FULL TEXT OF THE ITAT JUDGEMENT
These are cross appeals by the Revenue and the assessee respectively, against the order of the CIT (A) -3, Bengaluru, dt. 11.01.2018, for the assessment year 2011-12.
Grounds of appeal raised by the Revenue are as under :
2. The Hon’ble Commissioner has erred in holding that the sum of Rs 16,26,300 invested by the assessee in the new residential house was not eligible for the claim of exemption u/s 54F of the Act.
3. The Hon’ble Commissioner ought to have held that the investment in the new residential house was in a sum ofRs 2,15,31,502/- as claimed by the assessee and on the basis of which the exemption u/s 54F of the Act was computed, instead of restricting the eligible investment to Rs 1,99,21,202
02. Brief facts are, the assessee filed return of income for the assessment year 2011-12 declaring total income of Rs.35,60,620/- inclusive of long-term capital gains of Rs.10,69,101/-. During the assessment year, the assessee has sold a residential site for an amount of Rs.2.29 crores. Out of the sale proceeds of Rs.2.29 crores, the assessee has invested Rs.10 lakhs in mutual funds on 24.02.2011 and Rs.2 crores was invested in mutual funds on 04.03.2011. After withdrawing the amount invested in mutual funds on 24.02.2011 and 04.03.2011, the assessee invested Rs.1,94,49,302/- as on 3 1.03.2011 with M/s. Adarsh Developers for construction of villa. The asses see had also invested Rs. 15 lakhs with Canara Bank on 19.07.2011 in accordance with 54F of the ACT . The assessee claimed exemption u/s.54F for Rs.2,04,70,779/- in the return of income wherein the assessee had declared long-term capital gains of Rs.10,69,101/-.
Case of the assessee was selected for scrutiny assessment and the AO has opined that as the assessee had invested in mutual funds of Rs.10 lakhs on 24.02.2011 and Rs.2 crores on 04.03.2011, thus the assessee has deviated and diverted the sale proceeds of the capital asset by investing in mutual funds and therefore the AO held that the assessee was not entitled to the exemption u/s.54F claimed by him for an amount of Rs.2,04,70,779/-. Feeling aggrieved by the order, the assessee preferred an appeal before the CIT (A).
03. The CIT (A) in para 7, 7.1, 7.2 and 7.3 had dealt with the issue and had allowed the exemption for Rs.1,99,21,202/- which is stated to be the investment made in the residential villa with M/s. Adarsh Developers, as against the claim of Rs.2,04,70,779/-. Therefore the Revenue is in appeal against the relief granted by the CIT (A) for an amount of Rs.1,99,21,202/- and assessee is for the relief not granted.
ITA.703/Bang/2016 : Revenue’s appeal :
04. It was the case of the Revenue before us that the assessee immediately after selling the house had invested the sale proceeds in mutual funds to the extent of Rs.10 lakhs and Rs.2 crores. Thereafter had only purchased the villa on 31.03.2011 by investing an amount of Rs.1,99,21,202/- and therefore the assessee is not entitled to the benefit of Section 54F as the money was not directly invested by the assessee into purchasing the property, rather it was invested firstly in mutual funds and thereafter in the property.
05. On the other hand the Ld. AR has submitted that the assessee had invested the amount in accordance with the provisions of Section 54F within the period provided under the Act and therefore the assessee is entitled to exemption u/s.54F of the Act.
06. We have heard the rival contentions and perused the record. Undisputedly the assessee had invested in the villa as on 3 1.03.2011 by paying Rs.1,94,49,302/0. However, the quarrel before us is that the amount is not directly invested in purchasing of the villa, rather it is routed through mutual funds. In the considered opinion of the bench what is required u/s.54F of the Act, is the following :
- That the capital gains must have arisen to the assessee from transfer of the long-term capital asset ;
- That the assessee within a period of one year before or two years after the date on which the transfer took place has purchased or has within a period of three years after the date had constructed one residential house in India.
- If the cost of the new asset is less than the net consideration received in respect of the original asset then the assessee is entitled to the proportionate exemption u/s.54F ;
- The amount of the net consideration which is not appropriated by the assessee towards the purchase of new assets made within one year before the date of transfer of the original asset took place or which is not utilised by the assessee for purchase or construction of the new asset shall be deposited by the assessee in any of the bank / institution as may be specified before furnishing the return of income, i.e., the assessee is required to deposit the whole or part of the consideration unutilised in any of the scheduled bank/institution before furnishing the return of income and then only the assessee shall be entitled to the benefit u/s.54F of the Act.
07. In the present case, the capital asset was sold on 26.02.2011. The capital asset was purchased on 31.03.2011 and before the purchase of the capital asset the amount was deposited in mutual funds. Therefore in the considered opinion of the bench, before the date of filing of the return, not only the capital asset was purchased by the assessee on 3 1.03.2011, but also the assessee had deposited and invested an amount of Rs.15 lakhs with Canara Bank. Therefore the assessee has fulfilled all the conditions required u/s.54F for the purposes of claiming the exemption, in our view deposit of money by the assessee inter-alia in mutual fund prior to purchase of residential house albeit will not make any difference if the assessee had purchased the residential house within the time provided by the Act . Therefore in the considered opinion of the bench, appeal of the Revenue is devoid of merit and accordingly the same is dismissed.
ITA.423/Bang/2016 – Assessee’s appeal :
07. In respect of the grounds raised by the assessee, it has been submitted that besides purchasing the villa for Rs.1,94,49,302/-, the assessee had also made payment for the purchase of various fixtures and appliances from Home Studio India for which direct payment of Rs.4,74,032/- was made. Further it was the case of the assessee that an amount of Rs.5,51,500/- and Rs.2,80,900/- was given to M/s. Nambisan Associates, Architects, for the purpose of designing, architecture and construction work in the villa purchased by the assessee. The assessee had also paid an amount of Rs.3,19,868/- to M/s. Hemanth Constructions for purchasing the doors of the villa. Thus the assessee has claimed additional amount which in the estimation of the assessee was necessary and was in the nature of the construction / improvement and cost incurred by the assessee for interior decoration. The total of all these claims of Rs.16,26,300/- ,which was disallowed by the CIT(A) and therefore the assessee is in appeal before us.
08. It was submitted that all these payments made by the assessee were in respect of additional fixtures and furniture and for that purposes, the assessee relies upon the decision of the Ahmedabad bench of the Tribunal in the matter of Rajat B Mehta v. ITO [ ITA No.19/Ahd/2016, dt.09.02.2018], wherein the Tribunal in paras 8 and 9 held as under :
8. When the above position was put to the learned Departmental Representative, he was fair enough in not really being very aggressive in disputing our perspectives on the artificial splitting of contracts. He, however, pointed out that it was never the case of the assessee that these two agreements were required to be viewed together- particularly in the light of the agreement to sell. The case of the assessee, according to learned Departmental Representative, was that the assessee incurred the expenses on furniture and fixtures to make the residential property habitable, and it was in this context that the reliance was placed on this Tribunal’s decision in the case of Shrinivas R Desai (supra). It was thus contended that an altogether different case cannot be made out at this stage and we must confine ourselves to adjudicating upon assessee’s stand that the expenditure incurred on additional furniture and fixtures would constitute permissible costs of making the residential unit habitable or not. We are not inclined to approve the objection so taken by the learned Departmental Representative. It is only elementary that under rule 11 of the Income Tax Appellate Tribunal Rules 1963, this Tribunal, in deciding the appeal, is not bound to remain confined to the original or additional grounds of the appellant, as long as the party affected by the ground, on which the decision of the Tribunal rests, has had a sufficient opportunity of being heard on that ground. There is no dispute that the learned Departmental Representative has been heard on the ground on which we are deciding this appeal, and it is not even his case that he was not given adequate opportunity to address us on this ground. As a matter of fact, the hearing in this case was fixed again on 7th February 2018 only to hear the parties on the aspect of the matter on which the appeal is eventually decided. Coming to the correctness of the plea taken by the assessee, that aspect of the matter is no longer really relevant at this stage. Be that as it may, it is difficult to miss the fact that rather than going by the first principles and examining the claim of the taxpayer on that basis, more often than not, most of the us are tempted to identify the highest common factors of an available judicial precedent vis-а-vis the case in our hands, and treat it as a covered matter. Whatever be the merits of this approach, and there are certainly many merits in this approach, even when it results in a lapse, such a lapse cannot be allowed to prejudice the legitimate interests of the assessee. Here is an NRI who decided to sell a fairly spacious house in his hometown, and yet, to keep his India connection alive, invested a part of these sale proceeds in a smaller residential unit, but he has been declined the legitimate deduction under section 54 in respect of the same, only for the reason, as the circumstances suggest, that he is made an unwilling party to artificially splitting of sale consideration to minimise the capital gains burden of the seller. Leaving even this aspect of the matter aside, quite clearly the sale of furniture and fixtures was an integral part of the deal of buying the house property. Whichever we way look at it thus, the assessee was wronged in partial denial of deduction. Now that the facts on record demonstrate that the actual consideration for the new house property was Rs 78,00,000, he is being sought to be declined resultant relief on the ground that this particular plea was not taken earlier. That is certainly not a fair treatment to an assessee. What matters really is that whether the assessee deserves the relief on merits or not, and when the assessee deserves the relief on merits, such technicalities should not be allowed to come in the way of justice to the assessees. We are, therefore, not inclined to uphold the technical objection raised by the learned Departmental Representative.
9. In the light of the above discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee, and, accordingly, direct the Assessing Officer to delete the disallowance of deduction under section 54 to the extent of Rs 18,00,000. The assessee will get the relief accordingly.
09. On the other hand the Ld. DR has submitted that these amounts are not required to be allowed.
10. We have heard the rival contentions and perused the record. The assessee had only invested the amount of Rs.1,94,49,302/- in purchasing the villa and has also invested an amount of Rs. 15 lakhs in Canara Bank, a scheduled bank, in accordance with the provisions of Section 54F. Thus, at the most the assessee is entitled to exemption of Rs.1,94,49,302/- plus Rs.15 lakhs. However the claim of the assessee is Rs.1,94,49,302/- plus Rs.16,26,300/- which comes to a total of Rs.2,10,75,602/-. In our considered opinion the assessee is entitled to the exemption for the amount spent either for fixing the doors or amount paid to the architects or purchasing the installations which were necessary for making the house habitable to the maximum amount of Rs16,26,300/-. Our view is also supported by the decision rendered by the Ahmedabad Tribunal in Rajat B. Mehta (supra) and therefore following the same, we allow the appeal of the assessee.
However, at this state we would like to add that in terms of Section 54F the assessee is only entitled to proportionate exemption vis-a-vis, cost of the original asset and the cost of the new assets. In the light of the above, the AO is directed to recomputed the capital gains exemption.
11. In the result, appeal of the Revenue fails and the asses see’s appeal is allowed.