AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (1) TMI 206
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....ccount out of the total investible/exempted amount u/s 54F Rs. 1,08,22,354/-, ignoring the fact that assessee had already issued cheques for the unutilized amount on the date of the agreement before the due date of furnishing ITR, therefore deposit in Capital Gain Account for Compliance u/s 54(2) was impossible on the part of the assessee. 2. That under the facts and circumstances of the case, the Ld. CIT (A) NFAC has erred in law by ignoring the circular No. 471 dt. 15/10/1986 and 672 dt. 16/10/1993 which lays own that payment to the builder in instalments is sufficient compliance for claiming exemption u/s 54F. 3. Under the facts and circumstances of the case the Ld. CIT (A), NFAC has grossly misinterpreted the beneficial provisions of Sec. 54 F of the Act without appreciating the intention of the legislature behind the introduction of these provisions. 4. That the appellant craves leave to reserve to itself the right to add, alter, amend, substitute, and withdraw and/or any ground(s) of appeal at or before the time of the hearing." 3. The fact as culled out from the records is that the assessee filed her return of income on 14.12.2016 declaring tota....
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....d discharged the full payment liability whereas builder is saying that he has received post dated cheque from assessee. Issuing post dated cheque does not discharge liability of payment. Thus, ld. AO contended that proof of payment toward investment in house property before the date of filling the return of income is not conclusive. The assessee also not deposited the money in the capital gain account scheme the claim of investment in house property u/s. 54F is restricted to Rs. 28,00,000/- only as against the claim made of Rs. 1,08,22,354/- accordingly claim to the extent of Rs. 66,41,252/- was not considered as allowable. 4. Aggrieved from the above order of the Assessing Officer, an appeal before the ld. CIT(A) was preferred by the assessee. Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:- "4.1 The contention of the appellant, the case laws relied upon in the statement of facts and the grounds of appeal have been considered. The order u/s 143(3) of the Act passed by the AO, ITO, Ward-2(5), Jaipur has also been perused. 5. Ground No.1: In ground No. 1, the appellant has challenged that the AO has erred by d....
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....re the dates on the respective cheque. The AO concluded that the proof of payment toward investment in house property before the date of filing the return of income was not conclusive and the appellant had not given any proof of deposit in capital gain account scheme. The AO restricted the claim of investment in house property u/s 54F to Rs 28,00,000 only, as against claim made of Rs. 1,08,22,354/- and the deduction u/s 54F was recomputed proportionally as per provision of section 54F (1)b of the Income Tax Act. 5.1.1. In the computation of income, the appellant had claimed Rs. 1,20,380/- as cost of acquisition, which was supported by a purchase deed of both the property. The AO noted that that the total cost of both the property amounted to Rs. 1,02,225/- (Rs. 87,725/- Rs. 14,500/-) and stamp duty expense amounted to Rs. 11.385/- (Rs. 10,155/- Rs 1230/-). Hence, total cost of acquisition amounted to Rs 1,13,610 (Rs. 1,02,225/- Rs. 11,385/-) as against claim of Rs 1,20,780/- . The AO restricted the cost of acquisition to Rs. 1,13,610/- and a sum of Rs. 6770/- (Rs 1,20,780/-less Rs 1,13,610/-) was disallowed and the AO recomputed the indexed cost of acquisition accordingly.....
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.... PSS Somasundaram Chettiar (supreme Court) * ITO (IT) 3(3)(1) Vs. Akansha Ranju Pilani vide I.T.A. No. 4769/Mum/2015 (Assessment Year 2012-13) 5.3. The contention of the Appellant, Grounds of appeal, the statement of facts. online submissions of the appellant and the case laws relied upon and the assessment order have been considered. In the modified ground no. 1, the appellant has stated the unutilized amount was Rs. 80,22,354/- in the Capital Gain Account out of total investible/exempted amount u/s 54F Rs. 1,08,22,354/-which figure tallies with the figure mentioned by the AO in the assessment order. During the year under consideration, the appellant had sold two immovable property for a total sale consideration of Rs. 1,49,00,000/-. In the Computation of capital, appellant had claimed deduction u/s 54F for an amount of Rs. 1,03,06,141/-. In support of her claim, appellant had submitted copy of agreement to sell of residential property purchased by her for a consideration of Rs. 1,08,22,534/-. However, as per agreement to sale submitted, she had paid a sum of Rs. 28,00,000/- only at the time of agreement. The AO did not allow the part of the claim of exemption u/....
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....Gains' as under: S. NO. PARTICULARS AMOUNT AMOUNT A Total Consideration of Capital asset 1,49,90,000/- B Less: Indexed Cost 715004/- C Capital Gain (A-B) 14274996/- D Less: Deduction u/s 54EC 39,68,855/- E Less: Deduction u/s 54F(1) 103,06,141/- 14274996/- F Capital Gain liable for Tax NIL 3. Construction of the flat was delayed by builder and finally the registration and possession of the flat was completed on 08/07/2021. Encashment of the cheques by builder was also delayed accordingly.(Please see the registered deed at the PB No. 45 - 72) 4. ITR was picked up for 'Limited Scrutiny' vide Notice u/s 143(2) dated 26/09/2017 for the following reasons: i) Whether Deduction from capital gains has been claimed correctly? ii) Whether Investment and Income relating to properties duly disclosed? 5. Vide the assessment order dated 22/12/2018, the Ld. AO granted the part exemption of Rs. 2800000/- out of the claimed amount of Rs. 103,06,141/- u/s54F(1), and rejected the balance claim on the ground that: a) Issuing of pos....
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....ideration was made through Cheque No.032005 for Rs 28,00,000/- and Cheque No. 032007 for 1,40,000/- drawn on Central Bank of India, Dadabari Branch, Kota from her Savings Bank Account No. 1703080072 which were encashed by the builder on 02/03/2016 and on 29/03/2016 respectively. While executing the Agreement on 01/03/2016, the balance amount of 84,27,600/-was also paid through undated/postdated cheques drawn in favor of the builder on SB A/c at Central Bank of India, Dadabari, Kota. 1.3 In spite of continuous reminders by the assessee for encashment of the cheques for balance consideration, the builder did not encash the cheques as the project could not be completed in time due to following main reasons: i) The project was started in FY 2013-14 and the builder had applied for permission for 0+9 floors construction from Nagar Nigam, Kota. ii) The builder constructed the building up to the 7th floor in anticipation of the permission from Nagar Nigam, Kota. iii) Nagar Nigam, Kota did not give permission for 0+9 floors and stopped the construction activities in FY 2017-18. iv) The site plan of the project was finally approved by the Nagar Ni....
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....ty' lays down that Law does not compel any one to do anything which is not possible. A law cannot be interpreted in vacuum. It has to be interpreted having regard to the facts and circumstances involved in each case. Lower authorities ignored the plea that when the assessee had already issued post-dated/undated cheques to builder pursuant to a legally binding contract, it was impossible on assessee's part to arrange separate funds to make deposits under CGAS also. 1.7 In order to buttress her point of having issued the post-dated cheques to builders at the time of agreement, Assessee had produced a certificate issued by builder also before the lower authorities. The copy of the certificate is as under: (Please see Certificate of builder at PB Page No 44). 1.8 Assessee had already issued the cheques on the date of agreement i.e. 01/03/2016, which could be presented any time and dis-honoring those cheques could expose the assessee to serious legal problems. Required amount was kept in a separate FDR account and just because the amount was not deposited in CGAS, she can not be deprived of the exemption. Investment of net sale consideration in new re....
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....Capital Gains Account scheme. In this case however, it must be noted that the petitioners therein did create an account but the expenses incurred were more than what was estimated and deposited into the account and thus it was held that the expenses incurred over and above the amount deposited would also be eligible for exemption. 1.9.3 Kishore H. Galaiya v/s ITO [2012] 24 taxmann.com 11 (Mumbai) Headnote of the case law reads as under: "Section 54, read with section 139, of the Income-tax Act, 1961 - Capital gains - Exemption of, on profit from sale of property used for residence - Assessment year 2006-07 - Assessee sold share of his residential flat on 7-3-2006 and earned capital gain of Rs. 9.98 lakh - It booked a new flat with a builder and claimed exemption under section 54 - Assessing Officer denied exemption on ground that assessee could neither prove possession of residential flat within a period of two years from date of transfer of old flat nor had deposited unutilized capital gain in capital gain account scheme before due date of filing of return under section 139(1) - Whether booking of flat with a builder was a case of construction and not pu....
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....eller of the house property on 26.7.2012, which is prior to the date of furnishing of the return of income of the instant year. Accordingly, we are of the view that there is no requirement to comply with the provisions of section 54(2) of the Act in the facts and circumstances of the case." 1.11 Ld. AO has rejected the claim of exemption of appellant on the following basis in the assessment order( Para No. 4.3 on page No. 3) : "....A post dated cheque cannot be encashed before the date of cheque. Issuing of post-dated cheque does not discharge liability of payment on the date of writing the cheque as the drawee cannot encash it before the date of cheque. For example, if assessee has issued a post dated cheque on 01/03/2016 in which the date of cheque is mentioned 01/08/2016, so builder cannot encash it before 01/08/2016" "Hence, proof of payment towards investment in house property before the date of filing the return of income is not conclusive." Appellant wishes to mention that post-dated cheques issued for arising from an agreement attract Section 138 of the Negotiable Instrument Act, 1881, as the balance amount of Rs. 84,27,600/-, paid by iss....
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....80 within the time stipulated by this Court in its order dated 29 November, 1979. In Commissioner of Income Tax, Bombay South, Bombay v. Messrs Ogale Glass Works Ltd. Ogale Wadi, A.I.R. 1954 S.C. 429 it was laid down by this Court that payment by cheque realized subsequently on the cheque being honoured and encashed relates back to the date of the receipt of the cheque, and in law the date of payment is the date of delivery of the cheque. Payment by cheque is an ordinary incident of present-day life, whether commercial or private, and unless it is specifically mentioned that payment must be in cash there is no reason why payment by cheque should not be taken to be due payment if the cheque is subsequently encashed in the ordinary course................" 1.11.3 Kumarpal Amrutlal Doshi v. Deputy Commissioner of Incometax * (Appeal)-33, Vashi, Navi Mumbai [2011] 10 taxmann.com 57 (Mumbai)[09-02-2011] Hon'ble Tribunal held: "In the instant case, admittedly the period of 6 months for making investment in long term specified asset was 9-2-2006. As on that date the said cheque had been delivered to NABARD. Therefore, the date of payment of the cheque wo....
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....s the procedure for the substantive rights of the exemption provisions u/s 54F of the Act. This enabling section cannot abridge or modify the substantive rights given vide subsection (1) of section 54F of the Act, otherwise, the real purpose of substantive provision i.e.,sub-section (1) will be defeated. The primary goal of exemption provisions of section 54/54F is to promote housing. The procedural and enabling provisions of sub-section (2) thus cannot be strictly construed to impose strict limitations on the assessee and in default thereof to deny him the benefit of exemption provisions. While the plain reading and strict application of the provision u/s 54F compel one to think that exemption is not allowable in case of any delay beyond 3 years, higher judicial authorities have rescued taxpayers by giving relief in those cases where they found that the sales consideration has been spent for construction of the house, but the house was not complete or completed after 3 years. The appellate authorities have taken the view that section 54F being a relief provision, should be viewed in a bit of a relaxed manner. The appellant is submitting a few judgments which provide that ....
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....rising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purchase of a house, the benefit is available if the investment is made within a period of one year before or after the date on which the transfer took place and in case of construction of a house, the benefit is available if the investment is made within three years from the date of the transfer. 2. The Board had occasion to examine as to whether the acquisition of a flat by an allottee under the Self-Financing Scheme (SFS) of the D.D.A. amounts to purchase or is construction by the D.D.A. on behalf of the allottee. Under the SFS of the D.D.A., the allotment letter is issued on payment of the first instalment of the cost of construction. The allotment is final unless it is cancelled or the allottee withdraws from the scheme. The allotment is cancelled only under exceptional circumstances. The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality. If the....
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..... 2.4 Contents of both Circulars can be summarized as under: a) Date of booking the flat would be treated as `Date of Construction' and subsequent payments in installments or handing over the possession are of no relevance. b) In respect of allotment of flats by builders/co-operative society, a similar view would be taken (as taken in the case of DDA) 2.5 Appellant juxtaposes the facts of appellant and facts of a judgement by Hon'ble ITAT in the case of ACIT Vs. Sagar Nitin Parikh, Mumbai, I.T.A. No.6399/Mum/2011 AY 2008-09: (Please see the copy of judgement at PB No. 82 - 87) PARAMETERS FACTS OF SAGAR NITIN PARIKH FACTS OF APPELLANT REMARKS Name of Builder Life Style Property venture Paarth Infraworks Pvt Ltd. Date of executing the agreement 01/12/2004 01/3/2016 Payment Terms Assessee paid Rs. 31,98,840/- in November, 2004 and the remaining amount in instalments Assessee paid Rs. 28,00,000/- on 02/03/2016 and the remaining amount in instalments Date of Handing over possession 30/06/2007 08/07/2021 Date of Sale of old flat/Capital Asset 27/03/2008 16/....
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....similar schemes. Therefore it was contended that the intention of the Legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. We find force in the argument of the learned counsel for the assessee. The said intention is very clear from the two circulars issued by the CBDT, where it was held that an assessee is entitled to the benefit of sections 54 and 54F, if an assessee gets an allotment under the self-financing scheme and pays the first instalment of the cost of the construction. From that it is clear that in order to get the benefit under section 54F the assessee need not complete the construction of the house and occupy the same. . . ." 2.2.3 Smt. Shashi Varma v. CIT [1997] 224 ITR 106 (MP), In this case the assessee was denied exemption on the investments made with Delhi Development Authority. However, relief was granted by the Hon'ble High Court. It was held that section 54 of the Act of 1961 only says that within two years, the assessee should have constructed the house but that does not mean that the construction of house should necessarily be complete within two years. What it m....
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....tention of the legislature behind the introduction of these provisions. SUBMISSIONS: 3.1 The assessee was always a law-abiding citizen and has acted with due discharge of responsibilities and obligations under the law and at the same time was also desirous of availing the benefits conferred upon the assessee. 3.2 Section 54F is a beneficial provision and the assessee very honestly and sincerely and desiring to avail the benefits conferred by the said section has acquired a new house and has paid the amount as per the agreement to sell with the builder. 3.3 The intention of the Legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are 'purchased' or 'constructed'. The condition precedent for claiming benefit under section 54F is that the capital gain should be parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. Merely because the sale deed had not been executed or that construction is not complete and it is not in a fit condition to be occupied does n....
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....l house. If the assessee has invested the money in construction of residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F. 2. Once the assessee demonstrates that the consideration received on transfer has been invested either in purchasing a residential house or in constructing a residential house, even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from availing benefit under section 54F. 5. Pradeep Kumar Chowdhry vs. DCIT (ITAT Hyderabad) in ITA No.1520/Hyd/2013 dt.31.12.2014 The aggrieved assessee submitted that the flat was not in a completely habitable state, though structures etc., were completed. This delay was entirely due to the reasons beyond the control of the assessee. The assessee submitted that he very honestly and sincerely desiring to avail the benefits conferred by the said section has acquired a new house and has paid monies as per the agreement with the builder. The time limit availabl....
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....e) Held by Hon'ble ITAT: i) In terms of circular No. 471/672, the booking of the flat is a `construction' and not a `purchase' ii) `Other institutions' in circular 672 include the developers and builders also iii) Following the various pronouncement of Hon'ble Supreme Court for a liberal interpretation of the beneficial provision, the benefit granted u/s 54, ignoring the purchase agreement being prior to 1 year from the date of sale of capital asset. 2 Farida A Dungerpurwala Vs. Income Tax Officer (2014) 52 taxamann.com 527 pronounced on 12/09/2014 by Mumbai Bench AY 2006-07 (PB No. 19 to 24) a) Date of Sale of Capital Asset: 11/10/2005 b) Date of Booking Flat: 04/12/2002 c) Name of Builder: Private Builder d) Date of Actual Possession 04/12/2004 e) Held by Hon'ble ITAT: i) In terms of circular No. 471/672, the booking of the flat is a `construction' and not a `purchase' ii) Construction has to be completed within 3 years after the date of sale of capital asset. As the flat was booked prior to sale of capital asset, the assessee is not entitled to the deduction u/s 54. ....
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....ion vehemently argued that the denial of benefit of exemption claimed against the capital gain offered by the assessee is based on the wrong appreciation of the facts and therefore, the same cannot be denied because the assessee has given post dated cheque for investment and the same is filed along with paper book which has not been disputed by the Revenue. The assessee has produced the copy of agreement to sale which is also not disputed by the Revenue. In support of the claim of the assessee, the ld. AR of the assessee has relied upon the decision of Hon'ble Karnataka High Court in the case of CIT vs. Smt. B.S. Shanthakumari (2015) 60 taxmann.com 74. As regards the source of fund the assessee has already having deposit in the form of FDR of Rs. 73,00,000/-. The ld. AR of the assessee also relied upon the various judgments as listed in the written submissions and also relied upon the circular no. 471 dated 15.10.1986 and 672 dated 16.10.1993 and prayed that the claim of the assessee be read liberally based on the evidence, circular and decision placed on record. 6. Per contra, the ld. DR submitted that there is a clear violation of provisions of the Income Act and the assessee ....
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....s filed a certificate of builder stating that the assessee has issued the post dated cheques, but due to unavoidable circumstances the same were not presented to the bank. This reply of the assessee has been considered by the ld. AO but found not acceptable. The reason behind that a certificate from the builder in which he admits having received the postdated cheque from the assessee but neither in the reply filed by the assessee nor in the certificate issued by the builder contains the details of cheques like cheque no., drawer bank name, date of cheque etc. The ld. AO further noted that in the agreement to sale, there is nowhere mentioned any detail of subsequent payment made to builder. In the reply submitted by the assessee, she says that she has given cheque and discharged the full payment liability whereas builder is saying that he has received postdated cheque from assessee. Issuing postdated cheque does not discharge liability of payment. Thus, ld. AO contended that proof of payment toward investment in house property before the date of filing the return of income is not conclusive. The assessee also did not deposit the money in the capital gain account scheme. The claim of....