R. Srinivas , Bangalore vs Assessee

Income Tax Officer, Ward 14(1), Bangalore. .... Appellant.

Vs.

Shri R. Srinivas, No.4/1, Raghavendra Nilaya, 3rd Cross, Maruthi Layout, Adj. AECS Layout, Bangalore-560 037. ..... Respondent.

C.O. No.69/Bang/2014 (In ITA No.79/Bang/2014) (Assessment Year 2008-09)

Revenue By : Shri P. Dhivahar, JCIT (D.R.) Assessee/C.O. By : Shri Ganesh Rao, Advocate.

Date of Hearing : 7.1.2015. Date of Pronouncement : 4.3.2015.

Per Shri Jason P. Boaz, A.M. :

This appeal by the Revenue is directed against the order of the Commissioner of

Income Tax (Appeals), Mysore Dt.13.9.2013 for Assessment Year 2008-09. The assessee

has also preferred Cross Objections in respect of the impugned order of the learned CIT

(Appeals).

2. The facts of the case, briefly, are as under :-

2 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014

2.1.1 In the course of assessment proceedings for Assessment Year 2009-10, the

Assessing Officer noticed that the assessee had not filed his return of income for

Assessment Year 2008-09 though as per the 26AS statement, the assessee had received

an amount of Rs.5,63,303 during the F.Y. 2007-08. Since income exigible to tax for

Assessment Year 2008-09 had escaped assessment, the Assessing Officer initiated

proceedings under Section 147 of the Income Tax Act, 1961 (in short 'the Act') by

recording reasons for the same and thereafter issued notice under Section 148 of the

Act dt.21.12.2011 to the assessee requiring him to file his return of income. In response

thereto, the assessee filed his return of income on 12.1.2012 declaring total income of

Rs.4,90,220 comprising, inter alia, of salary from BAeHAL Software Ltd. and HCL

Technologies where he was employed during the year under consideration.

2.1.2 In the course of assessment proceedings, the Assessing Officer noticed that

there was a credit of Rs.1,25,00,000 on 18.1.2008 in the assessee's bank account with

Bank of India. On being queried in regard to the same, the assessee explained that this

amount was the amount received in lieu of relinquishment of right in property w.r.t. the

Memorandum of Agreement between the assessee along with three other persons to M/s.

Kristal Projects (India) Ltd., Bangalore. Examination of the Memorandum of Agreement

dt.12.12.2007 with Kristal Projects (India) Ltd. showed that the assessee along with

three other persons viz. Smt. Savithramma, Smt. H.R. Mala, Sri R. Lokesh have agreed to

relinquish their respective rights in 50% share in the property at Survey No.97 & 98 of

Hoody village, K.R. Puram Hobli, Bangalore measuring 2 acres 26 ½ guntas and 2 acres 26 3 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 guntas respectively for a total amount of Rs.5,75,00,000; of which Rs.1.25 Crores

credited to the assessee's bank account was a part. When the Assessing Officer

proposed to tax this amount as capital gains, the assessee contended that in order to

assess the same under capital gains, the conditions prescribed in sections 2(14), 2(47)

r.w.s. 45 and 54 are to be satisfied and since the property in respect to which he

relinquished his rights was agricultural land, the proceeds ofRs.1.25 Crores received by

him were exempt.

2.1.3 The Assessing Officer did not accept these contentions of the assessee as the

schedules thereto did not indicate the said property to be agriculture land and further

the same had been transferred to a company for development into residential apartments.

The Assessing Officer also noted that the further sale deeds dt.24.2.2005 between Smt.

Bibi Aleema, Sri Syed Ibrahim and M/s. Kristal Projects (India) Pvt. Ltd., mention the said

property to be converted land. In this factual matrix, the Assessing Officer came to the

view that what is relinquished is the right in respect of converted land, which was acquired

through judgment and decree dt.29.11.2003 as per order in O.S. No.6497/92 and

therefore rejected the assessee's claim that the said land was agricultural.

2.1.4 When the Assessing Officer embarked on the computation of capital gains, the

assessee filed a computation of income; including computation of capital gains at

Rs.1,20,10,964 after appropriating legal fees for litigation of Rs.1,25,000, cost of

acquisition as on 1.4.1981 at Rs.50,000, cost of improvement at Rs.88,736 and claimed

exemption under Section 54F of the Act in respect of the entire capital gains on the 4 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 ground that the entire gains have been invested in the purchase of site and construction

of a new residential property. In respect of his claim for exemption under Section 54 /

54F of the Act, the assessee claims to have purchased a site for Rs.52,08,174 on

3.4.2008 within 3 months of the sale consideration and has shown cost of construction

plus site cost at Rs.1,72,46,000. The Assessing Officer however rejected the assessee's

claim for exemption under Section 54 / 54F of the Act on the ground that, since as per

the Valuation Report filed by the assessee the commencement of construction of the new

property was from 1.5.2009, which is after the due date for filing the return of income

u/s. 139(1) of the Act for Assessment Year 2008-09 i.e. 31.7.2008, the assessee ought to

have, but failed to invest the unutilized portion of the capital gains in a Capital Gains

Account Scheme, of the Government. The assessment was accordingly completed under

Section 143(3) r.w.s. 147 of the Act vide order dt.27.2.2013, wherein the income of the

assessee was determined at Rs.75,33,100 as against the returned income of Rs.4,90,220 in

view of, inter alia, the assessee's claim for exemption of Rs.70,16,326 under Section 54 /

54F of the Act being rejected.

3. Aggrieved by the order of assessment for Assessment Year 2008-09 dt.27.2.2013,

the assessee preferred an appeal before the learned CIT (Appeals), Mysore challenging

the Assessing Officer's action in denying the assessee's claim for exemption under

Section 54 / 54F of the Act amounting to Rs.70,16,326. The learned CIT (Appeals)

disposed of the appeal vide the impugned order dt.13.9.2013 allowing the assessee relief in

respect of its claim for exemption under Section 54F of the Act, by following the 5 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 decision of the co-ordinate bench of the ITAT, Bangalore in Nipun Mehrotra V ACIT

(2008) 297 ITR (AT) 110 (Bang) and directed the Assessing Officer to verify the

assessee's claim of expenditure of Rs.1,28,62,774 invested in the new property and to

allow the expenditure up to 31.3.2010 as exemption under Section 54F of the Act.

4. Aggrieved by the order of the CIT (Appeals), Mysore dt.13.9.2013 for Assessment

Year 2008-09, the Revenue has preferred this appeal raising the following grounds :-

"1. The CIT (Appeals) erred in giving relief to the assessee in ITA No.383/Salary/CIT(A)-V/12-13.

2. In this case, the assessee did not file the return of income voluntarily, but, he filed it only after issue of a notice under Section 148.

3. Only when it was noticed during scrutiny proceedings that the assessee received Rs.1.25 Crores on relinquishment of right in the property at Sy. No.97 & 98 of Hoodi Village, KR Puram Hobli, Bangalore, the assessee put forth his claim for deduction under Section 54 / 54F.

4. The due date of filing of return for A.Y. 2008-09 was 31.7.2008, whereas the commencement of construction of the building as claimed by the assessee was 1.5.2009.

5. In order to avail of the benefit under Section 54(1) and (2), the assessee was bound to deposit the amount in a scheme framed by the Central Govt. The assessee had failed to adhere to the scheme. Therefore, the relief claim was denied by the Assessing Officer. The CIT (Appeals) relying on the decision of ITAT, Bangalore Bench in the case of Nipun Mehrotra Vs. ACIT (297 ITR-AT-110) allowed relief to the assessee by allowing the claim under Section 54F, considering the return filed under Section 139(4).

6. The assessee ought to have deposited the money within the due date of filing of return of income under Section 139(1). The conclusion drawn by the CIT (Appeals) regarding the expiry of due date of filing of return of income under Section 139(4) cannot be accepted.

7. The other decision relied upon by the assessee during appellate proceedings is in the case of Smt. Fatima Bai Vs. ITO, Ward 5(4), Bangalore in ITA No.435/2004 (KHC). In the above case, SLP was not filed before the Apex Court only because of the prescribed monetary limits.

8. A scheme has been devised by the legislature to grant relief in accordance with Section 54(1) and (2) of the IT Act, 1961. The same has to be followed strictly. The failure to comply with the same would not entitle the assessee to claim exemption. 6 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 Such compliance is mandated by the provisions and a substantial question of law would arise.

9. It is very clear from a plain reading of section 54(2) of the IT Act 1961 that the deposit in Capital Gain Scheme should be made in any case not later than the due date applicable in the case of the assessee for furnishing of the return of income under sub-section (1) of section 139.

10. Hence the decision of CIT (Appeals) to consider the last date of filing of return of income under Section 139(4) is opposed to law.

11. On these and any other grounds that may be urged at the time of hearing, the Hon'ble ITAT is pleaded to quash the order of CIT (Appeals)."

5. The assessee has also filed Cross Objections (C.O.) which are as under :-

"1. The CIT (Appeals)'s order in ITA No.383/12-13 dated 13.9.2013, holding that the long term capital gains of Rs.70,16,326 arising out of gross consideration of Rs.1,25,00,000 should be exempt under Section 54F of the Act, since the Respondent had invested a sum of Rs.1,28,62,774 in construction of residential flats upto 31.3.2010, even though he had invested the amount in 'Capital Gains Accounts Scheme' may be confirmed.

OR The Hon'ble ITAT may hold that in view of the City Civil Judge's order dt.30.01.1997, drawing up the Sale Deed Decree in O.S.No.3486/1995, the actual sale took place in the year ended on 31.3.1997 and the long term capital gains, if any, should be assessed for the Assessment Year 1997-98 and not for the Assessment Year 2008-09.

2. For these and such other grounds which may be urged at the time of hearing, it is prayed that the reliefs, as prayed for, may be granted."

6. Exemption under Section 54 / 54F of the Act.

6.1 Though Revenue has raised as many as 11 grounds in this appeal, a perusal thereof

indicates that the only issue raised is in respect of challenging the order of the learned

CIT (Appeals) as being erroneous in allowing the assessee's claim for deduction under

Section 54 / 54F of the Act by following the decisions of the Hon'ble High Court of

Karnataka in the case of Fatima Bai V ITYO in ITA No.435/2004 / 32 DTR 243 (Kar) and

of the co-ordinate bench of the ITAT, Bangalore in the case of Nipun Mehrotra (supra). 7 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 The learned Departmental Representative was heard in support of the grounds raised

(supra) and submitted that the learned CIT (Appeals) while granting relief, to the

assessee under Section 54F of the Act, the provisions of sections 54(1) and 54(2) of the

Act have not been properly and strictly applied. It was submitted that in order to avail

the benefit of exemption under Section 54F of the Act, since the assessee commenced

construction of the new property only on 1.5.2009, the assessee ought to have deposited

the amount of capital gains in the Capital Gains Account as per the Scheme framed by the

Govt. on or before 31.7.2008, being the due date for filing the return for Assessment

Year 2008-09 under Section 139(1) of the Act. The learned Departmental Representative

vehemently argued that the conclusion of the learned CIT (Appeals), to allow the

assessee's claim for exemption under Section 54F of the Act by considering the expiry of

the due date for filing the return of income, as 31.3.2010, as per the provisions of section

139(4), was erroneous. The learned Departmental Representative submitted that in view

of the above arguments, the order of the learned CIT (Appeals) be reversed and that of

the Assessing Officer, rejecting the assessee's claim for exemption under Section 54F of

the Act, be restored.

6.2 Per contra, the learned Authorised Representative strongly supported the impugned

order of the learned CIT (Appeals) in allowing the assessee's claim for exemption under

Section 54F of the Act and in this regard following the binding decisions of the Hon'ble

High Court of Karnataka in the case of Fatima Bai (supra) and of the co-ordinate bench of

the Tribunal in the case of Nipun Mehrotra (supra). The learned Authorised 8 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 Representative reiterated the submissions put forth before the learned CIT (Appeals).

It is submitted by the learned Authorised Representative that the assessee continues to

claim there is no transfer or sale on the period relevant to Assessment Year 2008-09 for

levy of capital gains as the transfer / sale was concluded on 30.1.1997, by virtue of the

order of the XV Addl. City Civil Judge in O.S. No.3486/1995 r.w. Execution Case

No.803/1996. The learned Authorised Representative further submits that if, as held by

the authorities below, the transfer has taken place by virtue of the Memorandum of

Agreement dt.12.12.2007, when the assessee relinquished its right in respect of the said

property at Survey No.26 & 27, Hoody village, K.R. Puram Hobli, Bangalore, then the LTCG

worked out at Rs.70,16,326 is exigible to tax in Assessment Year 2008-09. It is further

submitted that the entire gains is exempt under Section 54F of the Act since an amount

of Rs.1,28,62,774 has been invested in the construction of the new property from

1.5.2009 to 31.3.2010, which as has been held by the learned CIT (Appeals), following the

decisions of Fatima Bai (supra) and Nipur Mehrotra (supra), is within the time limit

permitted under Section 139(4) of the Act. The learned Authorised Representative

submitted that in view of the above, revenue's appeal on this issue is liable to be

dismissed.

6.3 We have heard both parties and perused and carefully considered the material on

record, including the judicial decisions cited and placed reliance upon. The issue, before

us, for consideration is the assessee's claim for exemption under Section 54 / 54F of the

Act.

9 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 6.4 At the outset, on an appreciation of the facts on record, we concur with the finding

of the learned CIT (Appeals) that there is no merit in the arguments put forth by the

assessee that the transfer of the assessee's right in the property at Survey Nos.26 & 27,

Hoody village, K.R. Puram Hobli, Bangalore took place in 1997. As per the facts on record,

the assessee's father and uncle Sri Sekharan were before the Courts for sharing of the

said property. Finally, the said property was transferred through Memorandum of

Agreement dt.212.12.2007 on mutual consent. Therefore, it is clear that what was

sought to be sold by the assessee's uncle in 1997 was not valid in the eye of law and the

fact that the said property was transferred through the Memorandum dt.12.12.2007

proves that the real transfer took place on 12.12.2007 when the assessee relinquished his

right for the consideration of Rs.1.25 Crores and not in 1997 as contended by the

assessee. We, therefore, find no merit in this alternate claim put forwarded by the

assessee in its Cross Objection at S.No.1 and accordingly dismiss the same.

6.5.1 Now that it has been held that the assessee's property was transferred vide

Memorandum dt.12.12.2007 when the assessee relinquished his rights in the said property

for a consideration of Rs.1.25 Crores credited in the assessee's bank account on

18.1.2008, the said consideration is exigible to tax as capital gains in the year under

consideration i.e. Assessment Year 2008-09. In this regard, the assessee computed the

LTCG on transfer of his share of the said property at Rs.70,16,326 and claimed that the

entire capital gains was exempt under Section 54 / 54F of the Act. It was submitted by

the assessee that the consideration received was invested in the purchase of a site on 10 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 3.4.2008 for Rs.52,08,174 and the balance was invested in the cost of construction

incurred in putting up the new residential property thereon between 1.5.2009 and

31.3.2010. The details of the investments made out of the sale consideration of Rs.1.25

Crores is computed as under by the assessee :-

1) Purchase of site on 3.4.2008 Rs.52,08,164 2) Building Construction commenced from 1.5.2009 to 31.3.2010 a) Ground Floor Rs.25,87,500 b) First Floor. Rs.24,79,000 c) Second Floor Rs.25,87,500 Total Investment Upto 31.3.2010 : Rs.1,28,62,774.

6.5.2 The assessee's contention is that since the concerned assessment year was

2008-09, the time limit to utilize the capital gains for making the deposit or to invest the

capital gains in the construction of the new residential building is 31.3.2010, as per the

provisions of section 139(4) of the Act. In support of this proposition, the assessee

placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of

Nipur Mehrotra (supra); the decision of the Hon'ble Gauhati High Court in the case of

Rajesh Kumar Jalan reported in 286 ITR 274 and of the Hon'ble High Court of Karnataka

in the case of Fatima Bai (supra).

6.5.3 The fact that the assessee has invested the entire sale consideration / capital

gains in the purchase of the site and in the construction of the residential property

thereon by 31.3.2010 is not disputed. The dispute raised by revenue is that since the

assessee failed to invest the capital gains of Rs.70,16,326 before the due date of filing

the return of income for Assessment Year 2008-09 i.e. 31.7.2008, as laid down u/s. 139(1) 11 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 of the Act or to deposit the same by this date, i.e. 31.7.2008, in the Capital Gains Account

Scheme of the Govt., the assessee is not eligible for exemption under Section 54 / 54F of

the Act. In this regard, we find the co-ordinate bench of the ITAT, Bangalore in the case

of Nipun Mehrotra (supra) held that if the sale consideration / capital gains is utilized for

the purchase or construction of the new asset before the date of filing the return under

Section 139(4) of the Act, the assessee is entitled to exemption under Section 54F of the

Act. In the case on hand, the facts clearly establish that the assessee has utilized the

sale consideration / capital gains for a) purchase of a residential site for Rs.52,08,164 on

3.4.2008 and b) for cost of construction of the Ground to 2nd floor of the residential

construction of the Ground to 2nd floor of the residential building upto 31.3.2010

amounting to Rs.72,91,836. In this factual matrix, we are of the opinion that the assessee

is eligible for exemption under Section 54F of the Act. In coming to this finding we draw

support from the decision of the co-ordinate bench of the Tribunal in the case of Nipun

Mehrotra (supra),wherein following the decision of the Hon'ble Gauhati High Court in the

case of Rajesh Kumar Jalan (supra), it was held that when the sale consideration / capital

gains has been utilized for the purchase or construction of the new asset before the due

date for furnishing the return of income under Section 139(4) of the Act, the assessee

is entitled to exemption under Section 54F of the Act. The learned CIT (Appeals) in the

impugned order has, also observed that the claim for exemption, in respect of the other

co-sellers of the said property, has been allowed by the Department. In this view of the

matter, following the decision of the co-ordinate bench of the ITAT, Bangalore in Nipun 12 ITA No.79/Bang/2014 & C.O. No.69/Bang/2014 Mehrotra (supra), we find that revenue has failed to controvert the decision of the

learned CIT (Appeals) and therefore uphold the impugned order of the learned CIT

(Appeals). Consequently, the grounds atS.Nos.1 to 11 raised by revenue are dismissed.

7. In respect of the assessee's Cross Objections; at para 5.3.2 of this order we have

already dismissed the alternate plea raised by the assessee at Ground No.1. Further, on a

perusal of the Grounds 1 and 2 of the assessee's C.O., we find that they are supportive of

the findings in the impugned order of the CIT (Appeals). In view of the fact that

revenue's appeal has already been dismissed by us in this order (supra), these C.Os 1 and 2

are rendered infructuous and are accordingly dismissed.

8. In the result, both the Revenue's appeal and the assessee's C.O. for Assessment Year

2008-09 are dismissed.

Order pronounced in the open court on 4th March, 2015.

Sd/- Sd/- (P. MADHAVI DEVI) (JASON P BOAZ) Judicial Member Accountant Member *Reddy gp Copy to :

1. Appellant 2. Respondent 3. C.I.T. 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard File.

(True copy) By Order

Asst. Registrar, ITAT, Bangalore