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TMI Blog2016 (1) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, only site inspection can confirm whether assessee has indeed constructed altogether a new house or only made extension to the old bulding. The variations noted above also require deeper examination physically. Therefore, AO is directed to give an opportunity to assessee, take the technical people like Valuation Officers of the department and examine whether the structure as claimed by assessee is old or new, so as to consider the eligibility of deduction u/s. 54. Undisclosed cash deposited into bank account - Unexplained investment - Held that:- There is no nexus established with reference to the sale transaction being contended by assessee. In view of this, we are unable to accept assessee’s contentions that assessee has received any consideration in cash over and above the amount, which was originally returned by assessee in the return of income. As rightly noticed by the AO, assessee in fact has filed return on 20-03-2012 belatedly when the return was due in September, 2010. The belated return itself indicate that sufficient time was taken by assessee to decide the matters. This do indicate that there is no nexus with the cash deposits in the bank a/c to that of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to have appreciated the legal position that if two decisions are available on that is favourable to the assessee is to be followed and thereby erred in following the decision against the assessee though there is a decision in favour of the assessee. 6. The learned CIT (Appeals) erred in confirming the addition of ₹ 41,25,000/- holding that the assessee has not established that it is sale consideration and relying on the letter of the purchaser when the department on the other hand is assessing in the hands of buyers of EMMAR properties in Boulder Hills additional incomes as on money payments on the basis of statement of the agent thereby adopting different standards to different assessees. 7. The learned CIT (Appeals) erred in distinguishing the decision of Supreme Court in the case of Smt. P.K. Noorjehan stating that the assessee has substantial means and that she is a owner of house without appreciating that the ratio of the apex court revolve round the sources of income and that there is no other evidence that the assessee has any other source other than sale of the property and thereby erred in confirming the addition . 3. Briefly stated, assessee, an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city of funds and financial constraints. Then, the assessee tried to build the house in stages based on their own family needs and availability of funds. The additional floors constructed on an existing grounds/first floor of a residential house property form part of residential house property addition to the existing house and are in the nature of new asset . 4.2. The Assessing Officer did not accept assessee s claim for the following reasons: a. As per the sale deed dated 10-02-2005, the property purchased consisted of a house with a built up area of 3,646 Sq . F t . , with ground and first floor. The municipal approved plan showed a kitchen, dining room, two halls, 6 bed rooms and one study room. This showed that the property was full-fledged residential house with all amenities and in a fully habitable condition. b. Assessee had submitted a plan of the existing house with subsequent constructions. There was not much variations from the original approved municipal plan except that an additional floor had been constructed. All the floors were connected by a staircase internally and the complete building formed one residential unit. The second floor was connected wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer also relied on the following decisions for the view that extension of an old building was not eligible for exemption u/s. 54 or u/s. 54F. i. CIT Vs. Pradeep Kumar [290 ITR 90] (Mad): ii. ACIT Vs. T.N. Gopal [121 ITD 352] The Assessing Officer, therefore, rejected the assessee s claim of exemption u/s. 54 and assessed the long term capital gains at ₹ 1,25,95,200/-. 4.3. In the course of the appellate proceedings before Ld.CIT(A), it was submitted that there were factual inaccuracies in the ITI s report, that as per valuation report dated 07-11-2012 obtained by assessee from M/s. Prakash Associates, the area of ground floor was 3,245.15 S q . F t . , first floor was 3,649.62 Sq .F t . , and second floor 3,649.62 Sq. Ft., aggregating to 10544.39 Sq. Ft., whereas as per the assessment order the old building purchased by the appellant had only 3,646 Sq. Ft., and that while the property purchased had only 3,646 Sq. Ft., consisting of both ground and first floor, the new structure had substantially more constructed area. Assessee relied on the decision in the case of Ashok Kumar (HUF) [65 ITO 352] (Del) for the view that even if an extension is made to the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made to a residential house. In the case of CIT v V Pradeep Kumar [2007] 290 ITR 90 (Mad), the court held that it was clear from the contemporaneous evidence available on record that there were no new residential houses exhibited on the plot in question, that the assessee had undertaken an extension work in the old building in the ground floor and first floor, that from the above finding it was clear that there was no residential house and it was only an extension of the old building and that a mere extension of the existing building will not give benefit to the assessee as contemplated u/s 54F. 6.12 This decision of the High Court was followed in the decision in the case of ACIT v T N Gopal 121 ITO 352 (Chen) where the assessee had only constructed an additional floor on his existing house property. This decision, being of a Third Member Bench, would serve as a binding precedent. 6.13 In the case of Meera Jacob v ITO [2009] 313 ITR 411(Ker), the court held that since the assessee had only made addition to the plinth area, which was in the form of modification of an existing house, she was not entitled to deduction u/s S4F. 6.14 In the case of Pushpa vs ITO (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer took place in March, 1970. The court held that to claim exemption under section 54, the construction of the new house should be within two years after the transfer of the existing house and that the exemption is not available where the new construction is made before the transfer or sale of the existing house. 6.19 in the appellant s case, the new asset consisted of a house that had been purchased more than a year prior to the sale of the original asset and the appellant was, therefore, not eligible for deduction u/s. 54 on its acquisition. The investment claimed for deduction had been incurred on making additions to the new asset which was not eligible for deduction. Further, even such construction (on additions) had been completed before the sale of the original asset and was, therefore, not eligible for deduction u/s 54. 6.20 The AR has also taken the plea that house construction had been undertaken with money taken on loan from the appellant s son and the sale consideration for the original asset had been used to repay this loan. What is to be borne in mind in this regard is that the deduction u/s 54 is available for purchase or construction of a residential hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance on the municipal permissions (which the Appellant did not obtain) which cannot determine the fact whether the construction has taken place or not. 2. The Appellant, submits that the building in Jubilee Hills was purchased on 10.02.2005, and it was recorded in the Sale Deed that the total plinth area constructed was to the extent of 3646 sft on the ground and first floor (about 1823 sft each on ground and first floors, on land admeasuring 961 square yards). The Appellant demolished this structure and has build a house containing ground plus two floors consisting of 10,544.39 sq.feet (3245.15 sft in the Ground floor, 3649.62 sft in the first floor and 3649.62 sft in the second floor). Unfortunately, the Appellant did not obtain any municipal permission for this construction nor has applied for any Building regularization and therefore is unable to establish, the fact as per the records of the statutory authorities. However, the fact remains that the Appellant has constructed the building with ground plus two upper floors with a total plinth area of 10,544.39 sft. 3. The Hon ble Tribunal will appreciate that thouqh the Appellant has raised specific objection that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neni in ITA Nos. 632 1238/Hyd/2013, dt. 28-01-2015 by ITAT A Bench allowing the claim u/s. 54 on the reason that construction was completed later to the sale of property giving rise to capital gains, even though construction started much earlier. 8. In reply Ld DR supported the orders of AO and CIT(A). Further, Ld. DR had filed written submissions as under: 1. As per the claim of the ld.AR made before the Bench, the assessee extended the built up space of an existing house from 3,646 sft to approximately 10,000 sft and therefore the AR claims the assessee is eligible for exemption u/s.54 on capital gains arising from sale of original asset. 2. However, the facts of the case do not support assessee s case. The facts of the assessee s case are that ---Sale of the original asset took place on 19-03-2010. (i.e., sale took place after acquisition of supposedly new asset. Old/original asset should give way to new asset, but in the instant case, the original asset and the supposedly new asset simultaneously existed.) ---Acquisition of the supposedly new asset strangely happened on 10-02-2005, i.e., much before the sale of the original asset. (Des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139J in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot transfer the original asset as on the date of acquisition of the new asset. For this purpose he relied on the judgment of Hyderabad Bench of ITAT in the case of DCIT vs. Sri Vidyasagar Dontineni in ITA No s 632 1238/Hyd/2013, wherein it was held (paragraph 8.1) that the assessee would be eligible to claim exemption u/s.54 even if investment is made (as an extension) in a house whose construction commenced much before the specified period, provided the investment is made during the specified period. In this case law it is further held in para 8.1 in page 10 that what is relevant for claim of deduction u/s.54 is (1) the date of completion and (2) period of investment . Whereas this case law is not applicable to the facts of the case because in this said case, the ITAT reiterated that even though the construction commenced before the specified period but renovation work has to be commenced and completed within the specified period. The specified period in the case of construction(applicable for the subject case) is 3 years commencing from the date of transfer (19/03/2010). On the contrary, in the instant case of the assessee, the Id.AO pointed out clearly in paragraph 3 in page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exemption u/s.54, she would be eligible to claim such exemption on the capital gains funds appropriated, subsequent to the date of transfer of the original asset, for the purposes of the construction of the new asset (i.e., even extension of the old house). Paragraphs 1 to 3 of the above written submissions stand on one side of the argument and paragraphs 4 to 5 stand on another Side of the argument while without causing prejudice to each side of the arguments. That means the arguments given in paragraphs 4 to 5 are not dependent upon the arguments given in paragraphs 1 to 3 meaning thereby that the arguments given in paragraphs 4 to 5 still hold good irrespective of the fate of arguments in paragraphs in 1 to 3. It is requested that the above written submissions may be reproduced and be made part of the appellate Order to be passed by the Hon ble ITAT, Hyderabad . 9. We have considered the rival contentions. As can be seen from the above, it is the contention of assessee that she constructed a new house whereas it is the AO s contention that there is only extension to the existing house and the same cannot be considered as a new house/new asset. 9.1. As far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not based on any valid material. Therefore, assessee was not entitled to the benefit of Section 54F . 9.3. Following the decision of the jurisdictional High Court in the above case, the ITAT, Chennai in the Third Member case of ACIT Vs. T.N. Gopal [121 ITD 352] has held that exemption u/s. 54F could not be allowed on additional construction in the existing house property. Same extension of existing building will not give any benefit to assessee u/s. 54F. 10. Thus, the above judicial principles establish that assessee would be entitled to deduction u/s. 54/54F only when a new residential unit comes into existence and mere extension of existing building will not give the benefit. Even though the construction could start much before the sale of property giving rise to Long Term Capital Gain, what is relevant is the completion of house and investment made by assessee within the specified period as per the provisions of the Act. 11. Keeping the above principles in mind, if we analyze assessee s and Revenue s contentions, we are unable to come to any conclusion whether assessee has constructed a new independent house. There is no evidence on record that the old building was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly site inspection can confirm whether assessee has indeed constructed altogether a new house or only made extension to the old bulding. The variations noted above also require deeper examination physically. Therefore, AO is directed to give an opportunity to assessee, take the technical people like Valuation Officers of the department and examine whether the structure as claimed by assessee is old or new, so as to consider the eligibility of deduction u/s. 54. 12. Incidental to the above, as seen from the valuation report on the basis of which assessee claimed investment of ₹ 1,37,07,707/- on total area of 10,544.39 Sq. Ft., this area of 10,544 also includes the old area of 3,649 sq.ft. Therefore, technically speaking, the investment in the new building as per assessee s own valuation report would not be more than ₹ 89,63,500/- (Approximately, worked out on the basis of additional area @ 1300/per sq.ft). Therefore, it is also required to be examined as to how much assessee has invested in the new house. 13. One more aspect which require examination is dates of investments. As noted by the AO in the assessment order, assessee seems to have constructed the house mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son, AO is also directed to examine the source of funds of those amounts so as to determine the exact amount of investment in the house. 15. Next issue to be examined is whether the house was completed as on 19-03-2010 as contended by AO or subsequently, as contended by assessee? This can also verified not only on physical inspection of building but also various investments and bills being maintained by assessee for construction of the house. We make it clear that it is for assessee to establish that the house is a new house and investment was made after the capital gain has accrued i.e., after 19-03-2010. In view of this, without giving any clear opinion on the contentions of either party, we are of the opinion that the matter requires thorough examination by the AO afresh to establish the facts first. Needless to say that assessee should be given due opportunity to substantiate her contentions and AO should deal with them in the order. There should not be any occasion to complain, like what assessee has complained before the CIT(A) in this proceedings that ITI has not inspected the building. We are of the opinion that the inspection can be undertaken by AO and the technical pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash. Generally, whenever there is a property transaction, some amount is paid by way of cheque if there is any agreement of sale and if there is any cash dealings, cash is paid separately. As seen from the bank a/c, there was no such credit of cheque payments in the month of November, 2009, there were only some deposits by way of instruments i.e., cheques on 3rd December, 2009 to an extent of ₹ 10 Lakhs which is not part of sale consideration, which was received by a single cheque/transfer on 23-03-2010 to an extent of ₹ 1,53,60,000/- i.e., cleared after property was registered on 19-03-2010. There was cash deposits on 22nd February, 24th February and 25th February to an extent of ₹ 4.25 Lakhs, 5 Lakhs and 10 Lakhs respectively on these dates. Here also there is no nexus established with reference to the sale transaction being contended by assessee. In view of this, we are unable to accept assessee s contentions that assessee has received any consideration in cash over and above the amount, which was originally returned by assessee in the return of income. As rightly noticed by the AO, assessee in fact has filed return on 20-03-2012 belatedly when the return was ..... 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