TMI Blog2019 (1) TMI 1353X X X X Extracts X X X X X X X X Extracts X X X X ..... stence of vast parcel of open land is a reality. We thus find it utterly difficult to put blinkers on tell-tale facts. The superstructure claimed to be a residential house is clearly superficial and does not go hand in hand with ground realities. It is totally unconceivable that a token and symbolic superstructure of temporary nature involving insignificant construction costs or land occupying negligible space (created with an object to typically accommodate a watchman to safeguard the land) would convert huge parcel of land into a residential house. As we see in nutshell, cost of land exceeds 99% of the total cost of new investment in so called residential house. Likewise, land used for construction of superstructure is less than 1% of total area. The superstructure is jointly owned and devoid of basic amenities and actually used by the caretaker of lands. The unflappable facts narrated above when seen cumulatively seals the narrative against the assessee. The sale consideration is thus essentially appropriated towards purchase of land per se and not towards construction of residential house as enjoined by S. 54F. We thus find no plausible reason to interfere with the conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration. 8. Ld. CIT(A) erred in law and on facts confirming addition made by AO of ₹ 5,65,520/- rejecting cost of improvement of capital asset sold claimed u/s 48 of the Act rejecting evidence of ledger a/c of contractor alongwith bills and physically seen by the inspector on spot visit. 9. Levy of interest u/s234A/234B 234C of the Act is not justified. 10. Initiation of penalty proceedings u/s 271(1)(c) of the Act is not justified. 3. Briefly stated, the assessee filed his return of income for AY 2014-15 declaring total income at ₹ 59,99,030/-. The return was subjected to scrutiny assessment. In the course of scrutiny assessment, it was inter alia noticed by the AO that assessee has sold a co-owned land situated at Sanand, Ahmedabad and received sale consideration to the tune of ₹ 1,28,48,933/- being his share in the co-ownership land. The capital gain on sale of the aforesaid land was computed by the assessee at ₹ 1,21,41,360/- after taking index cost of acquisition of land at ₹ 7.07,573/-. The assessee was found to have claimed exemption of ₹ 1,17,83,494/- under S. 54F of the Act against the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emises except for a bore well which was not found to be in working condition. As per the report, the premises neither had any facility for a washroom/bathroom nor had any kitchen or otherwise any permanent arrangement for cooking food. The remaining portion of the plot was left vacant and filled with thick grass grown where animals were seen grazing in the grass grown. On inquiry, it was found that the watchman / security guard named Punabhai resides at the said premises and it was informed by the watchman that four walls at the periphery were already constructed when the land was purchased. The photographs of the plot/land with construction area were also taken and forms part of the assessment order together with formal report. 5. Armed with the aforesaid report together with photographs of the site, the AO made further inquiries with the assessee and confronted the aforesaid facts. In response, the assessee asserted that as per the report also, there was a construction of house (two rooms) alongwith store room. The electricity meter was also found to be installed and light facility was also available. It was thus contended that the residential house lighting with two rooms a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t against capital gains arising on sale of original asset (land parcels at Sanand). 7. Aggrieved, the assessee preferred appeal before the CIT(A). 8. The CIT(A) however did not find any merit in the plea of the assessee either that the sale consideration has been appropriated towards residential house contemplated under S. 54F of the Act and not towards acquisition of land per se. The relevant operative para of the order of the CIT(A) is reproduced hereunder: 5. I have perused the assessment order and carefully considered the appellant's submission made during the appellate proceedings. I note that there is no dispute as to the facts related to receipt of consideration and the description of the constructed structure which is at the heart of eligibility of exemption u/s 54F of the Act. 5.1 As per section 54F the exemption provided is available to an assessee being an individual or HUF who has the capital gain arising from transfer of any Long Term Capital Assets, not being a residential house if the assessee has, within a period of one year before or two years after the date on which transfer took place, purchased or has within a period of three years after that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the constructed structure is a residential house and relies in particular upon judgments in the case of Anil Gupta Vs DCIT 6 SOT 403 (ITAT Delhi) and Addl CIT Vs Narendra Mohan Uniyal 34 SOT 152 (ITAT Delhi) to contend that the constructed structure and the both plots of land together constitute residential house and cost of all these will have to be taken into account for the purpose of computation of exemption u/s 54F. Copies of two municipal tax bills dated 24.01.2018 for the year 2017-18 for Survey No. 44,8 has also been submitted in of the structure being residential, age of structure as 5 years, (covered) area of structure as 35 sq. meters in one bill and area of vacant plot as 2580 sq. meters in other bill. The use has been shown as self residential in the bill. 5.4 Further some of the case laws which prima facie appear in favour of the appellant are that whether assessee had invested money in construction of a residential house, merely because construction is not complete in all respect and it was not a fit condition to be occupied within a period stipulated, that would not disentitle assessee from claiming benefit u/s 54F [(CIT Vs Sambandam Udaykumar (201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he did not find the constructed structure to be a residential house. 5.7 In this regard it is seen that there is no definition and specific mention of 'residential house' and land appurtenant thereto in the Income Tax Act. In this context it appears natural to fall back upon the laws and the rules of the Area Development Authority and of the Urban Local Body (Municipal Corporation or Municipality) for determining these aspects. It is an Area Development Authority which normally does the town planning where boundaries of colonies are marked and approved as per the master plan where various types of zones - green, residential, commercial, industrial, recreational, religious, educational etc. are marked for those specific uses and it is an Urban Local Body (ULB) which approves the plan of construction and completion of construction of a building as per the relevant Building Bye Laws and also collects Property Tax there from as per the relevant Property Tax Bye Laws. The property tax is on all properties within the municipal limits and comprises of a Building Tax and a Vacant Land Tax. Building tax is levied on the value of covered space of building as prescribed in the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules enumerated are typical of an ULB and will apply to even unauthorized area where construction is not allowed meaning thereby that the building plans are not approved by the ULB. However any construction where TP is not there, is unauthorised as the building plans are not approved and as no construction can be mac e without the approval of the Commissioner of the ULB, such construction is illegal also liable to be torn/brought down by the enforcing authorities. However, the purpose of levy and collection of property tax, no distinction of approved/unapproved/ unauthorized /illegal construction and of regularized/ unauthorised colonies is recognised. In the municipal acts there are strict stipulations for subdivision(s) of a plot and merger/amalgamation of plots for which locations are required to be made and the plan approved by the Commissioner ULB and invariably such proposal of subdivision of amalgamation have to be roved by the municipality /municipal corporation (i.e. the legislative wing). Till such time two plots cannot become one property. (Note: The figures and the schemes of things are very broadly narrated and rowed from the Delhi Municipal Corporation Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree rooms with narrow strips of grass/flower bed. The drawing plan is such that the construction even later made cannot qualify to be a farm house let alone a residential building/house and I doubt whether the legislation intends the exemption u/s in 54F in case of a farm house, if the appellant so claims later before the higher appellate bodies. Further in Smt. Usharani Kalidindi Vs ITO 2013 37 taxmann.com 360 (ITAT Hyderabad) in the context of exemption-u/s 54F it has been held that \a construction of inhabitable house cannot be equated with a residential house, investment in construction could be complete as a house only when such house become habitable. In this cited case the assessee claimed deduction u/s 54F on the ground that she had purchased a house out of capital gains but the AO having found that there was no construction of a house as claimed by the assessee and instead there was a small construction consisting of two rooms made of hollow bricks without any basic amenities disallowed claim of deduction in reference to the question whether since property purchased by the assessee would not fall within description of residential house, claim of assessee u/s 54F canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction should be on the entire plot. The CBDT Circular (supra) also says so. In the cited case the assessee appears to have purchased two plots aggregating to 2000 sq. meter - both these plots were having 1000 sq. meters of land each and the construction was made on the first plot and the second plot was sought to be treated as land appurtenant to the building contending that both the plots formed part of same one residential unit being contiguous and adjoining to each other. The Hon ble ITAT Delhi concluded that the property purchased by the assesseewas a single unit and was being used for residential purposes and therefore held that investment made in respect of both the plots was eligible for claim of exemption u/s 54F (in favour of the assessee). 6.1 First I find the case of the appellant distinct and distinguishable as in the case of the appellant the land is 4310 sq. mtr. and plinth is of 35 sq. mtr and a total kind of 4275 sq. mtr. (4310 - 35) cannot be held to be land appurtenant to the building of 35 sq. mtr. There are judgments under the municipal acts in context of property tax (building tax and vacant land tax) specially in context of farm houses whereby the land ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant that the entire land (of two plots) has to be treated as land appurtenant to a temporary makeshift structure is not within the intent of section 54F and the judgments relied upon by the appellant and is violation of the laws and bye laws governing the local Development Authority and local Urban Body. The Judgements and the CBDT Circulars are in context of a normal common scenario that there is a plot purchased and a residential house constructed there on out of the sale proceed of a capital asset and the Judgements and the CBDT Circulars are not for a preposterous and unacceptable scenario where an exemption of ₹ 1,17,83,494/- is being sought with mere make shift construction at the cost of ₹ 90,003/- only. In fact the temporary makeshift inhabitable structure is a mere ploy of the appellant to clearly avoid tax due on the capital gain and benefit of 54F cannot be allowed to the appellant. It is further clear from, the fact that initially the appellant had sought exemption u/s 54D and only later changed to exemption u/s 54F. Thus even if the temporary makeshift -structure was to be conceded has residential house, the cost of only reasonable land appurtenant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plan also admits the fact that the residential property was used for self use. The learned Senior Counsel thereafter referred to the several judicial precedents namely Seema Singh Beniwal vs. DCIT ITA No. 135/JP/2012 order dated 09/10/2015; ACIT vs. Om Prakash Goyal ITA No.647/JP/2011 order dated 02.02.2012; CIT vs. Ashok Kumar Rahlan (Delhi) Income Tax Appeal No. 505/2013 judgment dated 22nd November, 2013; B. Sivasubramanian vs. ITO ITA No.01/Mds/2013 order dated 12/03/2014 and ACIT vs. Pareshkumar Ramanlal Jani ITA No. 3022/Ahd/2014 Ors. Order dated 10.10.2017 to support its case on facts and law. 11. The learned DR, on the other hand, relied upon the orders of the AO and CIT(A). In furtherance, the learned DR for the Revenue contended that it was found as a matter of fact that no residential house of habitable nature was constructed by the assessee. A meager cost of construction of ₹ 90,000/- odd against the cost of two plots of land aggregating to ₹ 235.30 Lakhs says it all that the intent and purpose of investment of sale consideration was only to acquire another parcel of land. A temporary construction made on the co owned plot of land for the sole use of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 1,28,48,933/- towards his share of sale consideration. The capital gains thereon was computed by the assessee at ₹ 1,21,41,360/-. It is the case of the assessee that it has appropriated the sale consideration towards the purchase of certain parcel of adjoining land/plot jointly with other co-owner. The sale consideration invested by the assessee towards aggregate purchase of parcels of land stands at ₹ 1,17,65,000/- or near thereto. The assessee is further claimed to have constructed a superstructure on the land occupying nearly 35 sq.mtrs. on the total land size of 4310 Sq.mtrs. at a cost of about ₹ 90,000/- or near thereto. It is essentially the case of the assessee that superstructure is a residential house constructed on aforesaid plot and therefore, it would inevitably mean that the sale consideration has been appropriated towards construction of residential house as contemplated under s.54F of the Act. It is thus claimed that the assessee is rightly entitled to exemption/deduction under s.54F of the Act against the capital gains arising on the sale of original asset. 12.2. The case of the assessee is essentially two fold; firstly, the cost of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erves to be accepted without any demur. However, the moot question that arises for consideration is whether when nearly entire amount ( 99%) has been deployed for acquisition of land alone, can a reasonable person instructed in law say that the sale consideration has been appropriated towards residential house which represents construction cost of less than 1%. In such peculiar fact situation, the answer to our mind would be obviously and unflinchingly No . The expression cost of new asset being residential house has to be undoubtedly read in the context of the given facts and having regard to the aim and salutary object for which the exemption provision was provided. Howsoever liberally we may construe the exemption provision, we cannot travel beyond the domain of the relief provision. The facts narrated above glaringly demonstrate that it is an obvious case of deployment of fund towards purchase of another parcel of land. The Revenue in our view has successfully demonstrated that superstructure so constructed is for temporary purposes and is devoid of very basic amenities. The superstructure has been created without any tangible stake with a sole purpose of providing some s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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