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TMI Blog2019 (12) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Commissioner (Appeals) has erred in confirming the addition of Rs. 65,36,333/-, being the disallowance of capital gain exemption claimed under section 54 of the Income-tax Act ignoring the fact that the required amount was invested in construction of a new capital asset in the form of a residential house as required under section 54 of the Income-tax Act. 2. The appellant craves leave to amend, alter or delete any of the grounds of appeal." 3. The brief facts of the case are that the assessee is dental surgeon and is Professor in a Medical College. The case of the assessee was selected by Revenue for framing scrutiny assessment u/s 143(3) read with Section 143(2) of the 1961 Act. During the course of assessment proceedings, the AO observed that during the previous year relevant to impugned ay: 2013-14, the assessee has sold a flat at Abhiramapuram and capital gains arising from sale of the aforesaid flat was claimed as an exempt u/s 54 of the 1961 Act and consequently income declared by assessee under the head capital gains was declared to be 'Nil' in the Return of income filed with Revenue. The AO observed that assessee has sold the flat at Abhiramapuram , Chennai for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction of a new residential house over said land. The AO in order to verify whether any super structure existed in the said land, deputed inspector to inspect the property and submit its report. The inspector after conducting inspection of the aforesaid property reported that alleged property purchased was surrounded by a compound wall on all four sides with a gate in the front side. Further, the inspector reported that a small area of plinth area of about 150 square feet with asbestos roofing has been constructed in the land purchased and there was an attached bath and toilet in the room. The inspector also reported that the said room did not had a separate kitchen unit, a gas stove and some utensil were placed on a folding table in the room. The AO observed that land purchased by assessee was to the tune of 4973.125 square feet valued at Rs. 1,24,00,000/- but the assessee has constructed only 150 square feet, The AO observed that deduction u/s 54 of the 1961 Act is allowable to the extent of investment made in residential property only which should naturally be confined to value of the building and land appurtenant to such building. The AO , thus , held that only 25% of land b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also not filed property tax receipt for the previous year relevant to impugned ay: 2013- 14.Our attention was drawn to page 4 of the paper book filed with tribunal which are building plans for construction of residential building on the plot of land, which envisage constructed area of 644 square feet and car park of 284 square feet on total plot of land admeasuring 4973.125 square feet. It was submitted that no building plans were approved by local authorities as no approval was sought from local authorities for construction on the said plot of land. Our attention was drawn to page 1 of the paper book which are Tamil Nadu Village Panchayat (Assessment and Collection of taxes) Rules, 1999 are placed. It was submitted that claim of deduction u/s 54 of the 1961 Act was allowed by the AO to the extent of 25% of the investment in land , corresponding stamp duty and cost of construction on structure existing on the said land.It was submitted that the entire purchase price of plot of land, stamp duty paid and construction cost be allowed as deduction u/s 54 of the 1961 Act 5.2 The learned DR relied upon decision of Hon'ble Rajasthan High Court in the case of Rajesh Surana v. CIT rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at said land purchased by assessee was an agricultural land. The assessee submitted before AO that albeit land is described as an agricultural land in recital of sale deed but infact the said land is residential land. The assessee in support of its contentions filed an encumbrance certificate issued by Sub- Registrar where land is shown as residential area. This plea of the assessee to treat the said plot of land as Residential was accepted by AO as the AO itself allowed deduction u/s 54 of the 1961 Act to the tune of Rs. 38,16,994/- as against claim of deduction to the tune of Rs. 1,03,53,327 made by assessee u/s 54 of the 1961 Act in the return of income filed with Revenue .Thus, this controversy as to character of land being Residential or Agriculture rested at peace there itself at the time of framing assessment and the same issue is not before us and we shall proceed to adjudicate this appeal on that basis only. The AO deputed Inspector to conduct field enquiry and it was submitted by Inspector in her report to AO that said plot of land was surrounded by a compound wall on all four sides with a gate in the front side. Further, inspector reported that a small area of plinth are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stone of preponderance of probabilities, this outhouse was existing on the said plot of land of 220 square feet when inspector visited the site but still the area constructed vide this outhouse was less than 5% of the total plot of land. It is observed that the AO has accepted this building which was existing on plot of the land to be a residential house and AO has allowed deduction u/s 54 of the 1961 Act by taking 25% of cost of plot of land, proportionate stamp duty and cost of construction on the said plot of land as was existing on the said plot of land . Before we proceed further, it is pertinent to mention that the learned DR has stated before us that the entire claim of deduction u/s 54 of the 1961 Act was a sham or bogus claim as in view of the learned DR this building which was existing in the said plot of land could not be considered as residential house as is mandated u/s 54 of the 1961 Act. The learned DR also relied upon judgment of Hon'ble Rajasthan High Court in the case of Rajesh Surana v. CIT reported in (2008) 306 ITR 368(Raj) . This contention of the learned DR cannot be accepted at this stage firstly because the AO has itself admitted the said existing buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f land was not developed fully when inspector visited the property and as we have seen earlier only super structure of 220 square feet being outhouse was existing in the said plot of land at that point of time. It will be profitable at this stage to refer to provisions of Section 54 of the 1961 Act which provides that for claiming deduction u/s 54 of the 1961 Act , the investments are to be made for purchase or construction of residential house to get benefit of deduction u/s 54 of the 1961 Act. Provisions of Section 54 of the 1961 Act as were applicable for relevant ay : 2013-14 are reproduced as hereunder : "Profit on sale of property used for residence. 54(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset [***], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year before or two years after the date on which the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,- (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid." The Concise Oxford English dictionary has defined the word 'residential' as 'designed for people to live in' and the word 'house' is defined in the said dictionary as 'a building for human habitation' . Thus, 'residential house' will certainly mean a building which is designed for people to live in and is fit for human habitation. The assessee is dental surgeon and Professor in a Medical college. It is admitted by assesse before the authorities below that assessee is having a social standing. The assessee is running its clinic from one of the best localities of Chennai namely T.Nagar. Thus, assessee is a man of means having high social status and standing. The investments u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the large spaces are subsidiary or ancillary to or inevitably inplied in the enjoyment of the buildings qua buildings? That much of space required for the use of the structures as such has been excluded by the High Court itself. Beyond that may or may not be necessary for the hat or mela but not for the enjoyment of the chabutras as such. A hundred acres may spread out in front of a club house for various games like golf. But all these abundant acres are unnecessary for nor indidental to the enjoyment of the house in any reasonable manner. It is confusion to miss the distinction, fine but real. 26. 'Appurtenance' in relation to a dwelling or to a school, college ....... includes all land occupied therewith and used forthe purposes thereof(Words and Phrases Legally Defined - Butterwords, 2nd Edn.). "The word 'appurtenances' has a distinct and definite meaning ..... Prima facie it imports nothing more than what is strictly appertaining to the subject-matter of the devise or grant, and which would, in truth, pass without being specially mentioned! Ordinarily, what is necessary for the enjoyment and has been used for the purpose of the building, such as easements, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereto. These may require estimation which may involve guess work and it could not be said that estimation done by authorities below in instant case is perverse or without any reasonable basis. We are not inclined to interfere with the decision taken by both the authorities below as we have observed that estimation done by authorities below is honest and reasonable estimates based on facts of the case and could not be said to be a perverse view taken by authorities below. Our above view is strengthened by Decision of Hon'ble Supreme Court in the case of Kachwala Gems v. JCIT reported in (2007) 288 ITR 10(SC) although this decision was given in different context of best judgments, wherein Hon'ble Supreme Court held as under: "11. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X
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