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TMI Blog2021 (11) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... as filed her objections before the AO for adopting guideline value of the property. It is also an admitted fact that the AO had referred valuation to the DVO. But, fact remains that before the DVO determines value of the property, the AO has completed assessment by adopting deemed sale consideration as per provisions of section 50C - AO has completely erred in adopting deemed sale consideration, as per provisions of section 50C when he himself referred valuation of property to the DVO. Computation of exemption u/s.54F - As many expenditure in construction activity is incurred on day to day basis for which the assessee s cannot keep bills and supporting vouchers. Therefore, for this reason genuine expenditure incurred for construction of building cannot be rejected. It is a well settled principles of law by the decision of various High Courts, including case of C.Aryama Sundaram [ 2018 (8) TMI 864 - MADRAS HIGH COURT] that construction may commence before date of sale of asset, but should be completed on or before period of three years from the date of sale of original asset. Therefore, we are of the considered view that the Assessing Officer has erred in not considering am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54F: 2.1. The Ld. CIT(A) erred in selectively interpreting only a part of the decision of the jurisdictional High Court in the case of C.Aryama Sundaram Vs, Commissioner of Income Tax 3, Chennai (2018) to arrive at an diametrically opposite conclusion to dismiss the claim of exemption u/s 54F of the IT Act of the appellant. 2.2. The CIT (Appeals) ought to have considered the entire expenditure whether or not bills were available for construction of the property as the bills would not be available for many items purchased from unorganised sector. 3. Application of section 50C without considering the Objection of the Appellant: The Ld. CIT (Appeals) failed to consider the objections of the appellant in adopting deemed sale consideration u/s 50C of the IT Act. 4. The Ld. CIT (Appeals) erred in not considering the fact that guideline value was reduced by 33% by Tamil Nadu Government by G.O Ms.No.49 CT R (J2) Dept dated 08.06.2017. 5. The Ld. CIT (Appeals) failed to consider the correct computation of exemption u/s.54F as per the formula prescribed u/s.54F in arriving at exemption. 3. Brief facts of the case extracted from ITA No.522/Chny/2020, in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,70,243/- for the purpose of computing exemption u/s.54F of the Income Tax Act, 1961. He further noted that out of total expenditure of Rs.1,24,70,243/- which is supported by invoices, a sum of Rs.1,08,57,553/- was incurred prior to transfer of impugned original asset i.e., on 03.08.2015. Therefore, he opined that any amount incurred towards construction of building prior to the date of transfer of original asset is not entitled for exemption and thus, recomputed exemption claimed by the assessee, after taking into account deemed sale consideration, as per provisions of section 50C of the Income Tax Act, 1961 and has made addition of Rs.2,57,67,594/- to returned income. The relevant findings of the learned Assessing Officer are as under:- The assessee jointly with one Smt. B.Usha sold 2.99 acres of land at Ayapakkam Village for a slated consideration of Rs. 4,00,00.000/- vide document number 11221/2015 dated 6/8/2015 registered with Sub-registrar, Ambattur. In response to notice u/s 133(6) dated 4/10/2018 vide his letter No.680/2018 dated 10/10/2018 Sub-Registrar, Ambattur replied that the impugned property was valued at Rs. 5,54,04,700/- for the purpose of stamp duty. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to have incurred an expenditure of Rs. 2,30,49,486/-for construction of Building. Out of the said amount assessee could furnish invoices to an extent of Rs. 1,24,70,243/- and tor the remaining amount of Rs. 1,41,92,934/- assessee could not furnish any invoices but it is claimed that the said expenditure is as per the entries in her Ledger. Out of the expenditure of Rs. 1,24,70,243/-which is supported by Invoices Rs. 1,08,57,553/- is incurred prior to transfer of impugned land i.e 3/8/2015 based on the date of invoices. In the absence of conclusive proof to support the expenditure of Rs. 1,41,92,934/- claimed to have been incurred without invoices the expenditure prior to and after the date of transfer of impugned land could not be verified and the same is not reckoned for the purpose of deduction u/s 54F. As per the relevant provisions of sec.54F(1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 54F of the Act. In other words, the investment in new property made by the assessee is not entitled for deduction u/s. 54F of the Act to the extent made before the sale of property. As per the provisions of sec.54F assessee should have constructed a residential house within a period of three years after date of transfer of original asset. Hence the claim of deduction under see. 54F in respect of expenditure of Rs. 1,24,70,243/- supported by invoices is restricted to Rs.16,12,690/- which is evidenced to have been incurred prior to the date of transfer. In respect of the remaining expenditure incurred before the transfer of impugned land assessee is ineligible for claim of deduction u/s 54F. As discussed above in the absence of conclusive proof to support the expenditure of Rs. 1,41,92,934/- incurred without invoices , the expenditure was incurred prior or after the date of transfer could not be verified and hence no deduction u/s 54F is allowed for the said expenditure. The guideline value adopted by the Stamp Valuation authority is adopted as the deemed sale consideration as per the provisions of sec.50C. In the event of any variation with respect to the deemed sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the Assessing Officer has referred matter for departmental valuation, but has adopted deemed sale consideration even before DVO completes valuation of property. He further submitted that the learned CIT(A) has erred in restricting exemption claimed u/s.54F of the Act to the extent of amount invested for construction of building, which is supported by bills and also amount spent from date of sale of original asset till completion of construction. The learned AR further referring to provisions of section 54F(1)(b) of the Act, submitted that for the purpose of determining exemption u/s.54F only actual consideration received for transfer of property should be considered, but not deemed consideration fixed for computing capital gains. 7. The learned DR, on the other hand, strongly supporting order of the learned CIT(A) submitted that if you go by provisions of section 54F of the Act, it is very clear in case of construction, the Act very clearly specifies that construction should be completed within three years from date of sale of original asset and the meaning thereby is that any amount spent towards construction before the date of sale of original asset cannot be considered fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 50C of the Act, when he himself referred valuation of property to the DVO. 9. As regards, computation of exemption u/s.54F of the Act, the assessee claims to have invested a sum of Rs.2,30,49,486/- for construction of building. Further, construction of new building was commenced prior to the date of sale of original asset i.e., in the year 2013 itself. The construction of building was completed in the year 2016. All these facts are not disputed by the Assessing Officer. The only dispute is with regard to amount invested for construction of new building, date of commencement of construction and amount eligible for exemption u/s.54F of the Act. According to the Assessing Officer, out of a sum of Rs.2,30,49,486/-, a sum of Rs.1,41,92,934/- is not supported by bills and vouchers, therefore, he has rejected exemption claimed u/s.54F of the Act. The balance amount of Rs.1,24,70,243/- is supported by bills and vouchers. Out of this amount of Rs.1,24,70,243/-, a sum of Rs.1,08,57,553/- was incurred before sale of original asset and thus, not considered for exemption. Therefore, out of total amount of Rs.2,30,49,486/- the Assessing Officer has rejected exemption claimed u/s.54F o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. In fact, that may not be intention of the legislature. If you apply deeming fiction provided u/s.50C to provisions of section 54F of the Act, for computation of exemption, then it is impossible for assessee to fulfill said conditions because no assessee will have consideration over and above what was received from transfer of property. This principle is supported by the decision of ITAT., Visakhapatnam Bench in the case of DICT Vs. Dr. Chalasani Mallikarjuma Rao (2016) 75 taxmann.com 270. Therefore, we are of the considered view that the Assessing Officer has erred in adopting deemed consideration for the purpose of computation of exemption u/s.54F of the Income Tax Act, 1961. 12. To sum up, for all these reasons stated above, the issue needs to go back to file of the Assessing Officer to reconsider the issue de novo in light of our discussions herein above. Hence, we set aside order passed by learned CIT(A) and restore the issue to file of the Assessing Officer and direct him to recompute long term capital gain by adopting market value of the property determined by the DVO and also by considering amount invested by the assessee for construction of new house property in lig ..... X X X X Extracts X X X X X X X X Extracts X X X X
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