TaxTMI 
TaxTMI 
2024 (3) TMI 1118
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....ings and without observing the principles of natural justice. 2. That in any case and in any view of the matter, action of Ld.CIT(A) in not only confirming the disallowance of deduction u/s 54 of Rs. 1,08,23,892/- made by Ld. A.O but also enhancing the same by Rs. 23,23,208/- thereby resulting in total disallowance of deduction of Rs. 1,31,47,100/- as claimed by the assessee u/s 54 of the Act is bad in law and against the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. A.O in charging interest u/s 234A, 234B and 234C of Income Tax Act, 1961. 4. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other." 2. Briefly stated the facts are that the assessee filed his return of income on 31.03.2014 declaring income of Rs. 76,870/-. During the assessment year under consideration the assessee sold two properties at Mumbai and claimed deduction u/s 54 of the Act at Rs. 1,31,47,100/- on the above said two proper....
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....allowed the deduction u/s 54 of the Income-tax Act, 1961 of Rs. 23,23,208/- on the ground that the assesseehad made payment of Rs. 23,23,208/- to M/s Sri Satya Sai Constructions (Developer) for the Construction of the property at Bangalore out of the Capital Gain account after the date of sale of Original Asset. In this regard, it is submitted that No Provision has been made by the statue that in order to avail benefit of section 54 the assessee has to utilize the amount received by him on sale of original capital asset for the purpose of meeting the cost of the new asset. Once this is so, the appellant was entitled to benefit u/s 54 of the Act. In this connection, reliance is placed on the following judicial pronouncements: * CIT vs Kapil Kumar Agarwal, 2016, IT Appeal No. 12 of 2015 (Punjab & Haryana High Court) (CLC Page No. 24-31); * ITO vs K.C Gopalan; (1999) 107 Taxman 591(Kerala High Court)(CLC Page No.32-36); * Commissioner of Income Tax vs J.R Subramanya Bhat (1986) 54 CCH 359 Karnataka High Court(CLC Page No. 37-40); * Commissioner of Income Tax vs H.K. Kapoor (1997) 65CCH 0674 Allahabad High Court (CLC Page No. 41-43)....
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....question is answered in the negative. No costs." Construction from Borrowed Funds: The Ld. AO has stated that construction cost was met from loan taken from axis bank and repayment of loan was made which is not in acceptable in view of provisions of section 54 of the act and by relying upon the decision of Hon'ble 1TAT Mumbai stated that the assessee is not eligible for deduction u/s 54F if the assessee constructed or purchase a residential house out of borrowed funds. The assessee places reliance on the Decision of Hon'ble Delhi Bench of ITAT in the Case of Neelam Handa, Delhi Vs ITO, ITA No 384/Del/2016 Vide order dated 13, may 2016(CLC Page No. 44-50) in which Hon'ble Tribunal while considering the decision of Mumbai bench of tribunal in the case of Milan Sharad Ruparel vs AC1T (2010) 5 ITR (Trib) 570 (ITAT [Mum]and relying on the decision of Honourable Bombay High Court in CIT Vs Dr. Parishca held that (CLC Page No. 50): - "Despite assessee has borrowed funds from ICICI Bank for Purchase of new House property, she is entitled to deduction u/s 54 of the Income Tax Act." However, the Ld. CIT(A) enhanced the Income by Rs. 23....
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....nd claim exemption of the LTCG u/s 54. Our submissions are as follows: The Ld. CIT (A) has referred to maintenance charges become applicable only after the expiry of one year (defect liability period) from the completion of the construction /Project which is against the facts of the case. In reply, it is submitted that these maintenance charges are not linked to maintenance of flat but these are related to maintenance of all the common area and the facilities provided and the same can be verified from the scope of maintenance services defined at Annexure IV of the Agreement to Sell & Construct (PB 127). Further, as per Agreement to sell and construct in para 1 of Common maintenance and maintenance deposit (PB-121), it is stated that - The Purchaser/s from the date the schedule 1 property is handed over or deemed to have been handed over shall be liable to proportionately share and pay by the developer or the Agency appointed by the Developer for maintenance of all the common areas and facilities in the Retreat. Thus, there is no question of Defect Liability Period and that maintenance charges become payable immediately on handin....
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.... case of C. Aryama Sundaram Vs. CIT, Tax Case (Appeal No.520/2017) dated 06.08.2018, wherein the Hon'ble High Court held as under: - "19. The conditions precedent for exemption of capital gain from being charged to income tax are: (i) The assessee should have purchased a residential house in India either one year before or two years after the date of transfer of the residential house which resulted in capital gain or alternatively constructed a new residential house in India within a period of three years from the date of the transfer of the residential property which resulted in the capital gain. (ii) If the amount of capital gain is greater than the cost of the residential house so purchased or constructed, the difference between the amount of the capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. (iii) If the amount of the capital gain is equal to or less than the cost of the new residential house, the capital gain shall not be charged under Section 45. 20. What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchase....
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.... It is not a requisite of Section 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged under Section 45 of the said Act." 7. Ratio of the decision squarely applies to the facts of the assessee's case. We further observed that in the case of CIT Vs. Kapil Kumar Aggarwal (382 ITR 56) the Hon'ble Punjab & Haryana High Court held that section 54F of the Act, nowhere envisages that sale consideration obtained by the assessee from original capital asset is mandatorily required to be utilized for purposes of meeting cost of new asset. It was, therefore, held that where investment made by the assessee although not entirely sourced from capital gains but was within stipulated time and if more than capital gain ea....
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....e sale proceeds of the old residential house must be used for the construction of the new residential house. We are, therefore, of the opinion that the assessee complied with the requirement of the s. 54 of the Act in respect of the construction of the house at 64 Surya Nagar, Agra and that he is entitled to the exemption out of the capital gains from the sale of the house at Golf Link to the extent of the cost of construction of the house at 64, Surya Nagar, Agra. We, therefore, direct the ITO to modify the assessment accordingly." 3. The question for consideration is whether exemption on capital gains could be refused to the assessee simply on the ground that the construction of the Surya Nagar, Agra house had begun before the sale of the Golf Link house. Similar question came up for consideration before the Karnataka High Court in the case of CIT vs. J.R. Subramanya Bhat (1987) 64 CTR (Kar) 286:(1987) 165 ITR 571 (Kar):TC 22R 219. In the case before the Karnataka High Court, the date of the sale of the old building was 9th Feb., 1977. The completion of the construction of the new building was in March, 1977, although the commencement of construction started in 1976. On ....