TaxTMI 
TaxTMI 
2019 (1) TMI 1127
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....IT(A), being totally contrary to the provisions of law and facts of the case, kindly be deleted in full. 3. The ld. AO further erred in law as well as on the facts of the case in charging interest u/s 234B & 234D of the Act and as also in withdrawing interest u/s 244A of the Act. The appellant totally denies its liability for charging and withdrawal of any such interest. The interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full." 2. Briefly stated, the facts of the case are that during the year under consideration, the assessee had received certain compensation on compulsory acquisition of his land by RIICO. In the return of income, the assessee has offered the said receipts to tax as long term capital gains and has claimed exemption u/s 54F on account of sale consideration deposited in Capital Gain Account Scheme 1988. During the course of assessment proceedings, the Assessing Officer on verification of the assessee's aforesaid bank account found that the said account was not a Capital Gain Scheme Account and therefore, denied the exemption u/s 54F of the Act and assessment order was passed u/s 143(3) bringing the l....
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....ereupon. In support, our reference was drawn to the assessee's bank statement available at APB Pages 51-52. It was accordingly submitted that there has been complete compliance and the assessee has followed the provision in its true spirit with its letter and intent. Once there has been substantial compliance of the provisions of the Act, the act of depositing the amount in any account is not significant, in so far as allowing of the exemption U/s 54F is concerned. It was further submitted that the assessee during the assessment proceedings has submitted before the Assessing officer that where so directed, the assessee is ready to open a capital gain account and transfer the amount to any such capital gain as the assessee otherwise has not utilized the amount elsewhere except as per requirement of the provisions of section 54F of the Act. It was submitted that in spite of above submissions, the AO has not acceded to assessee's contentions and has denied the exemption u/s 54F of the Act. 5. It was further submitted that some of the notable facts were not judiciously considered by the AO and/or were not denied by the AO though having a vital effect on the controversy in hand. Firs....
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....all the more convincing when a senior officer of the rank of a Branch manager of a reputed bank like HDFC certified in black and white vide certificate dated 11.11.2009, categorically certifying that such deposit made were under CGAS. Therefore, there was no reason to have any doubt by a layman. 8. It was submitted that unfortunately, even the ld. CIT(A) completely ignored vital piece of evidence even though annexed to her order. The enquiries made later on after 2 years with the bank by the AO and its replies dated 14.06.2011 and 15.11.2011 stating that it was a normal SB a/c, are not decisive to negative the circumstances, to disprove the above certificate and to judge the correctness of the decision taken by the appellant at the relevant point of time. These replies neither states that earlier certificate dated 11.11.2009 as false or incorrect nor explains why there is a shift in the stand by the bank. Referring to the a/c opening form was also not relevant once the manger assured. The AO completely failed to prove that it was not a CGAS but a normal SB A/C. What is apparent is real unless proved wrong. Moreover the onus to prove it wrong is on the person who is saying tha....
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....g cases where the Courts have permitted deduction on substantive compliance ignoring technical breaches. Kishore H. Galaiya v/s ITO (2012) 150 TTJ 444 (Mumbai) wherein it was held as under: "Capital Gains - Exemption under S.54-Constuction of new house-Assessee sold his old residential flat On 7th March, 2006, booked a new residential flat with a builder and paid a total sum of Rs. 14,62,500 towards installments till 16th Feb.,2009- This was a case of construction of new residential house - Assessee having spent more than the capital gains i.e.., Rs. 9,98,411 within three years on construction of new residential house, was eligible for exemption under s. 54 even though possession of flat was taken afterwards- Non-deposit of balance amount in capital gains account scheme was only a technical default. Shri Jagtar Singh Chawla vs. ACIT in ITA No. 4923/Del./2010 for A.Y. 2007-08 is also a case, the facts of which are similar to appellant's case. In this case also as per Para 5, the branch manager misled the assessee and deposited the cheque given to him in flexi deposit scheme assuring that it was in the notified capital gain account. The Tribunal, in Para....
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.... Rs. 4,01,000-AO denying exemption under s. 54F on the ground that assessee failed to purchase another house before filing return under s. 139(1) and also failed to deposit the amount in capital gains account-Not justified-Intention of assessee from the very beginning was to purchase residential house and he having done so within two years of sale of plot, he was entitled to exemption under u/s 54F in respect of the amount invested." DI vs Agrim Charan Foundation (2002) 253 ITR 593/ 172 CTR 95 (Del.) which was a case relating to the investment made in the specified asset under a bonafide belief and on a wrong representation made resulting into contravention of S. 11(5), but the Tribunal allowed the benefit of S.11. It was held as under: "Charitable trust-Exemption under s. 11-Contravention of s. 11(5)- Tribunal found that although the assessee-trust had made deposits with two concerns relying on their misrepresentation that the concerns were authorised to accept deposits from charitable trusts, there were no mala fides and the assessee-trust immediately withdrew the deposits on becoming aware of the fact that the said concerns were not permitted to receive deposit....
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.... of the vital facts were not noted/ purportedly ignored. Firstly, the subjected construction was going on a small plot measuring 381.11 sq. yards from Mitra Grih Nirman Sahkari Samiti Ltd. in a residential colony namely Jaishree Nagar at Malviya Nagar, Jaipur as evident from the sale deed dated 29.08.2008 purchase for Rs. 41 lakhs. The other surrounding plots no.4, 9 & 11 are all residential plots. These facts are also evident from the report of the Approved Valuer. The water and electricity connection were also taken for domestic purpose only. The appellant, not having any other residential house purchased the same with a view to construct a residence only. The land use of the plot was never got converted in commercial nor it is alleged so. Therefore any commercial construction was prohibited under law. In support, reliance was placed on the Tribunal's decision in the case of Shri Hardayal Singh in ITA No. 340/JP/13 dated 29.01.2016) declined a claim made u/s 54F based on the construction claimed in the Mansarover area, saying that such activities were prohibited by the HC hence the claim was not allowable. Had the assessee intended to use the property commercially it must have....
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....out the property and has made some small temporary changes. 18. In support, reliance was placed on following case laws: B.B. Sarkar v/s CIT, West Bengal-IV (1981) 132 ITR 150 (Cal) wherein it was held as under: "The main purpose of the statute is to give relief for the acquisition of a new residential house. In that context, it does not really matter whether the new residential house is partly constructed or partly purchased" Prem Prakash Bhutani v/s ACIT (2007) 110 TTJ 440 (Del) wherein it was held as under: "Capital gains-Exemption under s. 54-Investment in two or more flats for family-Sec. 54 does not require the building to be constructed in a particular manner and the only requirement is that it should be used for residential purposes-The fact that the residential house consists of several independent units cannot be an impediment to relief under s. 54-Ration card showing that all the residents of new house built by assessee were his family members-Having accepted the case of assessee in principle, CIT(A) was not justified in excluding widowed daughter and her family staying with the assessee from the array of family members and restricting the exemp....
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....y of these statements could be received only after 05.12.2011 when assessment proceedings stood completed and the appellant never knew the date of 02.12.2011. Thus, the appellant could not have had the opportunity of cross examination of the approved valuer. This way, though the ld. AO confronted the appellant with the material but only for name sake and unless the appellant was given an opportunity to cross examine, the law clearly prohibits the use of such a testimony given by the witness. Kindly refer Vimal Chandra Golecha v/s ITO & Anr. (1982) 134 ITR 119 (Raj.), ITO & Anr. v/s Gargidin Jwala Prasad Maholi & Ors. (1980) 124 ITR 203 (All). Hence any addition based on the basis of the material collected and not confronted to the appellant, has to be deleted altogether on this short ground alone. 22. It was further submitted that the property purchased by the assessee is residential only and not commercial. With incomplete construction, there was no possibility of any use of the property except for letting out the same, which too was done after lapse of 3 years. The property was purchased by the assessee with a view to construct a residential house. Some structural work was als....
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....e sale consideration, if invested in residential house, shall give a boost to the housing sector. Therefore, the appellant must have been allowed the period prescribed in law. Before the expiry of the statutory period of 3 years, it could not be said that the appellant could not comply with the conditions laid u/s 54F. The inability of the appellant to fulfill the condition of making investment of the sale consideration in the residential house within the prescribed time limit was impossibility due to the attachment over the bank a/c as above. Thus, Doctrine of impossibility of performance applies in all force in this case and hence, the appellant cannot be denied the exemption claimed u/s 54F. It may be clarified that the appellant was not able to get a loan and even if he could arrange, as per Revenue's stand it was not permissible. 25. It was submitted that the Doctrine of impossibility of performance has been recognized and frequently applied by the Courts. Kindly refer National Aviation Co. of India v/s Deputy Commissioner of Income Tax (2011) 137 TTJ 662 (Mumbai)/53 DTR 379 wherein it was held that: "TDS-Payment to non-resident-Payment as per arbitral award abroad....
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.... been assigned by the assessee which was beyond his power and control is bona fide one. Though impossibility of performance is in general no excuse for not performing an obligation, yet when the obligation is one implied by law, impossibility of performance is a good excuse. There is also no dispute that provision laid down under s. 80 is a machinery provision. Rule of strict construction applies only to charging provision or one imposing penalty and not machinery provision. Thus, there was sufficient reason beyond his power and control with the assessee for delay in filing the return and the law does not compel a man to do that which he cannot possibly perform. There is no reason to deny the claim of carry forward of loss of the assessee only on the basis that the return was filed late due to the reason which was admittedly a bona fide one beyond the power and control of both the parties. The AO is directed to allow the claim of carry forward of the loss while accepting the return of income filed by the assessee.-CIT vs. National Taj Traders (1980) 14 CTR (SC) 348 : (1980) 1 SCC 370 applied." 26. It was further submitted that on one hand, the department has denied the benefit t....
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....16.07.2008 to the date of attachment 01.12.2010), the appellant kindly be held entitled to deduction u/s 54F. 28. It is a settled law that an incentive provision has to be construed liberally. Kindly refer Bajaj Tempo Ltd. v/s CIT 188 ITR 196 (SC) and CIT v/s Krishna Copper and Steel Rolling Mills 193 ITR 281 (SC), recently in CIT v/s Baby Marine Exports 160 Taxman 160 (SC) and recently followed in Shri Arvind Gupta v/s AO 116 TTJ 92 (JP). 29. It was further submitted that the AO has simultaneously proceeded and has levied penalty u/s 271(1)(c) and during the course of appellate proceedings against the penalty imposed u/s 271(1)(c) in this very matter, the appellant again filed a detailed submission clarifying the entire factual and legal position and notably, an affidavit of the then Bank Manager, HDFC, Shri Ashok Kumar Taksali dated 10.03.2015 which was even cross verified by the ld. AO by recording the statement of Shri Taksali on 06.02.2017 during the remand proceedings. Considering the same, the ld. CIT(A) thoroughly examined and recorded his finding in order dated 15.05.2017 and has held as under "I have gone through the written submission and penalty order car....
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....ndaman Timber vs CCE (2015) 281 CTR 241 / 127 DTR 241 (SC), wherein it was held as under: "Conclusion: Not allowing Assessee to cross-examine witnesses by Adjudicating Authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice" Here also, despite specific request made by the assessee vide letter dated 17.06.2011, no such opportunity was provided by the authorities below. Hence, the entire disallowance be deleted. This is more particularly when during the appellate proceedings against penalty order, the then branch manager duly appeared and categorically confirmed the contention of the assessee. It was also submitted that the ld. CIT(A) in last para, wrongly observed that the assessee has accepted that sale consideration was not deposited in the capital gain account which however, is an incorrect statement of facts without any evidence. Had it been so, why the CIT(A) should have even admitted the appeal. Therefore, the claim of the assessee of investment in a residential house u/s 54F may kindly be allowed. 32. Per contra, t....
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.... issued by the bank to the effect that account was capital gain account. 33. Regarding the alternate claim of the assessee that he had incurred an expenditure of Rs. 79,08,495/- which include cost of the land amounting to Rs. 41,000,00/-on which he had constructed a new residential house and therefore, deduction u/s 54F to that extent may be allowed, it was submitted by the ld CIT DR that the Assessing Officer referring to the report of the Ward Inspector as well as the valuation report and held that the assessee has not constructed any residential hoouse but constructed a commercial building. It was submitted that an expert and Government valuer has classified the building as commercial and it was not residential building converted to commercial. Therefore, the submission of assessee was not correct and it is fact that this building was commercial and not a residential one. 34. It was submitted by the ld CIT DR that the exemption u/s 54F is not allowable to the assessee because he failed to purchase a new residential house upto 16.07.2010 i.e. 2 years from the date of sale or failed to construct new residential house upto 16.07.2011 i.e. within 3 years from the date of sale.....
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....C Bank a savings bank account was opened and the bank is not authorized to open a Capital Gains Account. 3. The Capital Gains Account is to be opened as per section 54F(4) before due date of filing of return. As per certificate dated 11.11.2009 of HDFC Bank given to the AO through submission dated 21.11.2011 only Rs. 3,20,04,256 were deposited in the Bank on 21.07.2008 Rs. 3,07,94,426 on 21.07.2008 and another Rs. 12,09,830/- on 21.07.2008 totaling to Rs. 3,20,04,256). This amount is informed deposited till 31.7.2009 but the appellant informed Rs. 3,47,29,250 deposited in Capital Gains Account in the original return and Rs. 3,59,39,080 in the revised. 4. Even if the savings bank account was attached by the department but the amount withdrawn earlier from this account before attachment and claimed utilized (Rs. 79 lac odd) in purchase of plot and construction there upon at Jaishree Nagar, Jaipur was found not utilized in the construction of a residential house, rather as per the Valuer's report filed by the appellant himself, it was incomplete commercial construction. Therefore the appellant is not eligible for deduction of Rs. 79,08,495 u/s 54F. 5. Th....
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....n the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where- (a) the assessee,- (i) Owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property". Explanatio....
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....Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of subsection (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,- (i) the amount by which- (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), Exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfe....
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....n is deposited by him in an account as per the scheme notified by the Central Government and where such an amount is deposited and necessary proof is furnished to the satisfaction of the Assessing Officer, the assessee would continue to be eligible for exemption U/s 54F of the Act in the year of transfer of the original asset in respect of which he is exigible for capital gains tax under section 45 of the Act. At the same time, adequate safeguards have been provided to ensure that the assessee comply with the basic conditions of purchase/construction of the new residential house within the specified period and the consequences of non-compliance thereof. In this regard, the provisions of sub-section (4) to section 54F further provide that whether the amount so deposited is not utilized wholly or partly for the purchase or construction of the new residential house within a period so specified then the amount of capital gain arising from the transfer of the original asset which was earlier not charged U/s 45 of the Act in the year of transfer, the same shall be brought to tax and charged U/s 45 of the Act as income of the previous year in which the period of 3 years from the date of t....
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.... (g) This led to the introduction of sub-section (4) to Section 54F of the Act by the Finance Act, 1987 with effect from 1st April, 1988. Besides introducing sub-section (4) to Section 54F the Finance Act, 1978, also amended Sub-section (1) of Section 54F of the Act to make it subject to provision of sub-section (4) thereof. (h) As we are concerned with Assessment Year 1996-97, it is the amended provision which applies. Therefore, now Section 54F(1) of the Act which grants exemption from Capital gain tax where a flat is purchased either within one year prior to the sale of capital asset or within 2 years after the date of sale of the capital asset or where a residential house is constructed within 3 years from the date of sale of the capital asset, is now subject to the provisions of Section 54F(4) of the Act. Thus, where the consideration received on sale of capital asset is not appropriated (where purchase was earlier than sale) or utilized (where purchase is after the sale) then the same would be subject to the charge of capital gain tax, unless the unutilized amounts are deposited in specified bank account as notified in terms of Section 54F(4) of the Act. The exempti....
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.... 5. (1) Every depositor who is desirous of opening an account or accounts, as the case may be, under this Scheme for the first time, shall apply to the deposit office in Form A or as near thereto as possible, in duplicate and tender the amount of deposit payable in the manner specified in sub-paragraph (4) and a depositor intending to avail of the benefit under more than one section of the Act, as referred to in paragraph 3, shall make separate applications in the same manner, for opening account or accounts under each of such sections. (2) While applying under sub-paragraph (1) the depositor shall exercise his option as to whether the amount is to be deposited in account-A or in account-B or in both the accounts, and in case of the depositor exercising his option to open account-B, the depositor shall also exercise his option as to whether the deposit is to be made as cumulative or non-cumulative deposit as referred in sub-paragraph (3) of paragraph 4. (3) On receipt of an application under sub-paragraph (1), the deposit office shall open an account or accounts in the name of the depositor as opted by him under sub-paragraph (2). (4) The payment o....
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....4GB desires to close his account, an application shall be made with the approval of the Assessing Officer who has jurisdiction over the depositor to the deposit office in Form G or as near thereto as possible, and the deposit office shall pay the amount of balance including interest accrued, to the credit in the account of the depositor by means of crediting such amount to any bank account of the depositor. (1A) If a depositor, being an eligible company, referred to in section 54GB, desires to close its account, then, - (i) it shall make a joint application signed by the eligible assessee referred to in section 54GB; (ii) the application shall be made with the approval of the Assessing Officer having jurisdiction over the eligible assessee referred to in section 54GB; and (iii) such application shall be made in Form G to the deposit office or as near thereto as possible, and the deposit office shall pay the amount of balance including interest accrued, to the credit in the account of the depositor by means of crediting such amount to any bank account of the depositor. (2) If a depositor in respect of whose deposit account a nomination is....
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....sit. (6) Nothing contained in this paragraph or in paragraph 11 shall affect the right or claim which any person may have against the person to whom any payment is made under this paragraph." 40. The above Capital Gain Account scheme thus provides for opening of a bank account by the assessee intending to avail of the benefit under section 54F(4) of the Act. The account can be opened in form of a savings account or a fixed deposit account. The amount of deposits in such account shall be utilised for the purposes specified in sub-section (1) of the section 54F in relation to which the deposit has been made. Any withdrawal made and not utilised shall be deposited back in the said account and thereafter, there are provisions for grant of interest and final closure and withdrawal of the balance amount in the said account. The whole purpose and scheme of deposit so envisaged is thus to closely monitor the utilisation of the amount for the purposes of purchase or construction of the residential house. The whole idea is to delineate the funds from other funds regularly maintained by the assessee and has to ensure that the benefit which has been availed by the assessee by depos....
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....ave not been disputed by the Revenue either during the assessment or appellate proceedings before the ld CIT(A) or even before us., thus remain uncontroverted. Therefore, at the time of filing of return of income, the residential house has not been constructed and therefore, the conditions of sub-section (1) to section 54F are not fulfilled. At the same time, the amount of compensation stand fully deposited including the TDS thereon in the savings bank account maintained with HDFC bank and deposits and withdrawals have been strictly for the purposes of purchase of plot of land and construction thereof. In our view, the assessee's claim will qualify for exemption u/s 54F as he has, in substance, complied with the requirements of sub-section (4) of the Act for the impunged assessment year as the whole of the compensation has been deposited in the said bank account and the withdrawals are limited to purchase of plot of land and construction thereof and are monitored closely by the assessee himself. As we have stated above, the whole idea of opening a capital gains account scheme is to delineate the funds from other funds regularly maintained by the assessee and has to ensure that the ....
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....sessee has also sought permission of the Assessing officer to transfer the funds from his savings accounts to capital gain account, however, the Assessing officer has not taken cognizance of the said account. Had the Assessing officer accepted the said request, the matter would have been resolved by now. 43. Having said that in the subsequent years, the assessee still has to demonstrate that he has constructed the residential house before the expiry of period so specified and where the amount so deposited is not utilized either fully or partially, the cause of action for the Revenue will lie in the year in which three years period expires from the date of transfer by way of compulsory acquisition of land wherein it can bring the same to tax u/s 45 of the Act. In this regard, reference can be drawn to the decision of Hon'ble Allahabad High Court in case of Ranjit Narang vs CIT reported in 317 ITR 332 wherein it was held as under: "9. We have given thoughtful consideration and we find force in the submission made by Sri Shambhu Chopra. The proviso to section 54F specifically deals with the situation where the assessee who in order to save himself from payment of tax of ca....