TaxTMI 
TaxTMI 
2019 (8) TMI 847
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....to the facts and also the law applicable to the facts of the case. 2. The Learned Commissioner of Income Tax (Appeals) is not justified in rejecting the contention of the appellant that the reference made to DVO is invalid in as much as the assessing officer did not point out any specific /defects in the books of account and did not reject the books of account. 3. The Learned Commissioner of Income Tax (Appeals) is not justified in partly sustaining to the extent of Rs. 13,55,750/- the addition made by the assessing officer towards alleged unexplained cost of construction. 4. Any other ground that may be urged at the time of appeal hearing. After hearing both the sides, we admit revised grounds and adjudicate as under : 3. Ground No.1 and 4 are general in nature which does not require specific adjudication. 4. Ground No.2 is not pressed, hence ground No.2 is dismissed as not pressed. 5. Ground No.3 is related to sustaining the addition of Rs. 13,55,750/- by the CIT(A) on account of unexplained cost of construction in the building. Facts leading to the addition are that the assessee filed the return of income declaring total income of Rs. 4,....
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....f construction for self supervision. The AO did not accept the assessee's contention for adopting the revised cost of construction of Rs. 1,36,06,190/- which was stated to be incurred and accounted in the books of accounts, for the reason that the assessee had already communicated the cost of construction at Rs. 1,11,10,744/- to the DVO till the date of inspection and subsequent increase in cost of construction to Rs. 1,36,06,190/- was held to be nothing but an afterthought to wriggle out the taxability on unexplained investment and accordingly rejected the assessee's request to adopt the revised cost of construction. The AO also rejected the assessee's request for allowing rebate for rate difference and for self supervision, stating that DVO had already allowed the necessary discount for self supervision @ 7.5% in the valuation report, hence held that no further deduction is required to be allowed in the assessment. Accordingly, apportioned the cost of construction valued by the DVO proportionately, year wise on the basis of the cost of construction declared by the assessee. The allocation of expenditure in construction for the F.Y.2011-12 to 2016-17 year wise worked out as under ....
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....the Ld.AR argued that the assessee had incurred the cost of construction till the date of inspection at Rs. 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 Rs. 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 Rs. 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 during the period from 0....
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.... 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 Rs. 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 Rs. 47.73 lakhs for the A.Y.2012-13 as against the cost of construction declared by the assessee at Rs. 31.77 lakhs. The Ld.DR argued that the AO has adopted the fair and reasonable method for determining the cost of construction during the construction period and there is no reason to interfere with the year wise cost of construction a....
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....as per the ledger, the sum of Rs. 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 Rs. 47.73 lakhs and made the addition of Rs. 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 the building was commenced on 05.04.2012 and completed in May 2015 which shows that the expenditure of ground floor and first floor was related to the F.Y.2011-12 and 2012-13 and second floor and third....
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....onstruction 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 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 Rs. 111.10 lakhs, subsequently r....
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....ruction 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 Rs. 7,93,920/- on 27.09.2013 and claimed the deduction u/s 54F for a sum of Rs. 58,37,025/-. The case was selected for scrutiny under CASS and the AO found that the assessee has sold the vacant land for a consideration of Rs. 60.20 lakhs resulting in capital gains of Rs. 58.72 lakhs and claimed the deduction u/s 54F for acquiring the residential house. The JCIT has given direction u/s 144A in F.No.144A/JCIT/ELR/2015-16 dated 29.03.2016. The facts with regard to sale of capital asset and denial of deduction u/s 54F of the Act is discussed in para N....
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....v, 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 Rs. 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 Rs. 40.00 lakhs from Bank of Baroda, Eluru between January 2012 and June 2012 to construct the very house on which the assessee is now claiming exemption u/s 54F. The same approved municipal plan which was submitted now during the present proceedings was also presented earlier to the Bank of Baroda for the purpose of obtaining loan. The assessee has further submitted to the bank an estimate obtained from approved valuer for Rs. 50.00 lakhs for the construction of the residential house. The assessee has also intimated the bank regarding the progress of construction from ti....
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....w 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 'within one year' is not available. Such construction of residential house, in terms of express provisions of sec.54F should take place only after the date of transfer. In the present case, a residential house was already in existence at the time of transfer of 10 pieces of land. Hence, exemption u/s 54F in respect of a house which was already constructed prior to the date of transfer cannot be extended to the assessee. It may be true that the assessee has invested some more money on the said residential house after the date of tra....
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.... 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. Accordingly, the Assessing Officer is directed to disallow such claim for exemption u/s 54F and bring the long term capital gains arising out of transfer of 10 pieces of land to tax." 11.1. According to the Ld.JCIT, the assessee has completed the construction of residential unit before 31.03.2013 and sold the capital asset subsequent to the completion of construction of residential house and as per the Income Tax Act, for claiming deduction u/s 54F, residential unit has to be constructed within 3 years after transfer of the asset. In the instant case, according to the Ld.JC....
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....menced 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 of the lower authorities. 14. We have heard both the parties and perused the material placed on record. In the instant case, the assessee had transferred 10 pieces of vacant land during February and March 2013 for a consideration of Rs. 60.20 lakhs giving rise to capital gains of Rs. 58.72 lakhs. The said consideration of capital gains was invested in construction of a new residential house at Door No.22C-13-21, Eluru. The said building consists of ground floor plus three floors. Ground and first floor were commercial and second and third floors are residential units. The assessee stated that she has constructed the ground and first floor fr....
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....y 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 the assessee would be entitled for deduction u/s 54F even though the amount is invested in construction prior to the transfer of original asset. For the sake of clarity, we extract relevant part of the order of this Tribunal in para No.11 which reads as under : "11. Having heard both the sides, we find that the Coordinate Bench of this Tribunal, under similar circumstances has held that the Act does not prescribed any condition as to the date of commencement of construction of new house property and only condition is that construction of house property should be completed within three years from the date of transfer of original asset. The date of commencement of construction is irrelevant and the co....