RAM NIRANJAN BANKA,KOLKATA V. A.C.I.T., CIRCLE - 40, KOLKATA

ITA 752/KOL/2025

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The case involves Ram Niranjan Banka, the appellant, contesting the assessment of capital gains on the sale of property under a development agreement with ODC Engineering and Construction Pvt. Ltd. The primary legal contention was whether the capital gains from the sale of a flat on the 1st floor should be considered short-term or long-term capital gains and whether the expenses incurred for construction to fulfill a lease obligation could be deducted. The Tribunal found that the gains should be treated as long-term capital gains and that the expenses were deductible as they were incurred under a legal obligation to the original lessor.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 786479 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 09-04-2025
• Other Referred Cases: Jagan Nath Singh Lodha vs. ITAT Jodhpur Branch, Smt. Aarti Kumaria vs. ITA no. 97/LKW/2017
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANAT KUMAR RAHA
• Assessee Lawyers: MANISH TIWARI
• Keywords: Set aside; Capital asset; Sale consideration of property below Jantri Value; Cost of acquisition; Capital Gains; Benefit of exemption
• Section: 54; 139

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRIPRADIP KUMAR CHOUBEY, JM ITA No.752/KOL/2025 (Assessment Year: 2014-15) Ram Niranjan Banka 1, Surti bagan Street, Jorasanko, Kolkata-700073, West Bengal Vs. ACIT, Circle-40 3, Govt. Place (West), Kolkata-700001, West Bengal (Appellant) (Respondent) PAN No. AEDPB5273P Assessee by : Shri Manish Tiwari, AR Revenue by : Shri Sanat Kumar Raha, DR Date of hearing: 14.08.2025 Date of pronouncement: 21.11.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 26.02.2025 for the AY 2014-15. 2. The ground No. 1 is general in nature and does not require any adjudication. 3. The issue raised in ground no. 2 is against the order of ld. CIT(A) confirming the action of the AO in calculating short term capital gain u/s 54(1)(ii) of the Act at Rs. 4,19,61,685/-. 3.1. The facts in brief are that the assessee, being a sole and exclusive lessee of the premises no. 6, Ballygunge Park Road, Kolkata since 1974 entered into a Development Agreement with ODC Printed from counselvise.com Page | 2 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 Engineering and Construction Pvt. Ltd. on 03rd April, 2007, on an area sharing basis, whereby the developer was required to develop a new building after demolishing the old house. Altogether, seven (7) floors were agreed to be built. The developer was entitled to three (3) no. of flats i.e. on the 2nd, 3rd and 4th floors and 11 car parking spaces with the undivided proportionate share in all common parts, portions, areas, facilities and also the undivided proportionate share in the land comprised in the said premises attributable to those flats. An area of 1121 Sq ft was set apart out of total construction of 45270 Sq. ft. for the Original Lessor pursuant to the terms of the Lease Deed dated 19/01/1974.The assessee was entitled to four (4) no. of flats i.e. on 1st, 5th, 6th and 7th floors and remaining car parking spaces. However, before construction, the assessee entered into an Agreement for sale in respect of flat on the 1st floor and two car parking spaces on 24th February, 2012 and a tripartite agreement was executed with the developer as a party with obligation to complete the flat as per specifications and hand over possession thereof directly to the buyer on completion of construction. 3.2. The construction of the building was completed on 30/11/2013. In terms of the Development Agreement, on completion of construction, the assessee transferred the undivided share in land proportionate to constructed area under Developer’s allocation i.e. for 2nd, 3rd and 4th floors to the developer and in terms of agreement for sale, the conveyance deed was registered in respect of 1st Floor flat to the Buyer. Thus, consideration for transfer of undivided share in land proportionate to constructed area under developer’s allocation was the cost of construction incurred by the Printed from counselvise.com Page | 3 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 Developer for the Owner’s allocation, and long term capital gain was computed as under:- As per Assessee As per Asst Order Consideration: Cost of Construction of Owner’s allocation (differencedue to area set apart for Original Lessor) 8,06,89,673 8,23,07,104 Deduct: Indexed Cost of Acquisition proportionate to developer’s allocation 2,81,04,250 2,81,04,250 Deduct: cost of construction paid to Developer for area set apart for Original Lessor (44,26,906) & indexed cost of land (15,95,183) 60,22,089 not considered Long term Capital gain on transfer of land proportionate to Developer’s allocation 4,65,63,334 5,42,02,854 3.3. As regards computation of capital gains on transfer of 1st Floor flat in pursuance of Agreement for sale dated 24th February, 2012 (i.e before construction), the AO considered the same as part of “New Asset” allotted to the assessee under the Development Agreement and computed gain as short term capital gain, applying section 54(1)(ii) of the Act. 3.4. The Ld. AO in his order observed that The possession of the building had already been handed over to the developer much earlie. The assessee, therefore, became the rightful lease hold right holder of the 4 flats, including the flat on the 1st floor.The contention of the assessee in this regard cannot be accepted for the purpose of computation of capital gains as this is against the provisions of section 54(1)(ii) of the Act. The provision talks about ‘new asset’. In the present case, the flat in question is the ‘new asset’. Hence has to be treated as whole and cannot be broken up into components as contended by the assessee. Printed from counselvise.com Page | 4 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 3.5. The Ld. AO erred in considering 1st Floor Flat as part of ‘New Asset’ as it had never been allotted to the assessee on completion of construction thereof. Admittedly, Capital Gain had arisen to the assessee from the transfer of residential house. The assessee was entitled to flats on four floors being 1st, 5th, 6th and 7th floors, out of which the assessee agreed to sell 1st floor unit to another party before the construction thereof i.e. before the new asset came into existence. Thus, at the time of earlier agreement, the assessee did not yet own a constructed flat- he only had a right to receive a specified portion from the developer under the Development Agreement dated 3rd April, 2007. So, when he entered into the agreement with the buyer, what he transferred was ‘a right to obtain a specified constructed flat from the Developer. The developer was a confirming party under the said agreement with obligation to complete the construction as per specifications stated therein and to hand over the possession directly to the buyer. Right in Property is a capital asset, having been acquired since the date of development agreement and therefore is a long-term capital asset. 3.6. Capital Gain on transfer of 1st Floor Flat was computed as under: - As per Assessee As per Asst Order Long Term Capital gain Short term Capital Gain Consideration (as per Stamp duty value) 5,51,24,940 5,51,24,940 Deduct: Indexed cost of acquisition Proportionate to 1st Floor area 74,19,522 74,19,522 Deduct: Proportionate cost of construction (difference due to area set apart for Original Lessor) 1,72,43,164 1,68,17,757 Capital Gains 3,04,62,254 3,08,87,661 Add; Proportionate Capital Gains reduced from cost as per section 54 (1) (ii) 1,10,74,204 Short Term Capital Gain as per AO 4,19,61,865 Printed from counselvise.com Page | 5 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 3.7. Total Long Term Capital Gains as per the assessee was computed at Rs. 7,70,25,588 as under:- From Transfer of Developer’s allocation 4,65,63,334 From Transfer of 1st Floor Flat 3,04,62,254 3.8. The assessee claimed deduction u/s 54 only in respect of the cost of construction of the 5th, 6th and 7th floors, being ‘New Asset’ as per the said provision, amounting to Rs. 6,34,46,509/- as under:- Total cost of construction of Owner’s allocation 8,06,89,673 Deduct: Proportionate cost of construction of 1st Floor 1,72,43,164 3.9. The assessee claimed balance amount as exempt for deposit having been made with a bank for utilization of said amount for construction by way of extension of certain area on eighth floor of the new building and for super finishing of construction on 5th, 6th & 7th floors and claimed deduction U/s 54(2) of the Act. 3.10. The ld CIT(A) upheld the assessment order on this issue by holding that the flat on the first floor was sold within three years and therefore the capital gain from the sale would be short term capital gain. The ld CIT(A) after taking into account the assessee submissions observed and held as under” “ 5.6 From the the consideration of a detailed order of ld. PCIT and the order of the AO dated 27.12.2019, I am of the considered opinion that in the facts of the present case the first floor flat which included the construction and land pertaining to it is rightlfully considered as a new asset and has to be considered as a unit whole without breaking it into components of land and construction. The purchaser of the said flat ultimately became the owner construction and land related to the flat. Therefore the assessing officer has rightfully computed the capital gain at Rs. 4,19,61,865/- on the transfer of new asset i.e. the flat on the first floor. This ground of appeal no. 1 is dismissed.” 3.11. We have heard the rival contention and perused the materials as placed before us.We note that the assessee claimed deduction u/s Printed from counselvise.com Page | 6 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 54 only in respect of the cost of construction of the 5th, 6th and 7th floors, having been utilized for construction of said ‘new asset’. The cost of construction of 1st floor, not being the ‘new asset’, was specifically reduced from the total relatable cost of construction of assessee’s allocation while claiming the exemption u/s 54 of the Act. We also note that the said agreement for sale was entered much prior to completion of the building and even before the assessee was given possession of his allocation. However, the Ld AO has considered capital gain on transfer of undivided share in land proportionate to developer’s allocation as exempt u/s 54 as having been appropriated against construction of owner’s allocation, being 1st, 5th, 6th & 7th floors. Thus, Flat on 1st floor has been considered as a part of ‘new asset’, and income on sale thereof has been assessed to be in the nature of short term capital gains, after reducing proportionate amount of capital gains from cost as per Section 54 (1) (ii) of the Act for transfer within a period of three years of its purchase or construction which is totally unlawful and erroneous in view of the facts and circumstances of the case. We note that the construction of the building was completed on 30/11/2013 and the assessee got the possession of flats on 5th, 6th and 7th floors. The assessee transferred his undivided share in the land proportionate to the constructed area under Developer’s Allocation to the Developer in consideration of the construction made by the Developer of the area under assessee’s allocation as agreed. The possession of the 1st floor flat was given by the Developer directly to the Buyer in terms of the Agreement for Sale much before completion of construction and an ‘Indenture of Conveyance’ was duly executed in respect of the said 1st floor on 18th December 2013. Printed from counselvise.com Page | 7 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 3.12. Thus, we note that it is apparent that the buyer acquired and possessed the said 1st Floor flat out of assessee’s allocation during construction and got the construction completed on their own account, partly through the Developer and balance by themselves. The Developer had put the Buyer in complete vacant possession of the said Flat much before 30.11.13. Possession of the said flat was never received by the assessee. Hence, the said flat was never held by the assessee as wrongly contemplated by the Ld AO which is solely based on conjecture and without consideration of facts. The assessee transferred his undivided share in the land proportionate to the flat as per the Agreement for Sale. Consideration received related to transfer of flat including Undivided share in land attributable to said Flat (which is admittedly long term capital asset and indexed cost thereof also allowed in computation of short term capital gain in the assessment order) and includes cost of improvement, being proportionate cost of construction related to said flat. The AO thus erred in computing profit on sale of said 1st Floor flat as short term capital asset. 3.13. Considering the facts as narrated above , we are of the considered view that assessee has correctly calculated the gain as long term capital gain and consequently we direct the AO treat the same long term capital gain at Rs. 4,19,61,865/- by setting aside the order of ld CIT(A). The ground no 2 is allowed 4. The issue raised in ground no 3 is against the order of ld CIT(A) confirming the disallowance of Rs.44,26,906/- as made by the AO made u/s 48 which was incurred by the assessee on the construction of area provided to the lesser as per the term of indenture of lease of property under development. Printed from counselvise.com Page | 8 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 4.1. The facts in brief are that as per the Indenture of Lease dated 19/01/1974, the assessee had an existing obligation to the original lessor to provide an area of 1250 Sq. Ft. fully completed and furnished with all fittings and fixtures and usual amenities on ownership basis, in the event of the assessee constructing a new building on the demised premises after demolishing the existing building. At Pg no 15 clause 7 of the Lease Deed dated 19th January, 1974, it is specifically expressed that In the event of the Lessee constructing a new building or buildings on the demised premised after demolishing the existing building, the lessor shall have the priority and first chance and facility to choose and select at his pleasure one flat containing an area of 1250 Sq. Ft. to 1500 Sq. Ft. of the said building. 4.2. However, as per the construction plan, only an area of 1121 Sq Ft. could be provided for which a total cost of Rs. 44,26,906/- was incurred by the Developer and paid by the assessee. The said amount should have been deducted while computing Capital Gains. The Ld. AO, in the order has also admitted the fact that the fulfilment of the commitment was binding upon the assessee and in case such expense had not been incurred, the construction could not have been made and the transfer could not have taken place. However, the expenses incurred on the same were disallowed on the ground that the condition of granting the constructed area to the Lessor was only a ‘personal obligation’ and there was no requirement in the lease deed that leasehold rights could be transferred only after providing area to the lessor.This has consequential effect on determination of Construction Cost relatable to Owners’ allocation, being consideration for transfer of undivided share in Land proportionate to Developer’s allocation. The Ld. AO should have allowed deduction of Rs. Printed from counselvise.com Page | 9 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 44,26,906/- being cost of construction incurred by the assessee and paid to Developer for said area as expenses incurred in connection with transfer of capital asset. 4.3. The ld. CIT(A) after taking in to account the submission of the assessee upheld the order of AO on this issue by observing and holding as under: “5.7 In the ground no. 2 , the appellamt claims for an allowance of 44,26,906/- on account of expenditure incurred in connection with the transfer.The appellant claims that it was obligation of the assessee as per per the lease deed. It was noted from the lease deed that there was no requirement in it for the assessee to transfer his leqasehold rights only after providing the constructed area to the lessor. Therefore the expenditure in no case can be claimed to be incurred in relation the transfer of property. The assessing officer has therefore rightfully denied deduction of Rs. 44,26,906/-. The ground no. 2 is dismissed.” 4.4. We have heard the arguments of both the parties and perused the records as placed before us. We note that the cost incurred by the assessee through the developer under the Indenture of Lease dated 19/01/1974, the assessee had an existing obligation to the original lessor to provide an area of 1250 Sq. Ft. fully completed and furnished with all fittings and fixtures and usual amenities on ownership basis. In our considered view the cost incurred is under obligation and therefore has to be allowed while computing gain from the property.Accordingly we set aside the order of ld. CIT(A) on this issue and direct the AO to delete the addition. The ground no. 3 is allowed. 5. The issue raised in ground no. 4 is against the order of ld. CIT(A) confirming the action of the AO in disallowing and denying the exemption claimed by the assessee of Rs. 1,50,00,000/- u/s 54(2) of the Act. Printed from counselvise.com Page | 10 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 5.1. In calculating the taxability of long-term Capital Gains, the assessee claimed an exemption of Rs. 1,50,00,000/- u/s 54 (2) of the Act. The assessee has deposited the amount of Capital Gain remaining unutilized (as per assessee’s computation) in a nationalized bank in three term deposits of Rs. 50,00,000/- each aggregating to Rs. 1,50,00,000/- to be utilized for construction by way of extension of certain area on eighth floor of the new building and for super finishes of construction on 5th, 6th & 7th floors and claimed deduction U/s 54(2) of the Act.However, the said claim for deduction of Rs. 1,50,00,000/- was disallowed by the Ld. AO, being not as per law u/s 54(2) of the I.T.Act, 1961. 5.2. The ld CIT(A) after taking in to account the submission of the assessee upheld the order of AO on this issue by observing and holding as under: “The ground no. 3 relates to deductiuon of Rs. 1,50,00,000/- u/s 54(2).It is noted that the said deposit of amount should have been deposited within the specified date in an account in any such bank or institution as may be specified in and utilized in accordance with the specific capital gain scheme.The amount though deposited in a nationalised bank but is not as per the capital gain scheme.Therefore the eligibility of deduction u/s 54(2) is not fulfilled. Thus this ground of appeal no. 3 is dismissed.” 5.3. We have heard rival contentions and perused the material on records. As per Sub-section (2) of Section 54, amount of capital gain which is not appropriated by the assessee towards the purchase of new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing return of income U/s 139, should be deposited in a separate account maintained in accordance with the Capital Gain Deposit Scheme (CGDS) to be utilized by him as per specified scheme. In the present case, the assessee made term deposits of the amount of capital gain in a nationalized bank without specifying the Printed from counselvise.com Page | 11 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 scheme ‘CGDS’, but the intention of the assessee was to only utilize the same towards construction of the residential house within the stipulated time.In this regard, reference can be drawn to the case of Jagan Nath Singh Lodha (ITAT Jodhpur Branch), wherein it was held that- “The intention of the assessee from very beginning was to purchase a flat, it could not be said that there was any hanky panky on the part of the assessee to avoid payment of tax. The default committed by the assessee was a technical default that the assessee did not deposit the amount meant for reinvestment in the capital gain account scheme before filing return under section 139 was a technical default. Keeping in view the totality of the facts and circumstances of the case, the amounts which were ultimately invested within the stipulated time was to be exempt from tax although the assessee failed to technically deposit the same in the capital gain account. The intention of the Act as well as the intention of the assessee are to be considered in the right perspective. It was not the case of the department that the assessee wanted to utilise the amount for purpose other than to purchase a house. As a result, the addition was deleted to the extent of Rs. 4.01 lakhs as per Rules and the remaining amount was sustained.” 5.4. It is to be noted that although the completion certificate was obtained on 30th November, 2013, construction was only completed with minimum required normal finishes as per municipal laws and the assessee intended to utilise the surplus capital gain amount for super finishes and extension of area on 8th floor. The said amount was utilized by the assessee subsequently for construction activity i.e. on extension of certain area on the 8th floor of the residential house and also for the super finishing work of the flats on 5th, 6th and 7th floors. 5.5. The fact that the amount invested in term deposits, was specifically utilized for the purpose of construction and super finishes is not disputed and hence, the intention of the assessee is to be considered in right perspective as suggested in the case supra. In this regard, reference can also be drawn to the case of Smt. Aarti Kumaria ITA no. 97/LKW/2017, where it had been held by the Printed from counselvise.com Page | 12 ITA No. 752/KOL/2025 Ram Niranjan Banka; A.Y. 2014-15 Hon’ble Lucknow ITAT that if the intention of the assessee is to invest in construction or purchase of property and if such investment is made within the stipulated period, even if not specifically in the CGDS Scheme, the assessee is entitled to get the exemption benefit of section 54. Hence, considering the judicial pronouncements and in view of totality of facts and the legal interpretations of the provisions of the Act, we set aside the order of ld. CIT(A) and direct the AO to allow the exemption of Rs, 1,50,00,000/- U/s 54(2) of the Act. The ground no. 4 is allowed. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 21.11.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 21.11.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. Printed from counselvise.com "