Income Tax Appellate Tribunal - Chennai
K.Ram Gopal, Coimbatore vs Department Of Income Tax on 12 September, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' Bench Chennai
Before Shri Abraham P. George, Accountant Member
and Shri V. Durga Rao, Judicial Member
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ITA No. 704 /Mds/2011
Assessment year : 2007-08
The Income Tax Officer, v. Shri K. Ram Gopal,
Ward-III(2), No. 53A, III Cross,
Coimbatore. Co-op. Colony,
Uppilipalayam,
Coimbatore-641 015.
(PAN : ABSPR3207R)
AND
ITA No. 475/Mds/2011
Assessment year : 2007-08
Shri K. Ram Gopal, v. The Income Tax Officer,
No. 53A, III Cross, Ward-III(2),
Co-op. Colony, Coimbatore.
Uppilipalayam,
Coimbatore-641 015.
(Appellants) (Respondents)
Assessee by : Shri N. Devanathan,
Advocate &
Shri R.K. Varadaraj, CA
Department by : Shri Shaji P. Jacob,
Addl. CIT
2
ITA Nos. 704 & 475/Mds/2011
Date of Hearing : 12.09.2012
Date of Pronouncement : 17.10.2012
ORDER
PER V. DURGA RAO, JUDICIAL MEMBER:
These cross appeals by the Revenue and the assessee are directed against the order of the CIT(Appeals)-I, Coimbatore dated 11-01-2011 for the assessment year 2007-08.
2. In the appeal filed by the Revenue, the Revenue has raised the following grounds :
"1. The order of the Ld. CIT(A)-I is against the facts and circumstances of the case.
2. The AO after making proper Inquiry with the Sub Registrar of the concerned area in Coimbatore, adopted the fair market value @ ` 7,500/- per cent on 01-04-1981. This works out to ` 17.25 per sq. ft.
2.a. The Ld. CIT(A)-I erred in directing the AO to adopt the fair market value of ` 40/- per Sq. feet instead of ` 17.25 originally adopted by the Assessing Officer in the order u/s 143(3) of the IT Act, 1961.
2.b. The Ld. CIT(A)-I has erred in not appreciating the fact that proper reference was made to the stamp valuation authorities to find out the exact fair market value of the property as on 01/04/1981.
3. The Ld. CIT(A)-I has erred in not appreciating the fact that proper reference was made to the stamp 3 ITA Nos. 704 & 475/Mds/2011 valuation authorities to find out the exact fair market value of the property as on 01/04/1981.
3.a. In this case the assessee inherited the property when the original owner expired and the assessee has held the property since 26/03/1999. This falls in the financial year 1998-99 and the cost inflation index for this year of 351 is correctly adopted in the numerator.
4. The Ld. CIT(A)-I erred in allowing investment in house construction from November, 2006 to 31/07/2007.
4.a. It is to be mentioned here that the assessee had purchased a property measuring roughly 25 cents only on 06/02/2007. The building plan approval was obtained only on 02/04/2007. Hence the expenditure incurred by the assessee from 06/02/2007 to 31/07/2007 was allowed to be deducted from the Capital Gains by the AO.
5. For these and other grounds that may be adduced at the time of hearing, the order of the CIT(A)-I may be cancelled and that of the AO restored."
3. In the appeal filed by the assessee the following grounds have been raised :
1) The Appellant had sold his old ancestral property for ` 2,16,50,000/- on 20.09.2006 and utilized the sale proceeds as hereunder:4
ITA Nos. 704 & 475/Mds/2011
a) Purchase of House site purchase ` 34,68,960.00 (Accounting year 2006-07)
b) Construction of house
i) Accounting year 2006-07 ` 47,70,700.00
ii) Accounting year 2007-08 01-04-2007 to 31.07.2007 ` 56,52,281.00 01-08-2007 to 31-03-2008 ` 42,14,084.00 ` 98,66,365.00 Accounting year 2008-09 ` 4,90,490.00 ` 1,51,27,555.00 ____________ Total(a+b) ` 1,85,96,515.00
2) The appellant did not deposit the sale proceeds in capital gains account scheme.
3) The Assessing Officer had allowed the deduction U/s 54 for the purchase of house site for ` 34,68,960/-.
4) The learned CIT(A) has allowed the following relief.
a) The fair market value as on 01.04.1981 as ` 40/-
per s.ft. while the Assessing Officer had adopted ` 17.25 per s.ft.
b) The construction expenses is allowed by the Hon'ble CIT(A) as hereunder while the Assessing Officer had not allowed the construction expenses.
i) Accounting year 2006-07 ` 47,70,700/-
ii) Accounting year 2007-08 ` 56,52,281/-
____________
Total ` 1,04,22,981.00/-
-----------------------
The balance building expenses ` 4704574/- (4214084 + 490490) was not allowed by the Hon'ble CIT(A). 5
ITA Nos. 704 & 475/Mds/2011
5) The Order of the learned Commissioner of Income Tax (Appeals) does not deal the entire eligible and legal deductions available for the Appellant in the construction expenses.
6) The fair market value as on 01.04.1981 is estimated by the Chartered Engineer is ` 97.50 per sq.ft. for the land whereas the CIT(A) has allowed only ` 40/- per sq. ft. The Chartered Engineer has arrived based on certain sale took place in that area. The value adopted by the CIT(A) is very low compared to the Chartered Engineer valuation.
7) The CIT(A) has not allowed the expenses incurred after 31.07.2007. The personal balance sheet as on 31.03.2008was also filed before the Assessing Officer and the Hon'ble CIT(A) for having incurred the expenses during the accounting year 2007-08 also. The following are the building construction expenses by the Appellant.
a) 2006-07 Accounting year ` 47,70,700
b) 2007-08 Accounting year:
i) 01-04-2007 to 31-07-2007 ` 56,52,281
ii) 01-08-2007 to 31-03-2008 ` 42,14,084 ` 98,66,365
c) 2008-09 Accounting year ` 4,90,490
-----------
` 1,51,27,555
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Therefore from the above facts, it is well evidenced that the Appellant had used the entire sale proceeds for the construction of his "Dream House" and the intention was only to use the sale proceeds of his old house for construction of new house. The funds were not invested in any other business or ventures. The unused money was kept in bank account and in UTI bonds.
Therefore the Appellant relied on the following case laws.
i) CIT vs. Rajeskumar Jalan (2006) ITR 0274 Gauhati High Court.
6
ITA Nos. 704 & 475/Mds/2011
ii) Jagan Nath Sing Lodha Vs. ITO (2004) 85 TTJ (ITAT) 173 ITAT Jodhpur But the Hon'ble CIT(A) has not considered our above claim of investment in house after 31.07.2007 which is against the law.
Therefore the Appellant prays for the following claim.
a) Adopting the fair market value ` 97.50 per sq. ft. of land as valued by the Chartered Engineer.
b) The building construction expenses incurred even after 31-07-2007 which amounts to ` 4704574/-.
01-08-2007 to 31-03-2008 ` 42,14,084
Accounting year 2008-09 ` 4,90,490
` 47,04,574
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It is prayed that the justice may be rendered and the additional points may be adduced at the time of hearing."
4. The facts in brief are that the assessee is a cotton commission agent and derives commission income. The assessee filed a return of income for the assessment year 2007-08 belatedly on 25-07-2008 by declaring total income of ` 3,39,270/-. The return was processed under sec. 143(1) of the Income Tax Act, 1961 ('the Act' for short) initially. After issuing a notice u/s 143(2) the assessment was completed u/s 143(3) of the Act and the total income of the 7 ITA Nos. 704 & 475/Mds/2011 assessee was assessed at ` 1,79,00,080/-. The assessee sold his residential property by way of sale agreement on 20- 09-2006 for the total consideration of ` 2,16,50,000/- to M/s. Marutham Developers. The assessee obtained the property by way of Will dated 30-11-1998 created by his father, Mr. Kondasamy. Mr. Kodasamy had obtained the property way of Will dated 9-9-1959 from his father. The assessee by way of inheritance became the absolute owner of the property on 26.3.1999 after the death of his father, Mr. Kondasamy. The assessee in the return of income worked out the capital loss to the tune of `, 1,48,000/-. The assessee sold land measuring 15273 sq.ft. and took the Fair Market Value as on 1981 at `.264.77 per sq.ft. The assessee did not open any capital gains account in any nationalized Bank and used all the sale proceeds for the construction of a residential house. The Assessing Officer calculated the value of the property as on 1.4.1981 adopting the guideline value of ` 7500 per cent. The Assessing Officer also calculated the indexed cost of acquisition from the financial year 1998-99 when the assessee became the real owner of the property. The capital gain was calculated based on the indexed cost of acquisition 8 ITA Nos. 704 & 475/Mds/2011 from the financial year 1998-99. The Assessing Officer has also not considered the investment made in the house construction for the purpose of deduction u/s 54F of the Act.
5. On being aggrieved, the assessee carried the matter before the learned CIT(Appeals). It was submitted before the learned CIT(Appeals) that the fair market value adopted by the Assessing Officer is very much lesser and below the guideline value and without considering the certificate of the Chartered Engineer. The learned CIT(Appeals) after considering the submissions of the assessee held as under :
"12. I have gone through all the information on record and examined all the facts. The Chartered Engineer had taken the sale value of the property in the vicinity of the land and building sold by the appellant for comparison purpose since no property was sold in the year 1981 to adopt the fair market value. The sale instance was in March 1989 but the property was located behind the appellant's property and was not on the main road. The land value as per the document was ` 79.59 per sq.ft. The engineer estimated the land value (guideline value) at ` 39 per sq. ft. as on 1.4.81 and mentioned that it is on the back side 9 ITA Nos. 704 & 475/Mds/2011 of the appellant's property with a narrow lane. The appellant's property is on the main road nearer to Avinashi Road at Lakshmi Mills Bus stop. The Engineer determined the fair market value of the sold property at ` 97.50 per sq.ft. Taking these facts into consideration and also the guidance value and market value at which the appellant sold the property in 2006, in my opinion, the fair market value of ` 40 per sq.ft. appears to be reasonable. The Assessing Officer is directed to adopt the market value of ` 40 per sq.ft. to determine the cost of the land. The building value has to be adopted at ` 1,56,000/- as adopted by the appellant. The appellant gets partial relief on this issue."
6. Insofar as the cost inflation index is concerned, the learned CIT(Appeals) directed the Assessing Officer to calculate the cost of inflation index taking the base year of cost indexation as on 1981-82 since the property was acquired by the assessee through inheritance from his father late Kondasamy by way of Will.
7. Insofar as the benefit u/s 54F of the Act is concerned, the learned CIT(Appeals) held as under :
10
ITA Nos. 704 & 475/Mds/2011
20. I have gone through the submissions made by the appellant and also the order of the Assessing Officer along with the remand report. Out of sale proceeds of the residential house at Bharathiar Road, Coimbatore, the appellant purchased one house at Cooperative Colony, Coimbatore for ` 34,68,960/-. As seen from the facts submitted by the appellant, the said vendor Mr. C.S. Nandagopal had mortgaged the property with Bank of Baroda, Tirupur for the credit facility availed by his Company namely Devi Garments Private Ltd. The said Company had become sick and could not pay the bank dues. The bank initiated legal proceedings with the Debt Recovery Tribunal. In the meantime Mr. Nandagopal negotiated with the bank as a compromising proposal to sell the mortgaged property. The bank had agreed for settlement of ` 37.12 lakhs out of which ` 5 lakhs was paid by Mr. Nandagopal. The balance of ` 32.12 lakhs was paid by the appellant Mr. Ramgopal. The payments were made directly to the bank by Mr. Ramgopal from his bank accounts. The appellant filed letter dated 15.09.06 showing the payments made by him to Bank of Baroda and the payments were also acknowledged by Bank of Baroda. A perusal of these letters shows that payments to the bank were made by Mr. Ramgopal in September, 2006. The appellant also filed a copy of the application for approval of the house site by the 11 ITA Nos. 704 & 475/Mds/2011 Local Planning Authority by paying the developmental charges of ` 55,455/-.
21. The Corporation had approved the site as on 31.12.2006 itself which is evident from the details furnished by the appellant. The site plan submitted for approval was signed by the appellant Mr. K. Ramgopal.
Once the site is approved by the local planning authority, it is eligible for construction of the house and thus Mr. Ramgopal started construction of compound walls right from November 2006 itself, i.e. from the date of having possession of the property. After the sale deed was executed, the house plan was approved by the Municipal Corporation. Further, as seen from the affidavit filed by the appellant, the bills along with the amount spent for construction and the balance sheet filed along with the return show that the appellant has invested an amount of ` 47,07,700/- towards house construction. It is to be observed here that the assessee failed to deposit the capital gains amount in any of the nationalized bank by opening 'capital gains account'. In the context of sub-section (2) of Section 54 of the Incometax Act, amount of the capital gain which is not appropriated by the assessee towards the purchase of new asset made within one year before the date on which the transfer of the original asset took place or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income u/s 12 ITA Nos. 704 & 475/Mds/2011 139, shall be deposited by him before furnishing such return (Such deposits 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 Sec. 139 in an account in any such bank or institution as may be specified and utilized in accordance with any scheme with the Central Government may, by notification in the official gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purpose of sub section (1), the amount, if any already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset.
22. The sub section (2) of section 54 of the Incometax Act makes it clear that where the investment is not made in the asset before the due date of furnishing of the return of income under Section 139(1), it shall be deposited by him in a deposit scheme as notified by the Central Government. If an assessee complies with this proviso of investing it before the due date for filing the return of income, the whole of such amount shall be taken as investment in the new asset. In the instant case, the due date for filing of the return of income for the assessment year 2007-08 falls on 31.07.07. In view of the proviso of Section 54(1) 13 ITA Nos. 704 & 475/Mds/2011 read with sec. 54(2), the appellant is eligible to claim deduction u/s 54F only with regard to the investment made in the house up to 31.07.07 from the purchase of the property in question. The Assessing Officer is directed to allow deduction regarding the investment in the purchase of land and amount invested in construction of the residential house upto 31.07.07."
8. On being aggrieved, both the assessee as well as the Revenue carried the matter before the Tribunal.
9. We have heard both the sides, perused the records and gone through the orders of the authorities below.
10. The first issue relates to adoption of fair market value. According to the Assessing Officer the guideline value as per the Sub Registrar Office was ` 8,000 per cent. as on 1.4.1981 whereas the Assessing Officer adopted ` 7500/- per cent. The learned CIT(Appeals) observed that as per the Sub Registrar Office, Coimbatore the fair market value of the property sold was ` 7500 per cent., i.e. ` 17.25 per sq.ft. The assessee has taken the fair market value at ` 264.77 per sq.ft. As per the Chartered Engineer's report the land value was at ` 39/- per s.ft. as on 1.4.1981 and the Chartered Engineer has determined the fair market value at ` 97.50 per s.ft. On the basis of the 14 ITA Nos. 704 & 475/Mds/2011 above, the learned CIT(Appeals) estimated the fair market value at ` 40 per s.ft. and partial relief was given to the assessee.
11. We find from the order of the learned CIT(Appeals) that he has given various figures and also considered the Chartered Engineer's report. He has failed to consider as to in which survey number the property was situated and what is the guideline value of that survey number. We are unable to understand how the learned CIT(Appeals) could estimate the fair market value without considering the survey number in which the property is situated and what is the fair market value as on the date of sale or nearer to that date. We therefore set aside the order passed by the learned CIT(Appeals) and remit the matter back to the Assessing Officer with the direction to ascertain as to what is the survey number in which the property is situated, what is the guideline value available as on the date of sale of the property by the assessee. Accordingly, the fair market value has to be decided.
12. With regard to the cost of indexation, according to the assessee, the facts in brief are that the assessee has obtained a Will created by his father Mr. Kondasamy on 30-11-1998. The 15 ITA Nos. 704 & 475/Mds/2011 assessee's father obtained the property by way of a Will on 9-9- 1959 from his father. The assessee became the absolute owner on 260-3-1999 on the death of his father. The Assessing Officer has observed in his order that the assessee was the absolute owner of the property after 26-3-1999. The Assessing Officer has adopted the denominator as 351 which relates to the assessment year 1999-2000. According to the assessee the denominator has to be adopted as 100 for calculating the indexed cost of acquisition and the fair market value is to be taken as on 1.4.1981. The learned CIT(Appeals) directed the Assessing Officer to calculate the cost inflation index taking the base year of cost index as on 1981-82 since the property was acquired by the assessee through inheritance from his father late Kondasamy by way of Will.
13. The issue is about the cost of indexation of property and the year in which the property is acquired. As per the facts available on record the assessee has acquired the property way of Will created by his father on 30-11-1998. The assessee became the absolute owner of the property on 26-3-1999 on expiry of his father. But the learned CIT(Appeals) has taken the cost of indexation as on 1981-82 since the property was 16 ITA Nos. 704 & 475/Mds/2011 acquired through inheritance from his father late Kondasamy by way of Will. On going through the entire order of the learned CIT(Appeals) and the Assessing Officer the facts are not clear. Therefore, we direct the Assessing Officer to examine all the relevant facts and decide the issue afresh in accordance with law after providing adequate opportunity to the assessee of being heard.
14. The next issue for consideration in this appeal relates to deduction under section 54F of the Act. The case of the assessee is that he had taken the possession of the site in September, 2006 and started the construction of well in advance before the approval of the plan. The sale deed was executed on 6.2.2007. The Plan was submitted for approval and approval was obtained. The construction was started in the month of December, 2006 and was completed in the month of April, 2008. The total cost of the house as per the valuation report is ` 1.38 crores. The sale deed was registered on 6-2- 2007. The building plan was obtained from the authorities on 2.4.2007. The learned CIT(Appeals) has observed in his order that the assessee had purchased one house at Bharathiar Road, Coimbatore for ` 34,68,960/-. The vendor Mr. C.S. Nandagopal 17 ITA Nos. 704 & 475/Mds/2011 had mortgaged the property with Bank of Baroda, Tirupur for the credit facility availed by his company namely Devi Garments Pvt. Ltd. The said company had become sick and could not pay the bank dues. The bank initiated legal proceedings and ultimately the bank agreed for the settlement of the loan taken by Mr. Nandagopal at ` 37.12 lakhs, out of which Mr. Nandagopal paid ` 5 lakhs and the balance of ` 32.12 lakhs was paid by the assessee, Mr. Ramgopal. Payments were made directly to the bank by the assessee from his bank accounts. The assessee filed a letter dated 15-09-2006 showing the payments made by him to Bank of Baroda and the payments were also acknowledged by Bank of Baroda. A perusal of these letters shows that payments to the bank were made by Mr. Ramgopal in September, 2006. The assessee also filed copy of the application for approval of the house site by the Local Planning Authority by paying the developmental charges of ` 55,455/-. With the above observation, the learned CIT(Appeals) came to the conclusion that the assessee has invested ` 47,70,700/- towards the house construction. He further went on saying that the assessee has complied with the provisions of sec. 54. In the present case the return of income 18 ITA Nos. 704 & 475/Mds/2011 for the assessment year 2007-08 was due to be filed on 31.07.2007. According to the learned CIT(Appeals) in view of the proviso of section 54(1) read with sec. 54(2) of the Act the assessee was eligible to claim deduction u/s 54F only with regard to the investment made in the house upto 31-07-2007 from the date of purchase of the property in question. Accordingly, the learned CIT(Appeals) was directed to allow the deduction in regard to the investment made in the purchase of the land and the amount invested in the construction of the residential house upto 31-07-2007. Partial relief was given to the assessee.
15. We find that in this case the basic facts were not available on record and the learned CIT(Appeals) without considering those basic and necessary facts decided the issue in favour of the assessee. When the assessee had entered into an agreement with the vendor Mr. Nandagopal was not available. What are the contents of the sale agreement? Whether this agreement provided immediate possession of the property? When the advance was paid by the assessee? When the final payment was made? When the assessee applied for the Plan approval (date, month & year) ? When the 19 ITA Nos. 704 & 475/Mds/2011 assessee got the approval (date, month & year)? All these facts are necessary to decide this issue. We find that these facts were not properly examined by the learned CIT(Appeals). We therefore set aside the order passed by the learned CIT(Appeals) and remit the matter back to the file of the Assessing Officer for deciding the issue afresh in accordance with law. In the circumstances the entire appeals filed by the assessee and the Revenue are to be decided by considering all the necessary facts in detail and de novo assessment has to be passed after providing adequate opportunity to the assessee of being heard.
16. In the result, the appeals filed by the assessee and the Revenue are allowed for statistical purposes.
Order pronounced on Wednesday, the 17th of October, 2012, at Chennai.
Sd/- Sd/-
(Abraham P. George) ( V.Durga Rao )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Chennai,
Dated the 17th October, 2012.
H.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file