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Bhailalbhai N. Patel Versus DCIT, Circle-4, Baroda

2017 (1) TMI 324 - ITAT AHMEDABAD

Deduction u/s 54 denied - AO observe that deduction for construction of residential house is allowable u/s 54 of the Act only if the assessee constructs the house within a period of three years after the date of transfer of original asset, whereas assessee commenced and almost completed the construction of new residential house much before the date of transfer of capital asset - Held that:- Provisions of section 54 of the Act contemplates that deduction u/s 54 of the Act can be made by assessee .....

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r than the sale consideration of house sold for investing in a residential house and it is not mandatory that only the sale consideration of house sold is to be utilized for purchasing or constructing a new residential house. In the given case assessee has utilized other funds (apart from sale consideration) for constructing residential house and for this reason only he cannot be denied deduction u/s 54 of the Act. - Further going through the provisions of section 54 of the Act we also obser .....

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in 2006 but was completed on 16.4.2009 and was well within the statutory time limit meant for constructing of new residential house within 3 years from the date of transfer of capital asset as envisaged in the provisions of section 54 of the Act and, therefore, assessee is eligible to claim deduction u/s 54 - Decided in favour of assessee - ITA No.37/Ahd/2014 - Dated:- 3-1-2017 - Shri S. S. Godara, JM and Shri Manish Borad, AM. For The Appellant : Shri M. K. Patel, AR For The Respondent : Shri .....

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₹ 29,62,200/- u/s 54 of the Act. 2. Briefly stated facts of the case are that assessee is an individual. He filed his return of income on 30.3.2010 disclosing total income at ₹ 65,02,760/-. The case was selected for scrutiny assessment and notice u/s 143(2) followed by notice u/s 142(1) of the Act were issued and duly served. Necessary details/informations as called for were furnished. During the year assessee sold a house property situated at Jyoti employee s Co-op. Housing Society .....

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against which assessee has claimed deduction u/s 54 of the Act commenced before 18.7.2008 i.e. the date of transfer of property on which assessee has earned long term capital gain. Ld. Assessing Officer further observe that deduction for construction of residential house is allowable u/s 54 of the Act only if the assessee constructs the house within a period of three years after the date of transfer of original asset, whereas assessee commenced and almost completed the construction of new reside .....

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s well as the submissions made by the AR. The main contention of the appellant is that the exemption u/s. 54 cannot be refused simply on the ground that the construction of the new residential house has begun before the sale of old house. His claim is that since he occupied the newly constructed house after the sale of old house, hence he should be allowed exemption u/s. 54, despite the fact that the construction of the house had started long before the sale of the old house and almost entire ex .....

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of the old house j,e 18/07/2008: Name of Party Bill No Bill Dtd Amt (Rs.) Particulars /Details Amarshinh Prajapati 2 09/08/2008 65251.00 Civil Work Labour Charge Besides, from these details of expenses, it is seen that the main construction of the house had already been completed well before 31/03/2008 and the expenses incurred after that are only in the nature of decorative items, channel, hook, brackets, glasses, etc. which are apparently for interior decoration of the house. 5.3.2 The decisio .....

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hough the construction commenced before the sale and the construction completed within two years from the sale of capital assets, is entitled for deduction under section 54F. [Para 9] • A bare look to the provisions of section 54F shows that the above provisions are incentive provisions intended to augment the investment in residential houses. It is the settled legal position that incentive provisions should be construed liberally in such a manner that object of the statute is fulfilled rat .....

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sioner (Appeals) was not justified in applying strict rule of interpretation. [Para 13] • In view of the above discussion, it is opined that investment in residential house which would have taken place after the sale of existing capital asset is to be considered for deduction under section 54F as the investment in residential house would not only include the cost of purchase of the house but also the cost incurred in making the house habitable because an inhabitable premises, cannot be equa .....

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nd, started construction of a building then only that part of the investment in new house that was made out of the sale proceeds received after the transfer of the old house would qualify for deduction under section 54. [Para 15] • In view of the above, it is clear that whatever investment is made by the assessee in construction of new property within the period stipulated under section 54F after the sale of existing property the assessee is entitled for deduction in respect of same. In oth .....

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arger plot took place and not within a period of two years after the date of such transfer. It was true that the assessee paid a substantial portion of the cost of construction to M and obtained possession of the new house property on 20-3-1970, that is to say, the day on which the conveyance in respect of the larger plot was executed, but that, however, was a matter of no consequence, so far as the satisfaction of the relevant condition was concerned. For the satisfaction of the relevant condit .....

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ilding was not constructed up to that time. This was not one of those cases where for one reason or the other, not within the control of the assessee, the new house property which the assessee intended to put up had not been completely constructed so as to be fit for occupation. There was nothing on the record to show that the property constructed on the smaller plot was not fully constructed and that it was not fit for occupation. The finding, in fact, was that the instruction was completed on .....

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" 5.3.4 Similarly in the decision of the ITAT Mumbai Bench in the case of [2001] 78 ITD 206 (NUM.), Ms. M.N. Palia, the Bench has held on similar facts as follows: "It was clear that no investment in the new residential house constructed by the assessee was made within one year prior to the sale of shares. Entire investment was made from 11-11-1988 to 8-5-1991 and meagre sums of ₹ 5,000 and ₹ 13,240.20 were shown to be invested in the new asset on 6-4-1992 and 15-10- 1992 r .....

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substantial investment of ₹ 2,72,500 was made became complete with a meagre amount of ₹ 5,000 expended by the assessee on 16-4-1992 and a certificate was issued by the Architectures on 5-8-1992 that the said house was complete. This also showed that it was a concocted exercise of the assessee to come within the preview of section 54F. Otherwise the house was complete on 8-5-1991, that is, much before one-year prior to the sale of original asset. In the circumstances, as the conditio .....

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house was fully constructed before the date of the transfer of the old house and was in complete habitable condition. Thus this house property having been already been constructed as on the date of transfer of the old house, the decision of Hon'ble Gujarat High Court in the case of Smt. Shantaben P. Gandhi (Supra) and the decision of Mumbai Tribunal in the case of Ms. M.N. Palia (Supra) are clearly applicable in this case. Without prejudice to this, as per the decision in the case of Smt. Ni .....

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ssessee paid ₹ 53,96,287/-. Ld. AR duly accepted the fact that the construction of the new residential house on which deduction u/s 54 of the Act is claimed was started in the year 2006 and a considerable portion was constructed before the date of transfer of capital asset on 18.7.2008. However, construction of residential house eligible for investment u/s 54 of the Act was completed on 16.4.2009 i.e. the date on which completion certificate was issued by concerned authority. Ld. AR furthe .....

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truction of residential house is completed and it is immaterial when the construction starts, main emphasis is on the date of completion of construction which in the case of assessee was 16.4.2009 and is well within the specified period of three years from 18.07.2008 i.e. date of transfer of capital asset. 6. On the other hand ld. DR supported the orders of lower authorities. 7. We have heard the rival contentions and perused the material placed before us. Through this appeal assessee has assail .....

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long term capital gain of ₹ 44,62,200/-. Deduction u/s 54 EC of the Act was claimed at ₹ 15 lacs towards investment in specified bonds. Further against the remaining amount of long term capital gain of ₹ 29,62,200/- assessee claimed deduction u/s 54 of the Act towards construction of another residential house at 10, Sandalwood Society, near Kalpana Society Race Course, Baroda. 9. Litigation arose between the Revenue and the assessee for the reason that ld. Assessing Officer on .....

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ssessee has not purchased any residential house within one year or after two years of the date of transfer of capital asset i.e. 18.07.2008 but has claimed deduction u/s 54 for constructing a house completed on 16.4.2009. Ld. Assessing Officer denied the deduction u/s 54 of the Act by taking a view that the construction of impugned residential house was completed much before the date fo transfer of capital asset on 18.07.2008 and was occupied by the assessee for residential purpose and only a mi .....

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of the Co-ordinate Bench, Hyderabad in the case of Smt. Nimma Gaddu Sridevi wherein it was held that the investment in house would be complete only such house becomes habitable (emphasis supplied). This particular word habitable is of crucial importance because construction of a structure may take years but it becomes residential house only when it is habitable and the person resides therein has legal permission given by the local authorities to use it for residential purposes. 11. In this cont .....

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e old house was sold in the same financial year also. The cost of newly constructed house for residential purposes is ₹ 53,96,287/- including cost of land. Thus, the entire capital gain earned on sale of the old house stand fully invested either in construction of new house or capital gains bonds allowable u/s 54EC. I have started occupying the said premises from 02.09.2008. The local self government has also started levying the local municipal taxes for usage of water, sewage etc. Copy of .....

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ndent no. 1, Vadodara vide his order no. City S/Re. Ca, No.7/2009/ward-l dated 16.04.2009. Its copy is enclosed herewith for your perusal and record (Annexure-6). I have moved the matter before the Local Self Government to get the completion certificate. Nevertheless, it is important fact that though I have not received the construction completion certificate from the Local Self Government, I have been occupying the said premises as my Residential House. 1 have paying regularly the municipal tax .....

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ficance as against the usage of the funds and occupying the new residential premises, my claim of exemption u/s 54 may please be allowed. It would be an important matter for your Hon. to note that the legal hitch as regards the old land lord in the city survey record was a factor beyond my control. For your record details of the construction expenses right from the starting of construction activity along with copies of bills are as per Annexure - 7. Majority of the payments for the construction .....

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bove referred para no.4 of assessee s reply dated 25.11.2011 it gives a very clear picture of the facts of the case. Assessee has not objected to the fact that major construction of the impugned house was completed much before the date of transfer of capital asset i.e. 18.07.2008 but there was some litigation going on between the local authorities and the previous landlord which was finally resolved by the City Service Superintendent on 16.4.2009 on the basis of which assessee moved his applicat .....

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tial house for claiming deduction 54 of the Act. Provisions of section 54 of the Act contemplates that deduction u/s 54 of the Act can be made by assessee only if a residential house is purchased within one year before or two years after the date of transfer of old residential house or in the alternative if the assessee constructs new residential house within three years from the date of transfer of capital asset. We find that the assessee is eligible to claim deduction under this section even i .....

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