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TMI Blog2013 (1) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 54F. 5. The CIT (Appeals) erred in law while upholding action of the Assessing Officer in noting that the sale consideration was not properly utilized in purchasing the land for acquiring residential purpose within the meaning of section 54F. 6. The CIT (Appeals) erred in law while agreeing with the Assessing Officer that the investment of Rs. 2,25,00,000 in purchase of land for construction of residential house was not in accordance with section 54F of the Income-tax Act, 1961. He ought to have appreciated that the purchase of land was for construction of residential house property within the time limit prescribed in section 54F. 7. The CIT (Appeals) is not justified in agreeing with the Assessing Officer that the expenses of Rs. 1,12,59,100 incurred by the appellant after the due date of 31.07.2008 was necessary for commencement of construction of residential house within the time limit mentioned in section 54F. 8. The CIT(Appeals) as well as the Assessing Officer failed to note that as per section 54F, the utilized portion of sale proceeds within the time limits mentioned in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of Rs. 3,66,06,236 under section 54F on the following grounds: (i) The assessee has not started any sort of construction on the land till the date of assessment and not spent single pie on construction. (ii) The assessee has not even obtained any permission from the Gram Panchayat for construction. (iii) Expenditure for construction was incurred after 31.07.2008 and as such not eligible for exemption. (iv) No Proof or evidence for the expenditure incurred on improvements and settlement was produced. 6. Against the order of assessment, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-IV, Hyderabad. Before the CIT(A), the assessee submitted that an amount of Rs.7,00,000 was actually spent on improvement and the same was reflected in the balance sheet as at 31.03.2005. It was also submitted that the property purchased was used for a textile mill but the machinery was sold away long back about 20 years ago. The appellant has purchased this property with the sole intention of using it for residential purpose. Alter obtaining prior permission from the Gram Panchayat authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of Rs. 27,03,100 to Sri J. Subramanyam Naidu and Sri B.C. Reddappa Reddy, it was submitted that though the assessee purchased the property through auction by official liquidator as per the direction of the Hon'ble High Court of Andhra Pradesh, there was certain dispute towards the property. The dispute was settled by payment of the above amount by cheque to these two persons. The assessee despite having produced the details of cheque No., date of payment, bank particulars, the lower authorities wrongly rejected the claim of the assessee. 10. Regarding investment of consideration received by the assessee in residential property, the AR submitted that the relevant date of transaction 18.7.2007. The CIT(Appeals) erred in confirming the AO's noting that the investment in construction was after 31.07.2008 i.e., after the due date of filing of return. The details of Sale proceeds and investments are as under: (i) Date of receipt of advance of Rs. 1,50,00,000 for the sale of plot was 07-06-2007. (ii) Date of receipt of balance of consideration of Rs. 2,53,78,000/- for sale of plot was on 18-07-2007. (iii) Date of registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat across the road opposite to the assessee's house there is a house of Sri B C Reddy, who belongs to that area, is having 42 acres of land appurtenant to his house. It is very common and not unusual to have huge land appurtenant thereto the houses in Rayalaseema especially the Reddy's community. Photos of Sri B C Reddy's house are submitted. Therefore, the observation of the CIT(A) that "the property purchased by the assessee was a mill land admeasuring as big as 17 acres shows that the initial purpose itself was not to acquire a new residential house" does not hold good. The assessee has intentionally purchased the property to use as residential house and made suitable additions, alterations and renovation to the existing buildings and made suitable development to the land appurtenant thereto after incurring the above mentioned expenditure so as to make the property habitable to their requirements and standards. The assessee used JCB machines, labour and gravel to level the land and clear the bushes around the house and constructed way from entrance to the building. She also took permission from Gram Panchayat to modify and add to the existing building. Therefore, It is submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecretary, Mamanduru Gram Panchayat. (vi) Letter dt. 29-06-2008 from Asst. divisional Engineer, Operations, Chandragiri, intimating estimate for releasing 1 no HSC of 5 KW to the Assessee. (vii) Receipt dt. 11.07.2008 for Rs. 42,910/- issued by Addl. Asst. Engineer, Southern Power Distribution Company of AP Ltd. (viii) APSPDC Ltd. Receipt dt. 19.08.2008 for RS. 1,525/-. (ix) DD dt. 16-09-2008 for Rs. 5,349/- paid to the Senior Accounts Officer, Operation Circle, APSPDCL, Tirupati. (x) Electricity Bills for the months of May and July of 2009. (xi) Photos of the new house purchased and occupied by the assessee. 14. The learned AR submitted that the Assessing Officer was under the mistaken impression that the property purchased at Mamanduru village is in only 5 Survey numbers viz. 11-1, 11-2A, 11-2B, 11-4 and 11-5. And the enquiries made or caused on the nature of property were also about the structures in the premises of that property as noted by him in the assessment order. The AO's further observation is that only 2 sheds existed in that property. All these findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Kalipada Ghosh Vs. Tulsidas Dutt, AIR 1960 Cal 467 held: lithe terms "house" or "dwelling house" are ambiguous terms and for the purpose of section 4 of the Partition Act must be liberally construed. The terms should be taken to mean not only the structure or building, but also adjacent buildings, garden, court- yard, orchard and all that is necessary for the convenient occupation of the house". In CIT Vs. Vegetable Products Ltd. (88 ITR 192) (SC) the Hon'ble Supreme Court held: "If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a tax provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction. In our opinion, we have to take a liberal view of the beneficial provisions of section 54F and remodelling or renovation of the house to make it habitable to suit the requirement of the assessee and thereby we have to hold that the provisions of section 54F have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding the extent of land applied for such user. For instance, the land used by the occupier for commercial or agricultural purposes although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building; (4) If the owner or occupier is deriving any income from the land which is not liable to be assessed as income from house property under section 22 of the Income-tax Act, then the extent of such land does not qualify to be treated as land appurtenant to the building; and (5) Any material pointing to the attempted user of the building for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building. The above tests are illustrative and by no means exhaustive. It is for the tax authorities to apply their mind properly to the facts of each case and to devise tests suitable and appropriate to each case." While deciding the matter, the Hon'ble AP High Court also referred to the judgment in the case of Trim vs. Sturminster Rural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to produce any proof or evidence in respect of expenditure incurred on such improvement. The Assessing Officer disallowed the claim. In appeal filed before CIT(A), no ground was raised against this disallowance of Rs. 7 lakhs as expenditure towards improvement. However in appeal before Hon'ble ITAT, this ground is raised. It is submitted that since this ground of appeal was not raised before CIT(A), this ground should not be allowed. In any case no details of expenditure have been filed by the assessee before the ITAT except stating that the assessee wanted to begin construction of house on plot and the construction has been taken up in F.Y. 04-05 incurring expenditure of Rs. 7 lakhs which is reflected in the balance sheet as on 31.3.2005 filed with return of income for the A.Y. 2005-06. In this balance sheet, value of the construction of building was shown at Rs. 31,94,158 (cost of land Rs. 24,94,168 + expenditure of Rs. 7 lakhs). It is also claimed that the plot was on a hillock and Rs. 7 lakhs were spent to remove the rocks and towards levelling the ground. However, in this submission neither details of expenditure have been filed nor the details of persons who were in receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DR submitted that the next ground is rejection of claim u/s. 54F. The assessee in the return of income claimed deduction u/s. 54. For the reasons stated the AO has disallowed this claim u/s. 54. In the grounds for appeal filed before CIT(A), the disallowance u/s. 54 is taken as a ground. However, the CIT(A) in his order has dismissed the assessee's claim of deduction u/s. 54F. In the appeal before the ITAT, the assessee has taken ground against disallowance of claim of deduction u/s. 54F. (Ground No. 4 to Ground No. 9). The deduction u/s. 54 is not allowable, as assessee has sold a residential plot. Now coming to deduction u/s. 54F, it is claimed by the assessee that on sale of property at Rs. 4,03,78,000, it has computed capital gain of Rs. 3,66,45,236 after deduction of index cost of acquisition. It is claimed that out of the sale consideration of Rs. 4,03,78,000. Rs. 3,86,37,800 has been spent or utilized in construction of the new property as against capital gain of Rs. 3,66,06,236 before due date for filing of return for Asst. Year: 2008-09 i.e., 31-7-2008. As per the provisions of Sec. 54F, the assessee should utilize the "net consideration" for purchase or construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the auction have filed affidavit before Hon'ble High Court seeking direction to hand over and register the auctioned property in favour of the assessee Dr. M. Sridevi Reddy. This petition was allowed by Hon'ble High Court vide its order dt: 17-9-2007 and final sale deed was executed on 16-10-07, whereas it is claimed that the payment for construction of residential unit has been made on 28-6-07,03-07-07 and 04-09- 2007 i.e., before the Hon'ble High Court allowed to register the property in the name of the assessee (on 17-9-07) or before sale deed was executed on 16-10-2007. It is not clarified why such payment was made before assessee became owner of land or even before High Court allowed to register the property in the assessee's name. The only conclusion that can be drawn by the above fact is that the amounts of Rs. 1,12,59,100/- paid before 17-09-2007 are not made towards construction of residential unit. This is also apparent from the report of the ITO, CIB, Tirupati who on 10-12-2010 found that no construction activity has taken place on the said land and as per report of the Panchayat Secretary, Mamanduru dt: 10-12-20 10, no one has applied for construction of any reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought through this letter. b) Letter dated 15.12.2007 issued by the Sarpanch, Gram Panchayat, Mamanduru Village, according permission to renovate/repair bed room, bath room etc., and intimating to pay house tax of Rs. 7,755/-. c) Demand Notice dt. 10-05-2009 for payment of house tax of Rs. 15,898 for the years 2007-08 and 2008-09. d) House Tax Receipt dated 23.06.2009 for Rs. 15,898/- issued by Secretary, Mamanduru Gram Panchayat. e) House tax receipt for Rs. 8,551/- for 09-10 issued by the Secretary, Mamanduru Gram Panchayat. f) Letter dt. 29-06-2008 from Asst. divisional Engineer, Operations, Chandragiri, intimating estimate for releasing 1 no HSC of 5 KW to the Assessee. g) Receipt dt. 11.07.2008 for Rs. 42,910/- issued by Addl. Asst. Engineer, Southern Power Distribution Company of AP Ltd. h) APSPDC Ltd. Receipt dt. 19.08.2008 for Rs. 1 ,525/-. i) DD dt. 16-09-2008 for Rs. 5,349/- paid to the Senior Accounts Officer, Operation Circle, APSPDCL, Tirupati. j) Electricity Bills for the months of May and J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital gain is Rs. 3,66,06,236/-. Investment in purchase of land is Rs. 2,46,37,800/-. (f) Dates of payments of Rs. 27,03,100 towards settlement and Rs. 1,12,59,100/- towards development and construction through cheques are: 28.06.2007 Rs. 50,00,000 03.07.2007 Rs. 50,00,000 04.09.2007 Rs. 40,00,000 29. Further claim of the assessee cannot be rejected on any superficial ground that the assessee had not made investment within the time stipulated and the building constructed by the assessee is not a residential house. In our opinion, as there is a contradiction between the findings of the CIT(A) and the Assessing Officer as compared to the evidence produced before us. We feel it appropriate to remit the issue back to the file of the Assessing Officer, who will examine the issue afresh in the light of the evidence brought on record by the assessee as well as our observations. However, we make it clear that the amount incurred by the assessee towards settling certain claims at Rs. 27,03,100 cannot be considered for deduction u/s. 54F as the new property acquired by the assessee is through the High Court order from Official Liquidator and we are unable to see ..... X X X X Extracts X X X X X X X X Extracts X X X X
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