Shri Chandrasen Amrutrao Dhere, vs Department Of Income Tax

The Income Tax Officer, Ward 5 (4), Pune .... Appellant

Vs.

Shri Narshivha Amrutrao Dhere, Prop:M/s. N.A. Wines, 350, Shukrawar Peth, Pune - 411002 .... Respondent

PAN: ABAPD9677R

ITA No.1945/PN/2013 Assessment Year: 2008-09

The Income Tax Officer, Ward 5 (4), Pune .... Appellant

Vs.

Shri Chandrasen Amrutrao Dhere, Prop:M/s. Gild Packaging, 350, Shukrawar Peth, Pune - 411002 .... Respondent

PAN: ABAPD9628A

Appellant by : Shri Rajesh Damor Respondent by : Shri Sunil Ganoo

Date of hearing : 03-03-2015 Date of pronouncement : 18-03-2015

ORDER

PER SUSHMA CHOWLA, JM:

Both the appeals filed by the Revenue are against separate orders of

CIT(A)-III, Pune, dated 30.08.2013 relating to assessment year 2008-09 against

respective orders passed under section 143(3) of the Income Tax Act, 1961. 2

ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

2. Both the appeals relating to the connected assessees on similar issue

were heard together and are being disposed of by this consolidated order for the

sake of convenience. However, reference is being made to the facts and issues

in ITA No.1944/PN/2013 to adjudicate the issues.

3. In ITA No.1944/PN/2013, the Revenue has raised the following grounds of

appeal:-

1. The order of the Ld. Commissioner of Income Tax (Appeals) is contrary to the law and facts and circumstances of the case.

2. The Ld. Commissioner of Income-tax (Appeals) has erred in law and on facts by allowing exemption u/s 54F to the assessee whereas the assessee had not followed the restricted framed u/s 54F.

3. For these and such above other grounds as may be urged at the time of the hearing, the order of the learned CIT(Appeals) may be vacated and that of the Assessing Officer be restored.

4. The appellant craves, leave to add, amend, alter or delete any of the above ground of appeal "'during the course of the appellant proceedings before the ITAT.

4. The brief facts of the case are that, during the year under consideration

the assessee had declared income from long term capital gains of Rs.7,52,311/-

on sale of land at Fursungi, in the return of income. The Assessing Officer

requisitioned the assessee to furnish the complete details of the sale transaction

including the copy of purchase deed and also the details of deduction claimed

under section 54 of the Act in respect of re-investment in residential property. On

the perusal of details furnished by the assessee, the Assessing Officer noted that

the assessee along with his brother Shri C.A. Dhere sold the plot at Fursungi

vide agreement to sell dated 12.04.2007 for a total consideration of

Rs.1,39,20,000/-. The assessee's share in the said consideration was 50% at

Rs.69,60,000/-. The cost of acquisition of the said plot as on 01.04.1981 was

shown at Rs.9,00,000/- and cost of improvement to the said plot during the

financial year 1988-89 was shown at Rs.25,800/- and in financial year 1990-91 at

Rs.1,75,880/-. The assessee had worked out the long term capital gains at 3 ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

Rs.58,43,331/-, against which, he had claimed deduction under section 54F of

the Act and declared taxable long term capital gains of Rs.7,52,311/-. On the

perusal of details furnished by the assessee in respect of the investment in the

new residential property, the Assessing Officer noted that the assessee had

made investment in two flats viz. 304A and 304B in the project City Woods by

M/s. Om Estate & Housing Developers Pvt. Ltd. The assessee was found to

have entered to into an agreement for purchase of the said two flats with the

builder vide two separate agreements dated 19.11.2004, against which, the

assessee claimed that he had received the possession of the said flats only on

20.04.2007, in view thereof, the assessee claimed that he was eligible for

deduction under section 54F of the Act. The Assessing Officer from the perusal

of payments made to the builder, noted that substantial payments were made by

the assessee much before the so called date of possession. Another show

cause notice was issued to the assessee as to the claim of deduction under

section 54F of the Act. The Assessing Officer observed that two flats purchased

by the assessee were two independent flats, which had separate kitchens and

had also separate living rooms, lobbies, etc. In addition, separate car parking

slots were made available to each of the flats. Since the assessee had invested

into two different flats, the Assessing Officer questioned as to how deduction

under section 54F of the Act could be allowed against such investment in two

flats. Another contention raised by the Assessing Officer was that since you

have purchased two flats within period specified in section 54F of the Act as

against purchase of only one flat allowable under the provisions of section 54F of

the Act, as to why the deduction under section 54F of the Act should not be

withdrawn. The next objection of the Assessing Officer was that the land was

sold on 12.04.2007, whereas the assessee had entered into agreement for

purchase of flats on 19.11.2004 and since majority of payments were made prior

to one year before the date of sale of land i.e. 12.04.2006, the assessee was not

entitled to the claim of deduction under section 54F of the Act. In reply, the 4 ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

assessee explained that due to his family needs, he had purchased adjacent

flats, which had a single entry and as such, he was entitled to the claim of

deduction under section 54F of the Act. The assessee also explained that

though the agreement for purchase of the flats was executed on 19.11.2004, the

possession for the flats was obtained only in April, 2007 and date of possession

was decisive under the provisions of I.T. Act. The Assessing Officer rejected

both the pleas of the assessee since majority payments were made between the

period 27.09.2004 to 03.11.2004 and also the assessee had procured housing

loan from COSMOS Bank for purchase of the said properties and sum of

Rs.43,65,000/- was disbursed on 31.01.2005 itself and also rejected the plea of

the assessee that it had joined two flats, held the assessee not to be entitled to

the claim of deduction under section 54F of the Act at Rs.50,91,020/-.

5. Before the CIT(A), the assessee furnished written submissions vis-à-vis

contention of the Assessing Officer that the assessee had received possession of

the flats in City Woods project prior to 20.04.2007 and also purchase of two

independent flats, which are incorporated under para 4.4 at pages 7 to 9 of the

appellate order. The CIT(A) noted that the contention of the Assessing Officer

that the assessee had received possession of flat Nos.304A & 304B in City

Woods prior to 20.04.2007 was incorrect since the assessee had already filed

copies of the occupancy certificate dated 18.03.2008 issued by PMC in respect

of impugned flat, the first MSEB bill dated 14.08.2007 in respect of the combined

flat (Nos.304A & B), the temporary possession letter dated 20.04.2007 issued by

the builder during the assessment proceedings and that these evidences had

been ignored by the Assessing Officer. The CIT(A) further notes that copies of

all the documents were filed before the Assessing Officer, but none of these

documents found mention in the assessment order and same were forwarded to

the Assessing Officer for examination both on merits as well as on the

admissibility of additional evidences, if any. The remand report was furnished by

the Assessing Officer vide letter dated 21.08.2013. In the said remand report, 5 ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

the Assessing Officer had mentioned that although the occupancy certificate of

PMC was not filed during scrutiny proceedings, the OC issued by PMC confirmed

the fact that construction was completed and the building was ready for

occupation during the previous year relevant to A.Y. 2008-09. Similarly, the

Assessing Officer states that although the first electric bill dated 14.08.2007 was

not produced during scrutiny proceedings, verification shows that the bill was

issued during the previous year relevant to A.Y. 2008-09. So far as the

temporary possession letter dated 20.04.2007 issued by the builder was

concerned, the same had been filed during the assessment proceedings. The

CIT(A) vide para 4.6 observed that the evidences stated to be as additional

evidences by the Assessing Officer were germane to the issue and were

admitted in the interest of justice. The CIT(A) further observed that in view of the

remand report of the Assessing Officer, it was clear that the assessee had

received possession of the two flats in City Woods complex during the impugned

assessment year, although the sale agreement was registered with the builder on

19.11.2004. The occupancy certificate of PMC which was government authority,

was referred to by the CIT(A). Further, reliance was placed on the ratio laid

down by the Hon'ble Bombay High Court in CIT Vs. Beena K. Jain reported in

271 ITR 263 (Bom), wherein it has been held that the date of possession of new

residential premises rather than the date of sale agreement and date of

registration should be considered for determining the allowability of exemption

under section 54F of the Act. In view thereof, the CIT(A) held that the exemption

under section 54F of the Act could not be denied to the assessee.

6. The next observation of the Assessing Officer that the assessee had

purchased two independent flats vide two separate sale deeds and hence, not

entitled to the exemption under section 54F of the Act was rejected because of

various case laws on the issue. The CIT(A) placed reliance on the ratio laid

down by the Hon'ble Karnataka High Court in CIT Vs. D.Ananda Basappa

reported in 309 ITR 329 (Kar), against which SLP filed by the department had 6 ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

been dismissed by the Hon'ble Supreme Court on 10.08.2009. The CIT(A) held

that purchase of two separate residential units perse, does not dis-entitle the

assessee from claiming the deduction under section 54F of the Act. In view

thereof, the appeal of the assessee was allowed, against which, the Revenue is

in appeal before us.

7. The issue raised by the Revenue is against the said allowance of

exemption under section 54F of the Act. The learned Departmental

Representative for the Revenue pointed out that for claiming deduction under

section 54F of the Act at Rs.50,91,020/-, the assessee had made investment into

two flats, for which the agreement to sell was executed on 19.11.2004 and the

possession was received on 20.04.2007. It was further pointed out by the

learned Departmental Representative for the Revenue that prior to 12.04.2006,

the assessee had paid more than 50% of the total consideration and even the

loan was disbursed by the bank on 31.01.2005 of Rs.43,65,000/-. The plea

raised by the learned Departmental Representative for the Revenue was that the

money was paid earlier i.e. prior to the window year allowed under section 54F of

the Act. In this regard, reliance was placed on the order of Assessing Officer. It

was further pointed out by the learned Departmental Representative for the

Revenue that these are two separate adjacent flats purchased by the assessee,

against which the said deduction under section 54F of the Act could not be

allowed.

8. The learned Authorized Representative for the assessee placing reliance

on the order of CIT(A) and further placing reliance on the following decisions,

contended that the factual contentions made by the assessee were not disputed

by the Assessing Officer and hence, no merit in the order passed by the

Assessing Officer:-

1. CIT Vs. Smt. Beena K. Jain (1996) 217 ITR 363 (Bom)

2. ITO Vs. Ritesh Prem Bellara in ITA No.994/PN/2011 and Another, order dated 28.08.2012.

7 ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

9. We have heard the rival contentions and perused the record. The issue

arising in the present appeal is against the claim of deduction under section 54F

of the Act. Under the provisions of section 54F of the Act, deduction is allowable

to the assessee where the assessee being an individual or Hindu Undivided

Family, invests the capital gains arising from the transfer of any long term assets,

not being a residential house, which is to be referred as original asset, into and

has within period of one year before or two years after the date on which transfer

took place, purchased or has within period of three years after the date,

constructed one residential house i.e. a new asset, then the capital gains arising

on the sale of original asset, shall be set off against the cost of purchase /

construction of the new asset as provided in the section itself. The proviso

provides that the provisions of the said sub-section shall not apply where the

assessee owns more than one residential house, other than the new asset, on

the date of original asset or purchase any residential house other than the new

asset within a period of one year after the date of transfer of original asset or

constructs any residential house other than the new asset within a period of three

years after the date of transfer of original asset; and the income from such

residential house other than the one owned by the assessee on the date of

transfer of original asset, is chargeable to tax under the head 'income from

property'. Further, provisions are provided under section 54F of the Act in

relation to the transfer of new assets which are not relevant for the issue raised

before us hence, we restrict ourselves to the sub-section (1) of section 54F of the

Act and the proviso thereunder.

10. Now, coming to the facts of the case, the assessee during the year under

consideration had sold land at Fursungi along with his brother and both of them

had 50% share in the said property. The said property was sold for total

consideration of Rs.1,39,20,000/- and 50% share of the assessee was worked

out to Rs.69,60,000/-. The assessee declared income from capital gains at

Rs.58,43,331/- after claiming the indexed cost of land and indexed cost of 8 ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

construction carried out in various years. Against the said income declared on

account of long term capital gains, the assessee claimed deduction under section

54F of the Act vis-à-vis the investment in residential house amounting to

Rs.50,91,020/- and declared income from long term capital gains at

Rs.7,52,311/-. The assessee had invested in the purchase of two adjacent flats

i.e. Flat Nos.304A & 304B in the project City Woods, for which he had entered

into an agreement for purchase with the builder vide two separate agreements

dated 19.11.2004. The assessee claims that, though the said agreements to sell

were entered in November, 2004, the possession of the said flats were received

only on 20.04.2007 i.e. after the date of sale of plot of land at Fursungi vide

agreement dated 12.04.2007. In view thereof, the plea of the assessee was that

he was eligible for the claim of deduction under section 54F of the Act. On the

other hand, the Assessing Officer denied the deduction under section 54F of the

Act to the assessee on the ground that it had entered into an agreement for

purchase of flats on 19.11.2004, which was prior to the period prescribed under

section 54F of the Act and further, majority of payments were paid by the

assessee before one year from the date of transfer of the property i.e. before

12.04.2006 and hence, for the violation of the above two conditions, the

assessee was not entitled to the claim of deduction under section 54F of the Act.

Another objection raised by the Assessing Officer was that the assessee had

invested in two adjacent flats which had two separate entrances, two separate

kitchens and two separate electric meters, etc. Further, the assessee had also

invested into two separate car parking for each of the flats respectively. In view

of the above said facts and circumstances, the Assessing Officer was of the view

that the assessee was not entitled to the claim of deduction under section 54F of

the Act and the same was denied to the assessee. However, the CIT(A)

considered the plea of the assessee before the Assessing Officer which is in the

form of written submissions which is incorporated at pages 8 and 9 of the

assessment order. In addition to the reasons for acquisition of two independent 9 ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

flats being one flat, the next contention of the assessee was vis-à-vis the date of

purchase of the property and it was admitted by the assessee that the

agreements for purchase of flats though were executed on 19.11.2004, but the

possession was obtained in April, 2007 in respect of which, the assessee

furnished the copies of occupancy certificate issued by PMC in respect of the

impugned flats dated 18.03.2008 and the first bill of MSEB dated 14.08.2007 in

respect of combined flats i.e. flat Nos.304A and 304B. All these documents, the

assessee claims to have filed before the Assessing Officer, but the CIT(A)

confronted the same to the Assessing Officer in appellate proceedings and

remand report was received from the Assessing Officer. In the remand report,

the Assessing Officer mentioned that the occupancy certificate issued by PMC

confirms the fact that the construction was completed and building was ready for

occupation during the previous year relevant to assessment year 2008-09.

Similarly, in respect of electricity bill, the verification carried out by the Assessing

Officer reflected that the bill was issued during the previous year relevant to

assessment year 2008-09. Another evidence filed by the assessee was the

temporary possession letter dated 20.04.2007 issued by the builder which the

Assessing Officer admitted that the assessee had furnished during the course of

assessment proceedings. In view of the above said evidences and the remand

report of the Assessing Officer, it is apparent that the assessee had received the

possession of the two flats in City Woods complex during the captioned

assessment years though the agreement of purchase of the said flats was

executed on 19.11.2004. In view of the above said facts and circumstances and

evidences filed by the assessee before the CIT(A), we confirm the observation of

CIT(A) in this regard that the assessee had purchased the said flats in instant

assessment years under appeal.

11. We find support from the ratio laid down by the Hon'ble Bombay High

Court in CIT Vs. Beena K. Jain (supra), wherein it has been held that the relevant

date for purchase of the property was when the petitioner had paid full 10 ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

consideration amount on the flat becoming ready for occupation and had

obtained possession of the flat and the date of entering into the agreement to

purchase the said flat had not to be considered. Following the said proposition of

law propounded by the Hon'ble Bombay High Court in CIT Vs. Beena K. Jain

(supra), the date to be considered is the date on which the assessee had

occupied the said property and not the date on which it had entered into an

agreement to purchase the property. In the facts of the present case, the

assessee had entered into an agreement on 19.11.2004. However, the

occupancy certificate was issued by PMC only on 18.03.2008 and even the first

MSEB bill was dated 14.08.2007. Consequently, the assessee had received, the

possession of the property in assessment year 2008-09 i.e. within the year of

sale of the asset and the assessee fulfilled the conditions laid down under

section 54F of the Act vis-à-vis investment in the new assets and was entitled to

the claim of deduction in this regard.

12. The next aspect of the issue was the purchase of two separate flats vide

two separate sale deeds. In the facts of the case, the assessee had purchased

two flats which were joined by the assessee and had a common entrance and a

common electricity meter. In view thereof, we find no merit in the order of

Assessing Officer and confirming the order of CIT(A), we hold that the assessee

in the facts and circumstances, is entitled to the claim of deduction under section

54F of the Act, in view of the following ratio laid down by the Hon'ble Karnataka

High Court in CIT Vs. D.Ananda Basappa (supra):-

"4.8 The Karnataka High court held in D. Ananda Basappa's case that "the contention of the revenue is that the phrase "a" residential house would mean one residential house and it does not appear to be the correct understanding. The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of section 54(1) and 54F of the Income-tax Act discloses that, a non-residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax". It is also learnt that the SLP filed by the department against this decision of Karnataka High Court has been dismissed by the Supreme Court on 10.08.2009."

11 ITA Nos.1944 and 1945/PN/2013 Shri Narshivha Amrutrao Dhere & Another

13. Consequently, we dismiss the grounds of appeal raised by the Revenue.

14. The facts and issue in ITA No.1944/PN/2013 are identical to the facts and

issue in ITA No.1945/PN/2013 and our decision in ITA No.1944/PN/2013 shall

apply mutatis mutandis to ITA No.1945/PN/2013.

15. In the result, both the appeals of the Revenue are dismissed.

Order pronounced on this 18th day of March, 2015.

Sd/- Sd/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 18 th March, 2015 GCVSR

Copy of the order is forwarded to: - 1) The Department; 2) The Assessee; 3) The CIT(A)-III, Pune; 4) The CIT-III, Pune; 5) The DR "A" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy//

Assistant Registrar I.T.A.T., Pune