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Case Number

ITA No. 1452/DEL/2016 [Assessment Year: 2011-12]

Attorney(S)

Advocates who appeared in this case :
Assessee by: Shri Arvind Kumar, Adv. & Ms. Sudha Gupta, CA
Revenue by: Shri Sanjay Goel, CIT(DR)

Judges

H.S. Sidhu, J.M.
L.P. Sahu, A.M.

Acts

u/s 139, referred to in section 54F(4)
Section 54 F (4),

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Smart Summary

Concise Analytical Summary of the Opinion (ITAT, Bench: H.S. Sidhu, JM)

Factual and Procedural Background

The assessee, a medical practitioner, filed his return of income on 30/07/2011 (revised on 05/11/2011). Capital gains of Rs. 29,09,60,100/- arose on 14/09/2010 in the relevant previous year. The assessee claimed exemption under section 54F by investing Rs. 14,67,21,892/- in a residential property — an apartment in "Magnolias, DLF Golf Course Road Gurgaon" — and offered the balance of the capital gain for taxation. The case was selected for scrutiny. The Assessing Officer (AO) allowed only Rs. 3,33,76,752/- of the claimed exemption and disallowed Rs. 11,33,45,140/-, assessing the income at Rs. 26,56,56,260/-. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], whose order dated 13/01/2016 dismissed the appeal. The assessee then filed the present appeal before the ITAT.

Relevant transactional facts in the record: the assessee applied to book the apartment on 30/11/2009, entered into an Apartment Buyers Agreement with DLF Universal Ltd. on 19/01/2010 (the agreement references a Rs. 40 lakh part payment at application), and took possession on 21/01/2013. The AO characterized the transaction as "construction" rather than "purchase" and applied the time-limits for construction under section 54F, thereby disallowing part of the claimed exemption. The CIT(A) upheld the AO's decision.

Legal Issues Presented

Whether the assessee's acquisition of the apartment should be treated as a "purchase" (entitling him to the time-limit for purchase under section 54F) or as "construction" (entitling him only to the construction time-limit), and accordingly whether the AO and CIT(A) were justified in disallowing deduction under section 54F of Rs. 11,33,45,140/-.
Alternatively, if treated as construction, whether the construction was completed within the three-year period available for construction under section 54F, thus qualifying for exemption.
Whether the assessee is entitled to claim exemption for amounts paid up to the extended due date for filing returns under section 139(4) (i.e., up to 31/03/2013) rather than only up to the original return filing date under section 139(1).
Whether initiation of penalty proceedings under section 271(1) was justified.
Whether interest under sections 234B and 234C was correctly charged.

Arguments of the Parties

Appellant's Arguments (Assessee)

The assessee entered into an Apartment Buyers Agreement on 19/01/2010 (after an earlier application of 30/11/2009) and paid Rs. 40 lakhs as part payment at application; possession was taken on 21/01/2013.
The transaction involved a booking/purchase of a semi-finished apartment and subsequent payments in installments to the builder; the assessee contended that this combination should not be artificially segregated into pure "construction" versus pure "purchase" for the purposes of a beneficial provision like section 54F.
The assessee argued that payments made within one year prior to the capital gain should qualify under the purchase limb, while subsequent payments for finishing/installation made to the builder would qualify under the construction limb (three-year period). In sum, both time-limits (one year for purchase and three years for construction) could be applicable together in the facts of the case.
The assessee relied on several judicial decisions (enumerated in the record) to support the proposition that purchase and construction can be read conjunctively and that the restrictive interpretation adopted by the AO/CIT(A) was incorrect.
The assessee argued (in the alternative) that the due date referred to in section 54F(4) (for depositing capital gains in the capital gain account scheme) should be read to include the extended date for filing a return under section 139(4) (claimed as 31/03/2013), not limited to the original filing due date under section 139(1).

Respondent's Arguments (AO / CIT(A) / Departmental Representative)

The AO treated the transaction as construction rather than purchase because: the agreement referred to a semi-finished apartment, construction had not started at the time of booking, payments were in installments, and completion had not occurred by the end of FY 2012-13 — therefore the construction time-limits under section 54F apply and the assessee gets three years after the sale but no time before the sale.
The AO and CIT(A) read the two limbs of section 54F (purchase and construction) separately and applied them distinctly according to whether the transaction was construction or purchase.
The CIT-DR emphasised the AO/CIT(A) interpretation (and reliance on CBDT Circular No. 672 dated 16/12/1993) to treat the transaction as construction.
On the section 139(4) due-date point, the Department pointed out that the assessee's revised return filed on 05/11/2011 was under section 139(5) (not 139(4)), and therefore not linked to the due-date question raised by the assessee. (This point was noted by the ITAT but not finally decided because the main dispute was resolved in favour of the assessee.)

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
B.B. Sarkar vs. CIT, 132 ITR 150 (Calcutta)	That section 54 (and by analogy section 54F) should not be interpreted restrictively to treat purchase and construction as mutually exclusive; if both conditions are satisfied within stipulated time, relief should not be denied. The decision supports reading the alternatives so as to carry out the legislative intent.	The ITAT relied on this authority to hold that the assessee’s transaction, involving purchase of a semi-finished apartment and subsequent finishing/construction, could be treated as purchase and construction running concomitantly; thus the restrictive interpretation of the lower authorities was rejected and the assessee was held entitled to deduction under section 54F for the entire claimed amount.
Commissioner of Income Tax vs. H.K. Kapoor, 234 ITR 753 (Allahabad)	That it is immaterial whether construction of a new asset started before the sale of the old asset; the timing of construction commencement does not prevent claiming the benefit if statutory conditions are otherwise satisfied.	The ITAT cited this decision to support the proposition that a restrictive rule (denying relief because construction started before sale) is not warranted; the case reinforced the ITAT's conclusion that purchase-plus-construction would not disentitle the assessee from relief.
Commissioner of Income Tax vs. Bharti Mishra (reference in the record)	Jurisdictional high court authority aligning with the view that construction/purchase considerations should not be applied restrictively in a manner that defeats the purpose of the relief.	The ITAT relied on this jurisdictional authority (as noted in the record) to support its conclusion that the lower authorities' restrictive interpretation was not correct in the facts of this case.
Commissioner of Income Tax vs. Sambandam Udaykumar (19 taxmann.com 17)	The decision was cited by the assessee in support of the proposition that purchase and construction elements can co-exist for exemption purposes under the relevant provisions.	The case was referenced by the assessee among other authorities to buttress the argument that both limbs may apply; the ITAT's overall reasoning aligns with the same line of authorities.
Commissioner of Income Tax vs. Ashok Kumar Ralhan (46 taxmann.com 416)	Cited by the assessee in support of the broader interpretation favouring grant of exemption where purchase and construction elements are mixed.	Included among the authorities relied on by the assessee; the ITAT's approach reflects the principles advanced in these decisions in favour of a non-restrictive interpretation.
Commissioner of Income Tax, Bangalore vs. Smt. B.S. Shanthkumari (60 taxmann.com 74, Karnataka)	Cited by the assessee to support interpretation of section 54F in a manner favourable to the assessee's claim.	Referenced by the assessee; the ITAT considered the body of judicial opinion generally and found the lower authorities' approach inconsistent with these authorities.
Rustom Homi Vakil vs. Assistant Commissioner of Income (69 taxmann.com 42) (ITAT Mumbai)	Cited by the assessee as supportive precedent in the context of purchase/construction questions.	Referenced among authorities relied upon by the assessee; the ITAT did not distinguish this authority and treated the collective judicial trend as supporting the assessee's position.
Commissioner of Income Tax vs. Ms. Jagriti Aggarwal (15 taxmann.com 146) (Punjab & Haryana)	Cited by the assessee to argue that the "due date" mentioned in section 54F(4) should be read to include the extended return filing date under section 139(4), up to 31/03/2013.	This authority was cited by the assessee on the due-date point; the ITAT noted the citation but did not adjudicate the point because it decided the main issues in favour of the assessee.
Commissioner of Income Tax vs. K. Ramchandra Rao (56 taxmann.com 163) (Karnataka)	Cited by the assessee to support the proposition that due date under section 54F(4) includes the extended period permissible for filing under section 139(4).	Cited by the assessee on the due-date issue; the ITAT recorded the citation but did not decide the question on merits due to the main issue being resolved in the assessee's favour.
Pr. Commissioner of Income Tax vs. Shankar Lal Saini (2018, 89 taxmann.com 235) (Rajasthan)	Cited by the assessee in support of the contention regarding the interpretation of the due date in section 54F(4) vis-à-vis section 139(4).	Cited by the assessee; the ITAT noted it among the authorities on the due-date issue but did not adjudicate that ground as the substantive dispute was disposed in favour of the assessee.

Court's Reasoning and Analysis

The ITAT examined the factual matrix and the legal position. The AO and CIT(A) had adopted a restrictive approach, characterising the transaction as "construction" and applying the three-year construction time-limit only, thereby disallowing a portion of the exemption claimed under section 54F. The ITAT scrutinised the apartment buyers agreement, the sequence of payments and the possession date and observed that the transaction involved purchase of a semi-finished apartment followed by finishing/consequent works.

The Tribunal analysed the legal principle that the legislative scheme for relief (section 54/54F) contemplates alternative conditions for exemption but should not be read in a way that defeats the purpose of the provision. It relied upon extant judicial authorities (including B.B. Sarkar and H.K. Kapoor) which support a non-restrictive, purposive interpretation — specifically: where purchase and construction elements coexist, the statutes should be applied to carry out the legislative intent rather than to deny benefit on technical grounds. The Tribunal observed that expenditure for completing the finishing of a semi-finished apartment cannot be segregated from the act of purchasing such an apartment; subsequent acts of construction merge into the purchase.

Applying these principles to the facts — agreement to buy a semi-finished apartment, part payment before the capital gain event, subsequent payments to the builder and eventual possession within the three-year window — the Tribunal concluded that both purchase and construction elements were present concomitantly and the assessee had confined his claim to investments made within the statutory periods. Consequently, the Tribunal found the lower authorities' restrictive interpretation inconsistent with judicial authorities and the legislative intent of section 54F, and therefore allowed the claimed exemption in full.

The Tribunal further noted procedural points: the assessee's submission on the interpretation of the "due date" in section 54F(4) (i.e., whether it includes the extended filing date under section 139(4)) was supported by authorities cited by the assessee, but the Tribunal did not decide that question because the main dispute was resolved for the assessee. Penalty proceedings under section 271(1) were held to be premature, and issues regarding interest under sections 234B and 234C were consequential upon the primary relief granted.

Holding and Implications

APPEAL ALLOWED

Holding (direct effects):

The ITAT allowed the appeal of the assessee and held that the assessee is entitled to deduction under section 54F for the entire amount claimed (i.e., it reversed the AO/CIT(A) restriction that disallowed Rs. 11,33,45,140/-).
Grounds 2 and 3 of the appeal (relating to classification as purchase vs. construction and completion within the stipulated period) were allowed in favour of the assessee.
Ground relating to the due-date under section 54F(4) (ground no. 4) was not adjudicated because the main issues were decided in the assessee's favour.
Ground No. 5 (initiation of penalty proceedings under section 271(1)) was held to be premature and not adjudicated at this stage.
Ground No. 6 (interest under sections 234B and 234C) were treated as consequential to the primary decision.

Implications beyond the parties: The Tribunal's decision resolves the dispute between the parties by allowing the exemption claimed. The opinion does not purport to lay down a new binding precedent beyond applying and following existing judicial authorities; it primarily applies established principles (as cited) to the facts before the Tribunal. The record does not contain any broader declaratory pronouncement that would extend beyond the facts and authorities considered.

Order pronounced on 21/12/2018. Bench members: (L.P. SAHU) [Accountant Member] and [H.S. SIDHU] Judicial Member. (Copy forwarded to parties as per record.)

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Kushagra Kataria v. Cit

PER H.S. SIDHU, JM The Assessee has filed this Appeal against the Order dated 13.1.2016 of the Ld. Commissioner of Income Tax (Appeals)-I, Gurgaon on the following grounds:-

1. That on the facts and in the circumstances of the case and in law, the assessment order passed by the Ld. AO and order passed by the Ld. CIT(A) is bad in law. 2.That on the facts and in the circumstances of the case and in law, the Ld. AO and Ld. CIT(A) erred in disallowing the deduction under section 54F of the Act amounting to INR 11,33,45,140 by treating the purchase of new residential flat as a case of construction and not purchase on the ground that the payment was made by the Appellant in instalments to the builder for the flat. 3.Without prejudice to the above, even if the said property purchased by the Appellant is treated as a construction for the purpose of granting exemption under section 54F of the Act, relief under Section 54F should be available as the construction completed within the stipulated time period as provided under the provisions of sections 54F of the Act. 4.Without prejudice to the above ground, on the facts and circumstances of the case and in law , the Ld. A.O and Ld. CIT (A) have erred in not allowing the deduction u/s 54F for the amount [paid upto the limit for filing of the return of income provided u/s 139(4) of the Act i.e 31/03/2013 and not only upto the date of filing of original return u/s 139(1) of the Act.

5. That on the facts and circumstances of the case, the AO has erred both in facts and in law in initiating penalty proceedings under section 271(1) of the Act.

6. That on the facts and circumstances of the case, the AO has erred both in facts and inl aw in charging interest under section 234B and 234C of the Act. The above grounds of appeal are mutually exclusive and without prejudice to each other. The appellant craves leave to add, alter, amend, vary or rescind any of the above grounds either before or at the time of hearing in the interest of natural justice.

2. The brief facts of the case are that the assessee is a medical practitioner who has filed his return of income on 30/07/2011 which was subsequently revised on 05/11/2011. The assesee had earned Capital gain to the tune of Rs. 29,09,60,100/- on 14/09/2010 in the previous year relevant to the assessment year under consideration. A part of this capital gain was not offered for tax purposes by claiming deduction u/s 54F on the ground that the capital gain amounting Rs. 14,67,21,892/- was invested in a property 809,19th 20th Floor , Building No. 8, Magnolias, DLF Golf Course Road Gurgaon; rest of the amount was offered for taxation. The case of the assessee was selected for scrutiny. The A.O. completed the assessment wherein out of the total claim for exemption u/s 54F amounting to Rs. 14,67,21,892/-, he allowed a deduction of only Rs. 3,33,76,752/- and disallowed Rs. 11,33,45,140/- and assessed the income of the assessee at RS. 26,56,56,260/-. Against the assessment order, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 13.1.2016 has dismissed the appeal of the assessee.

3. Ld. counsel for the assessee lead us through the facts of the case. He stated that it is a matter of record that the assessee entered into Apartments Buyers Agreement on 19.01.2010 with DLF Universal Ltd. for purchase of a semi finished apartment as per the specification in para 1.1 thereof (page 136 of the paper book filed ). This apartment buyers agreement was a sequel to the earlier application made by the applicant herein on 30.11.2009 before DLF Universal Ltd. agreeing to the terms and condition as set out in the application. In para 3 of the said Apartment Buyers Agreement ( page 144 of the paper book filed ) the amount of Rs. 40 lakhs paid as part payment at the time of application is mentioned. The possession of the said flat was taken on 21.01.2013. According to him the artificial water tight compartment / pigeon hole construction of the provision created by the AO and endorsed by the CIT(A) on different time limits for purchase and construction should not be made applicable for interpreting a beneficial piece of legislation enacted with the object of promoting investment in residential house in India by an individual / HUF. As per him in facts of a given case there can be only purchase of residential house or construction of a residential house and therefore in facts of such cases the time framed prescribed u/s 54F would be applicable but at the same time there is no specific debarment under this section for the assessee to go in for purchase of a property ( land or dilapidated house property ) and consequent construction there upon. That in such a scenario both the time limit prescribed in both the situations i.e. purchase and construction would be applicable and available to the assessee. As per him in the present case the appellant initially went for booking of raw apartment and made payment for the same in the impugned property, which was before the arising of the capital gain and therefore all payments made wihin a period of one year prior to the capital gain would be applicable in his case. And that subsequently the appellant has made payment in installments for construction of the said residential property to the builder and therefore all payment made for such construction , either to the builder or to other parties directly by the appellant would also qualify to be payments for the construction of residential house and for which the period of 3 years from the date of arising of capital gain would be available for deduction. He relied on the following case laws, quoting extensively from the judgements and head notes: B.B. Sarkar vs. CIT 132 ITR150 Calcutta Commissioner of Income Tax vs. H.K. Kapoor (234 ITR 753) Allahabad. Commissioner of Income Tax vs. SambandamUdaykumar 19 taxmann.com 17 Karnataka Commissioner of Income Tax vs. Ashok Kumar Ralhan (46 taxmann.com 416) Commissioner of Income Tax vs. Bharti Mishra 41 taxmann.com

50 Delhi Commissioner of Income Tax, Bangalore vs. Smt. B.S. Shanthkumari 60 taxmann.com 74 Karnataka RustomHomiVakil vs. Assistant Commissioner of Income (69 taxmann.com 42 ) ITAT Mumbai 3.1 In reply the CIT DR basically relied on the orders of the lower authorities. He emphasized the need to read the two limbs of Section 54F separately i.e. the time limit for purchase and for construction ,for any harmonious understanding of the section . He also laid emphasis on the fact that the agreement talks of semi- finished apartments and therefore any investment thereto is in the nature of the construction contract. He relied on the CBDT circular

672 dt 16th dec 1993,quoted by the the A.O in the order, which would be applicable in to the facts of the case to treat as construction.

4. We have considered the matter carefully and find the interpretation of conditions of section 54F by the lower authorities as restrictive and not in consonance with existing judicial opinions. According to the AO the asseseee entered into an agreement with DLF only for construction of a Flat. Since as per the AO Section 54F delineates the issues of construction of new assets and purchase of new assets and provides separate time limits for the two, it is important to identify the actual course of action taken. Since he held the agreement to be Construction " in nature, consequently as per law, he held that the assesee gets three after the sale of the original assets and no time before the sale. He further curtailed the time available to the assessee by holding that as per Section 54 F (4), in case the new assets has not been purchased by the due date of filling of the return and money had not been deposited in the SBI Capital Gain Scheme, the assesee forfeits his claim for any subsequent investment of the type under consideration. The above referred first two grounds are related to A.O's stand listed at S. No

1 above. The main ground for the Assessing Officer to take that stand was that at the time of booking in 2009 the construction of the flat had not started, booking is for semi furnished flat, instalments were being paid periodically and the completion of flat has not taken place even till the end of F.Y 2012-13. According to him mere mention of the word sale in the agreement with the builder does not lead to the inference of purchase, when the entire sequence of the events proves that it is construction of flat. The CIT upheld the contention of the A.O holding that the interpretation of the A.O is justified with respect to the time limits for purchase and construction of new house and holding the transaction in question as construction. It is noted that in acquiring a residential property, while there could be straight purchase or construction scenerios , but most likely there would invariably be the combination of elements of purchase and construction. In this case the assessee has entered into an agreement dated 19/01/2010 for purchase of semi-finished apartment. So clearly there is an agreement to buy a structure, which can be used if assesee so wants as a house as it is or use it after due up gradation to make it as per his requirements .The expenditure incurred for completing the finishing obviously cannot be segregated from the act of purchasing semi-finished apartment. So it is difficult to say that what he purchased initially was not a residential house. In fact the subsequent act of construction merges into the act of purchase. As held by on HonbleCalcullta High Court B.B. Sarkar vs. CIT (Supra) "Section

54 does not contemplate two kinds of relief; it only contemplates fulfilment of two alternative conditions. If both the conditions are satisfied within the time stipulated, the assessee does not become disentitled to the relief if the other conditions are fulfilled. If a floor is constructed to the new house or if it is renovated it remains as one house only, especially when there is no evidence that two different houses bearing two different municipal numbers were constructed. As held therein: It is, therefore, not a question of reading the word "or" as conjunctive, but to carry out the intention of the Legislature, it may be necessary to read "and" in place of "or" and vice versa in situations of this type. 4.1 Similarly HonbleAllahbad High Court in the case of CIT vs HK Kapoor (Supra) has held that it was immaterial whether a construction of a new asset started before the sale of old asset on which the capital again accrued, which will even otherwise take care of the restrictive interpretation of the lower Authorities. 4.2 Similar view was taken by the jurisdictional high court in the case of CITvsBharti Mishra (Supra). 4.3 Hence considering the totality of circumstances it is clear that in transacting with M/s DLF universal ltd. for acquiring the flat(s) in question, the assesee has entered into both types of agreement i.e.both purchase and construction and both these are essentially running concomittantly. And the claim for the deduction has been restricted by the assesee to the investment done within the specified periods of one year prior to the date of sale of original assets to the three years from the date of sale of shares. Moreover the claim within the capital gains earned by the assesee. Hence the assessee would be entitled for deduction u/s 54F for the entire amount claimed. Hence the ground no 2 and 3 of Appeal are allowed. 4.4 As regards ground number 4 is concerned, this ground of appeal arises on account of A.O not allowing the claim of Investment/Expenditure incurred in" constructing" of residential house as a new asset, for the period beyond 01/08/2010 on the ground that such Investment / expenditure would have qualified for it, only if the capital gains on shares had been deposited in Capital Gain Scheme.The CIT(A) has upheld the A.Os view.He rejected the assesse's stand that due date referred to in the concerned section included the due date for filing of the return u/s 139 (4 ) as well. 4.5 Before us, the learned AR drew our attention to a number of case laws to argue that the due date of filing of return u/s 139, referred to in section 54F(4) is available for the entire extended period, when such a return can be filed i.e. 31/03/2013 and not restricted upto 31/07/2011. He cited the following judgements to convas his point. Commissioner of Income Tax vs. Ms. JagritiAggarwal (15 taxmann.com 146 ) Punjab and Haryana - Commissioner of Income Tax vs. K. RamchandraRao (56 taxmann.com 163 ) Karnataka Pr. Commissioner of Income Tax vs Shankar LalSaini(2018, 89 taxmann.com 235- Rajasthan 4.6 The CIT DR on the other hand relied on the orders of the lower authorities. He particularly emphasised that , in any case , the return filed by the assessee on 5/11/2011 was u/s 139(5) and not 139(4 ) and hence was not related to the due date of filing of the return. Since we have decided the main issues in dispute in favour of the assessee, hence, this ground need not be adjudicated. 4.7 Ground No. 5 regarding initiation of penalty proceedings is premature at this point of time and does not require adjudication. 4.8 Ground No. 6 regarding charging of interest u/s 234B and 234C are consequential . In the result, the appeal of the assessee is allowed. Order pronounced on 21/12/2018. Sd/- Sd/- (L.P. SAHU) [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 21.12.2018 SR BHATNAGAR Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT(A) Asstt. Registrar,

5. DR ITAT, New Delhi

Kushagra Kataria v. Cit

Concise Analytical Summary of the Opinion (ITAT, Bench: H.S. Sidhu, JM)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments (Assessee)

Respondent's Arguments (AO / CIT(A) / Departmental Representative)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Kushagra Kataria v. Cit

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