DHRUTI PARAG SHAH, MUMBAI V. ITO 12(2)(2), MUMBAI

ITA 8519/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3668 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-03-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 15-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Capital asset
• Section: 143(3); 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI D KARUNAKARA RAO, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.:8519/MUM/2011 ASSESSMENT YEAR: 2008-09 DHRUTI PARAG SHAH, VS. THE ITO 12(2)(2), PROP. SYSTEMS MARKETING INDIA, MUMBAI. 6, HAMPTION COURT, NATHALAL PARIKH MARG, COLABA, MUMBAI- 400 004. PAN : AWAPS9834N (APPELLANT) (RESPONDENT) APPELLANT BY : MR. M SUBRAMANIAN RESPONDENT BY : MR. JITENDRA YADAV DATE OF HEARING : 18.03.2013 DATE OF PRONOUNCEMENT : 08.05.2013 ORDER PER SANJAY GARG, JM : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF THE CIT(A) DATED 12.01.2011 PERTAINING TO A.Y 2008-09, CONFIRMING THE DISALLOWANCE OF EXEMPTION U/S. 54F OF THE I.T ACT MADE BY THE AO. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, AN INDIVIDUAL, IN HER INCOME TAX RETURN FOR THE RELEVANT ASSESSMENT YEAR DECLARE D TOTAL INCOME OF RS.3,06,890. DURING THE ASSESSMENT PROCEEDINGS U/S. 143(3) OF TH E ACT, THE AO FOUND THAT THE ASSESSEE HAD LONG TERM CAPITAL GAIN ON ACCOUNT OF S ALE OF PLOT OF RS.22,74,500/- WHICH SHE CLAIMED EXEMPT U/S. 54F OF THE I.T ACT AS THE ENTIRE PROCEEDS HAD BEEN INVESTED IN SELF OCCUPIED PROPERTY. THE AO CALLED FOR THE DETAILS AND EVIDENCES IN THIS RESPECT. IN RESPONSE THE ASSESSEE PRODUCED ME MORANDUM OF UNDERSTANDING (MOU) DATED 25.08.2008 BETWEEN THE ASSESSEE AND M/S . KALPAVRUKSHA DEVELOPERS. THE AO NOTICED THAT THE PLAN OF THE PROPERTY FOR IN VESTMENT MADE WAS NOT APPROVED ITA NO. 8519/MUM/2011 AY : 2008-09 2 AND FURTHER THAT THE MOU WAS A DOCUMENT SHOWING THE INTEREST OF PARTIES TO MAKE A TRANSACTION. HOWEVER, NO FINAL AGREEMENT WAS EXECU TED BETWEEN THE PARTIES AND FURTHER THERE WAS NO TRANSFER OF PROPERTY WITHIN TH E STIPULATED PERIOD OF TWO YEARS. THOUGH THE ASSESSEE STATED THAT THE ENTIRE CAPITAL GAIN AMOUNT WAS PAID BY THE ASSESSEE IN TERMS OF THE MOU AND AS SUCH SHE WAS EN TITLED TO CLAIM EXEMPTION U/S. 54F, THE AO DISAGREEING WITH THE CONTENTION OF THE ASSESSEE HELD THAT THE ASSESSEE NEITHER PURCHASED NOR CONSTRUCTED ANY HOUSE PROPERT Y WITHIN THE STIPULATED TIME LIMIT OF TWO YEARS FOR PURCHASE OF HOUSE OR THREE Y EARS FOR CONSTRUCTION OF A NEW HOUSE. THE ASSESSEE HAD ALSO NOT PRODUCED ANY AGRE EMENT OF PURCHASE/SALE IN TERMS OF THE MOU. EVEN THERE WAS NO OCCASION FOR T HE ASSESSEE TO PAY ALMOST ENTIRE SALE CONSIDERATION TO THE BUILDER, WHEREAS A S PER THE NORMAL BOOKING PROCESS ONLY 10% TO 12% OF THE INITIAL AMOUNT IS PAID AS A BOOKING AMOUNT AND THE REST OF THE SALE PRICE IS GENERALLY PAID IN INSTALLMENTS ON THE CONSTRUCTION/COMPLETION OF DIFFERENT PHASES OF THE PROJECT. SO DISBELIEVING T HE SAID MOU AND HOLDING THAT THERE WAS NO PURCHASE OF A NEW HOUSE BY THE ASSESSEE, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE U/S. 54F OF THE ACT. BEFORE THE LEARNED CIT(A), THE ASSESSEE BROUGHT CER TAIN NEW FACTS TO THE EFFECT THAT THE ASSESSEE HAD SOLD HER PLOT ON 27.03 .2008 FOR A SUM OF RS.23,30,000/- MAKING LONG TERM CAPITAL GAIN OF RS.22,74,500/-. T HE ASSESSEE PAID THE ENTIRE AMOUNT OF CAPITAL GAIN IN TERMS OF MOU SIGNED WITH KALPAVRUKSHA DEVELOPERS 25.08.2008 I.E. WITHIN THE STIPULATED TIME PERIOD O F TWO YEARS. BUT THE SAID MOU DID NOT MATERIALIZE. FURTHER, KALPAVRUKSHA DEVELOPERS INFORMED THE ASSESSEE THAT IT WAS UNABLE TO CONSTRUCT THE BUILDING DUE TO UNAVOIDABLE CIRCUMSTANCES AND THE ENTIRE PAYMENT MADE BY THE ASSESSEE WAS FORWARDED BY KALPA VRUKSHA DEVELOPERS TO MARVEL LANDMARKS PVT. LTD. BY ISSUING TWO BANK DRAF TS FOR A SUM OF RS.10 LACS AND RS.15 LACS RESPECTIVELY ON 13.10.2009. AFTER RECEIV ING THE SAID SUM OF RS.25 LACS FROM M/S. KALPAVRUKSHA DEVELOPERS, MARVEL LANDMARKS PVT. LTD BOOKED A RESIDENTIAL FLAT IN THE NAME OF THE ASSESSEE ON 15.10.2009 AND FINALLY ALLOTTED FLAT NO.H 201 IN THE COMPLEX/BUILDING KNOWN AS MARVEL ZEPHYR. THE P OSSESSION OF THE SAME WAS GIVEN TO THE ASSESSEE ON 10.03.2011 AFTER RECEIVING FURTHER PAYMENTS TOTALING TO ITA NO. 8519/MUM/2011 AY : 2008-09 3 RS.89.75 LACS AS PER THE AGREEMENT BETWEEN THE PART IES. THE ASSESSEE CLAIMED BEFORE THE CIT(A) THAT IN FACT, THE FLAT WAS BOOKED WITHIN THE STIPULATED PERIOD AND EVEN AFTER COMPLETION OF THE CONSTRUCTION, THE POSS ESSION OF THE NEWLY CONSTRUCTED HOUSE WAS DELIVERED BY THE BUILDER TO THE ASSESSEE WITHIN THE STIPULATED PERIOD OF THREE YEARS AND, HENCE, EXEMPTION U/S. 54F WAS RIGH TLY CLAIMED BY THE ASSESSEE. HOWEVER, THE LEARNED CIT(A) WAS NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE AND UPHELD THE DISALLOWANCE MADE BY THE AO OBSERVING THAT THE AGREEMENT WAS ENTERED INTO BY THE ASSESSEE WITH MAR VEL LANDMARKS PVT. LTD ON 28.02.2011 AND THE POSSESSION OF THE FLAT WAS GIVEN ON 10.03.2011 WHICH MEANS THAT AT THE TIME OF ENTERING INTO AGREEMENT, THE FL AT WAS ALREADY CONSTRUCTED. THUS, THE TRANSACTION WAS OF PURCHASE OF FLAT AND WAS NOT A CASE OF CONSTRUCTION TO BE ELIGIBLE FOR EXEMPTION U/S. 54F. TO CLAIM EXEMPTIO N, THE ASSESSEE MIGHT HAVE PURCHASED THE HOUSE WITHIN TWO YEARS, BUT IN THIS C ASE THE ASSESSEE HAD PURCHASED THE HOUSE AFTER TWO YEARS, HENCE SHE WAS INELIGIBLE FOR CLAIMING EXEMPTION U/S. 54F OF THE ACT. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND HAVE ALSO MINUTELY GONE THROUGH THE RECORD. THE AO DISALLOWE D THE CLAIM OF THE ASSESSEE DISBELIEVING THE MOU BETWEEN THE ASSESSEE AND M/S. KALPAVRUKSHA DEVELOPERS. HOWEVER, IT WAS ALLEGED BY THE ASSESSEE THAT THE EN TIRE PAYMENT TO M/S. KALPAVRUKSHA DEVELOPERS WAS MADE THROUGH CHEQUES IN TERMS OF THE MOU. BEFORE THE LEARNED CIT(A), THE ASSESSEE CLAIMED THAT THE A GREEMENT WITH M/S. KALPAVRUKSHA DEVELOPERS DID NOT MATERIALIZE AND, IN FACT, THE PA YMENTS MADE BY THE ASSESSEE WERE FURTHER TRANSFERRED BY M/S. KALPAVRUKSHA DEVEL OPERS IN FAVOUR OF MARVEL LANDMARKS PVT. LTD., ANOTHER DEVELOPER, BY WAY OF C HEQUES/DRAFTS ON 13.10.2009 I.E. WITHIN THE STIPULATED PERIOD OF TWO YEARS FOR THE P URCHASE OF HOUSE AND WITHIN THE STIPULATED PERIOD OF THREE YEARS FOR THE CONSTRUCTI ON OF A HOUSE. THE CBDT VIDE ITS CIRCULAR NO. 471 DATED 15.10.1986 HAS CLARIFIED THAT AN ACQUISITION OF A FLAT BY THE ALLOTTEE UNDER SELF FI NANCING SCHEME OF THE DELHI DEVELOPMENT AUTHORITY IS NOT A TRANSACTION OF SALE AND FURTHER THAT INFERENCE THAT ITA NO. 8519/MUM/2011 AY : 2008-09 4 CAN BE DRAWN IS THAT DDA UNDERTAKES CONSTRUCTION WO RK ON BEHALF OF THE ALLOTTEES. THE TENTATIVE COST OF CONSTRUCTION IS ALREADY DETER MINED AND THAT THE DDA. FACILITATES THE PAYMENT OF THE COST OF CONSTRUCTION IN INSTALLM ENTS AND, THEREFORE, IT HAD BEEN DECIDED THAT CASES OF ALLOTMENT OF FLATS UNDER THE SELF-FINANCING SCHEME OF THE DELHI DEVELOPMENT AUTHORITY BE TREATED AS CASES OF CONSTR UCTION FOR THE PURPOSE OF CAPITAL GAINS ENTITLING BENEFIT U/S. 54F OF THE I.T.ACT. T HE CBDT VIDE CIRCULAR NO.672 DATED 16.12.93 HAS DECIDED THAT IF THE TERMS OF ALLOTMENT AND CONSTRUCTION OF FLATS/HOUSES BY THE CO-OPERATIVE SOCIETIES OR OTHER INSTITUTIONS ARE SIMILAR AS THOSE MENTIONED IN CIRCULAR 471 DATED 15.10.1986 SUCH CASES MAY ALSO B E TREATED AS CASES OF CONSTRUCTION FOR THE PURPOSE OF SECTION 54 AND 54F OF THE I.T. ACT. IN THE CASE OF THE ASSESSEE THOUGH THE INITIAL AGRE EMENT WITH M/S. KALPAVRUKSHA DEVELOPERS DID NOT MATERIALIZE, THE PA YMENT WAS TRANSFERRED BY THE SAID DEVELOPER TO ANOTHER DEVELOPER WITHIN THE STIP ULATED TIME PERIOD AND THE ASSESSEE MADE FURTHER PAYMENTS TO THE NEW DEVELOPER AND ULTIMATELY THE HOUSE IN QUESTION WAS DELIVERED TO HER ON 10.03.2011 I.E. WI THIN THE STIPULATED PERIOD OF THREE YEARS. AS PER THE CBDT CIRCULARS, THE CASE OF THE A SSESSEE IS ALSO COVERED FOR TREATING THE SAME AS CONSTRUCTION FOR THE PURPOSE O F SECTION 54F OF THE I.T. ACT. IT IS COMMONLY OBSERVED FACT THAT THE BUILDERS EXECUTE AN D REGISTER THE AGREEMENT OF ALLOTMENT/TRANSFER ONLY AT THE TIME OF HANDING OVER THE POSSESSION OF THE HOUSES TO AVOID CERTAIN CLAIMS OF THE ALLOTTEES. ONLY BECAUS E THE AGREEMENT WAS EXECUTED AND REGISTERED ON 28.02.2011 THAT ITSELF CANNOT BE A GR OUND TO DENY THE CLAIM OF EXEMPTION TO THE ASSESSEE U/S. 54F OF THE I.T. ACT, IF OTHERWISE THE ASSESSEE IS ABLE TO PROVE THE BOOKING AND PAYMENTS THEREOF FOR THE C ONSTRUCTION, ALLOTMENT AND DELIVERY OF POSSESSION OF THE HOUSE . EVEN OTHERWI SE IT CAN BE OBSERVED THAT SECTION 54F OF THE ACT IS A BENEFICIAL PROVISION FOR PROMOT ING THE CONSTRUCTION OF RESIDENTIAL HOUSE AND, THEREFORE, SHOULD BE CONSTRUED LIBERALLY . IF THE ALLOTTEE WITHIN THE STIPULATED PERIOD, PAYS ENTIRE CAPITAL GAIN MONEY F OR THE PURCHASE/CONSTRUCTION OF HOUSE AND THE POSSESSION OF THE CONSTRUCTED HOUSE I S ALSO DELIVERED TO HIM WITHIN THE STIPULATED PERIOD, THEN THE EVENTS IN THE INTER VENING PERIOD ARE NOT REQUIRED TO BE LOOKED INTO AS THE ULTIMATE PURPOSE OF THE BENEF ICIAL PROVISION IS ACQUIRING OF ITA NO. 8519/MUM/2011 AY : 2008-09 5 RESIDENTIAL HOUSE BY THE ASSESSEE. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT & ANR. VS. SAMBANDAM UDAYKUMAR 72 DTR (KAR) 232 HAS OBSERVED AND HELD AS UNDER: SEC 45 OF THE ACT MAKES IT VERY CLEAR THAT ANY PROF ITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN TH E PREVIOUS YEAR SHALL SAVE OR OTHERWISE PROVIDED IN SS. 54, 54B, 54D, 54E , 54EA, 54EB, 54F, 54G AND 54H ARE CHARGEABLE TO INCOME-TAX UNDER THE HEAD CAPITAL GAINS AND SHALL BE DEEMED TO BE INCOME OF THE PREV IOUS YEAR IN WHICH THE TRANSFER TOOK PLACE. THE AFORESAID SECTIONS WH ICH FORM PART OF S.54 OF THE ACT ARE CASES WHERE CAPITAL GAIN ON TRANSFER OF CAPITAL ASSET IS NOT TO BE CHARGED IN THOSE CASES. SEC.54F OF THE A CT IS A BENEFICIAL PROVISIONOF PROMOTING THE CONSTRUCTION OF RESIDENTI AL HOUSE. THEREFORE, THE SAID PROVISION HAS TO BE CONSTRUED LIBERALLY FO R ACHIEVING THE PURPOSE FOR WHICH IT WAS INCORPORATED IN THE STATUT E. THE INTENTION OF THE LEGISLATURE WAS TO ENCOURAGE INVESTMENTS IN THE ACQUISITION OF A RESIDENTIAL HOUSE AND COMPLETION OF CONSTRUCTION OR OCCUPATION IS NOT THE REQUIREMENT OF LAW. THE WORDS USED IN THE SECT ION ARE PURCHASED OR CONSTRUCTED . FOR SUCH PURPOSE, THE CAPITAL GA IN REALIZED SHOULD HAVE BEEN INVESTED IN A RESIDENTIAL HOUSE. THE CON DITION PRECEDENT FOR CLAIMING BENEFIT UNDER THE SAID PROVISION IS THE CA PITAL GAIN REALIZED FROM SALE OF CAPITAL ASSET SHOULD HAVE BEEN PARTED BY THE ASSESSEE AND INVESTED EITHER IN PURCHASING A RESIDENTIAL HOUSE O R IN CONSTRUCTING A RESIDENTIAL HOUSE. IF AFTER MAKING THE ENTIRE PAYM ENT, MERELY BECAUSE A REGISTERED SALE DEED HAD NOT BEEN EXECUTED AND RE GISTERED IN FAVOUR OF THE ASSESSEE BEFORE THE PERIOD STIPULATED, HE CA NNOT BE DENIED THE BENEFIT OF S.54F OF THE ACT. SIMILARLY, IF HE HAS INVESTED THE MONEY IN CONSTRUCTION OF A RESIDENTIAL HOUSE, MERELY BECAUSE THE CONSTRUCTION WAS NOT COMPLETE IN ALL RESPECTS AND IT WAS NOT IN A FIT CONDITION TO BE OCCUPIED WITHIN THE PERIOD STIPULATED, THAT WOULD N OT DISENTITLE THE ASSESSEE FROM CLAIMING BENEFIT UNDER S.54F OF THE A CT. THE ESSENCE OF THE SAID PROVISION IS WHETHER THE ASSESSEE WHO RECE IVED CAPITAL GAINS HAS INVESTED IN A RESIDENTIAL HOUSE. ONCE IT IS DE MONSTRATED THAT THE CONSIDERATION RECEIVED ON TRANSFER HAS BEEN INVESTE D EITHER IN PURCHASING A RESIDENTIAL HOUSE OR IN CONSTRUCTION O F A RESIDENTIAL HOUSE EVEN THOUGH THE TRANSACTIONS ARE NOT COMPLETE IN AL L RESPECTS AND AS REQUIRED UNDER THE LAW, THAT WOULD NOT DISENTITLE T HE ASSESSEE FROM THE SAID BENEFIT. IN VIEW OF THE LAW LAID DOWN BY THE HONBLE HIGH CO URT AND OUR OBSERVATIONS ABOVE, THE ASSESSEE UNDER THE SAID CIRCUMSTANCES IS ENTITL ED TO RELIEF/CLAIM U/S. 54F OF THE I.T. ACT. HOWEVER, IT MAY BE OBSERVED THAT THE ASS ESSEE FOR THE FIRST TIME PUT THE ITA NO. 8519/MUM/2011 AY : 2008-09 6 FACT OF ACQUISITION OF THE HOUSE FROM MARVEL LANDMA RK PVT. LTD. BEFORE THE CIT(A) ONLY AND THE AO HAD NO OCCASION TO EXAMINE THE DOCU MENTS LIKE THE BANK STATEMENTS ETC., RELATING TO PAYMENTS MADE BY THE A SSESSEE FOR THE ACQUISITION OF THE HOUSE. UNDER SUCH CIRCUMSTANCES, WE REMAND BAC K THE CASE TO THE FILE OF THE AO WITH A DIRECTION THAT THE AO WILL EXAMINE THE RE QUIRED DOCUMENTS SUCH AS THE BANK STATEMENTS ETC. TO CONFIRM WHETHER THE PAYMENT S AS CLAIMED BY THE ASSESSEE WERE ACTUALLY MADE TO THE BUILDERS AND IF FOUND TRU E THE AO WILL ACCORDINGLY ALLOW THE BENEFIT OF SECTION 54F OF THE I.T ACT TO THE AS SESSEE. NEEDLESS TO SAY, THAT THE AO WILL GIVE SUFFICIENT OPPORTUNITY TO THE ASSESSEE FOR PRODUCTION OF RELEVANT DOCUMENTS. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH MAY 2013. SD/- SD/- (D.KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 8 TH MAY, 2013 SA COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED, MUMBAI 4. THE CIT- (A) CONCERNED, MUMBAI 5. THE DR, D - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI