHASE A RESIDE NTIAL HOUSE WITH THE INTENTION OF RESIDING IN THE PREMISES WHIC H THE AUTHORITIES BELOW APPEAR TO BE GUIDED BY THE PROVIS O TO THE SAID SECTION THAT THE CONSIDERATION IS RESTRICTED TO THE ASSESSEE'S CLAIM OF EXEMPTION ON THE PURCHASE OF LAND AND BUILDING A S PER THE PURCHASE DEED. THE PROVISO PROVIDES RESTRICTION BUT CANNOT BE CONSTRUED SO AS TO RESTRICT THE OBJECTIVE OR INCENT IVE AND NOT TO OBSTRUCT OR DEED AS HAS BEEN HELD BY THE DECISION I N THE CASE OF CIT V. RAJESH KUMAR JALAN [2006] 286 ITR 274 (GAU.) . THE LEARNED COUNSEL ALSO RELIED ON THE APEX COURT DECIS ION IN THE CASE OF BAJAJ TEMPO LTD. V. CIT [1992] 196 ITR 188 WHICH STATES THAT RESTRICTIONS SHOULD BE ELABORATELY CONSTRUED INSOFA R AS THE LAW DOES NOT PROVIDE THAT THE ASSESSEE IS NOT ENTITLED TO DEMOLISH AN OLD STRUCTURE AND CONSTRUCT A NEW BUILDING THEREUPO N. THIS VIEW WAS ALSO HELD BY THE ITAT, BANGALORE BENCH IN THEIR DECISION REPORTED AT 103 TTJ 829 (SIC). FROM THE FACTS OF TH E ASSESSEE'S CASE IT WAS ABUNDANTLY CLEAR INSOFAR AS THE INTENTI ON WAS TO ALLOW DEDUCTION IF THE ASSESSEE COULD AFTER THE DATE OF W HEN THE TRANSFER TOOK PLACE FOR PURCHASE WITHIN TWO YEARS OR WITHIN A PERIOD OF THREE YEARS OF THAT DATE, CONSTRUCT A RESIDENTIAL H OUSE ON THE SAME SITE WHERE THE OLD BUILDING WAS DEMOLISHED, COULD N OT BE SAID TO HAVE CREATED A NEW ASSET BEFORE THE TIME PERIOD ELA PSED BECAUSE THE FACTS CLEARLY INDICATE THAT THE OLD HOUSE WAS D EMOLISHED TO MAKE WAY FOR THE NEW BUILDING AND IT COULD NOT BE S AID TO BE A CREATION OF A NEW ASSET. THE PROVISIONS OF SECTION 54F THEREFORE CLEARLY ALLOW THE ASSESSEE TO APPROPRIATE THE CONSI DERATION ON ACCOUNT OF CAPITAL GAINS TO THE EXTENT THAT THE NEW ASSET THAT HAD COME INTO BEING WAS AT THE LIBERTY OF THE ASSESSEE TO PERPETUATE INSOFAR AS HAVING PURCHASED A SITE AND THE CONSTRUC TION THEREUPON WAS WITHIN THREE YEARS AND AS WAS ALSO CONSIDERED I N THE CASE OF UNION CO. (MOTORS) LTD. (SUPRA) AMOUNTS TO APPROPRI ATION OF THE CAPITAL GAINS UNDER SECTION 54F SUPPORTED BY THE CB DT CIRCULAR NO. 667 WHICH CLARIFIES THAT FOR EXEMPTION IT WAS M EANT FOR CONSTRUCTION OF A RESIDENTIAL HOUSE AFTER DEMOLISHI NG THE EXISTING/OLD STRUCTURE. THEREFORE, IT CANNOT BE SAI D THAT THE ITA NO.790/BANG/10 PAGE 12 OF 13 ASSESSEE AFTER HAVING PURCHASED THE SITE HAD ABSOLV ED HIMSELF TO HAVING ACQUIRED A NEW ASSET WHEN THE TIME AVAILABLE FOR HIM TO CONSTRUCT A RESIDENTIAL HOUSE THEREUPON BETWEEN TWO TO THREE YEARS WAS STILL AVAILABLE. HE WOULD NOT HAVE CONSTR UCTED A HOUSE UNLESS THE OLD BUILDING WAS DEMOLISHED. THEREFORE, KEEPING IN VIEW OF ALL THE FACTS AND CIRCUMSTANCES AS HAS BEEN BROUGHT OUT BEFORE US, WE ARE OF THE CONSIDERED VIEW THAT THE A UTHORITIES BELOW ERRED IN DENYING THE ASSESSEES THE CLAIM OF D EDUCTION UNDER SECTION 54F BY RESTRICTING THE EXEMPTION TO T HE COST OF LAND AND BUILDING AND NOT THE COST OF CONSTRUCTION INCUR RED IN THE IMPUGNED ASSESSMENT YEAR ON THE VERY SITE WHERE THE OLD HOUSE STOOD DEMOLISHED. ON THIS ISSUE, THEREFORE, WE ALLO W THE APPEAL FILED BY THE ASSESSEES AND DIRECT THE ASSESSING OFF ICER TO ALLOW THE CLAIM OF LONG-TERM CAPITAL GAINS AS CLAIMED BY THE RESPECTIVE ASSESSEES. 11. IN THE LIGHT OF THE LEGAL PRINCIPLES STATED ABO VE AND CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE, WE ARE OF THE VIEW THAT THE DEDUCTION U/S. 54F OF THE ACT WAS RIGHTLY ALLOWED B Y THE ASSESSING OFFICER. THE CONCLUSION OF THE LD. CIT IN THE ORDER U/S. 263 OF THE ACT THAT THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS IS NOT CORRE CT. WE THEREFORE QUASH THE ORDER U/S. 263 OF THE ACT. 12. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2012. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASUDEVAN ) VICE PRESIDENT JUDICIAL MEMB ER BANGALORE, DATED, THE 31 ST AUGUST , 2012. DS/- ITA NO.790/BANG/10 PAGE 13 OF 13 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.