Shri Mujeeb Urrahman, Bangalore V. Income Tax Officer, Ward- 1(2)(2), Bangalore

MA 135/BANG/2021

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7306 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 8 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 29-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 21-10-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHINI BESUGANNI
• Assessee Lawyers: V. SRINIVASAN
• Keywords: Capital asset
• Section: 54; 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER M.P No.135/Bang/2021 [In ITA No.1523/Bang/2019] Assessment year : 2014-15 The Income-tax Officer, Ward-1(2)(2), Bengaluru. Vs. Shri Mujeeb UR Rahman, No.295, Thimmaiah Road, Shivajinagar, Bengaluru-560 051. PAN – AADPU 9149 H REVENUE ASSESSEE Assessee by : Shri V Srinivasan, Advocate Revenue by : Smt. Priyadarshini Besuganni, JCIT Date of hearing : 12.11.2021 Date of Pronouncement : 30.11.2021 O R D E R Per Chandra Poojari, Accountant Member This miscellaneous petition is filed by the assessee seeking rectification of order of the Tribunal in ITA No.1428/Bang/2019 dated 31/8/2021. The ld.AR submitted that in this case, Revenue came in appeal before this Tribunal questioning the granting of exemption u/s 54 of the Income-tax Act. M.P No.135/Bang/2021 Page 2 of 11 2. The Tribunal decided the issue by observing in its order as follows:- “8. We have heard both the parties and perused the material on record. In this case, the assessee sold a property No.3BM/519, OMBR Layout Extension, Old Madras Banaswadi Road, Bangalore vide sale deed dated 19.10.2013 for a consideration of Rs.3,15,00,000. This was originally purchased by the assessee jointly with his brother Mr. Haseeb-ur-Rahman on 10.1.2006. After selling the property, the assessee was to construct a new residential house. For this purpose, the assessee participated in the e-auction conducted by the BDA and purchased the property through e- auction on 9.6.2016 for a consideration of Rs.1,59,62,400 and after adding up the cost of registration, it worked out at Rs.1,70,16,279. Later, the assessee was held up with the litigation of this property and there was delay in construction of new residential house. Litigation was over after the High Court judgment dated 5.11.2016 as narrated in para 2 of this order. Consequently the assessee obtained the building plan from BBMP on 26.5.2017. 9. While framing the assessment, exemption claimed by the assessee was denied since the assessee has not complied with the requirement of provisions of section 54 of the Act. However, the CIT(Appeals) allowed the claim of assessee u/s. 54 of the Act. Admittedly, the assessee has actually invested an amount of Rs.1,70,16,279 in purchasing the residential site for for constructing a new residential house. To that extent, proportionate deduction to be granted to the assessee. However, the CIT(Appeals) granted deduction u/s. 54F of Rs.2,48,83,672, though assessee has not deposited that portion in the net sale consideration into the account scheme notified by the Central Govt. For this purpose, it is appropriate to go through the provisions of section 54(2) of the Act which are as follows:- “54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place M.P No.135/Bang/2021 Page 3 of 11 purchased, or has within a period of three years after that date 3 [constructed, one residential house in India], then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,— (i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : M.P No.135/Bang/2021 Page 4 of 11 Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.” 10. The contention of the ld. AR is that in view of the judgment of the Hon’ble High Court of Karnataka in the case of CIT v. K. Ramachandra (supra), the assessee is entitled for deduction u/s. 54 to the full extent as granted by the CIT(Appeals) as the intention of the assessee was not to retain cash, but to invest in construction of new residential house property. The delay in investment was beyond the control of the assessee. However, we observe from the answer to question No.2 in the same case, in para 4.1, that if such investment is made in the bank account as stipulated in section 54(2) or invested in constructed of new residential house within the stipulated period, then assessee is entitled for deduction u/s. 54 of the Act. If the assessee failed to deposit into the bank account and also failed to construct the new residential house within the stipulated time, then assessee cannot take advantage of its own default so as to claim deduction u/s. 54 of the Act. In the present case, though assessee purchased the residential site and incurred the expenditure of Rs.1,76,16,279, the assessee failed to deposit the balance amount in the account notified by the Central Govt within extended period due to litigation, hence the assessee is not entitled for deduction to the extent of balance amount which was not invested under an account notified by the Central Govt. In our opinion, deduction under this section is restricted to proportionate amount invested in purchase of new residential site for the purpose of construction of new residential house after sale of the original asset and also amount invested in construction of property. The intention of legislature was that either the assessee has to purchase or construct new residential house out of net sale consideration received by sale of original asset or deposit the same in the account notified by the Central Govt. u/s. 54 of the Act. If the assessee failed to do so, he is liable for capital gain on the transfer of capital asset. In the present case, the assessee purchased the residential site and used portion of net sale consideration for construction of new house and not appropriated the balance sale consideration M.P No.135/Bang/2021 Page 5 of 11 either in investment in construction of residential house or deposit into account notified by the Central Govt. to avail exemption u/s. 54. Hence the assessee is entitled for deduction only to the extent of amount used for purchase of residential site only as follows:- A – Net sale consideration = 3,15,00,000 B – Capital gain = 2,26,91,897 C – Investment in property = 1,70,16,279 D – Eligibility u/s. 54 Exemption = Long term capital gain x Amount of investment Net Sale Consideration D = B X C A i.e., 22691897 x 16016279 = Rs.1,22,58,148 31500000 11. Thus, assessee is entitled for deduction u/.s 54 at Rs.1,22,58,148. 12. In the result, the appeal by the revenue is partly allowed.” 3. Now the contention of the ld.AR is that the Tribunal committed an error in limiting the deduction u/s 54 @ Rs.1,22,58,148/- instead of Rs.1,70,16,279/-. It was submitted by the ld.AR that the assessee claimed deduction u/s 54 of the Act. However, the Tribunal misconstrued the claim of deduction by the assessee u/s 54F of the Act. According to the ld.Counsel for the assessee, the assessee is entitled for deduction u/s 54 on entire amount of investment made in purchase of residential plot and cost of construction incurred for construction of house thereon. However, the Tribunal M.P No.135/Bang/2021 Page 6 of 11 considered the proportionate deduction as enumerated in sec.54F of the Act. 4. The ld.DR fairly conceded that an error crept in the order of the Tribunal which may be corrected. 5. We have heard both the parties and perused the materials on record. 6. Admittedly, the Tribunal committed error while computing deduction u/s 54 of the Act in the part of the order by observing that assessee is entitled for deduction only to the extent of amount used for purchase of residential house cited and thereby computing the proportionate deduction instead of granting entire amount of investment made in purchase of property. Accordingly, we delete the computation part of the deduction of sec.54 mentioned in para 10 and also part 11 of the order of the Tribunal and, therefore, earlier para of this Tribunal order is to be read as follows:- M.P No.135/Bang/2021 Page 7 of 11 Para 10: “The contention of the ld. AR is that in view of the judgment of the Hon’ble High Court of Karnataka in the case of CIT v. K. Ramachandra (supra), the assessee is entitled for deduction u/s. 54 to the full extent as granted by the CIT(A) as the intention of the assessee was not to retain cash, but to invest in construction of new residential house property. The delay in investment was beyond the control of the assessee. However, we observe from the answer to question No.2 in the same case, in para 4.1, that if such investment is made in the bank account as stipulated in section 54(2) or invested in constructed of new residential house within the stipulated period, then assessee is entitled for deduction u/s. 54 of the Act. If the assessee failed to deposit into the bank account and also failed to construct the new residential house within the stipulated time, then assessee cannot take advantage of its own default so as to claim deduction u/s. 54 of the Act. In the present case, though M.P No.135/Bang/2021 Page 8 of 11 assessee purchased the residential site and incurred the expenditure of Rs.1,76,16,279, the assessee failed to deposit the balance amount in the account notified by the Central Govt. within extended period due to litigation, hence the assessee is not entitled for deduction to the extent of balance amount which was not invested under an account notified by the Central Govt. In our opinion, deduction under this section is restricted to proportionate amount invested in purchase of new residential site for the purpose of construction of new residential house after sale of the original asset and also amount invested in construction of property. The intention of legislature was that either the assessee has to purchase or construct new residential house out of net sale consideration received by sale of original asset or deposit the same in the account notified by the Central Govt. u/s. 54 of the Act. If the assessee failed to do so, he is liable for capital gain on the transfer of capital asset. In the present case, the assessee M.P No.135/Bang/2021 Page 9 of 11 purchased the residential site and used portion of net sale consideration for construction of new house and not appropriated the balance sale consideration either in investment in construction of residential house or deposit into account notified by the Central Govt. to avail exemption u/s. 54.” 7. Further the para No.12 is renumbered as para 11 and there is no change in the result of that order of the Tribunal. 8. Finally, the assessee is entitled for deduction u/s 54 is enumerated in sec.54(1)(i) of the Act. Ordered accordingly. 9. In the result, miscellaneous petition filed by the assessee is allowed. Order pronounced in the open court on 30th Nov, 2021. Sd/- (BEENA PILLAI) Sd/- ( CHANDRA POOJARI) Judicial Member Accountant Member Bangalore, Dated, 30 th Nov, 2021 M.P No.135/Bang/2021 Page 10 of 11 / vms / Copy to : 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore. M.P No.135/Bang/2021 Page 11 of 11 1. Date of Dictation .......................................................... 2. Date on which the typed draft is placed before the dictating Member .......................................................... 3. Date on which the approved draft comes to Sr.P.S ................................................. 4. Date on which the fair order is placed before the dictating Member .................... 5. Date on which the fair order comes back to the Sr. P.S. ........................................ 6. Date of uploading the order on website.................................................. 7. If not uploaded, furnish the reason for doing so ................................................ 8. Date on which the file goes to the Bench Clerk .................................................... 9. Date on which order goes for Xerox & endorsement.......................................... 10. Date on which the file goes to the Head Clerk .................................................... 11. The date on which the file goes to the Assistant Registrar for signature on the order .................................................... 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order ............................................................. 13. Date of Despatch of Order. .............................................................