TMI Blog2019 (8) TMI 847X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure on construction of the building. When the evidences are available, the AO is not permitted to reject the submission of the assessee merely on the premise that the assessee had already intimated the cost of construction to the DVO. In the instant case though initially the assessee has intimated the DVO that she had incurred the cost of construction till the date of inspection at ₹ 111.10 lakhs, subsequently reexamined the facts and found that the actual expenditure incurred was ₹ 136.06 lakhs but not ₹ 110.10 lakhs and submitted the same before the AO with relevant evidences and the books of accounts. The AO without causing any inquiry rejected the contention of the assessee which is incorrect and unreasonable. Therefore, we hold that there is no reason for rejecting year-wise cost of construction declared by the assessee aggregating to ₹ 136.06 lakhs and accordingly we direct the AO to accept the cost of construction declared by the assessee at ₹ 136.06 lacs for arriving the unexplained investment in place of ₹ 111.10 lakhs adopted by the AO. AO increased the cost of construction without taking account of a total cost of constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested in construction prior to the transfer of original asset. - I.T.A.No.308/Viz/2018 & 309/Viz/2018 - - - Dated:- 14-8-2019 - Shri V. Durga Rao, Judicial Member And Shri D.S. Sunder Singh, Accountant Member For the Appellant : Shri G.V.N.Hari, AR For the Respondent : Smt. Suman Malik, DR ORDER PER SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER : These appeals are filed by the assessee against the order of the Commissioner of Income Tax [CIT(A)]-12, Hyderabad vide Appeal No. 10208 10368/2017-18 dated 16.04.2018 for the Assessment Year (A.Y.)2012-13 and 2013-14. For the sake of convenience, these appeals are clubbed, heard together and a common order is being passed as under. 2. For the A.Y.2012-13 the assessee filed originally three grounds in appeal Memo in Form No.36 and subsequently vide petition dated 02.11.2018, sought substitution of the revised grounds of appeal. In the revised grounds, the assessee filed total four grounds which reads as under : 1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,25,200 Total 1,11,10,744 5.1. The DVO has inspected the building on 03.08.2016 and estimated the cost of construction of the building at ₹ 1,70,60,047/-. The AO issued the show cause letter to the assessee proposing to adopt the cost of construction of building at ₹ 1.70 crores as valued by the DVO and to make the addition of difference amount in cost of construction as unexplained investment. In response to the notice issued by the AO, the assessee filed explanation stating that she has spent the entire amount of expenditure from the explained sources and accounted the same in the books, thus no addition is called for. Further she submitted that till the date of inspection by the DVO, the cost of construction incurred was ₹ 1,36,06,190 from the F.Y.2011-12 to 2016-17 and the same was accounted in the books of account which should be considered as expenditure declared for construction of the building for arriving the unexplained investment if any. The year wise breakup of cost of construction stated to be accounted in the books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount in (Rs. Lakhs) % of Total Cost Proportionate Cost as communicated by valuation cell report (Rs.lakhs) Difference (Rs.Lakhs) 2011-12 31,77,838 31.77 27.97 47.73 15.95 2012-13 14,47,308 14.47 12.74 21.74 7.26 2013-14 48,09,568 48.09 42.34 72.23 24.13 2014-15 2,64,205 2.64 2.33 3.97 1.33 2015-16 (The said accounts are not finalized and returns are yet to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.AR argued that the assessee had incurred the cost of construction till the date of inspection at ₹ 136.06 lakhs, which was duly accounted in the books of accounts. The Ld.AR further submitted that from the communication sent to the Valuation Cell, it can be verified that the assessee had intimated the cost of construction for the A.Y.2015-16 till 31.03.2016 at ₹ 9,25,200/- and mentioned that the accounts were not finalized and the returns were yet to be filed. Subsequently on finalization of accounts, the assessee realized that she had spent an amount of ₹ 18,13,420/- till the date of inspection for the F.Y.2016-17 which was accounted in the books of accounts. The Ld.AR further submitted that the Departmental Valuation Cell authorities has inspected the building on 03.08.2016 and the assessee submitted details of cost of construction on 30.07.2016 in response to the letter received from the DVO. By the time, the details were submitted, the accounts of the assessee were not finalized which can be verified from the information furnished to the DVO. The Ld.AR further stated that the assessee could not furnish the details of expenditure incurred dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught and taking umbrella under non finalization of accounts for the F.Y.2015-16 and 2016- 17 is incorrect and afterthought. Therefore, the Ld.DR argued that there is no reason for accepting the revised cost of construction stated to be accounted by the assessee. Since the returns were not filed for the F.Y.2015-16 and 2016-17 (related to the A.Y.2016-17 and 2017-18), the assessee made book entries to explain the unexplained investment in the earlier years. Therefore argued that the AO has rightly adopted the cost of construction at ₹ 1,11,10,744/- for the F.Y.2011-12 to 2015-16 and there is no reason to disturb the cost of construction adopted by the AO. Similarly, the Ld.DR argued that the AO has taken the proportionate cost of construction basing on the percentage of cost of construction declared by the assessee for the impugned assessment years and allocated the total cost of construction as valued by the DVO which worked out to ₹ 47.73 lakhs for the A.Y.2012-13 as against the cost of construction declared by the assessee at ₹ 31.77 lakhs. The Ld.DR argued that the AO has adopted the fair and reasonable method for determining the cost of constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the assessee has declared the revised cost of construction for the A.Y.2016-17 at ₹ 18,13,420/-, out of which the AO had accepted only the sum of ₹ 7,35,500/- stating that as per the ledger, the sum of ₹ 7,35,500/- only was incurred till the date of inspection. The AO had rejected the revised cost of construction for the F.Y.2015-16 and 2016-17 only on the basis of the information furnished by the assessee to the DVO, even though the assessee stated before the DVO that the cost of construction declared was provisional for the F.Y.2015-16 and 2016-17 pending finalization of accounts. After rejecting the revised cost of construction declared by the assessee, the AO has taken the yearwise percentage of cost of construction declared in the original letter dated 30.07.2016 to DVO and accordingly determined the cost of construction for the F.Y.2011-12 relevant to the A.Y.2012-13 at ₹ 47.73 lakhs and made the addition of ₹ 15.95 lakhs being the difference amount as unexplained investment. As per the valuation report, the ground floor and first floor of the building was completed during the period from 21.11.2011 to 07.06.2012, second and third floors of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect and unjustified. The AO ought to have decided the year wise cost of construction after verifying the books of accounts and the details instead of finding easy way of estimating the cost of construction on the basis of original cost of construction declared by the assessee. The DVO calls for information from the assessee to determine the cost of construction and estimates the cost of construction of the building. The value determined by the DVO with regard to cost of construction of the building has evidentiary value and the AO should not disturb the valuation without having valid reason. However with regard to cost of construction incurred by the assessee is an independent issue and the intimation given to the DVO is not final and sacrosanct. The assessee is free to submit the details of cost of construction of the building with details and produce the accounts. The AO is obliged to consider the explanation and the evidences placed before him to arrive at the finding with regard to the accounted expenditure on construction of the building. When the evidences are available, the AO is not permitted to reject the submission of the assessee merely on the premise that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost of construction for the F.Y.2011-12 relevant to the A.Y.2012-13. It is also unjustified to estimate the cost of construction when the assessee has maintained the books of accounts without verifying the same and giving valid reasoning. Further after giving rebate for rate difference and discount for self supervision, the cost of construction of the building worked out to less than the revised cost of construction declared by the assessee. Since we have already directed the AO to adopt the revised cost of construction in the earlier paragraphs, we find no reason to uphold the order of the Ld.CIT(A), accordingly we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. Thus, the appeal of the assessee is allowed for the A.Y.2012-13. ITA No.309/Viz/2018, A.Y.2013-14 11. In this appeal all the grounds of appeal are related to the deduction u/s 54F of the Act. For the A.Y.2013-14, the assessee filed the return of income declaring total income of ₹ 7,93,920/- on 27.09.2013 and claimed the deduction u/s 54F for a sum of ₹ 58,37,025/-. The case was selected for scrutiny under CASS and the AO found that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Bank of Baroda, Eluru for the purpose of constructing the said residential house during January, 2012 to June 2012. 3. The assessee was afforded a further opportunity to justify the claim for exemption u/s 54F. In response thereto the assessee s AR filed another reply on 29.03.2016. In his reply the AR submitted that the assessee has constructed the shop and godown on the ground and first floor during the period Nov, 2011 to June, 2012 and that the residential house comprising of two floors which is duplex in structure was built on the shop and godown during the period 05.04.2012 to 23.01.2014 at a cost of ₹ 67.24 lakhs. The AR has further reiterated that the assessee has fulfilled all the conditions required for claiming exemption u/s 54F. 4. I have carefully considered the submissions made by the assessee and perused the material available on record. The fact which was not explicitly revealed by the assessee during the present 144A proceedings is that the assessee has taken a housing loan to the extent of about ₹ 40.00 lakhs from Bank of Baroda, Eluru between January 2012 and June 2012 to construct the very house on which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to construct a residential house within a period of 3 years after the date of transfer. Here, the crucial words mentioned in section 54F are after the date i.e. after the date of transfer. Hence, in order to claim exemption u/s 54F, the assessee should have constructed a residential house after the date of transfer i.e. after March, 2013. But, in the instant case, a constructed house was already in existence at the time of transfer, which was assessed to Municipal Tax from 01.04.2013 on which the assess is now claiming exemption u/s 54F. Thus, the assessee s claim for exemption u/s 54F is not in order since the house on which the assessee is claiming exemption was not constructed after the date of transfer but before the date of transfer. Had the assessee purchased a residential house, within one year or after two years from the date of transfer, exemption u/s 54F would have been available. The benefit of exemption u/s 54F by way of investing in residential house within one year before the date of transfer is available only if such investment is for purchase of a residential house. When it comes to construction of a residential house, the benefit of wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of transfer. Hence, viewing from this angle also, the assessee is not eligible for exemption u/s 54F. 7. One more relevant point is that though the assessee has obtained approval from Municipal Authorities for construction of a residential house, the assessee in reality has, since inception, been using the ground and first floors exclusively for the electrical business carried on by her. Out of the total construction, nearly 2/3rd of the plinth area pertains to commercial space and only the balance pertains to residential part. However, the assessee in her books has allocated less than 1/3rd of the cost to the commercial space, which is even less than her own estimate submitted to the bank and more than 2/3rd of the cost to the residential space, which is prima facie not in order. However, the correctness of such allocation has not been examined in the present proceedings for the reason that the assessee was found to be not eligible for exemption u/s 54F on other grounds also as discussed above. 8. In view of the foregoing discussion, it is hereby held that the assessee is not eligible for the exemption u/s 54F claimed by her. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitute completion of the project. The assessee further argued that the last instalment of loan was disbursed only in August 2013 and the construction of residential house continued after the sale of the vacant land and disbursal of the last instalment of loan also. Therefore, argued that as per the assessments made by the AO in the earlier year and as per the facts, the construction of the house was completed only after the sale of vacant land and the assessee is entitled for deduction u/s 54F of the Act. Alternatively, the Ld.AR submitted that the deduction u/s 54F is permissible even if the construction of new house was commenced prior to the transfer of the original asset. Though there is time limit for completion of construction after the date of transfer, there is no bar in the Act to commence construction before transfer of the capital asset. The Ld.AR relied on the decision of this Tribunal in the case of DCIT, Circle-3(1) Vs. Sri Bollina Srihari Rao vide ITA No.548/Viz/2014 dated 28.03.2017. Accordingly requested to set aside the order of the Ld.CIT(A) and allow the appeal of the assessee. 13. On the other hand, the Ld.DR strongly supported the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the page No.8 of the assessment order of A.Y.2012-13. Having determined the cost of construction and assessed the unexplained investment if any, for the F.Y.2013-14 to 2016-17, the AO is not permitted to take different stands for the purpose of assessment and for the purpose of deduction u/s 54F of the Act which shows the inconsistent approach of the department and it is against the justice. In view of the fact that the AO himself determined the cost of construction incurred for the A.Y.2013-14 to 2016-17 in the assessment order of A.Y.2012-13, we are under the considered opinion that the residential unit was constructed after transfer of capital asset and we do not find any merit to uphold the order of the Ld.CIT(A) and the same is set aside and direct the AO to allow deduction u/s 54F of the Act. 15. The alternate proposition made by the Ld.AR is even if it is presumed that construction was commenced prior to the transfer of the capital asset, the assessee is eligible for deduction u/s 54F of the Act. The assessee relied on the order of this Tribunal in the case of Sri Bollina Srihari Rao (supra). In the cited case, the Tribunal held that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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