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2016 (1) TMI 656 - ITAT CHENNAI

2016 (1) TMI 656 - ITAT CHENNAI - TMI - Entitlement to deduction u/s 54F - as per AO assessee has not deposited the sale proceeds into capital gains account scheme before the due date for filing of return of income - CIT(A) restricted the deduction to the extent of amount paid within the due date for filing of return of income under section 139(4) - Held that:- deduction under section 54 / 54F cannot be denied simply because sale proceeds were not deposited into capital gains account scheme in t .....

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essee and recompute the capital gains in accordance with law, after providing adequate opportunity to the assessee.

Cost of improvement disallowed - Held that:- This has to be examined by the Assessing Officer with reference to the bills produced by the assessee and decide the issue in accordance with law. Thus, we restore the issues back to the file of the Assessing Officer to decide the same afresh in accordance with law. - I.T.A.No.94/Mds/2014 - Dated:- 28-10-2015 - SHRI A.MOHAN AL .....

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red in allowing the claim under section 54F partially and disregarding the expenditure incurred on the improvement for the purpose of computing capital gains. 3. The assessee, an individual, deriving income from business filed her return of income for the assessment year 2010-11 on 04.03.2011 admitting total income of ₹ 8,510/-. Assessment was completed under section 143(3) of the Act on 31.03.2013. In the course of assessment proceedings, the Assessing Officer noticed that assessee during .....

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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 long term capital gains to the extent of ₹ 65,94,234/- is not deposited in any capital gain account scheme as per section 54F(4) before filing t .....

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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 under section 54F of the Act at ₹ 40,19,800/- as against the sum of ₹ 30,19,850/- allowed by the Assessing Officer. Since the balance gain was not deposited in the specific account scheme in the bank, he did not allow deduction for the same. 5. In respect of cost of improvement, the Commissioner of Income Tax (Appeals) h .....

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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 the land by way of filling up of low lying areas and has erected a solid iron gate of 7 in height besid .....

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he time of assessment. He submits that Assessing Officer has not found the bills to be non-genuine. However, the Commissioner of Income Tax (Appeals) rejected the claim of the assessee in respect of the improvement stating that there are discrepancies in the dates of bills. He further overlooked the fact that construction of compound wall, erection of iron gate, leveling of land, digging of well and erection of shed all happened at two different points of time in the year. Therefore, the discrep .....

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filing of return under section 139(4) of the Act. He submits that assessee filed return for the relevant year under section 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 agreement on 13.04.2010 with M/s. Ozone Projects P. Ltd. a reputed builder for ₹ 85,94,546/- .....

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is in 12th floor near Koyambedu where metro rail station is coming up therefore, there are several bottlenecks in completing the construction. Counsel submits that lower authorities have opined that since the unutilized net consideration received on sale of land was not deposited in specified bank account, the assessee is not entitled to claim entire deduction under section 54F of the Act and only the amount paid upto the date of filing of return alone is eligible for deduction. Counsel submits .....

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he 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 assessee has paid / invested the amount as per the definition of the word paid given in section 43(2) of the Act. He further submits that payment by installments is also permissible in view .....

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ch an extent as to deny 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 Jagan Nath Singh Lodha Vs. ITO (85 TTJ 173). He also places reliance 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 under section 54F of the Act in .....

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ot deposited the sale proceeds into capital gains account scheme before the due date for filing of return of income. He has restricted the deduction only to certain extent i.e. amount paid till the due date for filing of return of income as per section 139(1) of the Act. The Commissioner of Income Tax (Appeals) restricted the deduction to the extent of amount paid within the due date for filing of return of income under section 139(4) of the Act. The issue of whether non-investment of sale proce .....

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earned 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 the capital gains account scheme should not come in the way-of the claim for exemption particularly when the· ultimate objective of providing for the exemption 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 ca .....

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ind 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 these circumstances we are not inclined to agree with the submission of the learned AR that there has been a complete disclosure and .....

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eopening 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 173, the assessee had advanced a sum of ₹ 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 4th January, 1995 and advanced a sum of ₹ 2 lakhs on 16th April, 1995 for purchase of the house. The adva .....

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that the exemption was allowable since the intention of the assessee from the very beginning 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 t .....

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ging to tax the amount, which had been earlier claimed as exempt by reason of reinvestment. We find that the Board has in its circular no.495 dated 22nd September, 1987 at paragraphs 26.1. and 26.2 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 cons .....

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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 to show that the appellant always intended to invest in a residential house by way of construction. It therefore appears that the failure to invest in the capital gains account scheme is only a technical default which given the circumstances and the peculiar facts shold not be extended to such an extent as to deny the exemption u/s.54 when the ul .....

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(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 54 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 section having been satisfied namely to encourag .....

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s 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 ₹ 1,00,000 to the builder before the due date of .....

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it was stated that acquisition of flat through 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 .....

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s, 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 ₹ 1 lakh towards the construction of flat till the due date of filing of the return of income u/s. 139(1) for the releva .....

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horised Representative has submitted that Section 54F was introduced by the Finance Act, 1982, which permitted reinvestment of the proceeds 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 with the sole intention to purchase or construct a house. Proviso 4 to this section was introduced by the Finance Act, 1987, which reads as under: "Under the e .....

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r No. 495, dt. 22nd Sept., 1987- Ed.] 9. The assessee had sold plot on 4th Jan., 1995 (asst. yr. 1995- 96) and invested the sale consideration by 30th March, 1996 (asst. yr.1996-97), i.e. one year from the sale of the plot, as provided under Section 54F(1). The assessee had made an attempt to purchase a house at Vivek Vihar, Jaipur immediately on 16th April, 1995 after sale of plot on 4th Jan., 1995. This agreement could not materialise due to the inability of the seller, to hand over the vacant .....

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thorised Representative has relied on the following various decisions at p. 4 of the paper book : 1. Bajaj Tempo Ltd. v. CUT (1992) 196 ITR 188 (SC) wherein it has held by the Hon'ble Supreme Court that a provision in taxing statute granting incentives for promoting growth and 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 .....

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business to be utilised for construction of residential accommodation. The Madras Bench of the Tribunal, while answering the question in positive, held that the act of the assessee amounted to utilisation of consideration for construction of residential house within the meaning of Section 54F(1). It was further 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, but only for avoiding rectifi .....

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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 payment 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 that the assessee .....

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