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TMI Blog2024 (5) TMI 1410X X X X Extracts X X X X X X X X Extracts X X X X ..... the funds of advance consideration towards the advance payments for construction of residential bungalow for timely compliance of provisions of section 54F. The assessee had already agreed to sell the property for certain amount and had decided to utilize the sale consideration for construction of new residential house on the land already owned by him, assessee had started all preliminary activities like finalization of design of a new bungalow, preparation of plan through architect, preparation of drawings and other preliminary requirements for approval of plan etc The assessee had assigned the composite contract for construction of a residential house to M/s United One Infra Pvt. Ltd. The said contract was given for RCC construction and masonry work inclusive of supply of basic raw material for construction as well as labour charges. Since the assessee had already received the permission for construction of a residential house as per the approved plan and since the construction was to be started, the said contractor had asked for advance payment for procurement of necessary raw material as well as for other construction activities to be carried out by it. Therefore, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, ld CIT(A) allowed as deduction - We have gone through the above findings of ld CIT(A) and noted that there is no infirmity in the conclusion reached by ld CIT(A), hence we approve and confirm the findings of ld CIT(A). Payments made to different parties - During the course of assessment proceedings, the assessee had submitted all the details and the said party had also responded to notice u/s 133(6) of the Act and submitted its confirmation letter, cross copy of ledger account from his books of accounts and copies of all invoices along with copy of relevant bank statement reflecting the payments given by the assessee. A copy of the said confirmation letter is enclosed - assessee had already incurred the expenses for construction of a residential house and the assessee had also established the genuineness of expenses. Therefore, we note that assessee has provided bank statements confirming payments made to the sellers. The assessing officer has also received confirmation from each of the sellers, confirming the transaction. The residential house was completed within the time period of three years as per the requirement of section 54F of the Act. Based on these facts, ld CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer. 6. It is therefore prayed that the order of ld. CIT(A) may kindly be set aside that of the Assessing Officer be restored. 7. The assessee craves leave to add, alter, amend and/or withdraw any ground of appeal either before or during the course of hearing of the appeal. 3. Succinct facts qua the issue are that assessee before us is an Individual and filed his return of income for the assessment year (A.Y.) 2020-21 declaring a total income of Rs. 1,57,96,320/-. The assessee is engaged in the retail business. During the year under consideration, the assessee had sold two plots of land at a sale consideration of Rs. 23,00,23,147/- and had shown Long Term Capital gain at Rs. Nil after claiming deduction u/s 54F of the Act of Rs. 18,23,13,978/- as per calculation given herein below: Particulars Rs. Rs. Sale consideration of Plots at Sarsana and Piplod 23,00,23,147 Less : Indexed cost of acquisition 4,77,09,169 18,23,13,978 Less : Exempt u/s. 54F of the Act 18,23,13,978 Long term capital gain Nil The assessee had invested an amount of Rs. 22,92,48,201/- towards construction of a new residential house and had claimed deduction u/s 54F of the Act. During the course of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O disallowed the excess claim of deduction u/s 54F of the Act, to the tune of Rs. 4,39,25,097/-. 6. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the addition made by the Assessing Officer. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before us. 7. Learned DR for the Revenue, argued that ld. CIT(A) failed to appreciate the fact that the amount of expenditure of Rs. 9,08,59,320/- is not found eligible and does not fulfill the conditions as laid down as per the provision of section 54F of the Act to claim deduction. The assessee had not utilized the funds in the manner as prescribed in section 54F of the Act. However, the ld. CIT(A) has accepted the plea of the assessee focusing its decision upon the provisions of 54F that the assessee has constructed property instead of appreciating the fact that whether the capital gain earned were properly utilized or not. Hence, disallowance of Rs. 4,39,25,097/- as excess claim calculated by assessing officer should be upheld. 8. On the other hand, Ld. Counsel for the assessee, submitted that deduction under section 54F was claimed within four corner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Party Date of payment Rs. United One Infra Pvt. Ltd. 05.02.2019 25,00,000 United One Infra Pvt. Ltd. 04.04.2019 24,58,587 United One Infra Pvt. Ltd. 14.06.2019 50,00,000 Ashok Timber Trading Co. 25.03.2019 33,95,610 Ashok Timber Trading Co. 26.03.2019 38,76,285 Ashok Timber Trading Co. 27.03.2019 31,24,710 Total 2,03,55,192 The assessee had sold plots of land at a sale consideration of Rs. 23,00,23,147/- and the assessee had started receiving advance payments as per mutual understanding from time to time and accordingly, the assessee had received sale consideration of Rs. 11,86,58,850/- which included the above referred advance payments of Rs. 3,29,55,430/-.It was decided mutually by both the parties i.e. the buyer and seller that the final sale deed will be executed on making full payment of the sale consideration. However, since the assessee had consciously decided to sell the land and since the buyer was also certain to purchase the land, it was decided by the assessee to apply the funds of advance consideration towards the advance payments for construction of residential bungalow for timely compliance of provisions of section 54F. The assessee had already agreed to sell the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be taken by the assessee. Therefore, the deduction claimed by the assessee ought to have been allowed by the assessing officer considering that the provisions of section 54/54F are benevolent provisions with the object of promoting housing facilities. For this, ld Counsel placed reliance on the judgment of Hon`ble Karnataka High Court in the case of M. George Jeoseph vs. DCIT [206 DTR 0051 / 322 CTR 563], wherein it was held that if the amount is spent for construction for a new residential house out of advance payments received, the assessee is entitled to claim exemption u/s 54F of the Act. The observation of the Hon`ble Court in the concluding Para are reproduced below: It is also noteworthy that Section 54F of the Act is a beneficial provision, which has been enacted with an object to promote investment in housing and enable the assessee to save tax on capital gains. It is a well settled rule of interpretation that benevolent provision should be interpreted liberally bearing in mind the object for which the provision is enacted. Thus, from narration of aforementioned facts, it is evident that the assessee had complied with the conditions stipulated under Section 54F of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration is invested by the assessee in specified assets within a period of six months after the date of such transfer. A technical interpretation of section 54E could mean that the exemption from tax on capital gains would not be available if part of the consideration is invested prior to the date of execution of the sale deed as the investment cannot be regarded as having been made within a period of six months after the date of transfer. On consideration of the matter in consultation with the Ministry of Law, it is felt that the foregoing interpretation would go against the purpose and spirit of the section. As the section contemplates investment of the net consideration in specified assets for a minimum period and as earnest money or advance is a part of the sale consideration, the Board have decided that if the assessee invests the earnest money or the advance received in specified assets before the date of transfer of asset, the amount so invested will qualify for exemption under section 54E . 12. We note that some of the decisions referred to hereinabove are related to the provisions of section 54EC / 54E / 54B etc. but, the ratio laid down in these decisions equally appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 021 25,00,000 A-Class Marble India Pvt. Ltd. 06.10.2021 1,00,00,000 A-Class Marble India Pvt. Ltd. 31.11.2021 55,04,128 A-Class Marble India Pvt. Ltd. 03.12.2021 30,00,000 A-Class Marble India Pvt. Ltd. 05.01.2022 50,00,000 A-Class Marble India Pvt. Ltd. 10.01.2022 25,00,000 A-Class Marble India Pvt. Ltd. 29.01.2022 20,00,000 A-Class Marble India Pvt. Ltd. 05.02.2022 15,00,000 A-Class Marble India Pvt. Ltd. 08.02.2022 10,00,000 3,30,04,128 The assessee had also submitted a copy of the said bill as well as a cross confirmation copy of his ledger account during the course of assessment proceedings. It was stated by ld Counsel that the assessee had already incurred the expenditure as on 30.03.2021 when a bill of M/s A-Class Marble India Pvt Ltd and assessee had made initial payment of Rs. 25,00,000/- on 31.03.2021 and the subsequent payments were made thereafter from time to time. The assessee had already incurred the expenditure through a single bill and the payment in respect of which was made by the assessee in different installments. Thus, it is clear that the assessee had already incurred the expenditure for construction of building before the due date specified u/s 139(4) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in Section 54F(1), if the assessee wants the benefit of Section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words, if he want of claim exemption from payment of income tax by retaining the cash, then the said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct. Being so, in our opinion, the Section 54F is beneficial provision and should be interpreted liberally and the Assessing Officer has to see the end utilization of net sale consideration in the way prescribed in Section 54F of the Act, the assessee is entitled for exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereas the assessee had incurred expenditure in F.Y. 2020-21 and hence the said reply has no relevance with the facts of the case of the assessee. 17. In the case of Ramaiya Dorairaj vs. ITO [187 ITD 460] the ITAT Bangalore Bench considering the decision of Honourable Karnataka High Court in the case of CIT Vs. K. Ramchandra Rao (supra) held that the assessee has utilized the net sale consideration within the stipulated time as mentioned in section 54F(1) of the Act, the assessee is entitled for exemption though, the provisions of section 54F(4) is not complied with. Likewise the ITAT Chennai Bench in the case of ITO Vs. Rekha Shetty [184 ITD 038] held that Mere non-compliance of a procedural requirement under section 54(2) itself cannot stand in the way of the assessee in getting the benefit under section 54, if he is, otherwise, in a position to satisfy that the mandatory requirement under section 54(1) is fully complied with within the time limit prescribed therein. We note that based on the above facts, the assessee is able to prove that the transaction does exist. Having regard to above judicial pronouncements and submission of the assessee, the ld CIT(A) held that the utiliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter of receipt of payment made to the said party as evidence. The payments were made through banking channel and bank statements were also submitted during the course of assessment proceedings. The assessing officer had also made independent inquiry by issuing notice u/s 133(6) of the Act to the said party and it had also responded to the said notice and confirmed the fact of receipt of payments of such advances. The assessee had also submitted a copy of the said reply in response to the show cause notice (SCN) issued by the assessing officer during assessment proceedings. The assessee had made genuine payment of Rs. 1,00,00,000/- as advances towards supply of goods and accordingly, had incurred the expenses for construction of a residential house and the said M/s Mohak stone Craft Pvt. Ltd. had also confirmed to have received the payment from the assessee for procurement of goods. Hence, it is quite clear that the assessee had incurred the expenses for construction of a residential house and there was no doubt about the genuineness of transaction. Similarly, the assessee had paid Rs. 2,00,00,000/- (Rs.50,00,000 + Rs. 50,00,000 + Rs. 50,00,000 + Rs. 50,00,000) to M/s. Nidhi Ston ..... X X X X Extracts X X X X X X X X Extracts X X X X
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