Mrs. Shirly Sajan, CHENNAI V. ITO, CHENNAI

ITA 94/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96307 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 10-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: DR L NATARAJAN
• Keywords: Reopening of assessment; Capital asset; Cost of acquisition; Difference of opinion; Change of opinion
• Section: 143(3); 54F; 54; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO.94/MDS/2014 ( / ASSESSMENT YEAR: 2010-11) MRS.SHIRLY SAJAN 11, MAJESTIC COLONY, THIRUMANGALAM, ANNA NAGAR, CHENNAI. VS THE INCOME TAX OFFICER, WARD-XIV(4), CHENNAI. PAN: AVCPS0570J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : DR.L.NATARAJAN, C.A. /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 27 TH AUGUST, 2015 /DATE OF PRONOUNCEMENT : 28 TH OCTOBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VII, CHENN AI DATED 03.12.2013 FOR THE ASSESSMENT YEAR 2010-11. 2. THOUGH SEVERAL GROUNDS WERE RAISED BY THE ASSESS EE IN HER APPEAL, THE CRUX OF THE ISSUE IS THAT COMMIS SIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING THE CLAIM UN DER SECTION 54F PARTIALLY AND DISREGARDING THE EXPENDIT URE INCURRED ON THE IMPROVEMENT FOR THE PURPOSE OF COMP UTING CAPITAL GAINS. 2 ITA NO.94/MDS/2014 3. THE ASSESSEE, AN INDIVIDUAL, DERIVING INCOME FRO M BUSINESS FILED HER RETURN OF INCOME FOR THE ASSESSM ENT YEAR 2010-11 ON 04.03.2011 ADMITTING TOTAL INCOME OF ` 8,510/-. ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT ON 31.03.2013. IN THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2010-11 SOLD IMMOVABLE PROPERTY ON 22.03.2010 FOR ` 1,13,82,850/-. IT WAS ALSO NOTICED THAT ASSESSEE HAS CLAIMED INDEXED COST OF ACQUISITION AT ` 30,77,839/- OUT OF WHICH A SUM OF ` 13,04,063/- WAS TOWARDS COST OF IMPROVEMENT . THIS COST OF IMPROVEMENT CLAIMED BY THE ASSESSEE WAS DISALLOWED BY THE ASSESSING OFFICER WHILE COMPUTING THE LONG TERM CAP ITAL GAINS, AS THE ASSESSEE HAS NOT PRODUCED EVIDENCE FO R THE EXPENSES MET. THE ASSESSING OFFICER AFTER ALLOWING BALANCE INDEXED COST OF ACQUISITION OF ` 17,73,776/- COMPUTED THE NET LONG TERM CAPITAL GAINS AT ` 96,09,084/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE PAID ` 30,14,850/- TO THE BUILDER BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT AND BALANCE AMOUNT OF LO NG TERM CAPITAL GAINS TO THE EXTENT OF ` 65,94,234/- IS NOT DEPOSITED IN 3 ITA NO.94/MDS/2014 ANY CAPITAL GAIN ACCOUNT SCHEME AS PER SECTION 54F( 4) BEFORE FILING THE RETURN OF INCOME UNDER SECTION 13 9(1) OF THE ACT THOUGH IT WAS PAID SUBSEQUENT TO THE FILING OF RETURN. THE ASSESSING OFFICER DENIED EXEMPTION UNDER SECTION 54 ON SUCH LONG TERM CAPITAL GAINS OF ` 65,94,234/-. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT ASSE SSEE FILED RETURN ONLY ON 4.3.2011 AND ASSESSEE CAN FILE RETURN ON OR BEFORE 31.03.2013 AS PER THE PROVISIONS OF SECTI ON 139(4) OF THE ACT AND SINCE THE ASSESSEE PAID ` 40,19,800/- AS ON 04.10.2010 I.E. AS ON THE DATE OF FILING OF RETURN OF INCOME UNDER SECTION 139(4), HE QUANTIFIED THE DEDUCTION U NDER SECTION 54F OF THE ACT AT ` 40,19,800/- AS AGAINST THE SUM OF ` 30,19,850/- ALLOWED BY THE ASSESSING OFFICER. SINC E THE BALANCE GAIN WAS NOT DEPOSITED IN THE SPECIFIC ACCO UNT SCHEME IN THE BANK, HE DID NOT ALLOW DEDUCTION FOR THE SAME. 5. IN RESPECT OF COST OF IMPROVEMENT, THE COMMISSIO NER OF INCOME TAX (APPEALS) HELD THAT SINCE THE WORK WAS G IVEN ON 4 ITA NO.94/MDS/2014 CONTRACT FOR CONSTRUCTION OF COMPOUND WALL ETC. AND THE BILLS WERE RAISED BY THE CONTRACTOR ON 11.09.2003 AND 17. 02.2004 WHEREAS SOME OF THE BILLS WERE DATED IN JANUARY AND FEBRUARY, 2004 WHICH IS AFTER THE DATE OF BILL ISS UED BY THE CONTRACTOR. THEREFORE COMMISSIONER OF INCOME TAX (A PPEALS) WAS OF THE VIEW THAT THE COST OF IMPROVEMENT WAS AN AFTERTHOUGHT AND BILLS WERE PREPARED SUBSEQUENTLY, THUS THE CLAIM FOR COST OF IMPROVEMENT IS REJECTED. 6. COUNSEL FOR THE ASSESSEE SUBMITS THAT DURING THE ASSESSMENT YEAR 2010-11, ASSESSEE HAD SOLD A PIECE OF LAND AT CHURCH ROAD, MOGAPPAIR VILLAGE, AMBATTUR TALUK, THIRUVALLUR DIST. FOR ` 1,13,82,850/-. HE SUBMITS THAT THE SAID LAND WAS PURCHASED IN AUGUST, 2003 FOR ` 12,99,452/- AND ITS INDEXED COST COMES TO ` 17,73,766/-. COUNSEL SUBMITS THAT ASSESSEE HAS CARRIED ON EXTENSIVE IMPROVEMENT ON TH E LAND BY WAY OF FILLING UP OF LOW LYING AREAS AND HAS ERE CTED A SOLID IRON GATE OF 7 IN HEIGHT BESIDES CONSTRUCTING A C OMPOUND WALL RUNNING TO 293 RUNNING FEET. HE FURTHER SUBMI TS THAT THE ASSESSEE ALSO DUG A WELL OF 50 FEET DEPTH AND CONST RUCTED A SHED. ALL THESE IMPROVEMENT COST ` 9,55,350/- DURING THE YEAR 2003-04 FOR WHICH CONTRACTORS CERTIFICATE WITH BI LLS WERE 5 ITA NO.94/MDS/2014 PRODUCED BEFORE THE INCOME TAX OFFICER WHEN THE COMMISSIONER OF INCOME TAX (APPEALS) REMANDED THE C ASE. COUNSEL SUBMITS THAT THE ONLY OBJECTION OF THE ITO WHEN EXAMINING THE DETAILS WAS THAT THESE BILLS WERE NOT PRODUCED AT THE TIME OF ASSESSMENT. HE SUBMITS THAT ASSESSI NG OFFICER HAS NOT FOUND THE BILLS TO BE NON-GENUINE. HOWEVER , THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE C LAIM OF THE ASSESSEE IN RESPECT OF THE IMPROVEMENT STATING THAT THERE ARE DISCREPANCIES IN THE DATES OF BILLS. HE F URTHER OVERLOOKED THE FACT THAT CONSTRUCTION OF COMPOUND W ALL, ERECTION OF IRON GATE, LEVELING OF LAND, DIGGING OF WELL AND ERECTION OF SHED ALL HAPPENED AT TWO DIFFERENT POI NTS OF TIME IN THE YEAR. THEREFORE, THE DISCREPANCY POINTED OUT BY THE COMMISSIONER OF INCOME TAX (APPEALS) FACTUALLY DID NOT EXIST AND HE HAS NOT PROPERLY APPRECIATED THE GROUND REAL ITIES. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT ASSES SING OFFICER COMPUTED THE LONG TERM CAPITAL GAINS ON SA LE OF LAND AT ` 96,09,084/- BY DEDUCTING ONLY INDEXED COST OF PUR CHASE ON SALE PROCEEDS AND HE HAD ALSO ALLOWED ` 30,19,850/- UNDER SECTION 54F OF THE ACT BEING THE AMOUNT PAID TOWARDS ACQUISITION OF ANOTHER PROPERTY BEFORE THE DUE DATE OF FILING OF 6 ITA NO.94/MDS/2014 RETURN UNDER SECTION 139(4) OF THE ACT. HE SUBMITS THAT ASSESSEE FILED RETURN FOR THE RELEVANT YEAR UNDER S ECTION 139(4) OF THE ACT ON 04.03.2011 . THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED FURTHER DEDUCTION OF ` 10,04,950/- BEING THE AMOUNT PAID UPTO THE DATE OF FILING OF THE RETURN. COUNSEL SUBMITS THAT THE ASSESSEE SOLD PROPERTY ON 22.03.2010 AND ENTERED INTO CONSTRUCTION AGREEME NT ON 13.04.2010 WITH M/S. OZONE PROJECTS P. LTD. A REP UTED BUILDER FOR ` 85,94,546/- WHICH EXCLUDES ` 17,04,000/- TOWARDS UNDIVIDED SHARE OF LAND. COUNSEL FOR THE A SSESSEE SUBMITS THAT THE ASSESSEE HAS SO FAR PAID ` 93,42,693/- ON VARIOUS DATES AS UNDER:- DATE AMOUNT ` 27.03.2010 5,00,000 12.04.2010 5,04,950 24.05.2010 10,04,950 28.07.2010 10,04,950 04.10.2010 10,04,950 04.05.2011 10,04,950 20.05.2013 22,24,695 06.06.2013 10,46,624 24.02.2014 10,46,624 TOTAL 93,42,693 7. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE RESIDE NTIAL PROPERTY / FLAT ALLOTTED TO THE ASSESSEE IS IN 12 TH FLOOR NEAR KOYAMBEDU WHERE METRO RAIL STATION IS COMING UP THE REFORE, 7 ITA NO.94/MDS/2014 THERE ARE SEVERAL BOTTLENECKS IN COMPLETING THE CO NSTRUCTION. COUNSEL SUBMITS THAT LOWER AUTHORITIES HAVE OPINED THAT SINCE THE UNUTILIZED NET CONSIDERATION RECEIVED ON SALE O F LAND WAS NOT DEPOSITED IN SPECIFIED BANK ACCOUNT, THE ASSESS EE IS NOT ENTITLED TO CLAIM ENTIRE DEDUCTION UNDER SECTION 54 F OF THE ACT AND ONLY THE AMOUNT PAID UPTO THE DATE OF FILING OF RETURN ALONE IS ELIGIBLE FOR DEDUCTION. COUNSEL SUBMITS T HAT NON- DEPOSIT OF NET CONSIDERATION IN SPECIFIED BANK IS O NLY A VENIAL BREACH OR TECHNICAL FAULT AND DEDUCTION UNDER SECT ION 54F NEED NOT BE DENIED ON THIS SCORE. HE SUBMITS THAT S ECTION 54F BEING BENEFICIAL PROVISION MUST RECEIVE LIBERAL CONSTRUCTION AND PURPOSIVE INTERPRETATION IS TO BE DERIVED ON IT, SO THAT BENEFITS INTENDED CAN BE CONFERRED. TH EREFORE, COUNSEL SUBMITS THAT ASSESSEE HAS ENTERED INTO A VA LID AGREEMENT WITH M/S. OZONE PROJECTS PVT. LTD. ON 13 .04.2010 WITHIN ONE MONTH AFTER THE DATE OF SALE OF LAND ON 22.03.2010, SINCE THE TOTAL AMOUNT PAYABLE IN INSTALLMENT IS ` 1,02,96,546/-, THUS THE SUM IS REQUIRED TO BE TAKEN INTO ACCOUNT WHILE ALLOWING THE DEDUCTION UNDER SECTION 54F OF THE ACT. HE SUBMITS THAT BY ENTERING INTO AGREEMENT ON 13.04.2010, WITHIN THE SPECIFIED PERIOD THE ASSESS EE HAS 8 ITA NO.94/MDS/2014 PAID / INVESTED THE AMOUNT AS PER THE DEFINITION OF THE WORD PAID GIVEN IN SECTION 43(2) OF THE ACT. HE FURT HER SUBMITS THAT PAYMENT BY INSTALLMENTS IS ALSO PERMISSIBLE IN VIEW OF THE BOARDS CIRCULAR NO.471 DATED 15.10.1986 AND PRINCI PLES LAID DOWN THEREIN CAN BE IMPORTED TO THE ASSESSEES CASE . REFERRING TO THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF MADHUVAN PRASAD VS. ITO IN ITA NO.2485/MDS/2004 DATED 17 TH OCTOBER, 2005, COUNSEL SUBMITS THAT AN IDENTICAL ISSUE HAS COME UP BEFORE THE TRIBUNAL, WHEREIN IT W AS HELD THAT NON-DEPOSIT OF CAPITAL GAIN AMOUNT INTO CAPITA L GAIN ACCOUNT SCHEME IN THE BANK IS ONLY A TECHNICAL FAUL T AND IT SHOULD NOT BE EXTENDED TO SUCH AN EXTENT AS TO DEN Y EXEMPTION UNDER SECTION 54F WHEN ULTIMATE PURPOSE OF THIS SECTION IS ACHIEVED. HE ALSO PLACES RELIANCE ON THE DECISION OF JODHPUR BENCH OF THE TRIBUNAL IN THE CASE OF JAG AN NATH SINGH LODHA VS. ITO (85 TTJ 173). HE ALSO PLACES R ELIANCE ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KISHORE H.GALAIYA VS. ITO (150 TTJ 444). 8. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES IN DENYING EXEMPTION UN DER SECTION 54F OF THE ACT IN ITS ENTIRETY. HE SUBMITS THAT 9 ITA NO.94/MDS/2014 COMMISSIONER OF INCOME TAX (APPEALS) IS VERY MUCH J USTIFIED IN RESTRICTING THE DEDUCTION ONLY TO THE EXTENT OF AMOUNT PAID TO THE BUILDER TILL THE DATE OF RETURN OF INCOME FI LED BY THE ASSESSEE THUS ENTIRE EXEMPTION CANNOT BE GRANTED TO THE ASSESSEE. 9. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DENIED EXEMPTION UNDER SE CTION 54F OF THE ACT ON THE GROUND THAT ASSESSEE HAS NOT DEPOSITED THE SALE PROCEEDS INTO CAPITAL GAINS ACCOUNT SCHEM E BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME. HE HAS RESTRICTED THE DEDUCTION ONLY TO CERTAIN EXTENT I.E. AMOUNT PA ID TILL THE DUE DATE FOR FILING OF RETURN OF INCOME AS PER SEC TION 139(1) OF THE ACT. THE COMMISSIONER OF INCOME TAX (APPEAL S) RESTRICTED THE DEDUCTION TO THE EXTENT OF AMOUNT PA ID WITHIN THE DUE DATE FOR FILING OF RETURN OF INCOME UNDER SECTION 139(4) OF THE ACT. THE ISSUE OF WHETHER NON-INVESTM ENT OF SALE PROCEEDS INTO CAPITAL GAIN ACCOUNT IS FATAL TO THE CLAIM FOR EXEMPTION UNDER SECTION 54F OF THE ACT HAS BEEN CON SIDERED BY SEVERAL BENCHES OF THE TRIBUNAL INCLUDING THE CO -ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHRI MADUVAN PRASAD 10 ITA NO.94/MDS/2014 VS. ITO (SUPRA). IN THIS CASE, THE CO-ORDINATE BENC H CONSIDERED A SIMILAR SITUATION AND HELD THAT NON-DE POSITING OF SALE PROCEEDS INTO CAPITAL GAINS ACCOUNT IS ONLY A TECHNICAL FAULT. WHILE HOLDING SO, THE TRIBUNAL HELD AS UNDER :- 5. IN RELATION TO THE MERITS, THE LEARNED AR RELIED ON THE DECISIONS REPORTED IN 48LTD 191 (MAD) AND 85 ITJ (JODH) 173 AND STATED THAT 3 MERE PROCEDURAL INFIRMITY BY WAY OF NON INVESTMENT IN TH E CAPITAL GAINS ACCOUNT SCHEME SHOULD NOT COME IN THE WAY-OF THE CLAIM FOR EXEMPTION PARTICULARLY WHE N THE ULTIMATE OBJECTIVE OF PROVIDING FOR THE EXEMPT ION IS SATISFIED. 6. THE LEARNED DR ON THE OTHER HAND VEHEMENTLY ARGUED. THAT THE REOPENING WAS JUSTIFIED SINCE THERE WAS A LACK OF DISCLOSURE ON THE PART OF THE APPELLANT OF THE CAPITAL GAINS AND FURTHER SINCE TH ERE WAS NO ORIGINAL ASSESSMENT BUT ONLY A PROCESSING UNDER SECTION 143( L ) AND THEREFORE THE QUESTION O F A CHANGE OF OPINION DOES NOT ARISE. THE LEARNED DR ON THE MERITS CONTENDED THAT THE NON INVESTMENT IN THE CAPITAL GAINS ACCOUNT SCHEME WAS FATAL TO THE ALLOWANCE OF EXEMPTION U/S.54 AND THAT A LIBERAL VIEW IN THE MATTER CANNOT BE TAKEN. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN SO FAR AS THE ISSUE RELATING TO THE REOPENING OF ASSESSMENT IS CONCERNED WE FIND THAT THE. APPELLANT HAS ONLY STATED IN' THE COMPUTATION STATEMENT WHICH ACCOMPANIED THE RETURN THAT THE SOURCE FOR INVESTMENT IN BANKS WAS THE SALE PROCEEDS OF THE HOUSE PROPERTY AT AC5, II AVENUE, ANNA NAGAR, MADRAS - 40. THE APPELLANT HAS NOT STATED WHAT IS THE CONSIDERATION RECEIVED OR COMPUTED THE GAIN SO AS TO GIVE A FULL AND CORRECT DISCLOSURE. UNDER THE SE CIRCUMSTANCES WE ARE NOT INCLINED TO AGREE WITH THE SUBMISSION OF THE LEARNED AR THAT THERE HAS BEEN A COMPLETE DISCLOSURE AND THAT THE REOPENING IS NOT VALID. THE APPELLANT HAS NOT MADE THE DISCLOSURE AS CONTEMPLATED BY LAW AND A MERE INDICATION WHICH COULD GIVE RISE TO A SUSPICION CANNOT BE A FULL DISCLOSURE SO AS TO CONSIDER THE SUBMISSION THAT TH E REOPENING IS NOT VALID. THE APPLICATION FOR A CLEAR ANCE 11 ITA NO.94/MDS/2014 U/S.230A OR AN APPLICATION FOR A NOC CAN ALSO NOT B E TREATED AS A FULL DISCLOSURE WITH THE RETURN AND THEREFORE WE HOLD THAT THE ASSESSMENT HAS BEEN CORRECTLY REOPENED AND THAT THE ASSESSING OFFICER WAS JUSTIFIED IN REOPENING THE ASSESSMENT. 8. ON THE MERITS OF THE CASE, WE HAVE GONE THROUGH THE ORDERS OF THE TRIBUNAL CITED BY THE LEARNED AR. IN THE CASE REPORTED IN 85 TTJ 1 73, THE ASSESSEE HAD ADVANCED A SUM OF RS.2 LAKHS FOR THE PURCHASE OF THE HOUSE AND THE ADVANCE WAS RECEIVED BACK BY THE ASSESSEE SINCE THE TRANSACTION DID NOT MATERIALIZE. THE ASSESSEE IN THIS CASE HAD SOLD THE PROPERTY ON 4 TH JANUARY, 1995 AND ADVANCED A SUM OF ` 2 LAKHS ON 16 TH APRIL, 1995 FOR PURCHASE OF THE HOUSE. THE ADVANCE WAS RECEIVED BACK ON 17 TH DECEMBER, 1995 AND ASSESSEE AGAIN ENTERED INTO A FRESH AGREEMENT ON 6 TH JANUARY, 1996 FOR PURCHASE OF A FLAT AND TOOK POSSESSION THEREOF ON 30 TH MARCH, 1996 AFTER PAYING THE CONSIDERATION OF RS.4,0 1,000/-. IN THIS CASE, THOUGH THE ASSESSING OFFICER DENIED THE EXEMPTION ULS.54F ON THE GROUND THAT THE ASSESSEE FAILED TO PURCHASE ANOTHER HOUSE BEFORE FILING THE RETURN U/S.139(1) AND ALSO FAILED TO DEPOSIT THE AMOUNT IN THE CAPITAL GAINS ACCOUNT, TH E TRIBUNAL HELD THAT THE EXEMPTION WAS ALLOWABLE SINC E THE INTENTION OF THE ASSESSEE FROM THE VERY BEGINNI NG WAS TO PURCHASE A RESIDENTIAL HOUSE AND HE HAS DONE SO WITHIN TWO YEARS FROM THE SALE OF THE PLOT. THE TRIBUNAL OBSERVED THAT THE INTENTION OF THE ACT AS WELL AS THE INTENTION OF THE ASSESSEE HAVE TO BE CONSIDERED IN A RIGHT PERSPECTIVE. IN THE CASE REPORTED IN 48 ITD 191, THE ASSESSEE REALIZED PROFITS FROM TRANSFER OF A LAND, WHICH WAS DEPOSITED IN THE HOUSING DIVISION OF ITS CONSTRUCTION BUSINESS FOR THE PURPOSE OF BUILDING ANOTHER RESIDENTIAL BUILDING. T HE TRIBUNAL HELD THAT THIS AMOUNTED TO UTILIZATION OF FUNDS FOR THE PURPOSE OF HIS OWN RESIDENTIAL HOUSE AND TH AT SINCE THE AMOUNT WAS IN FACT UTILIZED FOR CONSTRUCT ION OF A RESIDENTIAL HOUSE, THE EXEMPTION WAS ALLOWABLE . IN THIS CASE THE TRIBUNAL OBSERVED THAT THE PURPOSE OF SECTION 54F REQUIRING THE DEPOSIT OF UNUTILIZED FUN D IS NOT FOR DEPRIVING THE ASSESSEE THE USE OF FUNDS BUT ONLY FOR AVOIDING THE RECTIFICATION OF THE ASSESSME NT BY BRINGING TO TAX THE AMOUNT, WHICH HAD BEEN EARLI ER CLAIMED AS EXEMPT BY REASON OF REINVESTMENT. WE FIND THAT THE BOARD HAS IN ITS CIRCULAR NO.495 DATE D 22 ND SEPTEMBER, 1987 AT PARAGRAPHS 26.1. AND 26.2 12 ITA NO.94/MDS/2014 STATED THAT THIS IS THE PURPOSE OF BRINGING IN THE AMENDMENTS IN SECTIONS 54, 54B, 54D AND 54F REQUIRING INVESTMENT IN A CAPITAL GAINS ACCOUNT SCHEME. 9. IN THE INSTANT CASE, THE APPELLANT HAS APPARENTLY SATISFIED THE ULTIMATE OBJECTIVE OF THE SECTION BY INVESTING IN A RESIDENTIAL HOUSE BY WAY OF CONSTRUCTION WITHIN THE TIME ALLOWED U/S.54. WHAT T HE APPELLANT HAS FAILED TO DO IS TO MAKE AN INVESTMENT IN THE CAPITAL GAINS ACCOUNT SCHEME AS REQUIRED U/S.54(2) WITHIN THE TIME ALLOWED FOR FURNISHING TH E RETURN U/S.139(1). THIS, THE APPELLANT CONTENDS IS ONLY A TECHNICAL BREACH. THE APPELLANT APPARENTLY INTENDED TO INVEST IN A RESIDENTIAL HOUSE WHICH IS OBVIOUS FROM THE FACT THAT HE ACQUIRED THE LAND WIT HIN A SHORT TIME ALTER THE END OF THE PREVIOUS YEAR AND BEFORE THE TIME ALLOWED FOR FILING THE RETURN AND COMMENCED CONSTRUCTION LATER ON THE SAID LAND WHICH WAS COMPLETED WITHIN THE TIME ALLOWED U/S.54(1). THESE ACTS OF THE APPELLANT CLEARLY GO T O SHOW THAT THE APPELLANT ALWAYS INTENDED TO INVEST I N A RESIDENTIAL HOUSE BY WAY OF CONSTRUCTION. IT THEREF ORE APPEARS THAT THE FAILURE TO INVEST IN THE CAPITAL G AINS ACCOUNT SCHEME IS ONLY A TECHNICAL DEFAULT WHICH GIVEN THE CIRCUMSTANCES AND THE PECULIAR FACTS SHO LD NOT BE EXTENDED TO SUCH AN EXTENT AS TO DENY THE EXEMPTION U/S.54 WHEN THE ULTIMATE PURPOSE OF THE PROVISION IS ACHIEVED. TO HOLD THAT THE EXEMPTION SHOULD BE FORFEITED FOR A TECHNICAL BREACH DOES NOT APPEAR TO BE THE CORRECT PROPOSITION PARTICULARLY S INCE THE .APPELLANT PLEADS THAT HE WAS NOT AWARE OF THE REQUIREMENT TO INVEST IN THE CAPITAL GAINS ACCOUNT SCHEME AND ALSO STATES THAT HIS OBJECTIVE WAS TO INVEST IN A RESIDENTIAL HOUSE WHICH IS APPARENT FRO M THE FACT THAT HE HAS PURCHASED A LAND AND ALSO CONSTRUCTED A HOUSE THEREON. IT IS ALSO SEEN THAT SECTION 54E (SINCE DELETED) AND SECTIONS 54EC AND 54ED WHICH REQUIRE INVESTMENT OF THE PROCEEDS IN SPECIFIED ASSETS) SPECIFICALLY PROVIDES THAT THE EXEMPTION WOULD BE FORFEITED IF THE SPECIFIED ASSET IS GIVEN AS A SECURITY FOR TAKING A LOAN. IN SECTION 5 4 WE DO NOT FIND ANY SUCH PROVISION AND THEREFORE IN OUR CONSIDERED VIEW THE PURPOSE OF SECTION 54(2) IS NOT TO DEPRIVE THE ASSESSEE OF AN EXEMPTION BUT ONLY TO AVOID RECTIFICATION. THE ULTIMATE OBJECT OF THE SEC TION HAVING BEEN SATISFIED NAMELY TO ENCOURAGE CONSTRUCTION OF HOUSES,' WE ARE CONVINCED THAT THE 13 ITA NO.94/MDS/2014 UTILIZATION OF THE FUNDS IN CONSTRUCTING A RESIDENT IAL HOUSE SHOULD BE TREATED AS SUFFICIENT COMPLIANCE OF SECTION 54 AND THEREFORE HELD THAT APPELLANT IS ENTITLED TO THE EXEMPTION U/S.54 EVEN IN RESPECT OF THE AMOUNT INVESTED BY WAY OF CONSTRUCTION OF THE RESIDENTIAL HOUSE AMOUNTING TO ` 16,40,311/-. BEFORE WE DEPART WE MAY MENTION THAT THE SUPREME COURT IN MOTILAL PADAMPAT SUGAR MILLS CO.LTD. VS. STATE OF U.P. (1979) 118 ITR 326 HAS OBSERVED AS FOLLOWS:- THAT THERE IS NO PRESUMPTION THAT EVERY PERSON KNOWS THE LAW. IT IS OFTEN SAID THAT EVERYONE IS PRESUMED TO KNOW THE LAW, BUT THAT IS NOT A CORRECT STATEMENT, THERE IS NO SUCH MAXIM KNOWN TO THE LAW. 10. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KISHORE H. GALAYA VS. ITO (SUPRA) HELD AS UNDER:- THE ASSESSEE HAD BOOKED A NEW RESIDENTIAL FLAT WITH THE BUILDER JOINTLY WITH HIS WIFE AND HE HAD PAID BOOKING AMOUNT OF RS.1,00,000 TO THE BUILDER BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME U/S. 139(1) FOR THE A.Y.2006-07 AND THE BALANCE AMOUNT HAD BEEN PAID IN INSTALMENTS AFTER THE SAID DATE. THE BUILDER WAS TO HANDOVER THE POSSESSION OF THE FLAT AFTER CONSTRUCTION. IT HAS, THEREFORE, TO BE CONSIDERED AS A CASE OF CONSTRUCTION OF NEW RESIDENTIAL HOUSE AND NOT PURCHASE OF FLAT. THIS POSITION HAS BEEN CLARIFIED BY THE CBDT IN CIRCULAR NO.672, DATED 16-12- 1993 IN WHICH IT HAS BEEN MADE CLEAR THAT THE EARLIER CIRCULAR NO.471, DATED 15-10-1986 IN WHICH IT WAS STATED THAT ACQUISITION OF FLAT THROUG H ALLOTMENT BY DDA HAS TO BE TREATED AS A CONSTRUCTION OF FLAT, WOULD APPLY TO CO-OPERATIVE SOCIETIES AND OTHER INSTITUTIONS. THE BUILDER WOULD FALL IN THE CATEGORY OF 'OTHER INSTITUTIONS'. THUS, IN THE PRESENT CASE, THE PERIOD OF THREE YEARS WOULD APPLY FOR CONSTRUCTION OF NEW HOUSE FROM THE DATE OF TRANSFER OF THE OLD FLAT. THE ASSESSEE HAD INVESTED THE CAPITAL GAINS IN CONSTRUCTION OF A NEW RESIDENTIAL HOUSE WITHIN A PERIOD OF THREE YEARS AND THIS SHOULD BE TREATED AS SUFFICIENT COMPLIANCE OF THE PROVISIONS OF THE ACT. IT IS NOT NECESSARY THAT THE POSSESSION OF THE 14 ITA NO.94/MDS/2014 FLAT SHOULD ALSO BE TAKEN WITHIN THE PERIOD OF THREE YEARS. THE TAKING OF THE POSSESSION MAY BE DELAYED BECAUSE OF MANY FACTORS NOT UNDER THE CONTROL OF THE ASSESSEE DUE TO DEFAULT ON THE PART OF THE BUILDER AND, THEREFORE, MERELY BECAUSE THE POSSESSION HAD NOT BEEN TAKEN WITHIN THE PERIOD OF THREE YEARS, THE EXEMPTION CANNOT BE DENIED. WITHIN THE PERIOD OF THREE YEARS, THE ASSESSEE HAD INVESTED MORE THAN THE AMOUNT OF CAPITAL GAIN IN THE CONSTRUCTION OF NEW RESIDENTIAL HOUSE. THEREFORE, THE CLAIM OF THE EXEMPTION IN THIS CASE CANNOT BE DENIED ON THE GROUND THAT THE POSSESSION OF THE FLAT HAD NOT BEEN TAKEN WITHIN THE PERIOD OF THREE YEARS. THE OTHER OBJECTION RAISED BY THE REVENUE IS THAT THE ASSESSEE HAD PAID/UTILISED ONLY A SUM OF RS. 1 LAKH TOWARDS THE CONSTRUCTION OF FLAT TILL TH E DUE DATE OF FILING OF THE RETURN OF INCOME U/S. 139(1) FOR THE RELEVANT EAR AND, THEREFORE, THE BALANCE AMOUNT OF CAPITAL GAIN WAS REQUIRED TO BE DEPOSITED IN THE CAPITAL GAINS ACCOUNT SCHEME WHICH HAD NOT BEEN DONE. THIS IS ONLY A TECHNICAL DEFAULT AND ON THIS GROUND, THE CLAIM OF EXEMPTION CANNOT BE DENIED PARTICULARLY WHEN 'THE AMOUNT HAD BEEN ACTUALLY UTILISED FOR THE CONSTRUCTION OF RESIDENTIAL HOUSE AND NOT FOR ANY OTHER PURPOSE. 11. IN THE CASE OF JAGANNATH SINGH LODHA VS. ITO(SU PRA) THE JODHPUR BENCH OF THIS TRIBUNAL HELD AS UNDER:- 8. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMIT TED THAT SECTION 54F WAS INTRODUCED BY THE FINANCE ACT, 1982, WHICH PERMITTED REINVESTMENT OF THE PROC EEDS RECEIVED ON TRANSFER OF A CAPITAL ASSET IN THE PURCHASE WITHIN A YEAR OR CONSTRUCTION WITHIN THREE YEARS OF A RESIDENTIAL HOUSE TO AVOID PAYMENT OF CAPITAL GAIN TAX. THIS PROVISION WAS INTRODUCED WIT H THE SOLE INTENTION TO PURCHASE OR CONSTRUCT A HOUSE. PROVISO 4 TO THIS SECTION WAS INTRODUCED BY THE FIN ANCE ACT, 1987, WHICH READS AS UNDER: 'UNDER THE EXISTING PROVISIONS OF SECTIONS 54, 54B, 54D AND 54 F, 15 ITA NO.94/MDS/2014 LONG-TERM CAPITAL GAINS ARISING FROM THE TRANSFER O F ANY IMMOVABLE PROPERTY USED FOR RESIDENCE, LAND USED FO R AGRICULTURE ..AND OTHER CAPITAL ASSETS ARE EXEMPT FROM INCOME-TAX, IF SUCH GAINS ARE REINVESTED IN NEW ASS ETS WITHIN THE TIME ALLOWED FOR THE PURPOSE. THE ORIGINAL ASSESSMENT NEEDS RECTIFICATION WHENEVE R THE TAXPAYER FAILS TO ACQUIRE THE CORRESPONDING NEW ASSETS.' [THE ABOVE IS NOT THE FOURTH PROVISO BUT P ORTION OF CIRCULAR NO. 495, DT. 22ND SEPT., 1987-- ED.] 9. TH E ASSESSEE HAD SOLD PLOT ON 4TH JAN., 1995 (ASST. YR. 1995- 96) AND INVESTED THE SALE CONSIDERATION BY 30TH MAR CH, 1996 (ASST. YR.1996-97), I.E. ONE YEAR FROM THE SAL E OF THE PLOT, AS PROVIDED UNDER SECTION 54F(1). THE ASSESSE E HAD MADE AN ATTEMPT TO PURCHASE A HOUSE AT VIVEK VIHAR, JAIPUR IMMEDIATELY ON 16TH APRIL, 1995 AFTER SALE O F PLOT ON 4TH JAN., 1995. THIS AGREEMENT COULD NOT MATERIALIS E DUE TO THE INABILITY OF THE SELLER, TO HAND OVER THE VA CANT PLOT. THE EARNEST MONEY OF RS. 2 LAKHS WAS RECEIVED ON 17 TH DEE., 1995 AND THE SAME WAS IMMEDIATELY INVESTED IN THE PURCHASE OF FLAT IN LODHA TOWER, JODHPUR ON 6TH JAN ., 1996. THUS THE ASSESSEE INVESTED THE AMOUNT WITHIN THE STIPULATED TIME. THE ONLY FAULT COMMITTED BY THE AS SESSEE IN THIS CASE SEEMS TO BE THAT THE ASSESSEE FAILED T O DEPOSIT THE UNUTILISED AMOUNT MEANTFOR REINVESTMENT IN THE CAPITAL GAIN ACCOUNT SCHEME BEFORE FILING OF TH E RETURN UNDER SECTION 139 OF THE ACT. THE LEARNED AUTHORISE D REPRESENTATIVE HAS RELIED ON THE FOLLOWING VARIOUS DECISIONS AT P. 4 OF THE PAPER BOOK : 1. BAJAJ TEMP O LTD. V. CUT (1992) 196 ITR 188 (SC) WHEREIN IT HAS HELD BY THE HON'BLE SUPREME COURT THAT A PROVISION IN TA XING STATUTE GRANTING INCENTIVES FOR PROMOTING GROWTH AN D DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY. 2. CIT V. GWALIOR RAYON SILK MANUFACTURING CO. LTD. (1992) 196 ITR 149 (SC) WHEREIN IT WAS HELD BY THE HON'BLE SUPREME COURT THAT IT IS A SETTLED LAW THAT THE EXPRESSIONS USED IN THE TAXING STATUTES WOULD ORDINARILY BE UNDERSTOOD IN THE SENSE IN WHICH IT I S HARMONIOUS WITH THE OBJECT OF THE STATUTE TO EFFECT UATE THE LEGISLATIVE INTENTION. 3. M.A.C. KHALEELI V. DY. CIT (1993) 47 ITJ (MAD) 6 39 : (1994) 48 ITD 191 (MAD). THE FACTS WERE THAT THE ASSESSEE'S CLAIM FOR EXEMPTION UNDER SECTION 54 F WAS DENIED IN RESPECT OF CAPITAL GAINS AS SURPLUS WAS NOT DEPOSITED UNDER SECTION 54F( 4) IN A SPECIF IED BANK ACCOUNT BUT DEPOSITED IN A HOUSING DIVISION OF ASSESSEE'S BUSINESS TO BE UTILISED FOR CONSTRUCTION OF 16 ITA NO.94/MDS/2014 RESIDENTIAL ACCOMMODATION. THE MADRAS BENCH OF THE TRIBUNAL, WHILE ANSWERING THE QUESTION IN POSITIVE, HELD THAT THE ACT OF THE ASSESSEE AMOUNTED TO UTILISATIO N OF CONSIDERATION FOR CONSTRUCTION OF RESIDENTIAL HO USE WITHIN THE MEANING OF SECTION 54F(1). IT WAS FURTHE R HELD THAT THE PURPOSE OF SUB-SECTION (4) REQUITING THE DEPOSIT OF UNUTILISED FUNDS IN A SPECIFIED ACCOUNT IS NOT FOR DEPRIVING THE ASSESSEE THE USE OF FUNDS, BU T ONLY FOR AVOIDING RECTIFICATION OF ASSESSMENT BY BRINGING TO TAX THE AMOUNT WHICH HAD BEEN EARLIER C LAIMED AS EXEMPT BY REASON OF RE-INVESTMENT. 10. THE. CLEAR-CUT OF THE CASE OF THE A,SJ;SSEE IS -THAT THE ASSESSEE HAD INVESTED AN AMOUNT OF RS. 4,01,000. THE FACT THAT THE PURCHASE PRICE AND TAKING POSSESS ION OF THE FLAT AT LODHA TOWER, JODHPUR BY 30TH MARCH, 1996 WHEN THE PLOT AT JAIPUR-WAS SOLD ON 4TH JAN., 19~5 FOR RS. 51AKHS, IN VIEW OF THE AFORESAID DECISIONS, THIS AMOUNT OF RS. 4,01,000 INVESTED BY THE ASSESSEE IN THE PURCHASE OF FLAT IS TO BE HELD EXEMPT UNDER SECTION 54F. THE INTENTION OF THE ASSESSEE FROM THE VERY BEGINNING WAS TO PURCHASE A FLAT. WHEN DUE TO CERTAIN UNAVOIDABLE CIRCUMSTANCES, THE CONTRACT DID NOT MATERIALISE, IT CANNOT BE SAID THAT THERE WAS ANY HANKY PANKY ON THE PART OF THE ASSESSEE TO AVOID PA YMENT OF TAX. THE ASSESSEE ULTIMATELY PURCHASED A FLAT WITHIN TWO YEARS FROM THE SALE OF PLOT. THE DEFAULT COMMITTED BY THE ASSESSEE WAS A TECHNICAL DEFAULT T HAT THE ASSESSEE DID NOT DEPOSIT THE AMOUNT MEANT FOR REINVESTMENT IN THE CAPITAL GAIN ACCOUNT SCHEME BEF ORE FILING RETURN UNDER SECTION 139 OF THE ACT. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS RELIED BY THE LEARNED AUTHORISED REPRESENTATIVE, WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT OF ` 4,01,000 OUT OF RS. 5 LAKHS WHICH WERE ULTIMATELY INVESTED WITHIN THE STIPULATED TIME IS TO BE EXEMPT FROM TAX ALTHOUGH T HE ASSESSEE FAILED TO TECHNICALLY DEPOSIT THE SAME IN THE CAPITAL GAIN ACCOUNT. THE INTENTION OF THE ACT AS W ELL AS THE INTENTION OF THE ASSESSEE ARE TO BE CONSIDERED IN A RIGHT PERSPECTIVE. IT IS NOT THE CASE OF THE D EPARTMENT THAT THE ASSESSEE WANTED TO UTILISE THE AMOUNT FOR OTHER PURPOSE THAN TO PURCHASE A HOUSE WITHIN T WO YEARS TO THE EXTENT IT HAS BEEN UTILISED. AS A RESU LT, WE DELETE THE ADDITION OF RS. 4,01,000 OUT OF RS. 5 LAKHS AS PER RULES AND SUSTAIN THE REMAINING AMOUNT. THUS THIS GROUND OF APPEAL IS PARTLY ALLOWED. 17 ITA NO.94/MDS/2014 12. IN ALL THESE DECISIONS, IT WAS HELD THAT DEDUCT ION UNDER SECTION 54 / 54F CANNOT BE DENIED SIMPLY BECAUSE S ALE PROCEEDS WERE NOT DEPOSITED INTO CAPITAL GAINS ACCO UNT SCHEME IN THE BANK WHEN IN FACT THE SAID SALE PROCE EDS WERE UTILIZED FOR PURCHASE OR CONSTRUCTION OF RESIDENTIA L PROPERTY. IN THE CASE ON HAND, THE ASSESSING OFFICER AS WELL AS COMMISSIONER OF INCOME TAX (APPEALS) PARTIALLY DENI ED THE EXEMPTION UNDER SECTION 54F OF THE ACT ON THE GROUN D THAT ASSESSEE HAS NOT DEPOSITED THE SALE PROCEEDS INTO C APITAL GAIN ACCOUNT SCHEME WHICH IS NOT JUSTIFIED IN VIEW OF THE VARIOUS DECISIONS MENTIONED ABOVE. THUS, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E KEEPING IN VIEW THE ABOVE DECISIONS AND RECOMPUTE THE CAPIT AL GAINS IN ACCORDANCE WITH LAW, AFTER PROVIDING ADEQUATE OP PORTUNITY TO THE ASSESSEE. 13. INSOFAR AS THE COST OF IMPROVEMENT IS CONCERNE D, IN OUR CONSIDERED VIEW THIS HAS TO BE EXAMINED BY THE ASSE SSING OFFICER WITH REFERENCE TO THE BILLS PRODUCED BY THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. THUS, WE 18 ITA NO.94/MDS/2014 RESTORE THE ISSUES BACK TO THE FILE OF THE ASSESSIN G OFFICER TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2015. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 28 TH OCTOBER, 2015 SOMU 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .