2019 (5) TMI 851 - AT - Income Tax

Disallowance of deduction u/s. 54 - proof of construction - construction of flat and not purchase of flat as held by the AO - HELD THAT - We note that it has been clarified by the CBDT in Circular No.672 dated 16.12.1993 in which it has been made clear that the earlier circular No. 471 dated 15.10.1986 in which it was stated that acquisition of flat through allotment by DDA has to be treated as a construction of flat would apply to co-operative societies and other institutions. The builder would fall in the category of other institutions as held by Mumbai Bench of Tribunal in the case Smt. Sunder Kaur Sujan Singh Gadh 2005 (4) TMI 518 - ITAT MUMBAI and therefore booking of the flat with the builder has to be treated as construction of flat by the assessee. It is it is clear that the facts of the present case that it was a case of construction of flat and not purchase of flat as held by the AO. Since, the case pertains to construction, benefit of section 54 of the Act are available to assessee. In view of above, the booking of bare shell of a flat is a construction of house property and not purchase, therefore, the date of completion of construction is to be looked into which is as per provision of section 54 , therefore, the Ld. CIT(A), has rightly directed the AO to allow benefit to the assessee as claimed u/s.54 , which does not require any interference on our part, hence, we uphold the action of the ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue. Disallowance of deduction u/s.54EC - HELD THAT - The restriction of ₹ 50,00,000/- in a financial year was placed for evenly distributing the invest into the capital gains bonds on continued basis throughout the year. Therefore, the alternative was put into operation were in the capital gain bonds are available on tap throughout the year without stopping but the limit of investment has been capped to ₹ 50,00,000/- per assessee per financial year. This has resulted in even distribution of benefit to public at large. Had the intention of the legislation was cap the total investment to ₹ 50,00,000/-, the amendment in statute would have prescribed the limit on deduction allowed under the section 54EC and not on investment allowed u/s 54EC. We find that the judgement of the Hon ble Madras High Court in COROMANDEL INDUSTRIES LIMITED 2014 (12) TMI 852 - MADRAS HIGH COURT is applicable on the facts of the present case. Therefore, following the decision of Hon'ble High Court, Ld. CIT(A) has rightly allowed the ground. Addition on account of rental income received from D.T. Cinemas - Income from business Profession OR house property - alleged that maintenance charged received and clubbed with rent - HELD THAT - Assessing Officer as presumed that the assessee is in receipt of certain amount towards the provisioning of certain services which have not been disclosed which is patently false and based on his own conjecture and surmises, and without fully appreciating records and explanations placed before him. Further, the Assessing Officer has not made any inquiry or undertaken any exercise to prove the evidences / confirmations placed before him to be incorrect or false. We find that no maintenance charges were received by the assessee as confirmed by the tenant. This fact also gets confirmed from perusal of the bank statement, TDS certificate and details reflected in Form 26AS. Since, no maintenance charges were received or receivable by the assessee, hence, CIT(A) has rightly directed the AO to delete the addition in dispute. - Appeals filed by the Revenue stand dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of exemption under sections 54 and 54EC of the Income Tax Act.
2. Deletion of addition on account of exemption under section 54EC without considering the date of purchase of REC bonds.
3. Deletion of addition on account of rental income received from M/s DT Cinemas.

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Exemption Under Sections 54 and 54EC of the Income Tax Act:

The Revenue challenged the deletion of addition made by the Assessing Officer (AO) under sections 54 and 54EC of the Income Tax Act. The AO had disallowed the deduction under section 54 on the ground that the assessee entered into an agreement dated 10.02.2006, which the AO treated as the date of acquisition, falling beyond the period of one year prior to the date of transfer prescribed under section 54. The AO followed the judgment of the Hon’ble Delhi High Court in the case of Gulshan Malik vs. CIT and CIT vs. RL Sood. The AO also disallowed ?50,00,000/- under section 54EC, restricting the deduction to ?50,00,000/- as per the decision of ITAT, Jaipur Bench in ACIT Circle-2 vs. Sh. Raj Kumar Jain Sons HUF.

The CIT(A) deleted these additions, treating the acquisition as construction and not purchase. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had entered into an agreement for the construction of a bare shell house and completed the internal fit-outs to make it liveable within three years of the sale of the original asset. The Tribunal cited various judgments, including the Hon’ble Delhi High Court in CIT vs. Smt. Brinda Kumari and the Hon’ble High Court of Karnataka in CIT vs. J.R. Subramanya Bhat, which supported the view that the commencement date of construction is immaterial as long as the construction is completed within the prescribed period.

2. Deletion of Addition on Account of Exemption Under Section 54EC Without Considering the Date of Purchase of REC Bonds:

The AO restricted the deduction under section 54EC to ?50,00,000/- as against the assessee's claim of ?1,00,00,000/-, based on the decision of ITAT, Jaipur Bench. The CIT(A) allowed the full deduction, and the Tribunal upheld this decision. The Tribunal referred to the judgment of the Hon’ble Madras High Court in CIT vs. C. Jaichander, which clarified that the amendment to section 54EC by the Finance Act, 2014, effective from 01.04.2015, does not apply retrospectively. The Tribunal concluded that the assessee could claim the deduction of ?1,00,00,000/- as the investments were made in two different financial years, within six months from the date of transfer.

3. Deletion of Addition on Account of Rental Income Received from M/s DT Cinemas:

The AO made an addition of ?14,07,474/- to the rental income, assuming that the assessee received maintenance charges from the tenant, M/s DT Cinemas Ltd. The assessee contended that no such charges were received, and the maintenance was handled by M/s DLF Services Ltd. The CIT(A) deleted the addition, and the Tribunal upheld this decision. The Tribunal noted that the AO failed to provide any evidence of receipt of maintenance charges by the assessee and ignored the confirmation from the tenant stating no such payments were made. The Tribunal emphasized that the AO's addition was based on conjectures and surmises without factual basis.

Conclusion:

The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s order deleting the additions on account of exemptions under sections 54 and 54EC and the alleged rental income from M/s DT Cinemas. The Tribunal relied on various judicial precedents and factual findings to conclude that the assessee's claims were valid and the AO's disallowances were incorrect.